SOURCE: The St. Petersburg Times
DATE: Issue #1507 (69), Tuesday, September 8, 2009
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TITLE: New Law Gets Test Run With Chichvarkin
AUTHOR: By Kristina Mikulova
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — A law allowing defendants to plea bargain for lighter sentences appears to have been applied for the first time in the high-profile case against fugitive cell phone tycoon Yevgeny Chichvarkin — much to the consternation of its co-author, Alexander Lebedev.
“It’s like a scalpel,” former State Duma Deputy Lebedev wrote of the law on his blog Friday. “It can save people from death, but it can also kill them. I’m sorry, Yevgeny.”
Investigators used the law, which was passed in June and designed to fight organized crime, to bolster their case against former Yevroset chief Chichvarkin, who is on the most-wanted lists of both the Russian police and Interpol on charges of kidnapping and extortion.
Sergei Katorgin, one of eight Yevroset employees accused in what seems to be the Kremlin’s latest manhunt for a leading businessman, purportedly made a deal with investigators to supply evidence against Chichvarkin in exchange for having his sentence reduced by a third. Two more suspects, who have not been identified, have also agreed to testify for lighter sentences, Kommersant reported.
Investigative Committee spokesman Vladimir Markin said by telephone that he could not confirm or deny the plea bargains. The committee closed its investigation into the Yevroset case on Friday.
The law on plea bargains was passed amid pledges by Russian authorities to use it to fight organized crime, as is common in Western Europe and the United States.
“This law was needed to bring to light those ordering assassinations, dealing drugs or breeding corruption,” Lebedev wrote on his LiveJournal blog.
Instead, the authorities swiftly applied the law to the Chichvarkin case.
“I never imagined such a precedent for my law,” said Lebedev, a former United Russia member and wealthy businessman who has become a vocal critic of the establishment. His assets include a third of state airline Aeroflot and 90 percent of Novaya Gazeta, the opposition newspaper.
Calls to Lebedev for additional comment went unanswered.
Murad Musayev, a defense lawyer in the case of slain Novaya Gazeta journalist Anna Politkovskaya, does not share Lebedev’s worries. “I don’t see anything dangerous in the application of this law in a kidnapping case, even if the suspect is a businessman,” he told The St. Petersburg Times. “It would be a problem if the prosecutors tried to bribe the witness to testify.”
Musayev noted that plea bargain deals had been offered before, only informally. “The fact that they have been legally defined is only positive,” he said.
Chichvarkin, the 34-year-old co-founder of Yevroset, Russia’s largest mobile phone retailer, faces charges that he participated in the 2003 abduction of the firm’s shipping agent, Andrei Vlaskin, who had purportedly stolen large quantities of mobile phones, as well as the extortion of money from him. In July, prosecutors added a charge of lying to investigators. If tried and convicted, Chichvarkin faces up to 20 years in prison.
“I am absolutely innocent, and I will be proving it to the British court,” Chichvarkin told Reuters by telephone Friday.
Former Moscow City Court judge Sergei Pashin, a passionate advocate for judicial reform, said prosecutors needed good publicity for the new law.
“If they offer several good examples of criminals being convicted by evidence granted by their accomplices, the juridical institute [of plea bargains] will thrive,” Pashin told the Slon.ru business news portal.
Pashin cautioned that the law carried a high risk of false testimony.
Chichvarkin’s lawyer Yury Gervis declined to comment on the use of the new law in Chichvarkin’s case, but he said by telephone that the law in general offered nothing positive given the state of the country’s jurisprudence, which he called worrisome.
It is unclear whether this is the first time the law has been used. “It is possible that the law has been used in cases that didn’t make the headlines in the two months since it was adopted,” said Alexei Mukhin, an analyst with the Center for Political Information. “Chichvarkin’s case simply received more media attention.”
In any case, the Chichvarkin saga might turn out to be a showcase for the new law. The authorities in June filed a formal request to extradite Chichvarkin from Britain, where he has lived since fleeing Russia in December.
The Prosecutor General’s Office announced Thursday that a British court had issued an arrest warrant for Chichvarkin.
But a spokesman for the Westminster Magistrates’ Court, which handles extradition requests in Britain, said by telephone Friday that the court could not confirm or deny this until an actual arrest had been made. An unidentified source connected to British law enforcement told Reuters on Thursday that an arrest warrant had been issued but not yet been executed.
TITLE: FSB Reopens Investigation Into Murder of Starovoitova
AUTHOR: By Galina Stolyarova
PUBLISHER: Staff Writer
TEXT: The local branch of the FSB, the successor organization to the KGB, has reopened the investigation into the assassination of the State Duma parliamentarian and outspoken leader of the Democratic Russia party, Galina Starovoitova, who was gunned down in the stairwell of her apartment building in St. Petersburg on Nov. 20, 1998. She died instantly, and her aide, Ruslan Linkov, who was with her at the time, suffered severe head injuries but survived the attack.
FSB representatives said the reopening of the investigation was prompted by a substantional amount of important new evidence. The officials declined to specify the nature of the evidence and refused to go into any detail.
Speaking to reporters on Monday, Linkov said he hopes the new findings will help shed light on the people who orchestrated the murder.
The investigation into Starovoitova’s murder was suspended indefinitely in April 2008. In June, local police detained Mikhail Glushchenko, a former State Duma lawmaker from the Liberal Democratic Party, at police precinct no. 58, where he was attempting to renew his passport. The police suspect Glushchenko of organizing a trio of murders, while some experts have also linked him to the murder of Starovoitova, an ex-Duma lawmaker and champion of democratic reforms in Russia.
Galina’s sister, the historian and human rights advocate Olga Starovoitova, said her greatest hope is that the stalled investigation will begin to move on again, and one day people will know the names of the criminals who ordered Galina’s assassination.
During the course of the investigation, the killers mentioned on record that they had visited Glushchenko’s parliamentary office on a number of occasions and that the office had been used as a headquarters for a surveillance operation to follow Starovoitova. The killers also said Glushchenko’s office was stocked with guns and devices for phone bugging.
“All this information was duly filed and can easily be found,” Olga Starovoitova said.
Olga Starovoitova criticized the investigation for failing to establish the political motives behind the killing, despite promises from those in power, including former presidents Boris Yeltsin and Vladimir Putin, that law enforcement officers would not rest until those behind the killing were convicted.
In the second half of July, following Glushchenko’s arrest, Olga Starovoitova and Linkov sent an open letter to President Dmitry Medvedev asking the Russian leader to reopen the investigation.
“Glushchenko’s office was intensively used by Starovoitova’s killers, and there is much evidence of that: they were constantly in and out of that place, and they used it as a base from which to operate illegal bugging devices,” Linkov said.
“Besides, to my knowledge, his office was also used to brainwash the future killers, who were told that Galina Starovoitova was an enemy of the Russian people and had to be destroyed. And, finally, the gun which was used to kill Galina had also been stored in those premises.”
Starovoitova’s killers — Valery Akishin and Yury Kolchin — have been convicted and sentenced to 23 1/2 years and 20 years in prison respectively.
“Those who ordered the crime have still not been found,” Olga Starovoitova said. “And unless the mastermind behind the murder is established and [his guilt proven], we can only keep guessing at what exactly may have driven them to kill Galina.”
The assassins took neither Starovoitova’s money nor her valuables. The deputy had a substantial amount of cash, including 855 rubles, a 1,000 Deutschmark note and about 18 $100 bills with her when she was shot on the stairwell leading to her apartment on Naberezhnaya Canal Griboyedova.
“I wouldn’t say that I am entirely confident that the monsters who ordered Galina’s murder will be found and brought to justice,” Olga Starovoitova admitted. “But I have to carry on and act — I cannot just sit around for years forever contemplating what happened. I am not mad and I do not send letters to all sorts of people every day. But Glushchenko’s arrest provided an opportunity for me to once again draw attention to the case — and I did what I could.”
“Most importantly, I would like this case to become a demonstration of a real political will to solve the crime, not simply yet another routine and pointless undertaking,” said Mikhail Amosov, a member of the political council of the liberal party Yabloko. “It is essential that the state shows it is strong enough to establish who ordered the contract killing and put them on trial.”
TITLE: Kudrin: ‘Calmer Mood’ At G20
AUTHOR: By Alex Anishyuk
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — G20 finance ministers broadly agreed Saturday that it was too early to begin unwinding massive economic support measures, concluding a two-day summit in London that bore little resemblance to the group’s stormy gathering there in April.
World economic leaders have been meeting more frequently in the enlarged G20 format as an alternative to the Group of Eight, which critics say unfairly sidelines growing economic powers.
A meeting of G20 heads of state in April saw heated battles over the extent of stimulus spending. But the more measured tone over the weekend suggests that their next meeting, from Sept. 22 to 24 in Pittsburgh, will be less of a spectacle.
“[In April] we were meeting after two quarters of free-fall, unprecedented in world history. Everyone was in a calmer mood today,” Finance Minister Alexei Kudrin told reporters Saturday.
Unsettled questions from this spring topped the agenda again, most notably the need to wind down massive fiscal support packages. Most participants agreed that it was still too early to end the programs, but that strategies should be worked out for the coming recovery — especially ways to cut widespread deficit spending.
Governments “will either have to reduce expenses or raise taxes, which in any case would be painful measures to pull out of the crisis,” Kudrin said.
The Russian economy will begin pulling out of its recession in the third quarter, he said, while precrisis growth rates of 5 percent to 6 percent per year are possible by 2012.
“We hope the trend will be steady, and we will be pulling out of the crisis in an L-type or V-type recovery,” he said, referring to the possibility for a smooth pullout or strong growth. “I can’t say for sure whether the W-type is possible. We’re all worried about that, but we’re hoping it won’t happen.”
The economy posted a number of encouraging figures last week, and state bank VTB said Friday that GDP fell an annualized 3.9 percent in August, compared with a 6.4 percent contraction a month earlier (Story, Page 4.)
Nonetheless, economists said Kudrin might have been painting a rosier picture than the situation merited — at least for Russia.
“Raising taxes is not an option, as the economy is very weak and this may affect the recovery,” said Alexander Osin, chief economist at Finam Management.
“2012 is beyond the forecast horizon, and the logic of his assertion is simple: We know there will be no GDP growth in 2010 and 2011, but we don’t know what is to come in 2012, so let’s say we will recover by then,” said Mikhail Delyagin, head of the Institute for Globalization Problems, a think tank.
Political factors were the main reason behind such forecasts, he said, as the Russian elite longs for a quick recovery and Kudrin has to meet the expectations of his bosses.
British Prime Minister Gordon Brown on Saturday warned against withdrawing the stimulus measures deployed to recover from the global credit crisis, saying it would be a “serious mistake.” Swedish Finance Minister Anders Borg was even more blunt, saying Friday that the world was still “standing in the ashes” of economic disaster.
Meanwhile, analysts said the G20 meetings were becoming an occasion for the emerging economies of Brazil, Russia, India and China to magnify their voices in global decision making. The BRIC countries have been developing the group as a place for discussion, and last week their anti-monopoly chiefs met in Kazan for first-ever talks on concrete policy cooperation.
On Friday, the BRIC finance ministers again called for reforms of the global financial institutions to reflect their growing clout. “The main governance problem, which severely undermines their legitimacy, is the unfair distribution of quotas, shares and voting power,” they said in a joint statement. “We propose the setting of a target for that shift … of 7 percent in the IMF and 6 percent in the World Bank Group so as to reach an equitable distribution of voting power between advanced and developing countries.”
This would lead the overall share of emerging-market and developing countries in the IMF and World Bank to correspond roughly to their share in world GDP, the statement said.
No agreement was reached on ways to achieve the demands, with ministers saying they would stick to the existing schedule of World Bank reform in 2010 and IMF reform in 2011.
Kudrin also appeared to back off President Dmitry Medvedev’s insistence that new reserve currencies be developed to ease the financial system’s dependence on the dollar. The calls had also garnered some support in China, whose yuan has also been tapped as a potential reserve. Kudrin said he did not support any particular reserve currency, and that they wouldn’t be an issue “for the near future.”
“I don’t think Medvedev was specific on when exactly the reserve currency could be established,” Finam’s Osin said. “The crisis isn’t over yet, and setting a reserve currency would mean breaking the balance. No one would want to do that now.”
TITLE: Khodorkovsky Expects to Spend Life in Jail
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — Jailed former Yukos CEO Mikhail Khodorkovsky said in an interview over the weekend that he expects to spend the rest of his life in prison.
Khodorkovsky, who is serving an eight-year sentence for tax evasion, faces an additional 22 years in prison if convicted of embezzling all the oil that Yukos pumped from 1998 to 2003 — worth $27 billion — in a second trial that began in March.
“They are doing everything they can to keep me in jail until I die,” Khodorkovsky, 46, told the German magazine Focus in an interview published Saturday.
Khodorkovsky said he does not believe that Russian courts are acting in the interest of justice in his trial. “Russian courts won’t be independent for a very long time,” he said, adding that pledges by President Dmitry Medvedev to wipe out “legal nihilism” in Russia cannot be trusted.
Khodorkovsky said he expected to remain in prison because he believed his fate was in the hands of the siloviki, a group of defense and security officials close to Prime Minister Vladimir Putin.
Putin, he said, harbors an “instinctive mistrust of the pro-Western part of Russia’s business elite.”
He said Yukos’ economic success and the liberal orientation of its management brought the company down.
Yukos was the country’s largest oil company when Khodorkosky was arrested in 2003. His supporters condemned the first trial in 2005 as a politically motivated sham. They say Khodorkovsky fell out with the Kremlin after funding the opposition, speaking out against corruption and making plans to build an oil pipeline outside the state’s control.
TITLE: New Bill Would Bar Jury In Retrial of Politkovskaya Case
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — President Dmitry Medvedev submitted legislation to the State Duma on Friday that would bar a jury trial in the murder of reporter Anna Politkovskaya and other cases involving criminal groups.
The legislation, which Medvedev first announced last month, would also increase prison sentences for people involved in criminal groups to life, up from the current maximum of 20 years.
“As a rule, members of organized crime groups escape punishment,” Duma First Deputy Speaker Oleg Morozov said Friday, RIA-Novosti reported.
He stressed that the number of such crimes has grown recently.
The legislation would place further restrictions on jury trials by barring suspects accused of committing crimes as part of a criminal group from being tried by jurors.
A Supreme Court-ordered retrial of three suspects accused of participating in Politkovskaya’s killing in 2006 would not be held by jury if the legislation is approved before the court convenes. The suspects, who are charged as members of a criminal group, were acquitted by a jury trial earlier this year in a decision that embarrassed the government.
Prosecutors said Thursday that the retrial, which was scheduled to open this week, would most likely not be held until the suspected triggerman, who is missing, is arrested.
“Jury trials fail for a variety of reasons,” Medvedev told his Security Council in announcing the legislation Aug. 19. “We need to think about teams of professional judges considering these kinds of charges.”
Last December, Medvedev signed a controversial law barring suspected terrorists from being tried by jury.
His latest initiative has been criticized by lawyers and rights groups, who say the jury is the only independent body in the Russian court system.
TITLE: Anti-Drugs Body Reports Rise in Drug Abuse Cases
AUTHOR: By Irina Titova
PUBLISHER: The St. Petersburg Times
TEXT: During the last 10 years the number of drug users in Russia has increased by 50 percent, reaching a total of 550,000, according to new statistics. Experts believe, however, that the real number of drug addicts in the country could amount to 2.5 million or two percent of the population, said Vladimir Vladimirov, head of the Administrative Department of the Federal Drug Control Service, speaking at a press conference held in St. Petersburg on Friday.
At least 90 percent of illegal drugs in Russia come from Afghanistan, with the bulk of that volume made up of opiates, including heroin, Vladimirov said, Rosbalt reported.
“The main targets for drug dealers are developed industrial areas, those that have higher levels of investment. That is where the drug industry directs its strike, effective from the point of causing damage to society, the country and its people,” Vladimirov said.
In the northwest region the situation became worse during the last year, with the total number of drug abusers growing by 5 percent, while the same figure across the whole country amounted to just 1 percent, he said.
Vladimirov said that another alarming signal is the spread of drug abuse among children and teenagers. There are 17,000 children and 120,000 teenagers currently registered as drug users. In the northwest region, 2,000 children and 12,000 teenagers are registered as drug users.
Vyacheslav Ryabtsev, deputy head of the St. Petersburg and Leningrad Oblast Federal Penal Service, said the number of prisoners in the northwest region convicted for drug-related crimes has risen dramatically. Two years ago 17 percent of prisoners had been convicted for drug-related offenses, while the same figure currently stands at 35 percent, Ryabtsev said.
The release of new statistics on drug abuse in the region comes in the wake of a haul of 37 kilos of cocaine made at St. Petersburg’s port last week.
The customs service found the cocaine hidden on two ships that had sailed to the city from Latin America. The customs service put the street value of the cocaine at about $3.5 million, Interfax reported.
During the last eight months, the customs service has seized over 80 kilos of drugs — an increase of 250 percent over the same period last year.
In a case widely reported by local media, police last week detained a 79-year-old woman for selling heroin. The woman, known among local drug addicts as “Baba Tonya” (Grandmother Tonya,) lived on Ulitsa Sofiiskaya, in the Frunzensky district in the south of the city.
The woman had been detained for selling drugs in July but was released by the police on the condition that she would not leave the city.
In another case, northwest customs officials last week detained a Tajik citizen carrying 85 packages of heroin in his stomach. In total the man was carrying 748 grams of heroin.
Russia has also experienced a rise in the number of illegal laboratories manufacturing controlled substances, according to the new statistics released by the Federal Drug Control Service.
“This is a new trend we’ve seen during the last 18 months,” said Valery Rogozin, deputy head of the service’s investigation department, Interfax reported. “It indicates an attempt by dealers to set up their own drug production facilities in Russia to minimize losses during transportation.”
In 2008, police found eight illegal laboratories in St. Petersburg, while this year they have already found 33, Rogozin said.
TITLE: Prosecutors: Smugglers Going Free
AUTHOR: By Natalya Krainova
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — Amid high-profile smuggling cases involving a luxury yacht importer and Moscow’s Cherkizovsky Market, the Prosecutor General’s Office accused police and customs officials on Friday of failing to properly investigate smuggling cases and not punishing smugglers.
The prosecutor’s office said police had suspended 1,118 investigations into smuggling but prosecutors overruled 484 of those suspensions.
It said a total of 2,761 criminal investigations into smuggling were opened in the first half of 2009, but only 352 cases reached courts.
In addition, customs officials closed 947 cases and prosecutors overruled them in 784 of the cases, the prosecutor’s office said in a statement.
Customs officials don’t take the “necessary measures” to find out the identities of people involved in smuggling and don’t use all the means provided by the law to investigate smuggling cases, the statement said.
The prosecutor’s office said it had ordered the leadership of the Interior Ministry’s Investigative Committee and the Federal Customs Service to fix the violations.
A spokesman for the Prosecutor General’s Office declined to say Friday whether criminal proceedings would be opened against any officials from the Interior Ministry’s Investigative Committee or the Federal Customs Service.
Repeated calls to the press offices of the two agencies went unanswered late Friday afternoon.
Prime Minister Vladimir Putin harshly criticized law enforcement officials in early June for obtaining “few results” in their fight against smuggling. Putin raised the September 2008 seizure of $2 billion in goods purportedly smuggled from China to Cherkizovsky Market and demanded “convictions.”
Just weeks after Putin’s remarks, law enforcement agencies shut down the market, once the largest in Europe.
More recently, law enforcement officials cracked down on the country’s leading luxury yacht importer, Burevestnik Group, arresting several senior executives last week.
In a separate statement Friday, the Prosecutor General’s Office accused the Federal Property Management Agency of misusing government money, offering poor oversight of federal property and corruption.
Prosecutors said the agency paid 13.2 million rubles (more than $500,000 at the time) to a private company for services it had never used in 2006 and had staged tenders for state orders in which the winning private contractors had been selected in advance.
TITLE: Prosecutors Declare Snooping Decree Illegal
AUTHOR: By Natalya Krainova
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — Prosecutors on Friday ordered the Communications and Press Ministry to reverse as unconstitutional a recent decree allowing law enforcement agencies to open private mail without a court order.
The ministry, however, insisted that the decree, which has sparked outrage from human rights activists, is in line with the law and refused to amend it pending a ruling by the Supreme Court.
The May 19 decree, which came into force on July 21, says the postal service must provide law enforcement officials with information about senders and addressees and, if needed, letters and packages for examination. It does not mention anything about the need for a court order.
The Constitution guarantees “privacy of correspondence” in Article 23, and mail previously could only be examined with a court order.
The Prosecutor General’s Office has reviewed the decree at the request of ombudsman Vladimir Lukin and the Public Chamber and found that it “contradicts the Constitution,” the agency said in a statement Friday.
Prosecutors ordered the ministry to “bring the decree in line with federal law,” the statement said.
The Communications and Press Ministry “will not take any action” before a hearing scheduled for Thursday at the Supreme Court, ministry spokeswoman Yelena Lakshina told The St. Petersburg Times.
Lakshina said the court would consider a request from a “private individual” about whether the decree violated federal law.
The Communications and Press Ministry said in an e-mailed statement that it supported the idea that law enforcement officials needed a court order to open private mail and get personal information about the sender.
The ministry statement added, however, that “there is no need to mention the need for a court order in the decree.”
The Post of Russia said in an e-mailed statement that it could not comment on the decree because the issue was “out of the scope” of the agency.
TITLE: Piracy Expert Voitenko Says He Was Dismissed
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — Mikhail Voitenko, the outspoken piracy expert who was the first to report about the disappearance of the Arctic Sea cargo ship, said Friday that he had been fired from his position as editor of Sovfracht Maritime Bulletin, media reports said.
Voitenko fled Russia on Wednesday, telling The St. Petersburg Times shortly after landing in Istanbul that he had learned that “certain powerful people … wanted to take revenge” because of his comments about the Arctic Sea, which the government says was hijacked near Sweden and freed by the Navy three weeks later off the coast of west Africa.
TITLE: Debts Cloud Promising Data
AUTHOR: By Alex Anishyuk
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — A raft of economic figures released last week indicate that the economy may be bottoming out, but balance sheets filled with bad loans and a shortage of lending for the real economy may cause trouble down the road.
The services sector expanded for the first time since the onslaught of the financial crisis last year, VTB Capital said last week in its Purchasing Managers’ Index. The index was at 52.2, up from 48.5 in July. A figure above 50 indicates growth.
While the manufacturing industry didn’t see any growth, its PMI indicated the smallest contraction in 11 months, with the index inching up to 49.6, a hair’s breadth below expansion.
Gross domestic product shrank an annualized 3.9 percent in August, compared with a 6.4 percent contraction in July, VTB said Friday.
The figures add credence to the pronouncement in August by First Deputy Prime Minister Igor Shuvalov that the economy may have bottomed out and that the country is exiting the recession.
“Apart from the positive statistics showing the Russian economy on a moderate rise, a number of companies witnessed demand growth in recent months — far from the precrisis level — but still quite steady,” said Vladimir Tikhomirov, chief economist at UralSib. “It’s hard to say whether the trend will be long-lasting, but I expect further increases in October and November.”
Among the manufacturing sectors seeing growth over the period was metallurgy, which rose amid increased demand on international markets, he said, while state subsidies helped makers of power-generating equipment and arms.
Carmakers, however are not yet showing signs of recovery, he said. The car industry, which has seen sales plunge by more than 50 percent since last year, is facing a huge debt load amid falling demand. AvtoVAZ’s factory in Tolyatti and Ford’s factory in Vsevolozhsk were on extended vacation for the summer, while IzhAvto has filed for bankruptcy, putting 5,500 jobs on the line.
And while the services sector saw some growth, demand overall remains anemic and the sector has a long way to go before returning to precrisis levels.
“As far as the service sector is concerned, its growth was driven by tourism amid the hot vacation season and the overall relatively positive macroeconomic dynamics,” he said. “But trade and restaurant businesses aren’t doing very well, as people are still scared to increase spending.”
But an increase in investment activity will be the main signal that the economy has emerged from the recession. “An increase in investments will drive up all the sectors,” Tikhomirov said. “The crisis started with a lack of cash and investments, and it will end as soon as investments are on the rise again.”
In July, investment in capital stock fell 18.9 percent year on year to 621.7 billion rubles, the State Statistics Service said last month.
The economy has been on the rise since June, and the real sector will get the loans it needs badly in the middle term, said Yulia Tseplyayeva, chief economist at Merrill Lynch.
“The economy was down in the first half of the year, but we witnessed a positive tendency in June,” she said. “If we track the situation month on month instead of comparing the current figures to the last year’s statistics, we can see a growth in manufacturing,” she said.
Tseplyayeva said relatively high oil prices and a general recovery of the world economy were contributing to the upturn. “The trend is likely to stabilize, and we pin our hopes on the fourth quarter, as we expect significant budget spending that will make up for insufficient lending activities in the real sector,” she said.
Corporate lending shrank for a third month in a row, bringing banking-sector growth to just 2.2 percent in the year to date, the Central Bank said in a report last week. Retail loans pulled back 0.4 percent in July, which marked the lowest monthly reduction since February.
While overdue loans inched up to 5.5 percent of the total banking sector, the Central Bank firmly rebutted expectations of a second wave of the crisis. The head of the Central Bank’s regulatory department, Alexei Simanovsky, said he was confident that banks could service their foreign debt and that there wouldn’t be a second wave.
By the second half of 2010 there will be an increase in lending, which will also benefit the recovery, but the ruble will remain quite volatile because of huge budget spending and high demand for foreign currencies, Tseplyayeva said.
The news bolstered the country’s oil-driven equity markets against a slide in global crude prices, which saw the Urals blend fall 6.9 percent over the week to $66.97 per barrel. The dollar-denominated RTS Index closed down 2.4 percent at 1063.57, while the ruble-denominated MICEX Index fell 2.3 percent, finishing the week at 1085.58.
TITLE: Audit Chamber Slams Uneven Budget Spending
AUTHOR: By Nadia Popova
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — Budget spending has been inefficient and uneven in the first half of the year, including for some key national initiatives, according to figures released by the Audit Chamber on Friday.
Not a kopek was spent on some federal projects, including those fighting smoking and alcoholism, the chamber said in a statement. Funds to promote Russian policies, however, were spent in full for the first six months of 2009.
Of 9.7 trillion rubles ($307 billion) allocated for 2009 federal spending, just 3.9 trillion rubles, or around 40 percent, was spent in the first half, Finance Minister Alexei Kudrin said July 6.
Federal spending is typically higher in the second half because of inefficiency and corruption, analysts said.
None of the 62 billion rubles spent on the priority national projects this year went toward promoting healthy lifestyles or helping Russians with cancer and cancer-related illnesses.
President Dmitry Medvedev has stepped up his rhetoric in recent months in the fight against alcoholism, and he complained last month that there “have been no changes, nothing has helped.”
Only 18.7 percent of budget allocations for federal targeted programs were spent in the period, while five such programs — including the promotion of sports — spent no budget money.
The chamber said that of 130 top federal spenders, 16 did not execute their planned spending at all. Fifty-four spent less than the average, including the Federal Agency for the Procurement of Military and Special Equipment and the Federal Alcohol Market Regulatory Service. The procurement agency spent 0.1 percent of its budget, while the spirits market watchdog, created earlier this year, used 0.4 percent.
Questions e-mailed to the Finance Ministry on Friday went unanswered.
“We think the budget implementation should be gradual throughout the year, whereas most of the money is usually spent in December because of the sluggishness of some officials,” said a chamber official, who requested anonymity because she was not authorized to speak to the press.
Trust Bank chief economist Yevgeny Nadorshin said corruption also slowed spending. “Some officials may deliberately leave the main expenses until the end of the year, when spending is not closely scrutinized,” he said.
He also suggested that the financial crisis could add to the problem because some state bodies would limit spending to the most essential projects in fears that they would not get the additional funds allocated to them.
Some state bodies, however, managed to spend all of their money allocated before July. State-run news agency RIA-Novosti, which was given 2.8 billion rubles this year to organize “the informational propaganda of Russia’s internal and external policies,” spent its money for the first six months in full, the Federal Treasury said last month.
TITLE: Kaliningrad Airline Bankrupt
AUTHOR: By Maria Antonova
PUBLISHER: The St. Petersburg Times
TEXT: MOSCOW — Kaliningrad-based airline KD Avia will have its flight certificate annulled Sept. 14 and other carriers have already started picking up its passengers as they have seats available, the Federal Air Transportation Agency said Friday.
The airline had operational losses of 2.8 billion rubles ($89 million) for the first six months of the year and has debts to foreign and domestic airports, air navigation services, employees, leasing companies and the Pension Fund, the agency said.
Chief executive Gennady Boldyrev told Vedomosti that KD Avia had 12 billion rubles in debt.
KD Avia issued a statement Wednesday saying it was stopping ticket sales this month, and a day later it filed for bankruptcy in the Kaliningrad Arbitration Court.
A flight carrying 124 passengers from Omsk to Kaliningrad was delayed nearly eight hours Friday, spokeswoman Yelena Penkovaya said. Earlier in the week, Omsk’s airport said it would stop servicing KD Avia planes, citing a debt of 48 million rubles.
The government appeared to be trying to avoid the systemic delays that occurred last summer when hundreds of people were stranded after the AiRUnion alliance was grounded because of debts.
On Friday, the Federal Air Transportation Agency opened a hotline for ticket holders, a day after it recommended that they return their tickets. The agency also published a guide to alternate carriers flying KD Avia’s routes.
Until Oct. 29, seven domestic airlines will cover routes for which tickets have already been sold and be reimbursed from the federal budget.
Additionally, the Prosecutor General’s Office has sent officials to Kaliningrad to ensure that passengers’ rights are being respected.
KD Avia has had debt problems since last fall and announced stoppages in December. In July, Prime Minister Vladimir Putin ordered Finance Minister Kudrin to find 4 billion rubles for the Kaliningrad region to purchase an additional share issue. The airline was also required to separate its interest in the Kaliningrad airport from its airline assets.
These criteria were not met, Governor Georgy Boos said in comments posted Thursday on the Kaliningrad regional web site.
“It’s the only company in Russia that combines a carrier and an airport,” he said. “The government has done everything to rescue the company. Now the situation is up to creditors and law enforcement.”
KD Avia, which expanded its passenger volumes rapidly in recent years on borrowed money, flew 1.36 million people in 2008, making it the country’s ninth-largest airline.
Last year it opened a new terminal at Kaliningrad’s Khrabovo Airport, from which it had flights to nine Russian cities, eight destinations in Western Europe, as well as Minsk, Kiev and Tel Aviv.
While flights to Moscow and St. Petersburg are attractive for other domestic carriers, it is unlikely that routes from Kaliningrad to other Russian regions will continue to be operated, said Oleg Panteleyev, director of industry web site Aviaport.
“The 4 billion rubles is enough to restructure debt, but it’s outrageous that the company never received it because of administrative delays,” he said.
The airline was planning to open a second terminal this year and eventually expand the airport to serve 9 million passengers annually.
Plans for the buildings are now up in the air, although airport infrastructure such as runways is federal property, a regional government spokesman said. “I doubt that the creditors will come to take the walls down.”
TITLE: Desperate Stroimontage Appeals to Baltiisky Bank
AUTHOR: By Irina Titova
PUBLISHER: The St. Petersburg Times
TEXT: The president of Stroimontage, one of St. Petersburg’s leading construction companies, appealed to Oleg Shigayev, president of Baltiisky Bank, in an open letter on Friday, asking him not to force the corporation into bankruptcy.
Stroimontage head Artur Kirilenko said that the bank, which is owed one billion rubles by Stroimontage, was unwilling to compromise with his company and accept its Mont Blanc business center, which the company had offered as full repayment of the loan, Vedomosti daily reported.
Stroimontage received an unsecured loan of 250 million rubles ($8 million) for a year from Baltiisky Bank in January 2008.
The bank also gave 714 million rubles ($23 million) to Kosmoblan, a co-investor in the project, for the construction of the Mont Blanc office and residential complex. The 8,500 square-meter business center was put up as security for the loan.
Representatives of Baltiisky Bank said on Friday that Stroimontage’s offer would not cover the bank’s investments, Vedomosti reported.
“Initially we were prepared to accept the business center as repayment of Kosmonblan’s debt of 715 million rubles,” a representative of Baltiisky Bank said. “However, we are not prepared to value this asset as equal to both the loans, thus writing off the other 250 million rubles.”
Bankruptcy procedures can only be avoided if the bank changes its position, Kirilenko wrote in his letter.
Back in July, Stroimontage filed for bankruptcy at the St. Petersburg and Leningrad Oblast Arbitration Court. The first hearings in the case are scheduled for Oct. 7.
According to data from April, Stroimontage owed $13 million to Alpha Bank, $2.2 million to Credit Europe Bank, $9.5 million to Svyaz bank, $775,000 to Zenit bank, $8 million to Baltiisky Bank, and $35 million to Bank St. Petersburg.
Alfa Bank said that Stroimontage had repaid part of its debt to the bank and was due to repay the remainder in the near future.
In fact, the company has negotiated the restructuring of its debts with all its creditors except for Baltiisky Bank, Vedomosti reported.
Baltiisky Bank would be taking a risk in having Stroimontage declared bankrupt, as the construction company may not have enough liquid assets to compensate the debt, said Sergei Spasyonov, head of the St. Petersburg practice of Pepeliaev, Goltsblat and partners.
TITLE: Visa Regulations, Living Expenses, Politics Mean Fewer Russians Travel
PUBLISHER: The St. Petersburg Times
TEXT: Russians traveled abroad 22.6 percent less in the first half of the year, compared with the same period of 2008, Irina Tyurina, a spokeswoman for the Russian Tourism Industry Union, said Thursday.
Trips to China showed the biggest drop, with 59 percent fewer Russians traveling there because of tougher customs procedures, she said. “Many people used to take cheap trips to China to import consumer goods,” Tyurina said.
Ukraine saw 48 percent fewer Russian visitors because of “expensive transportation, unreasonably high prices for accommodation, poor service and political friction between the two countries,” she said.
The country’s Crimean coast was long favored as a low-cost vacation destination, although it has been eclipsed in recent years by Turkey and Egypt. They both also posted declines.
Among other major losers was Lithuania, which stopped issuing Russians multiple-entry European Union visas, she said. The number of travelers to Israel increased by 36 percent, however, after the country adopted a visa-free travel regime with Russia.
TITLE: Burger King Denies Rumors of Russian Entry
PUBLISHER: The St. Petersburg Times
TEXT: Burger King on Friday categorically denied a report that it had signed a franchising deal in Russia.
While the fast food chain has been actively working to enter the Russian market for some time, no agreements have been concluded, Brian Johnston, Burger King’s senior director of development for Eastern Europe and emerging markets, told The St. Petersburg Times.
Kommersant had reported that Mikhail Bazhenov, a co-owner of St. Petersburg-based Adamant Holdings, was to open the country’s first Burger King outlet, citing an industry source.
Rumors of a deal with Bazhenov are “a complete fabrication,” Johnston said.
He said Burger King’s entry into Russia would involve “multiple partners” and likely follow the development model used in the Czech Republic, where the company began opening restaurants in November.
“We are aiming to work with local entrepreneurs that are successful and can continue to be successful with the added value of a global brand,” he said.
The U.S. fast food giant, which operates more than 11,900 restaurants globally, has been focusing on putting the necessary infrastructure in place over the past several months and has recruited local development managers in Moscow and other major Russian cities.
In terms of international outlets, Burger King is second only to McDonald’s, which opened its first restaurant in Moscow in 1991 and now operates 240, with another 40 planned to open later this year.
Bazhenov was not available for comment Friday.
TITLE: Tatneft Seeks $1.5 Billion for First Major Refinery Since Soviet Period
PUBLISHER: Bloomberg
TEXT: MOSCOW — Tatneft, the Russian oil company based in Tatarstan, is seeking to raise as much as $1.5 billion to help finance the construction of its Taneco refinery project, according to two people with knowledge of the transaction.
About $900 million has been committed by banks including Bank of Moscow, Gazprombank, Orgresbank, UniCredit SpA, Royal Bank of Scotland Group and WestLB, said the people, who declined to be identified because the transaction is private. The remainder will be syndicated to other lenders.
Tatneft said last month it hired the banks to arrange funding that will be split in two parts. The Almetyevsk-based company will pay interest of 5.85 percentage points more than the London interbank offered rate for a three-year portion and a spread of 6.85 percentage points for a five-year loan, the banks said in an Aug. 28 statement.
The Taneco plant, Russia’s first major refinery since the Soviet era, will have a capacity of 140,000 barrels of crude a day. The $4.9 billion project is planned for completion in late 2011, Vladlen Voskoboinikov, director of international financial reporting at Tatneft, said by telephone Monday.
TITLE: In Brief
TEXT: Belarus Owes $200M
MOSCOW (Bloomberg) — Gazprom Chief Executive Officer Alexei Miller said Belarus owes about $200 million for supplies this year, Interfax reported.
Gazprom received some payment in August for supplies and hopes the country will pay off the debt this year, Miller said at a meeting with President Dmitry Medvedev, according to Interfax.
Potanin on Crisis
MOSCOW (Bloomberg) — Russia’s ruble should devalue in the mid-term to allow exporters to continue making investments, billionaire Vladimir Potanin told Vedomosti in an interview published Monday.
Devaluation would allow cost-cutting which would permit “modernizing” of facilities, the newspaper reported.
Potanin said he doesn’t expect another crisis if economic management remains right, the newspaper reported. The consequences of the current crisis may be felt for as long as 18 months, and possibly three years; it is a bad time for acquisitions or asset sales because the market has not stabilized enough, Potanin told the newspaper.
Potanin’s Interros Holding expects to cut debt secured by its 25 percent stake in GMK Norilsk Nickel to $2 billion by the end of the year from $3.5 billion currently, Vedomosti reported.
RusAl to Stand Firm
MOSCOW (Bloomberg) — Russian billionaire Oleg Deripaska’s United Co. RusAl won’t sell its 25 percent stake in GMK Norilsk Nickel for less than what it paid, he told Vedomosti in an interview.
His Basic Element holding company, struggling to repay and restructure as much as $20 billion of loans, expects to be debt-free in four to five years, Deripaska told Vedomosti. Basic Element may consider selling oil producer Russneft to cut debt, while it ruled out selling insurance company Ingosstrakh, the newspaper said.