SOURCE: The St. Petersburg Times
DATE: Issue #914 (82), Tuesday, October 28, 2003
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TITLE: Putin Sides With Prosecutors in Khodorkovsky Pursuit
AUTHOR: By Valeria Korchagina and Maria Danilova
PUBLISHER: Staff Writer
TEXT: MOSCOW - President Vladimir Putin came down hard and heavy on the side of prosecutors Monday, dismissing private-sector pleas to negotiate the fate of Yukos CEO Mikhail Khodorkovsky while warning his own Cabinet to keep quiet about the escalating legal assault on the jailed tycoon's company.
In his first public remarks since Khodorkovsky was arrested in a pre-dawn raid at a Novosibirsk airport Saturday, Putin rejected requests by the nation's biggest businesses to end what they see as a disturbing trend in law enforcement that could lead to a massive redistribution of assets and eventual economic calamity.
"Leaders of the Russian Union of Industrialists and Entrepreneurs have sent a message to me over the arrest of the Yukos chief, while several political figures have asked me to meet with them to discuss this issue," Putin told his Cabinet in televised remarks. "There will not - be any meetings or bargaining over the activities of law enforcement agencies, as long as these agencies stay within Russian law."
Putin, uncharacteristically reading from a notebook, said: "Everyone should be equal before the law, irrespective of how many billions of dollars a person has on his personal or corporate account. - Otherwise, we will never teach and force anyone to pay taxes - and defeat organized crime and corruption."
The Russian Union of Industrialists and Entrepreneurs, or RSPP, which represents companies that collectively account for more than half of the economy, had called on Putin to make clear his position on the months-long Yukos investigation, which could lead to possible prison terms for at least three of the company's top shareholders.
Although Putin tried to allay concerns that the Yukos affair was an isolated event, leading business figures and political commentators instead heard remarks they found chilling.
"Executive agencies or the prosecution service cannot deprive someone of their freedom. Courts alone can do this. If this is the case, then I believe the court has done so for a good reason. Incidentally, those who think that somebody is guilty or not must prove it," Putin said.
"I understand the concerns of the business community, because any activities by the federal authorities start and end as a sort of campaign," he said. "I wish to emphasize that no generalized inferences should be made from this case, which will not set a precedent for other cases, and all speculation and hysteria over this case should end, [and] the government should not be drawn into this discussion."
If that last remark did not get the attention of state officials who may be on the take, Putin also essentially declared war on corruption by giving the Cabinet two weeks to come up with a plan to root out institutional graft.
"Some countries have special systems for preventing corruption. I believe we should do this, too."
With the Kremlin's battle line apparently drawn, the RSPP went into crisis mode, convening an emergency meeting at a downtown movie theater to hammer out two strategies to deal with the developments - one "nonconfrontational" and one "confrontational."
RSPP vice president Igor Yurgens told reporters that the lobby still held out hope of solving the issue through dialogue, which is why "we are very sorry that the president said 'no' to our appeal."
Others were less diplomatic.
"We need to consolidate business and civil society. The people who are conducting this campaign must realize that they are facing forces that will be an obstacle to them," said Yevgeny Yasin, head of the Higher School of Economics and, as an economics minister in the 1990s, one of the architects of early economic reforms.
"I think that in some sense the threshold of global love toward the president has been crossed and many people will think twice about who they vote for in the parliamentary and presidential elections."
Yasin said his take on what Putin said earlier in the day was this: "We, those in power, want business to prosper. There won't be any de-privatization - everything will be fine. But when we want to attack someone, we will do so. We will crush anyone. You must realize that and be afraid of that!"
Most political analysts polled Monday interpreted Putin's remarks in similar fashion.
"It really feels like it would have been better for Putin to not say anything at all," said one political scientist at a leading Moscow think tank.
Others said Putin's remarks on justice for all sounded rather hypocritical
"The principle of due process is great. But it is hard to take it seriously when applied to alleged economic offenses permitted in the 1990s," said Christopher Granville, chief strategist at United Financial Group investment bank.
"There are literally millions of people who could be charged with similar offenses. Therefore the concept is not really applicable. What we see of course is the very opposite of the impartial law enforcement, but rather partial application of the law for political reasons. This cannot inspire investors' confidence," Granville said.
Georgy Satarov, head of the Indem think tank, said Putin's remarks suggested he had finally chosen which Kremlin faction to side with publicly.
"He showed that he is leaning toward a specific wing within his administration - the siloviki," he said, referring to the group of former security service officials from St. Petersburg that Putin brought into the presidential administration and who are thought to be behind the attack on Yukos.
The rising tensions between the Kremlin and the big business, however, is not the fault of overzealous siloviki alone, Satarov said.
"The [oligarchs] are paying the price now for placing the wrong bet [by backing Putin] in 2000," Satarov said.
Back then, he said, big business bought the idea that liberal economic policies can actually coexist with limited democratic institutions.
"Well, it's not like this, not in Russia. Here such models simply don't work," he said.
TITLE: Duma Appeals To Scores
AUTHOR: By Vladimir Kovalev
PUBLISHER: Staff Writer
TEXT: About 250 St. Petersburg and Leningrad Oblast politicians and businessmen announced their intention to run in the Dec. 7 state Duma elections before last weekend's deadline.
One hundred and ten candidates are to compete in 11 electoral districts in the city and the Leningrad Oblast, while 138 candidates, including several who are also standing for election in the districts, are on party lists.
Half the 450 seats in the Duma are filled by winners in electoral districts, with the other half being chosen from party lists, depending on what proportion of total votes each party gains.
District No. 209 is expected to be a contest between Duma Speaker Gennady Seleznyov and Irina Khakamada, a co-leader of the Union of Right Forces, or SPS, who is the current deputy for district 207.
District 209 was formerly represented by Galina Starovoitova, a democratic deputy who was assassinated in November 1998 on the stairs leading to her apartment.
Sergei Mironov, speaker of the Federation Council, will head the regional list of the Party for Russia's Reconciliation-Party of Life.
Alexander Beglov, deputy head of the Northwest presidential representative office who was acting governor of St. Petersburg from June 16, when Governor Vladimir Yakovlev left City Hall to work as a deputy prime minister in the federal government, is number one on United Russia's local party list.
Yury Gladkov, deputy speaker of the Legislative Assembly, heads the local SPS list.
Leningrad Oblast Governor Valery Serdyukov is first in the oblast regional list. Serdyukov is apparently trying to raise the party's popularity even though he has no intention of serving in the Duma, where deputies cannot be governors at the same time.
"The Unity Party took most of the votes in the 1999 elections in the city on the Neva [river], 17.7 percent," ABN news agency quoted Vladimir Pekhtin, head of the United Russia faction in the State Duma, as saying in August when he was visiting St. Petersburg for a conference to form the local list of the party. "Together with the votes Fatherland-All Russia got at that time, it has more then a third of [all] votes. I believe that this year no fewer Leningrad citizens will vote for us."
With 54.29 percent of St. Petersburgers voting in the 1999 State Duma elections, Unity garnered 17.68 percent while SPS pulled 17.42. The Fatherland-All Russia coalition led by former prime minister Yevgeny Primakov, Moscow Mayor Yury Luzhkov and St. Petersburg Governor Vladimir Yakovlev took third place with 15.72 percent, followed by Gennady Zyuganov's Communist Party with 14.14 percent and the Yabloko party with 11.21 percent.
Tatyana Dorutina of the St. Petersburg League of Voters said it will not be simple for United Russia - nominally an amalgam of the Unity and Fatherland-All Russia factions - to retain its position in the city because it has done little to demonstrate that it is acting in the interests of its voters.
"The [results] are going to be worse to some degree because the party looks hypocritical in the eyes of voters just as [a previous so-called party of power] Our Home is Russia did, for instance. There was a campaign against [so-called] werewolves [in the police], arrests of different kinds, including that of [Mikhail] Khodorkovsky. These all seem rather arbitrary," Dorutina said Monday in a telephone interview.
"This is the faction that was lobbying for the [unpopular among voters] law on private car insurance or to raise customs taxes on imported cars," she said. "This faction does not look like one that follows the interests of voters, but more like one that serves the needs of certain political groups."
Yevgeny Volk, head of the Moscow-based Heritage Foundation, said United Russia should be prepared for some bad surprises in St. Petersburg and Moscow in the Duma elections.
"Expectations for this bloc to win are falling," Volk said Monday in a telephone interview. "They are relying on so-called administrative resources, which work in provincial areas and non-Russian ethnic regions, but not in Moscow or St. Petersburg."
It would also be quite natural for Yabloko's popularity at the polls to shrink in St. Petersburg because it continues following its line of constant criticism of the government, he added.
St. Petersburg has steadily lost its image as the city of Yabloko since 1999. In 1995 there were six Yabloko deputies elected in eight of St. Petersburg's electoral districts, but since then this number has been halved.
"This is a reflection of [Yabloko leader Grigory] Yavlinsky's ambiguous position of constantly criticizing the government, but not offering anything concrete himself," Volk said. "This position is not popular in conditions of economic growth when people start to believe that they themselves are the masters of their own destinies, not somebody else."
Volk predicted that SPS will gain votes.
"I think policy of SPS is more constructive and is directed to achieve a goal of implementing European living standard in Russia," Mikhail Brodsky, a member of the city government and SPS, and representative in the Legislative Assembly, said Monday in a telephone interview.
"This is in relation to the military, court system and business," he added. "SPS members based their discussions on the policy."
Brodsky is sixth on the regional SPS list, which means he will automatically not get a seat in the Duma, he said.
"Yabloko's policy is quite welfare-oriented," he said. "They are not ready to follow measures that would damage the interests of their electorate in order to save it. But this all is very relative because the parties are very close to each other."
Boris Vishnevsky, a member of the Yabloko faction in the Legislative Assembly, said Yabloko is strong in the city and it is rubbish to claim its support is falling.
"Analysts who say those kinds of things are lying or implementing a political order," Vishnevsky said Monday in a telephone interview.
"The reason there are fewer Yabloko deputies in electoral districts is that the political situation in the country has changed," Vishnevsky said. "There would have been more if there were no [Chechen] war. And all these words [about falling support] have no foundation, but are just rubbish."
TITLE: Siloviki Supreme Against the Family, Oligarchs
AUTHOR: By Simon Saradzhyan
PUBLISHER: Staff Writer
TEXT: MOSCOW - President Vladimir Putin's decision to side with the siloviki in their assault on core Yukos shareholders could destroy the system of checks and balances he has constructed within his administration, making him increasingly dependent on the will and resources of one Kremlin faction.
Putin's statement on Monday backing prosecutors' arrest of Yukos CEO Mikhail Khodorkovsky reflects his support for the siloviki, men from the security services who rode his coattails into the Kremlin, in their power struggle with holdovers from the Boris Yeltsin era, known as the Family, and the business tycoons allied with them.
If the siloviki, who are led by deputy heads of the presidential administration Viktor Ivanov and Igor Sechin, win this battle, Putin "will lose his ability to remain above the fray, to be an arbiter É and will become a hostage" to the victorious faction, Yury Korgunyuk, a researcher at the Indem think tank, said in an interview Monday.
Even before Putin weighed in Monday, some opposition-minded newspapers opined that the siloviki had already all but defeated the Family, which includes chief of the presidential administration Alexander Voloshin and Prime Minister Mikhail Kasyanov.
Novaya Gazeta said the arrest of Khodorkovsky was a "coup in the country." With a similar choice of words, Kommersant gave its analysis of the political consequences of Khodorkovsky's arrest the headline, "The Coup in the Kremlin."
Kommersant was slightly more cautious, saying Putin had not yet made his choice in favor of the siloviki, but speculated that the siloviki may eventually oust Voloshin from his post.
Vyacheslav Nikonov, head of the Politika fund, said Putin has no interest in sidelining the Family or the liberals from St. Petersburg, the third and weakest group within his team.
"He wants to get rid of Khodorkovsky. It is not in Putin's interest to have one group's influence reach 100 percent, as he would then become a hostage to this group," Nikonov said. The president will try to continue to play one group off against the other to retain ultimate control, he said.
According to Nikolai Petrov of the Carnegie Moscow Center, however, the siloviki have already won the battle against the Family, thanks to their energetic actions and support from Putin, a former KGB officer.
Since Putin's rise to power four years ago, this faction has been increasing its control over Russia's law enforcement and security agencies, and this control is now being used to gain political and economic advantage at the expense of other factions, including the Family.
The siloviki have become so powerful that "we can now talk about defining the terms of surrender rather than an ongoing battle," Petrov said.
But this does not mean that Putin will become their hostage, he said.
The siloviki are likely to split into several factions, which may or may not reflect the traditional rivalry between the law enforcement and security agencies. This could be the rivalry between the Interior Ministry and Federal Security Service or something different.
They "united against an external enemy, but disagreements will arise once the enemy is defeated," Petrov said. This will allow Putin to continue to play factions off against each other.
A victory of the siloviki will bode ill for democracy in Russia, if not for the economy, both Petrov and Nikonov warned.
The St. Petersburg liberals may accept a victory of the siloviki and agree to continue to steer Russia toward a market economy, Petrov said.
However, the siloviki will push their vision of a strong state and this will come at the expense of individual rights and freedoms, he said.
"After all, there was a rivalry among the special services under Stalin too, but the harm done to society was no less," Petrov said.
(Further report, page 5)
TITLE: Rattled Investors Affect Bond, Stocks and Ruble
AUTHOR: By Alex Fak
PUBLISHER: Staff Writer
TEXT: MOSCOW - In one of the most dramatic financial meltdowns since the 1998 crisis, stocks, bonds and the ruble all plummeted Monday as investors ran for cover in the wake of the weekend arrest of Yukos CEO Mikhail Khodorkovsky on charges of massive fraud and tax evasion.
Led by Yukos' near 20 percent drop, stocks across the board dropped so fast that MICEX, Russia's largest market by trading volumes, was forced to suspend trading for the first time, closing for an hour during the day in a bid to slow the decline. The dollar-denominated RTS also halted trading temporarily, but only for Yukos shares.
By the time the closing bell rang, the benchmark RTS index had fallen 10 percent - knocking some $14.5 billion off the market value of Russia's top companies (See stocks, page 10.)
The Central Bank, meanwhile, capitalized on the plunging ruble, snapping up $550 million worth of cheapening rubles in just 15 minutes, which also helped to stem the national currency's slide.
Russia's jitters even spread to the euro and European government bonds which both gave ground as Russia suffered what appears to be its biggest crisis of confidence since President Vladimir Putin came to power.
Khodorkovsky's arrest has sparked fears already burgeoning capital flight could escalate further as the nation's oligarchs, owners of vast swathes of the economy, send their wealth to safer havens abroad. In the wake of Khodorkovsky's jailing Saturday, leading businessmen denounced the oil magnate's arrest and the storming of his plane by gun-toting special forces as undermining trust in the legal system. Some said they feared the same charges could be brought against them.
Analysts have said the attack on Khodorkovsky comes in response to his moves to build a political power base that could have threatened the Kremlin. The oil baron had said he was funding opposition parties for the upcoming parliamentary elections and he had clashed with the state over strategic issues such as oil export pipeline routes. Other oligarchs have kept a lower profile. Businessmen and analysts have speculated his jailing could be used as a way of forcing him to cede control of Yukos to a manager more willing to cooperate with the Kremlin.
Putin sought to calm down investor fears Monday calling for an end to "hysteria and speculation."
For months, investors had piled into the Russian market, pushing it to new heights.
Adding fuel to the bull-market fire was Moody's recent decision to give Russian debt investment grade status on what it said was improving economic fundamentals and stability, as well as talk that ExxonMobil and ChevronTexaco were racing each other for a strategic stake in the new YukosSibneft.
On Monday, hope faded for that landmark multibillion dollar FDI deal, as the Financial Times published a report citing sources close to the negotiations as saying talks had been suspended.
Other ratings agencies said the Khodorkovsky scandal had exposed the risks that had simmered beneath.
TITLE: Newspapers Critical of Arrest
AUTHOR: By Caroline McGregor
PUBLISHER: Staff Writer
TEXT: Newspapers from across the spectrum on Monday sharply criticized Saturday's arrest of Mikhail Khodorkovsky, with pro-business to pro-government publications splashing dire warnings of its consequences across their front pages.
"Capitalism with Stalin's Face," shouted a headline in Nezavisimaya Gazeta. Another article, sensationally headlined "We'll Shoot!" said the business elite were not worried about the reasons for the crackdown, but about who would be singled out next.
The business daily Kommersant, warned of the "KGB-ization of government."
Criticism is to be expected from these two papers; both are owned by Boris Berezovksy, a tycoon who had his own rancorous fallout with President Vladimir Putin shortly after Putin came to office and later fled to London.
Criticism of government actions from Rossiiskaya Gazeta, however, is rare.
Though muted in tone, the government-owned broadsheet expressed uncharacteristic disapproval: "The fact of the arrest itself, in the way it was carried out, provokes more than a few questions and looks rather absurd."
In criticizing only the prosecutors and security services who carried out the raid, and the Kremlin-based leaders who are widely believed to have orchestrated it, the paper remained loyal to the government led by Prime Minister Mikhail Kasyanov who belongs to the opposite Kremlin camp and has repeatedly sought to defend Yukos.
The arrest "could become a turning point in Russia's history," wrote Izvestia, which belongs to metals magnate Vladimir Potanin's Interros holding. "It concerns not only business, but the whole of Russian society."
Izvestia columnist Semyon Novoprudsky wrote a stark "Farewell to Capitalism," in which he described a paradox: "In Russia, capitalism has a date of birth and death, just like people." The period of capitalism that began with the Jan. 2, 1992 transition to market prices "died on Oct. 25 when the authorities arrested the country's richest man and head of the most transparent Russian company."
"The arrest of Mikhail Khodorkovsky, one of the few real cult figures in Russian business, means that the government has crossed the Rubicon in its relations with business and society," wrote centrist Vremya Novostei, under the headline "Facedown in Oil" - a play on the name of the Yeltsin-era "facedown in snow" operation against media tycoon Vladimir Gusinsky. "The government no longer intends to seek a compromise with anyone. Even the most influential figures may be simply eliminated by force."
The factions of government pursuing Khodorkovsky seem intent on "driving all the truly strong people out of Russia," wrote Vedomosti, which is part-owned by the Wall Street Journal and the Financial Times, in an editorial. "This would entrench Russia's status as a kind of gold rush zone: People make their fortunes there, then flee its lawlessness."
"Such a government needs neither a tax code nor a customs code. A criminal code is enough," Vedomosti's editors wrote. "If we follow the line of reasoning used by the Prosecutor General's Office, the Criminal Code offers a complete description of business in Russia, article by article, with all participants pre-defined as speculators and swindlers."
The news story Vedomosti ran was titled "Yukos is Beheaded."
Kommersant blanketed four pages with related stories, including the transcript of an interview Khodorkovsky gave to reporter Pyotr Sapozhnikov just prior to his arrest. In it, Khodorkovsky criticized the attitude of guilty until proven innocent. "It is impossible to name a state where the court and law enforcement agencies have such an attitude in a civilized country," the paper quoted him as saying.
Kommersant also took a pointed dig at Prosecutor General Vladimir Ustinov, whose office brought the seven charges against the oil baron, saying in a caption under his picture that "thanks to Khodorkovsky, he had won himself the right to again decorate the first page of Kommersant."
Like Kommersant, Gazeta led with an extensive blow-by-blow narrative of the arrest. It also ran the opinions of prominent legislators, like Boris Nemtsov of the Union of Right Forces, who expected the arrest to bring "enormous economic damage," to the tune of $20 billion. There will be no merger, as long rumored, between YukosSibneft and ExxonMobil, the paper quoted him as saying. "Nor will there be any doubling of GDP. Instead there will be stagnation, capital flight and pauperization."
The outspoken and high-circulation daily Moskovsky Komsomolets predicted: "[The arrest] will mean that there will be no successful economy, and it's unlikely that there will be any freedom left in society."
The paper, which is close to the Moscow city administration, said "the arrest is not the great October socialist revolution. But there is always the last straw that breaks the camel's back - just as this arrest signifies the most serious and unnecessary political crisis of Putin's presidency."
The paper also said that these events could unleash a series of similar crackdowns in the regions. "If the president can deal with oligarchs in the center this way, then why can't governors? Independent business will be literally torn apart in short order."
Moskovskiye Novosti, the newspaper Khodorkovsky bought in September, will publish its weekly edition on Tuesday. Monday, though, it went after Putin himself with an article posted on its web site. "The strength of a democratic ruler lies in his ability to meet opposition head-on."
Kommersant columnist Natalya Gevorkyan, in remarks on Gazeta.ru, which, like Moskovskiye Novosti, is owned by Yukos-related structures, remarked that the authorities had unintentionally made Khodorkovsky a star.
"I don't know whether Khodorkovsky wanted such popularity, especially at such a price, but I'm certain that the authorities wanted to take down an oligarch, but as always, they've hurt themselves more than they hurt him." The paradox is, in arresting Khodorkovsky, the power structures have shown their lack of power."
The state-controlled channels on Sunday night buried the news in their broadcasts. Having reported Saturday that Khodorkovksy had been detained for failure to appear in court, Channel One led its Sunday evening news with the flu season and the flooded mine in Rostov, mentioning only that the Prosecutor General's Office had been contacted for comment on the Khodorkovsky case, but declined to do so. The arrest almost led NTV's news on Sunday, following the lead news of movie star Leonid Filatov's death from pneumonia.
Monday news reports focused on Putin's remarks to a Cabinet meeting that everyone must be equal before the law.
TITLE: Putin Shuns Intervention, Says Courts Must Decide
AUTHOR: By Oksana Yablokova
PUBLISHER: Staff Writer
TEXT: MOSCOW - Faced with calls to intervene in the case of Yukos chief Mikhail Khodorkovsky, President Vladimir Putin told a Cabinet meeting Monday that it was up to the courts to decide guilt or innocence.
His comments highlighted the role of the Basmanny court, the Moscow district court that sanctioned Khodorkovsky's pre-trial detention and has issued repeated rulings in favor of prosecutors investigating Yukos executives.
Kommersant, in an article published Monday, said that Yukos lawyers had described the court's judgments as biased in favor of prosecutors.
"Yukos lawyers call Basmanny court a pocket court [of the Prosecutor General's Office]: In all these cases the court only rules in favor of the prosecutors," Kommersant wrote Monday.
Khodorkovsky's detention was the latest in a series of high-profile cases involving the Basmanny court. In July, the court sanctioned the detention of Platon Lebedev, Yukos' second-largest shareholder, who has remained in custody since. The court repeatedly denied appeals by Lebedev's lawyers, including an appeal to release him pending his trial.
In August, the court also ruled that the Prosecutor General Office's search of Yukos archives was legal, rejecting company claims that the law enforcement agents who carried out the operation violated several laws.
Gazeta reported Monday that Andrei Rasnovsky, the Basmanny Court judge who approved Khodorkovsky's arrest, is a former employee of the Prosecutor General's Office. The Prosecutor General's Office and court officials declined to confirm or deny the report when contacted Monday.
Other lawyers who have cases pending at Basmanny Court claimed that some judges, including Rasnovsky, were known for ruling in favor of prosecutors' requests in a majority of criminal cases.
"I do believe that Basmanny Court is biased, mainly because it considers most of the cases investigated by the Prosecutor General's Office," said lawyer Vladimir Levin.
Levin represented Lieutenant General Vladimir Ganeyev of the Emergency Situations Ministry at the Basmanny court this year, in the corruption investigation involving Ganeyev and six high-ranking police officials suspected of extorting millions of dollars from businessmen, which became known as the "Werewolves" case. On June 23 the court sentenced all seven to pretrial detention.
Levin said that cases investigated by the investigative department of the Prosecutor General's Office supposedly end up at Basmanny court because they are in the same district, but in reality the prosecutors simply find it convenient to work with what he described as "loyal" judges.
"The judges have repeatedly rejected all demands of the defense counsel and have been seen conferring with the prosecutors ahead of the hearings," Levin said Monday.
The Prosecutor General's Office and Basmanny court officials declined to comment on allegations of bias when contacted Monday.
TITLE: Russian Press Freedom Low
PUBLISHER: The St. Petersburg Times
TEXT: Russia ranked an unimpressive 18 steps from the bottom of Reporters Without Borders' annual listing of how free the press is around the world, as the 148th of 166 countries studied.
The study indicates that Russian journalists are less free to report the news than their counterparts in Nigeria (103), Azerbaijan (113) and Ukraine (132), which are not known for the liberty they grant to the fourth estate.
Of former Soviet countries, only Belarus (151), Uzbekistan (154) and Turkmenistan (158) rank lower.
In relative terms, Russia's ranking has changed little from last year, when it was 121st on a list of 139 countries.
Reporters Without Borders cited difficulty getting information about the war in Chechnya and numerous murders of Russian journalists as reasons for the country's low placement. The Center for Journalism in Extreme Situations says 28 journalists were killed last year.
Finland and Iceland topped the rankings. Latvia, in 11th place, was the highest-ranked former Soviet republic.
TITLE: Prison Inmates Sing For Their Freedom
AUTHOR: By Kevin O'Flynn
PUBLISHER: Staff Writer
TEXT: MOSCOW - Twenty-six inmates took to the stage Friday for the Kalina Krasnaya singing concert - and the six winners walked free.
Security was naturally high at the concert hall in the Olympic Village in the south of Moscow on Friday night as the Justice Ministry took steps to ensure that none of the prisoners escaped.
Some 1,100 invited guests showed up, most of whom were prison and police officials. The rest, according to the Justice Ministry, were from community organizations, although it was hard to tell whether they included, as Izvestia claimed, some of the city's finest mafia thugs from the feared Solntsevo and Taganka gangs wanting to hear songs about their former or, perhaps, future prison lives.
The report may well have been correct, as one of the contest organizers confessed that a kriminalny avtoritet, or crime boss, was among the singers. He refused to say which one.
Singing a mixture of numbers ranging from folk to rock - but no "Jailhouse Rock," "Fulsome Prison Blues" or "Free as a Bird" - the prisoners impressed the audience with their enthusiasm, if not always with their singing.
Nerves were high before the concert, especially among the female contestants, said Vitaly Polozyuk, a senior Justice Ministry official involved in social and educational programs for prisoners. He said they asked for 50 grams of vodka as a confidence booster before they went on stage.
Polozyuk, smiling ruefully, said he told them that would have to wait until they became real stars in the outside world.
Many of the singers, even after the work of stylists, went on stage bearing signs of prison life. Some had deep, dark circles under their eyes, others had pale, yellowing faces. A few made no attempts to hide where they were from, like Vladimir Petrov, who wore a standard prison cap when he sang "White Nights of the Perm Prison Camp."
The concert is part of a more reform-minded attitude toward prisons led by the Justice Ministry, which took over the job from the Interior Ministry five years ago. The prison population has dropped from more than 1 million, but many problems remain, including underfunding and health worries such as tuberculosis and HIV.
"A country is judged on how it treats the young, the old and those who are locked away," said Sergei Sobko, the head of the State Duma's culture committee and a member of a Justice Ministry committee behind Friday's concert. "This shows the humanization of Russian society."
It was Sobko who chose to show a humane face Friday by inviting the mother of one of the prisoners on stage. Her son, Salavat Ogly, who sang a traditional gypsy song, had tearfully asked whether he could meet his mother, but was at first refused. Both of them wept as they later embraced on stage. Ogly was not one of those released, but his mother said he had three months of his sentence left to serve.
Technically, winning the contest was not the reason for release; those freed had also fulfilled certain requirements for parole. But the contest was a definite "shove" in the right direction, said Nikolai Gubenko, the concert's chief organizer.
After their release, the six inmates, looking somewhat dazed, took a few minutes to get used to the idea. "I feel happy but also feel fear for the future," said Vladimir Bazykin, whose "Zima," or "Winter," compared his prison term to a long, dark winter.
TITLE: Regions Unprepared For Cold Snap
AUTHOR: By Oksana Yablokova
PUBLISHER: Staff Writer
TEXT: MOSCOW - As bitterly cold winds blew across the country over the weekend, dozens of schools and residential buildings in several regions were left without heat, scores of schools were closed, and at least one city put up municipal property as collateral for a loan to obtain fuel.
Heat has yet to be turned on in at least 61 apartment blocks housing 3,000 people in the Far East city of Petropavlovsk-Kamchatsky, even though temperatures are dipping below zero degrees Celsius, Emergency Situations Ministry spokesman Andrei Kudryavtsev said. Several local kindergartens and clinics are also without heat.
The Petropavlovsk-Kamchatsky prosecutor's office has opened a criminal investigation in connection with the mayor's office's failure to provide heat on time, Interfax reported. Prosecutors also asked the Kamchatka regional court to strip Mayor Yury Golenishchev of his immunity from prosecution, which he has as a deputy in the regional parliament, RIA-Novosti reported.
In Tula, health officials said they have been forced to shut 58 of some 500 regional schools and kindergartens due to a lack of heat. Tula's deputy health chief, Alexander Lomovtsev, said by telephone that the schools would not reopen until the heat was turned on since health regulations stipulate that children cannot study in a room where the temperature is lower than 15 degrees. It was unclear when the heat might be turned on.
City hall in the city of Ivanovo, meanwhile, has put up trams, hearses and other property from seven municipal companies as collateral for a bank loan of 130 million rubles ($4.3 million) to pay off the local heating company's debts, Ivanovo mayor's office spokeswoman Svetlana Sorochyan said.
Still, about a third of Ivanovo's 500,000 residents are shivering in 500 unheated apartment buildings because the heating company wants to amend its contract with the city before it starts sending supplies, Sorochyan said. The affected area also includes two hospitals and 20 schools and kindergartens, she said. Temperatures in Ivanovo are hovering around minus 4 degrees Celsius.
"Conditions are in place for a potential state of emergency," Sorochyan said.
A spokeswoman for the Prosecutor General's Office said Friday that prosecutors are reviewing the heating situation across the country.
"Prosecutors in all regions have been ordered to look into each incidence of no heat and open criminal cases in connection with the failure to provide heating on time," spokeswoman Araksya Babayan said.
Last winter, prosecutors opened almost a dozen criminal cases but none resulted in convictions for regional and local administrations, Babayan said.
TITLE: Russia Halts Dike, Defuses Tuzla Tension
PUBLISHER: The Associated Press
TEXT: Russia and Ukraine agreed Friday to negotiate a dispute between the two ex-Soviet republics over a small Crimean island that controls access to resource-rich waters.
Russia agreed to halt construction of a dike from the Russian mainland to Tuzla Island in the Kerch Strait that connects the Black and Azov Seas, while Ukraine said it would consider withdrawing troops from the island after a review of the project by environmental authorities.
But Russian Prime Minister Mikhail Kasyanov and his Ukrainian counterpart, Viktor Yanukovych, failed to make any progress on the disputed status of the Azov Sea and the Kerch Strait, saying the talks will continue and the agreement could be reached within two or three months.
Yanukovych told reporters after the talks that Ukraine believes that Tuzla Island is "an inalienable part" of its territory, but Kasyanov stressed that Russia considers its status "disputable."
Both emphasized the need to refrain from unilateral action and Kasyanov said part of the blame for the crisis lies with the authorities of Krasnodar region, who ordered building the dike without asking permission from his ministers.
Construction of the dike was stopped Thursday, hours after Ukrainian President Leonid Kuchma cut short a foreign trip to inspect Ukrainian border troops guarding Tuzla, which Ukraine claims as its territory.
Many Ukrainian politicians have maintained that the dike is a Russian attempt to appropriate Ukrainian land by connecting the Tuzla Island to Russia's Krasnodar region and thus seize control of a key shipping channel.
TITLE: Safety of Soyuz Questioned by NASA, Europe
PUBLISHER: Combined Reports
TEXT: ASTANA, Kazakhstan - In an unprecedented security measure, doctors from the United States and Spain will be present at the landing site of the Soyuz spacecraft due to bring US astronaut Edward Lu, Russia's Yuri Malenchenko and Spain's Pedro Duque back to Earth, Russian space officials said.
"NASA and the European Space Agency insisted that the doctors be at the site [and] this has never happened before," spokesman for Russia's space search and rescue agency, Mikhail Polukhin, told Agence France Presse.
Concerns sparked by the last mission's troubled landing apparently prompted the demand, Polukhin said.
A US military mobile hospital would also be on standby in Kazakhstan's capital Astana, "to be called upon in case of need," the spokesman added.
The ESA is one of the main partners along with Russia and the United States in the 16-nation International Space Station project.
The latest mission is the first for a European astronaut on the ISS since the destruction of the American space shuttle Columbia in February, and the presence of Spaniard Pedro Duque on the flight has been seen as a boost for the European space program.
Duque will land in Kazakhstan on Tuesday in a Soyuz capsule with Malenchenko and Lu, who were replaced by British-born American Michael Foale and Russian Alexander Kaleri on board the ISS.
Russia last week dismissed U.S. concerns that failing equipment was endangering crew safety on the International Space Station, saying NASA was simply in the dark about the situation on board since grounding its shuttles.
The Washington Post reported Thursday that several NASA officials had refused to sign off on the current 200-day mission because air and water monitors on the ISS were in disrepair.
"Nothing has changed on the station," Sergei Gorbunov, a spokesman for the Russian Aviation and Space Agency, told NTV on Friday.
Foale told an orbit-to-Earth news conference Thursday that he and his Russian colleague were aware of safety objections within NASA to their flight but both felt perfectly safe.
(AFP, Reuters)
TITLE: IN BRIEF
TEXT: Bombs Found on Train
ST. PETERSBURG (SPT) - Two aerial bombs were found among the cargo of a train that arrived in St. Petersburg loaded with scrap metal, Interfax said Friday.
According to the press service of the city Emergency Situations Ministry, the two bombs, each weighing 250 kilograms, were found on Tuesday when the train from Yaroslavl was being unloaded.
Ministry explosives specialists later removed them.
Norway Prince Visits
ST. PETERSBURG (SPT) - Norwegian Crown Prince Haakon Magnus and his wife arrived in St. Petersburg on Monday for two-day visit , Interfax reported.
Newly-elected St. Petersburg Governor Valentina Matviyenko met the prince and suggested that St. Petersburg should play a larger role in developing the collaboration of countries in the arctic Barents Sea region, according to reports.
In the evening Haakon visited the Mariinsky Opera and Ballet Theater for a performance of "Swan Lake."
On Tuesday, Hakkon was to visit city museums, including the Russian Ethnography Museum, the Navy Museum, and the Catherine Palace at Tsarskoye Selo.
In the evening the Prince's party was due to travel on to Moscow by train.
New City Police Head
ST. PETERSBURG (SPT) - Vladislav Piotrovsky was appointed the new head of St. Petersburg and Leningrad Oblast Criminal Police, Interfax quoted the city police press service as saying Friday.
Piotrovsky formerly headed the city and oblast's criminal investigation department.
After the former head of the city and region criminal police Alexander Smirnov was appointed as the chief federal inspector for St. Petersburg, Piotrovsky had worked as acting head of the Criminal Police department.
Kommunalki Persist
ST. PETERSBURG (SPT) - About 536,000 St. Petersburg residents still live in communal apartments, Interfax reported Monday, citing the data from St. Petersburg housing policy committee.
Of the city's 1.6 million apartments at least 150,000 are communal apartments - or kommunalki in Russian -the report said.
In order to move all the city's communal residents to separate apartments, St. Petersburg would need an extra 13.4 million square meters of residential space, which would cost up to 281 billion rubles (at a rate of 21,000 rubles per one square meter).
"This sum of money represents 3.5 percent of the city's annual budget," the committee's report said.
"It is currently planned to allocate only 1 percent of the city budget to that purpose," the report added.
According to the report, the current city program of resettling residents and reconstructing communal apartments implies that priority should only be given to moving people from dangerous and dilapidated apartments as opposed to ending the communal apartment system as a whole.
Between 1996 and 1999 residents of at least 5,500 communal apartments were rehoused.
However, in 2000 this figure totaled only 720 apartments, in 2001 it was 452, in 2002 it was 289, and for the first nine months of 2003 only 156 apartment communities have been split up.
The slowdown was explained by a reduction of city budget funding for residential construction and capital works. Rescuers: Miners Close
NOVOSHAKHTINSK (AP) - Rescue officials said Monday they believed 13 miners trapped deep underground for four days could still be alive as long as they had air to breathe and workers were tunneling their way to them from another mine shaft.
"To our estimation there are 23-24 meters left for the rescuers to pass to get to the trapped miners," Alexander Kornichenko, the deputy chairman of the Russian mine safety authority, said. "The prognosis is rather comforting and we expect the rescuers to reach the miners in the early hours of Tuesday."
On Saturday, 33 exhausted miners were brought to the surface. But emergency workers were unable to locate 13 others in the Zapadnaya mine.
Union Wins in Norilsk
ST. PETERSBURG (SPT) - A trade unionist won the election for Norilsk mayor, ahead of Norilsk Nickel's management candidate, winning Sunday's election with 51.88 percent of the vote.
The victory of Valery Melnikov over Johnson Khagazheyev, who received 34.28 percent, was called a surprise by Norilsk Nickel management officials, who said they had counted on Khagazheyev, the company's former director, to win.
TITLE: Elite Call for Putin To Provide Answers
AUTHOR: By Valeria Korchagina
PUBLISHER: Staff Writer
TEXT: So it's back to square one for politicians and businessmen: Who is Mr. Putin after all?
About four years after President Vladimir Putin shot into the highest ranks of power with his appointment as prime minister in August 1999, the question is being raised once again. Faced by Saturday's arrest of Yukos chief Mikhail Khodorkovsky, even those who have known Putin for years appear to be at a loss.
"Now the extent of the conflict and the risks are so great that we need a clear position from the president," Anatoly Chubais, head of Unified Energy Systems and an informal leader of the business community, said on the "Zerkalo" weekly analytical TV show Saturday evening. "The situation won't go away by itself - the conflict has grown to such a scale that we need direct interference from the president."
"I want business to understand the authorities' position on business. I want business to understand whether it has a future or whether its future is similar to Khodorkovsky's fate.... I want this position to be pronounced clearly and openly, not in the form of private talks, but in the form of an open public statement by the country's leader."
The conflict, Chubais warned, has become big enough to cause business to unite against the president.
"The main threat is of a split in the elite. There will be a conflict of such an extent that it will bring in the entire society and it could turn out to be uncontrollable," he said.
Chubais spoke after he and other business leaders called an urgent meeting Saturday afternoon over Khodorkovsky's arrest.
"The arrest is like a red light for businesses. A big question is now up in the air for many of them: should I continue investing, should I expand my business?" said a source familiar with the meeting.
The source pointed out that the charges filed against Khodorkovsky could easily be applied to any other businessman who built up a company in the 1990s and got his hands dirty in the "lawlessness and corruption associated with this period."
"And imagine what regional law enforcement officials will start doing now that they see such an example in front of them," the source said.
Business leaders at Saturday's meeting - organized by the Russian Union of Industrialists and Entrepreneurs, the Opora Rossii small business association and the Delovaya Rossiya business association - issued a call for Putin to clarify his position immediately.
"The business community's trust in the authorities is ruined, and the dialogue [between business and government] has de facto collapsed," the statement said.
"Companies are being forced to reassess investment strategies and give up on projects important for the country."
U.S. Ambassador to Russia Alexander Vershbow shared the worries about the impact of Khodorkovsky's arrest on the investment climate.
"We are concerned about this escalation of legal pressure being exerted on Yukos. We won't comment on the legal basis for Khodorkovsky's detention, it would appear, though, that the law is being applied selectively at the very least," Vershbow said through his spokesman on Sunday. "This move will send a very negative signal to companies investing in or considering investing in Russia."
Vershbow declined to comment on how Khodorkovsky's arrest may affect the interest of international oil majors, including ExxonMobil, in buying a stake in Yukos.
But foreign investment aside, the price tag for the arrest could be high. The relative political and economic stability of the past few years has resulted in the return of capital - billions of dollars that could once more flee abroad over new uncertainties, said Roland Nash, head of the Equity Product Group at the Renaissance Capital investment bank.
"Between 1995 and 2000, capital flight from Russia averaged at about $20 billion a year. Since then, money has been coming in, and these are significant sums which have driven the restructuring and the growth of the economy," he said.
A number of politicians are also crying foul over Khodorkovsky's arrest, accusing the Prosecutor General's Office of pursuing a political agenda.
"The Union of Right Forces is very concerned.... It is obvious to us that the Khodorkovsky and Yukos cases are a political contract hit," the party, which gets funding from Khodorkovsky, said in a statement.
The liberal Yabloko party echoed those comments. Yabloko also gets funding from Khodorkovsky, and reams of campaign documents for its State Duma election bid were confiscated in a Yukos-connected raid Thursday. On Friday, Yabloko leader Grigory Yavlinsky bluntly said the government was running under a regime of "Stalinist capitalism."
Yabloko Duma Deputy Alexei Melnikov said a "gang of four" former Petersburg Federal Security Service officers were behind the attack: Viktor Ivanov and Igor Sechin of the presidential administration, Prosecutor General Vladimir Ustinov and deputy FSB director Yury Zaostrovtsev. "Ivanov, Ustinov, Sechin and Zaostrovtsev are the gang of four. The activities of these gentlemen should become the subject of a public investigation," Melnikov was quoted by Interfax as saying.
The same group of so-called siloviki is thought to be behind the People's Party, one of the few parties that welcomed the arrest.
"We do not fear that the arrest of one oligarch might undermine the reforms of the 1990s," People's Party leader Gennady Raikov said in a statement.
"All socially orientated parties should stand up to defend the interests of the people, the state and the president from oligarchs who have overstepped the mark. One must share with society!"
Raikov's call to crack down on businessmen is shared to some extend by about 80 percent of the population, according to recent polls.
Staff Writer Catherine Belton contributed to this report.
TITLE: IN BRIEF
TEXT: Citibank To Go Retail
MOSCOW (SPT) - Russian Citibank, a subsidiary of Citigroup, plans to launch retail banking services in St. Petersburg next year, Interfax reported Monday.
The St. Petersburg office serves only corporate clients, said Viktor Bashkirov, director of the retail department.
Citibank has been in Russia since 1993.
The current individual client base of 19,500 is increasing at a steady rate of 3,000 clients per month, Bashkirov said.
Petroleum Bourse?
ST. PETERSBURG (SPT) - St. Petersburg could become the site of Russia's petroleum bourse, State Duma committee on economic policy and business Grigory Tomchin said at a press conference Monday.
Tomchin said that oil prices within Russia "could be between $1 and $1.5 higher than on other markets."
Tomchin said this would make sense because "St. Petersburg is a port city in which the necessary infrastructure could be created, and it is one of the European capitals."
Tourist Card Coming
ST. PETERSBURG (SPT) - St. Petersburg will introduce a card for tourists to cover museum fees and public transportation fares, the city's committee on tourism and resort development announced Monday, Interfax reported.
The committee's press release says the card is intended to promote the city's sights and improve St. Petersburg's image as a modern tourist destination.
The Stockholm committee on economic development is helping introduce the card, which will be similar to those used in other European cities. $750 LUKoil Loan
MOSCOW (Reuters) - Oil major LUKoil said Monday it had signed a $750 million syndicated loan deal with Western banks, guaranteed by its oil exports.
The firm said in a statement it had mandated Dutch ABN AMRO and U.S. Citigroup to act as lead arrangers and bookrunners for the loan.
Credit Lyonnais, Deutsche Bank, Dresdner Kleinwort Wasserstein, Societe Generale CIB, BNP Paribas, Natexis Banques Populaires, Barclays, KBC Bank, UFJ Bank, WestLB and HVB Group will join the senior phase of syndication.
The facility comprises a $450 million 5-year tranche carrying the interest of LIBOR+2 percent and a $300 million 7-year tranche with the interest of LIBOR+2.5 percent.
Power Deregulation
ST. PETERSBURG (Reuters) - The government will soon sign a decree allowing the country to deregulate 5 to 15 percent of its power market, the head of the national power monopoly RAO UES said Monday.
"In the next few days we will sign an important decree on the rules of open market trading, meaning the market will begin working from Nov. 1," Anatoly Chubais told a news conference.
Russia plans to completely rescind price controls on electricity sometime after mid-2006.
Until then the market will consist of a regulated sector, a competitive sector and a sector based on direct agreements between buyers and sellers.
The competitive sector will gradually increase in size.
Gazprom Shake-Up
MOSCOW (Prime-Tass) - Two new departments have been formed within Gazprom and three have been closed, followed by new appointments, the company said in a press release Monday.
A finance and economy department was established to replace the corporate finance and economy departments. The new department will be headed by Andrei Kruglov, previously the head of the corporate finance department.
The finance and economy department will be in charge of all budgetary issues ranging from drafting the company's social and economic development plans, its budget and payment balance to control over financial issues.
Rishat Gafarov, the former head of the economy department, has been appointed deputy head of the executive board's staff and advisor to Gazprom's CEO Alexei Miller.
A department of strategic development has also been set up, headed by Vlada Rusakova, who before was the head of development, science and ecology.
Statoil Eyes Expansion
OSLO, Norway (Bloomberg) - Statoil, Norway's biggest oil company, is considering an expansion into Russia to help make up for a drop in domestic output as Norwegian reserves decline.
Statoil can offer potential partners knowledge and technology developed for use in the harsh North Atlantic waters, said Inge Hansen, the interim chief executive officer. The company's Russian activities currently comprise five gas stations in Murmansk.
"It's natural for us to look toward Russia," said Hansen at a presentation in Oslo. "We see it as an extension of the Norwegian continental shelf."
Statoil has already signed an agreement with LUKoil to cooperate in the Caspian Sea.
TITLE: Cellular Operators Wage Battle For Talkative New Subscribers
AUTHOR: By Gleb Krampets and Leonid Konik
PUBLISHER: Vedomosti
TEXT: Competition on the cellular services market in St. Petersburg is getting hot. During the past six months the St. Petersburg market gained two new cellular operators, Vimpelcom with its BeeLine GSM, and St. Petersburg Telecom with its Tele2 GSM brand. Previously the market had been shared by just two GSM-standard providers, MegaFon and MTS. Analysts immediately began to predict rapid depletion of the market, while the operators themselves demonstrated their flexibility yet again. The newcomers chose the best strategy: active marketing.
According to data obtained from ASM-Consulting, by Sept. 30, MegaFon served 1.71 million subscribers in the Northwest, MTS boasted 1.06 million, Vimpelcom 182,000, Delta Telecom 115,000, Tele2 had just 61,000 subscribers - including FORA and AMPS subscribers; ASM-Consulting analyst Anton Pogrebinsky estimates that FORA has about 30,000 subscribers.
Vimpelcom entered the St. Petersburg cellular market in April 2003. The company's initial investment in network building amounted to $50 million. Potential BeeLine GSM subscribers were offered three plans in succession: first they were tempted with outgoing calls within the network for one cent per minute, then in early summer BeeLine GSM was the first cellular operator in St. Petersburg to offer subscribers free incoming calls from all mobile phones, then finally in September the provider announced that phone cards would no longer have a use-by date. During these six months on the local market BeeLine GSM attracted 200,000 subscribers, 95 percent of whom use the Bee+ pre-paid rates.
Vimpelcom's one-cent-within-the-network offer was a repeat of a similar MTS campaign that started at the end of 2001 and lasted for a little over a year. St. Petersburg MTS marketing office chief Vadim Zlobin says this offer brought MTS more than 700,000 subscribers.
Timofei Vashchilin, marketing and advertising manager at the St. Petersburg office of Vimpelcom, thinks repeating the MTS marketing ploy was not enough. "The one-cent deal was familiar and easily understandable to the St. Petersburg consumer, but it wasn't attractive enough, considering the tough competition. We understood this from the start and lined up several marketing tactics that we introduced gradually," he said.
Vashchilin also noted that with market penetration at 50 percent in St. Petersburg, free calls from all mobile phones independent of operator was the most attractive offer. "This offer was intended for those users who keep their calls short, and that's the majority of cell-phone users in our city. That offer is always appreciated by potential users. After all, everyone likes to get something for free," Vashchilin said.
Later, on June 30 of this year, Tele2 followed suit by offering free incoming calls from mobile phones serviced by other operators, and on Sept. 15 MTS introduced the Super Jeans pre-paid rate.
"When the market is tough you have to keep a close eye on your competitors. Sometimes operators use marketing approaches that resemble proven tactics. This is normal for competition," MTS's Vadim Zlobin said.
Delta Telecom also placed its marketing bets on free calls by introducing CDMA-450 services under the Sky Link brand name in December of last year. This service is more expensive, but air time is unlimited. In May of this year Delta Telecom introduced the Manager rate, with which calls from other cell phone users are free. The monthly fee for this rate is $30, which includes 300 free minutes, with subsequent calls to and from land lines costing 10 cents per minute. Delta Telecom marketing director Dmitry Alexandrov said the company turned its attention to traffic within cellular networks because it is already greater than traffic between wireless and hard-line systems, and this tendency is on the rise. But Sky Link has managed to lure about 33,000 very talkative subscribers away from the other providers.
Efficient use of frequencies and fewer base stations compared to the GSM networks allows the CDMA-450 operator to lower rates, one of its main advantages. "Unlimited GSM-operator rates are several times higher than those of CDMA operators and this has caused a considerable number of subscribers who talk a lot to migrate to CDMA networks. But the national GSM operators offer a number of hefty advantages that can weigh into customer choice. I mean the cost and selection of devices, national and international roaming, convenience and a wide range of extra services," Vashchilin said.
The Swedish Tele2 company used a completely new marketing ploy when entering the St. Petersburg market. First it gave away cell phones, then it started selling them at special prices - all as part of one campaign.
Tele2 positions itself as an operator for people who have never used a cell phone. So the Tele2 advertising campaign is based on the fact that the operator-run shops sell telephones at less-than-market prices, Tele2 marketing director Julia Musatova said. Even before the Tele2 network was in operation, an advertising campaign with the slogan "Don't buy that mobile phone! Tele2 costs less" was already underway. Once the Tele2 network was up and running, the company began offering Siemens A50 phones for free, under the condition that the subscriber would make a down-payment of 2,000 rubles, of which 500 rubles covered the cost of signing up for the network. If a subscriber used his own phone to sign up for Tele2 services, then he got 2,000 rubles of free air time.
"We decided to use the European Tele2 marketing experience, in which our company sells telephones at special prices. Despite the fact that we want to become the price leader among GSM operators in St. Petersburg and offer pretty low prices for voice communication, we decided to call the attention of our potential subscribers not just to these facts. Our potential subscribers are low-income people who couldn't afford to use cellular services because of the prohibitive cost of the phones themselves," Musatova said.
Tele2 sells phones for less than market value. For example, Tele2 sells the Siemens A50 for 1,900 rubles while specialized retailers advertise this model for 2,200 rubles on average. The Siemens C55, with an average retail price of 3,400 rubles, goes for 3,200 rubles at Tele2, and Tele2 sells the Samsung C100 for 4,700 rubles, while the average retail price for this model in town is 5,100 rubles.
But other operators don't yet see Tele2 as serious competition. "The Swedish company was fourth to the market, so it is forced to employ such drastic marketing techniques," said Zlobin, adding that he doesn't consider Tele2 the main competitor for MTS.
Vashchilin of Vimpelcom thinks the Tele2 approach to entering the market isn't always logical. "It isn't always clear which segment of the public this company is reaching out to. For example, the attempt to provide credit to subscribers who don't talk much can hardly pay off. At the same time, playing with the numbers all the time can confuse the consumer. The amount of money that shows up on the client's account and the cost of the phone at subscription time change fairly often, but the nature of the change is usually small and can't really influence the selection factor," Vashchilin said.
But Alexander Shatikov, an analyst with ASM-Consulting, thinks the Tele2 approach could bring the company a certain number of followers. "Tele2 always tries to offer rates that primarily differ from those of the competition in their structure. Such marketing strategies, even if they don't offer potential subscribers lower rates, often have a psychological effect, which is often an incentive to buy the service," he said.
Troika Dialog analyst Yevgeny Golosnoi said such behavior on the part of new players won't have much impact on the market in the long run, nor on the rates of other operators. "Today none of the cellular operators can afford to wage a war of competition 'to the death.' They just don't have the strength to survive major long-term lowering of prices. There is no decrease in the average rates since all the federal operators are developing thanks to loans and are investing a lot of money in building regional networks. They need to cover these costs and recoup their investment," he said.
Golosnoi predicts that operators can't really be elated over subscribers who change companies when lured by cheaper rates. "Dumping can increase the subscriber base over a relatively short period of time by attracting those who are keen on discounts. But there is no guarantee that those people who first switched to a new operator won't flee just as quickly to the competition if enticed by even lower prices," he said.
Tatiana Tolmachyova, an analyst with J'son & Partners agrees. In her opinion, the operators try to increase the number of subscribers by including extra services in the package without lowering the per-minute cost of calls. As an example, she points to the fact that operators have eliminated the deadline for using payments, introduced free incoming calls from mobile phones served by other operators, or allowed for pricing in rubles, as Tele2 does. As Golosnoi says, the cost of a pre-paid minute is about 25 cents, while the cost of one minute of conversation under a contracted plan is about 15 cents.
But Alexander Shatikov of ASM-Consulting begs to differ. He says the appearance of new players on the market could lower prices. He does note that this will depend greatly on the region and the quality the new player is able to offer. "When a new operator offers lower prices with good coverage, then the competitors will be forced to adapt," he said.
Alexei Yakovitsky of United Financial Group estimates that if the average monthly outlay on cellular services (referred to as ARPU by the operators) were $8, then almost everyone in Russia could afford cellular service. ARPU now ranges from between $17 and $30, depending on the region and operator.
SUBSCRIBERS
Number of cell phone subscribers in St. Petersburg
MegaFon 1,710,000
MTS 1,060,000
Vimpelcom 182,000
Delta Telecom 115,000
Tele2 61,000
Data at Sept. 30 provided by ASM-Consulting
TITLE: Getting a Mortgage in Russia Not Yet Habit
AUTHOR: By Robin Munro
PUBLISHER: Staff Writer
TEXT: A residential mortgage, or ipoteka in Russian, describes the taking of a loan to buy a dwelling under which the commitment to repay the loan is secured by the lender's right to sell the property.
There are many variations on the basic conditions, but the classic form is a down payment made by the borrower, then regular repayments of the principal and interest made over many years.
The total payments often substantially exceed the initial loan, but are still cheaper than renting a property. Unlike renting, where the tenant's only rights to their homes are for the period they pay rent, a mortgage holder acquires an ever greater stake in the home - called equity - as the years go by.
They also have the opportunity to buy before the prices rise faster than they can save money to make an outright purchase.
A mortgage benefits lenders since they receive a return on their money. The borrower benefits by getting a home and being able to live in it.
The state benefits because its citizens have homes. It gains taxes from the borrowers who have an incentive to work regularly to repay the loan. Such constant efforts are also the hallmark of a middle class - law-abiding, industrious citizens who form the backbone of Western society.
As a result, governments throughout the world often give subsidies and benefits to those holding mortgages.
LOW RISK
Because the property is secured against the loan, the risks to a lender who issues mortgages are generally lower than in other types of lending. The interest rates on mortgages therefore tend to be some of the lowest on the market.
Lenders typically attract funds from private or state bodies that are seeking low-risk, predictable long-term returns.
The lenders earn their money not by high markups on their sources of financing, but from incremental profits paid out over many years.
The loan can be "fixed," in which case the same sum is repaid at fixed intervals - generally every two weeks or once a month - for the entire period of the loan. More common and more flexible are "variable" repayments, which may decrease as the loan is paid off, or may fluctuate in line with market fluctuations in lending rates.
It is also quite common to offer borrowers deferred payments in the initial months after they purchase their home.
If a borrower decides to repay the loan early, lenders often charge a penalty to recover some of the profit that they would have made if the borrower had continued making payments to the end of the agreed period.
FLUCTUATING VALUES
Prices on the real estate market are based on market forces and go up and down, but the long-term trend is for housing prices to go up, and this can lead to capital gains for the borrower.
For instance, a borrower buys a house for $100,000, making a $20,000 down payment and taking out an $80,000 mortgage, and the value of the house goes up 10 percent in one year to $110,000. At the end of the year, the borrower will have made only a small dent in the mortgage, but the equity will have been increased from $20,000 to $30,000.
If the owner were to sell the home, he would have to repay the mortgage in full, but would pocket an extra $10,000.
This example ignores many other costs in buying and selling, including taxes and fees for lawyers and brokers. Generally, using a mortgage to buy real estate should be a commitment of no less than five years.
Because of these costs, lenders are reluctant to sell the dwelling if the borrower cannot keep up the payments. In addition, financial institutions are reluctant to be seen throwing families out on the street. They will usually try to restructure the payments before taking this drastic step.
Prices can also go down, so the lender will want protection so that, in case the home must be sold its value is not less than the amount owed to the lender by the borrower.
To take these risks into account, it is important that a professional valuation of the property be done. This value is then used by lenders to calculate how much they are prepared to lend on a particular property, for how long and at what interest rate.
DOWN PAYMENT
One way of covering risks is to demand a large down payment from the borrower. Thus, in the case of the $100,000 home cited above, even if the value of the home falls 10 percent in one year, the $90,000 that would be raised by selling it would still be higher than the $80,000 owed to the lender.
Down payments in the West are typically as low as 5 percent of the property's sale price, while in Russia they are typically 20 percent.
THE HUMAN FACTOR
The ability of borrowers to take out a loan depends on their income and credit rating. If a borrower has a track record of taking out loans and repaying them, then the lender is likely to feel confident that they will repay the mortgage.
But this is not always the case; people get sick and die, some lose their jobs, and families break up - all of which can affect the ability and will of the borrower to return the money to the borrower.
Therefore, almost all mortgage contracts require insurance to cover illness, unemployment or death.
Likewise, the mortgaged property must be insured against all types of damage or loss that would keep it from being sold to recover the loan.
SPECIFICS OF RUSSIA
At least 44,000 mortgages have been issued in Russia, according to Maria Petrova, a real estate and marketing consultant at city real estate firm S. Zinovieff & Co.
Nevertheless, mortgages account for only 1 percent to 2 percent of real estate sales compared to 70 percent to 75 percent in Europe and 90 percent in the United States, she added.
The mortgage system is Russia is undeveloped in comparison to most other countries, but has great potential to provide more liquidity to the ailing housing market.
SOURCES OF FINANCING
Some of the difficulties in Russia have been that there is little long-term financing available on the market and that interest rates, reflecting the unpredictability of the country's economic course, are high.
Mortgages in rubles are available at a 15 percent interest rate. Although the face value of such mortgages seems unreasonably high and expensive, the margin is only 3 percent above the Central Bank's 12 percent target for inflation this year.
In dollars, interest rates on mortgages have fallen considerably, but are still up to 15 percent. Mortgages are rarely issued for more than 10 years, with two exceptions: DeltaCredit Bank will finance for up to 15 years and the state-run Agency for Housing Mortgage Lending will finance for up to 20 years.
"Bankers explain that their interests rates are high not only because of the unpredictability of the Russian economy, but also because of the absence of credit rating offices, which in the West allows banks to exchange information about [the creditworthiness of] clients," Petrova said.
The agency has not been able to get financing from the Pension Fund and remains a tiny force compared to U.S. mortgage giants Fannie Mae and Freddie Mac.
The agency and other mortgage lenders plan to issue mortgage-backed securities. The State Duma this month passed a law allowing them, which is likely to come into force next year.
Another problem is that property titles are often unclear and, with the continuation of many Soviet-era practices, many properties are unsuitable for lenders to accept as pledges.
One law hindering the process includes the right of a family to stay in a home if their new one does not have a specified number of square meters for each child. New home owners may also discover that a prison inmate has a right to live in the house on their release.
Because of such risks, all documentation on a property should be carefully studied by a lawyer - to the benefit of both the borrower and lender.
Taxes and fees also act as a disincentive to declaring the true value of real estate transactions. The lenders require the true values to ensure that they can get the right amount of money back.
Wages and salaries in Russia are also notoriously nontransparent, meaning that calculating the ability of a client to afford the repayments is problematic. If they can't declare a legal income they may pay a higher interest rate, reflecting the higher risk to the lender.
There are generous tax breaks for people taking out a mortgage - the full interest payments and up to 600,000 rubles ($19,960) in principal and down payment can be deducted from taxable income.
In addition, if the mortgage is held for more than 5 years, no capital gains taxes will have to be paid.
U.S. citizens are entitled to deduct the interest they pay on their mortgage in Russia on their U.S. tax returns.
DeltaCredit Bank has calculated that, taking the tax breaks into account, the effective rate of the mortgages that it offers is 4 percent, lower than comparable products in the West.
TITLE: Would-Be Homeowners Shop for Financing
AUTHOR: By Robin Munro
PUBLISHER: Staff Writer
TEXT: Computer programmer Vladislav Chetyrkin, 28, had heard a lot about mortgages over the years, but had never bitten the bullet and tried to get one.
He, his wife and their six-year-old son had put up with the vagaries of renting an apartment and watched the prices of apartments for sale soar out of their reach. Getting a mortgage seemed to involve a lot of expense and red tape and he wasn't sure he wanted to go through all that.
But this year Chetyrkin decided it was time for the family to take control of their own destiny.
"I had heard that by 2006 mortgages are expected to get cheaper, but I couldn't wait that long," he said in a telephone interview. "Prices are rising and I wouldn't have been able to catch up."
He eventually went to DeltaCredit Bank and received approval for a mortgage. The next step was to find a suitable apartment and for DeltaCredit to approve it.
Chetyrkin expected a lot of paperwork and delays, but said the whole process had been well thought out and went very smoothly. Today he is the proud owner of a $32,000, 58-square-meter Stalin-era apartment, half of which he paid for with a down payment with the other half mortgaged for a 10-year period.
"I'm very happy that DeltaCredit Bank allowed me this opportunity," he said.
DeltaCredit Bank is one of only three organizations offering mortgages in St. Petersburg - the others are Raiffeisenbank and Sberbank. Vneshtorgbank and the National Reserve Bank have declared their intention to offer mortgages in the near future.
Igor Zhigunov, head of DeltaCredit Bank in St. Petersburg, said the bank has issued about $6 million in mortgages, representing about 300 loans since opening in the city in 2002.
About half of this was issued by DeltaCredit itself, while the remainder was issued by its partner banks, including Promstroibank, Rossiisky Kapital, Pervy OVK and the St. Petersburg Bank for Reconstruction and Development, he said.
DeltaCredit's programs are the same whether clients approach it directly or work through its partners.
DeltaCredit received $20 million in 1998 from the U.S.-Russia Investment Fund to start its mortgage program. The fund was set up by the U.S. Congress in 1995 with $440 million in capital to promote the development of a free-market economy in Russia.
It has also received money from institutional lenders, including the European Bank for Reconstruction and Development and the International Finance Corp., an arm of the World Bank.
Alexander Koloshenko, head of retail banking at Raiffeisenbank, said in a telephone interview from Moscow that Raiffeisenbank also has funding from the IFC - $80 million for 10 years to develop the mortgage loan business in Russia.
The bank has issued mortgages worth "several million dollars" in St. Petersburg out of a portfolio of about $22 million issued since the launch of the bank in Russia in 2001.
"We did not market the program very actively then because the program was limited to employees of corporate customers and we did not have enough resources to process other deals," Koloshenko said.
A broader mortgage program was launched in the summer of 2002 and Raiffeisenbank is building special mortgage lending branches that will be staffed and equipped to have everything would-be homeowners need. Two of these branches are under construction in St. Petersburg and will open by the end of the year, he said.
"They will be quick, efficient and confidential. Clients will be able to sidestep brokers because our service is offered free of charge," Koloshenko added.
Raiffeisen's mortgages are for between $20,000 and $400,000. The term is from one to 10 years, but the bank intends to extend this to 15 years in the near future. The interest rate for a fixed-rate mortgage is 12 percent for up to 10 years. Early repayment is available after three months. Raiffeisen's flexible rate is the London Interbank Offer Rate, or LIBOR, plus 8 percent - this is currently only 9 percent - for up to 10 years.
"We work only with those who pay taxes and we don't take gray income into account," Koloshenko added
"In Moscow, most clients are employed by medium and large multinational companies and those are switching to absolutely legal ways of paying salaries.
"The St. Petersburg economy is based on small companies and private entrepreneurs, and we guess that the demand for our program is not that significant because people do not feel they have enough income stability. That is why they are not applying for long-term loans, or they don't have enough income," he said.
Raiffeisen has insurance companies Ingosstrakh and Renaissance as partners and is talking to construction companies, intending to extend its mortgage program to include apartments under construction from next month (November).
Sberbank offers mortgages in rubles and in dollars at 18 percent and 11 percent respectively. There are no penalties for early repayment, but two guarantors and a pledge from the borrower's spouse are required for each mortgage issued.
The state-owned bank will lend no more than 70 percent of the value of a dwelling, but the amount depends on several factors, particularly the borrower's salary and their ability to make monthly payments.
DeltaCredit became a bank at the end of 2001, after buying J.P. Morgan & Co.'s Russian subsidiary, a move that will allow it to issue mortgage bonds starting next year. The State Duma passed the third reading of the law on mortgage-backed securities this month, which allows mortgage banks to issue mortgage-backed paper into the capital markets.
DeltaCredit's portfolio already exceeds $80 million and a large number of products have been developed for Moscow and the Moscow region, including the ability to buy homes before they are completed, to buy dachas, and funding the purchase of a new home before the sale of the existing one is completed.
Zhigunov said all these products will eventually be available in St. Petersburg, but for the moment dollar-denominated loans for purchase or renovations of $10,000 to $450,000 are available at rates of 10 percent to 15 percent in the city.
"We are in the city and in the near future will go to the region," he said.
DeltaCredit is extremely flexible and its products can be tailored for individuals, he said.
"You have to bring tax certificates to Sberbank and Raiffeisenbank to get a mortgage," he said. "We can work without that and that means more people come to us."
"We are not interested in whether a client has Russian citizenship," he added. "We don't need people to be registered.
"The main thing is that we understand they are creditworthy, have an income and a plan to pay back the loan. Many of our clients come from other countries and from other cities within Russia."
"We provide loans for any apartment where there is a title," Zhigunov said. "We check the title and do a valuation."
DeltaCredit has 15 city real estate agencies as partners. All are members of the city's Association of Realtors, including leading firms Petersburgskiye Nedvizhimosti, Advecs Rostro, Ekoton and Rik.
"When the bank approves a loan they can suggest apartments and help with documents," Zhigunov said. "They know the program, but clients can choose their own apartment and do everything by themselves."
A peculiarity of the St. Petersburg market is the large number of former communal apartments.
"There are many flats in the center where there were breaches of the law during privatization and we check very carefully," he said. "We check that no one else has the right to live there. If they do, then we will not offer a mortgage for the property."
Prices in St. Petersburg are about half those for comparable apartments in Moscow.
A typical transaction for DeltaCredit would be for someone to buy a $30,000 apartment, Zhigunov said.
"The loan can cover only 80 percent of the value so the borrower could receive a mortgage for $22,000, depending on their income. This would require a minimum household income of about $700 and the mortgage would have to be repaid at a rate of $150 per month for the next 15 years."
Raiffeisenbank's Koloshenko said Moscow has a recognizably more attractive housing market than St. Petersburg has.
"The demand for mortgage loans is not that significant, but there is very strong growth," he said, adding that demand for loans for cars is comparable to Moscow on a per capita basis.
Zhigunov said the target client is the middle class. A Gallup survey indicated that about 10 percent of the work force - about 200,000 St. Petersburgers - can afford a mortgage. The poorest household that could afford a mortgage is one earning $400 per week.
However, DeltaCredit's clients occupy a very broad socio-economic niche, including rich people who can make more money in their businesses than putting it into housing. DeltaCredit has made several loans of $400,000, Zhigunov said.
Alexander Samartsev, head of the Association of Realtors' committee on mortgages and housing finance, said mortgages in Russia have been a topic of discussion for the last decade, but the realization of mortgage programs has been a drawn-out process.
"For the last two years, 20 to 30 mortgage loans a month have been issued in St. Petersburg," he said. "There is movement and I expect it will develop even more quickly."
Mortgages currently finance only a fraction of what they could finance. The key to mortgage growth will be an improving economic situation and cheaper sources of financing; this could come from state budgets or, as occasionally surfaces in the media, from either the U.S. government or large U.S. funds.
Samartsev said that housing prices are rising faster than people can save and that, even though mortgages are nominally expensive, the cost of a current mortgage would be less than the likely rise in value of their home.
Nevertheless, a notarial fee of 1.5 percent for house sales provides a disincentive to taking out a mortgage and an incentive to disguise the true sale price.
The lack of transparency of incomes also prevents banks from issuing mortgages. Usually only 30 percent of a client's income is needed to cover repayments.
"You need about $1,000 to service monthly payments of $300, but people are reluctant to declare their full incomes," Samartsev said.
He expected most deals to continue to be done in dollars, despite this entailing currency risks.
"The real estate market is priced in dollars and people are used to that. Although ideally prices would be in rubles, people understand dollars better," he said.
Maria Petrova, a real estate and marketing consultant at city real estate firm S. Zinovieff & Co., said mortgages in Russia are far from being the mass phenomena that they are in other countries.
Among the barriers she listed were a lack of confidence in the development of the Russian economy, absence of credit bureaus to check creditworthiness, and the reluctance of banks to process real estate deals that require a lot of paperwork - sometimes up to 50 documents.
Even DeltaCredit Bank, which is known for having one of the most user-friendly programs, requires 20 documents and has a high refusal rate of those applying for loans. Only one in four applicants succeed, Petrova said.
TITLE: Third Quarter Earnings Poor
AUTHOR: By Meg Richards
PUBLISHER: The Associated Press
TEXT: NEW YORK - It seems investors made a bad bet when they bid stocks sharply higher this month in anticipation of strong third-quarter earnings. Companies didn't have the solid numbers to justify Wall Street's big advance, so the market retreated this past week.
Investors had set their hopes too high for the quarter, analysts said, but they're unlikely to be as impulsive in the near future.
"I think there was some kind of frenzy that had built up ahead of the earnings season," said Bernie Schaeffer, chairman of Schaeffer's Investment Research in Cincinnati. "Like there was going to be some kind of magic in what was going to be reported this month."
The earnings have been good, but not magical. With reports in from nearly two-thirds of Standard & Poor's 500 companies, 87 percent either met or surpassed Wall Street's forecasts, according to Thomson First Call.
Overall, the companies reporting so far have beaten the consensus estimates of Wall Street analysts by 6.4 percent, Thomson First Call said.
But only the most stellar results could justify the prices set by eager investors this month, Schaeffer and other analysts said.
"You wonder, 'Gee, if these good earnings can't make the market go up, what do we do for an encore?'" said Richard A. Dickson, senior market strategist at Lowry's Research Reports in Palm Beach, Fla. "We probably won't duplicate this in the fourth quarter, and next year is a wild card."
The rush to buy this month could be a sign that growth will be peaking soon, said Sam Burns, an analyst with Ned Davis Research in Venice, Florida.
"It's going to be harder to get enough good news to get more gains now that we're already up quite a bit," Burns said. "Back when the S&P was at 800, it didn't take so much."
Early in the week, the S&P 500 was within a few points of 1,050, a level it achieved briefly this month and which many hope it can sustain by the end of the year. The other indexes also seemed headed for significant highs.
But the markets sank Wednesday on gloomy reports from several pharmaceutical companies, led by Merck & Co., causing many investors to doubt the staying power of the economic recovery.
Even companies that released solid earnings, such as online retailer Amazon.com Inc. and leading biotechnology company Amgen Inc., saw steep declines as investors became increasingly sensitive to some negative forecasts for the fourth quarter and 2004.
A lukewarm outlook from Microsoft Corp. added to investor concerns Friday.
Most analysts are predicting strong fourth-quarter results, but say the first half of 2004 might not be as robust. Now the question becomes whether this past week's sell-off is a temporary correction related to the run-up on high earnings hopes, or a deeper downturn related to next year's cloudy forecast, said Chuck Hill, director of research at Thomson First Call.
"The problem may be the expectations were out of whack but that doesn't mean the market is going to fall apart," Hill said.
In such an erratic market, Schaeffer, the research firm chairman in Cincinnati, emphasized that it's more important than ever for investors to thoughtfully diversify their portfolios. He's advised investors this year to keep 25 percent to 50 percent of their holdings in cash, with additional exposure to gold as a hedge.
"I see this as a pretty dangerous time," Schaeffer said. "The single-worst decision anyone can make at this juncture is to be 100 percent invested in the S&P. The potential reward is not worth the risk."
The Dow Jones industrial average ended the week down 139.33, or 1.4 percent, finishing at 9,582.46. The S&P 500 fell 10.41, or 1 percent, during the week to 1,028.91.
The Nasdaq composite index lost 46.77, or 2.5 percent, to close the week at 1,865.59.
The Russell 2000 index, which tracks smaller company stocks, ended the week down 13.93, or 2.7 percent, closing at 506.43.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 9,983.50, down 114.88 from the previous week. A year ago, the index was at 8,450.64.
TITLE: Tax Expert Wants the Best for Russia
AUTHOR: By Adam Federman
PUBLISHER: Special to The St. Petersburg Times
TEXT: In the spring of 1998, Scott Antel was offered a transfer to the Budapest office of the now defunct Andersen international law firm. Then working at the Moscow office as a tax and legal expert, Antel initially planned to transfer in March of the following year. But when the Russian market collapsed in August 1998, Antel decided to stay put.
"I would have felt like a carpetbagger," he said. In fact, Antel says that, from a career and personal standpoint, his decision to come to Russia in the early 1990s is one of the best he has ever made.
Antel, raised in a family that had what he calls a "traditional American cold war mentality," never gave much thought to Russia before he was offered a transfer to Moscow from Andersen's London office in 1993. But the head of international assignments was very negative, according to Antel.
"He actually tried to discourage me from coming," Antel said. "He really wanted to make sure people came here for the right reasons."
When Antel first set foot in Russia on April Fool's Day 1993 on a "look-see visit," he was not sure he wanted the transfer. The snow was melting, it was gray and bleak, and everything was generally worn out. "I had these visions," Antel recalled, "of Hiroshima after the bomb, and of Havana, Cuba."
But when Antel met the local office staff and saw their enthusiasm, he knew he had to give it a shot. He has not regretted it.
After fourteen years the combined Andersen-Ernst & Young practice is the largest of its kind in Russia and the CIS, with over 1,400 specialists and twelve offices from Moscow to Yuzhno-Sakhalinsk. The St. Petersburg affiliate, which started in 1992 with just two employees, now has 120.
Antel, who came to St. Petersburg in 1998 to head the Andersen Legal and Tax Practice department, knows the market well and is seen by many as an authority in his field. He is the Russia correspondent for Tax Notes International and a frequent speaker on Russian legal and commercial matters.
Antel notices differences in perception of St Petersburg. Clearly, business interest from abroad is picking up as word gets out about the city, and amenities such as Western-style cafes and shops make the city a far more pleasant place to live. Antel attributes much of this attention to President Putin's fondness for his home town and the positive exposure from the numerous governmental delegations he has brought to the city.
Antel also points to Russia's comparative advantages, such as its location, access to energy and raw materials, relatively low cost of living and highly skilled pool of workers that, so long as political reforms continue, offer a bright future for Russia.
Understanding of the capitalist system has also taken root in Russia, Antel says. Antel recalls from his early days in Moscow the experiences of a friend who opened one of the first sandwich shops in the city, Jack's Sandwiches. Rather than offering Antel's friend a volume discount for buying multiple kilograms of potatoes, a trader at the local market wanted to charge him more per kilogram than he would an individual buyer. The reason: "He wanted, needed them more than the little old lady. And in a perverse way he had a point. But that's not how the system works in developed markets."
Such examples, says Antel, are far less common today. He also sees positive changes taking place at higher levels.
"Officials today are younger, more traveled and far more competent in their understanding of economics," Antel said. "Just because you study economics doesn't mean you know it. Like the potato example, you have to live in a market economy system to understand it."
And perhaps you also have to live in Russia to understand it.
Ernst & Young Marketing Manager Maria Klinova said that, after ten years, Antel "understands the Russian mentality very well."
But he may understand it a bit too well for some of his colleagues in London and New York. After a few years in Russia, Antel's credentials were questioned. He was told that if he didn't return to London or New York his technical skills would fade, particularly in the European and U.S. legal spheres.
And, perhaps more seriously, many of his friends and colleagues began to look at him differently. From their point of view, he's gone native.
"Moving to what was for them 'the Soviet Union,' you went practically overnight from being a political liberal to a borderline 'communist' whose views could not possibly be taken seriously," said Antel. "And these are well-educated people living in international cities." Still, Antel doesn't seem too deterred by these criticisms
"This is my home, and here is where my friends and colleagues are, and where my loyalties lie. In any international transaction in which I am involved, I always ask myself 'What's in it for Russia?'" he said.
"I believe we're headed in the right direction. I'm not so sure that's the case for much of the rest of the world."
TITLE: Severstal To Buy No. 5 U.S. Steel Producer
PUBLISHER: Combined Reports
TEXT: DEARBORN, Michigan - Rouge Steel, whose sprawling works became a symbol of raw 20th-century American capitalism, may soon rest in the hands of even rawer owners: Russian investors.
Severstal, Russia's No. 2 steelmaker, has agreed to buy most of Rouge, which has filed for bankruptcy protection, for an undisclosed price. Dearborn, Michigan-based Rouge, the fifth-largest U.S. steel producer, will continue to operate during the bankruptcy court proceedings.
Severstal said its acquisition of Rouge, Ford Motor Co.'s largest steel supplier, would allow it to boost sales to the United States.
"The purchase will give us access to the U.S. market for a long time," Severstal spokeswoman Olga Yezhova said from company headquarters in Cherepovets. "Exports of Russian cold-rolled steel for cars to the United States face limits now."
Russian steelmakers face export curbs in the European Union and the United States, who accuse them of selling for less than the cost of production.
The financial terms of the deal were not disclosed and no timetable was set for Rouge's emergence from bankruptcy. Rouge officials listed $558.1 million in assets and $558.1 million in debts in the steel maker's Chapter 11 filing, and the company has arranged for $120 million in debtor-in-possession financing. It has also obtained $30 million in bridge financing from Severstal, at 15 percent interest, which finance experts deemed an unusually high lending rate even for a bankrupt company.
The transaction, which requires bankruptcy court approval, would be one of the most significant Russian investments in a U.S. company. Earlier this year, Norilsk Nickel, Russia's largest metals mining and smelting company, paid $132 million for 55.5 percent of the Stillwater Mining Co., the only platinum and palladium producer based in the United States. And in 2001, in the first Russian purchase of a publicly held American company, oil major LUKoil bought Getty Petroleum and its network of 1,300 U.S. gas stations for $71 million.
Severstal, controlled by tycoon Alexei Mordashov, employs 176,000. Last year it earned $178 million on revenue of $1.9 billion. It produces 850,000 tons of rolled steel per year for carmakers and plans to raise that to 1.2 million tons per year by 2005 through a venture with France's Arcelor, Yezhova said.
Its executives first met with Rouge Steel officials last summer while on a tour of U.S. steel companies, Hornberger said. "We found them to be bright, knowledgeable and extremely technologically savvy," he said. "They are keenly interested in going global."
"We are excited about the opportunity to acquire Rouge, and join with its management and employees to continue to produce automotive-quality steel," Vadim Makov, deputy director of strategy for Severstal, said in a statement.
Officials with Rouge Steel and the United Auto Workers union said the planned acquisition by Severstal offered the best chance to keep Rouge afloat and its 2,600 employees on the job.
"From our perspective the Russians offer the most comprehensive package for our members," said Jerry Sullivan, president of UAW Local 600, which represents 2,000 hourly employees.
"Hopefully we'll work with the Russians to make it a profitable company," Sullivan said. "Just a few years ago we were in a [cold] war with them and now we're in the boardroom."
"Their rubles are as good as anybody else's," David Healy, an auto industry analyst with Burnham Securities, said Friday. "If the Russians are the only game in town, let's play it."
(NYT, AP, Bloomberg, Reuters)
TITLE: Is it Really the End of the Putin Reform Era?
AUTHOR: By Alexander Bim and Kim Iskyan
TEXT: The vigorous reform program of President Vladimir Putin's government has been experiencing an extended interlude. The prevailing - and very wishful - conventional wisdom holds that once the election season is over, Putin will rediscover his inner reformist self, and continue the reform process that marked the first two years of his presidency.
But the consensus is wrong: The Putin reform era appears to be over.
The Putin government's initial reformist focus was, for many, a pleasant surprise. In contrast to the policy paralysis that characterized the second half of the Yeltsin era, the Putin government developed and engineered the passage of a wide range of measures - including tax, land, pension, judicial, corporate governance and labor reforms - that have begun to fundamentallyalter the Russian economic environment. Although the ultimate success of many of these efforts remains an open question, they have helped to lay the groundwork for sustainable macroeconomic growth.
But the tenor of Putin's reign has since changed, as the president's well-documented authoritarian streak has steadily broadened. The rise of the siloviki, the Kremlin's favored faction comprising former KGB and law enforcement officials - evidenced by the continuing attacks on Yukos and its CEO Mikhail Khodorkovsky - reflects the ascendancy of forces within the Kremlin that are focused on increasing the state's control over the economy and society at large. The siloviki have even managed to dent the aura of irreversibility of the market economy experiment by raising the specter (albeit probably no more than that) of nationalization or the large-scale redistribution of privatized assets.
The aim of liberal reform - to take power out of the hands of the government and bureaucracy in favor of independent economic actors - is anathema to the siloviki and friends. The key reforms that have supposedly been deferred until Putin's second term, but which are likely to be ignored altogether, illustrate how the Kremlin's desire for control is trumping the need for reform.
The restructuring of Gazprom is critical to ending the Soviet legacies of super-monopolism and non-transparency, but it would also make it much harder for the company to be used as a slush fund for financing Kremlin-backed political parties and other projects. Attempts by government reformers to set the reform process in motion have been repeatedly blocked, and it is pretty clear that the message not to touch Gazprom is coming from Putin himself.
Contrary to high expectations following personnel changes at the Central Bank in March 2002, serious banking reform has also been deferred for years for the same reason - despite the centrality of a functioning banking sector to sustainable economic growth. In addition, real and positive change in the electricity industry has been short-circuited by the entrenched interests that would stand to lose most from reform.
While the reforms that remain to be tackled require hand-to-hand combat with an array of vested interests, the reform accomplishments of the Putin government in 2000 through 2002 only rarely involved taking on entrenched interests. No vested interests were threatened by tax reform. Fiscal centralization was only weakly opposed by the regional elite, which had already been stripped of power by the president. Corporate governance reform has made it only slightly more difficult for corporate Russia to engage in "business as usual."
Those efforts at reform that cut too close to the bone have subsequently been conveniently ignored or allowed to sink into the bureaucratic muck - such as serious administrative reform and the restructuring of Gazprom and the electricity sector. Often, those charged with carrying out the reforms have a vested interest in maintaining the status quo - and Putin has done little in the way of wielding his enormous powers to tackle conflicts of interest for the sake of promoting reform.
The derailing of the Putin government's reform program has been facilitated by its ideological drift. At different times, Putin has been enraptured by different approaches to the tasks set, swaying from the radical liberalization advocated by economic adviser Andrei Illarionov, to the moderate liberalization tempered by state dirigisme prescribed by Economic Development and Trade Minister German Gref, to the go-slow approach of Finance Minister Alexei Kudrin and other technocrats - and then back again.
The lack of ideological rudder and the president's apparent difficulties with grasping a broad conceptual framework have led to a loss of reform momentum.
Without serious efforts to undertake fundamental structural reforms, the long-term sustainability of Russia's economic growth will be severely compromised. The perverse incentives created by natural monopolies will continue to shred the country's economic fabric, and a dysfunctional banking sector will stand in the way of economic growth. The dependence of the economy on oil, gas and metals will only grow, and underinvestment will plague all other sectors of the economy. The lives of the vast majority of Russians (i.e. all apart from those who live in Moscow and a small number of oil-producing regions) will continue to deteriorate.
The stalled reforms have also led to an increase of Russian asset prices, which have risen dramatically across the board over the past few years. The bubble in asset prices in the mid-to-late '90s was caused in part by the anticipation of reform, as investors priced assets on the assumption of the full implementation of a wide-ranging reform program. To the extent that present asset prices have built in the expectation of dramatic and deep-cutting changes to the structure of the Russian economy, they are susceptible to correction as reality hits - particularly once the unsustainably high commodities prices that have fueled economic growth and contributed to heightened expectations come back down to earth.
The PR-savvy Putin will continue to make the right reform noises when necessary - particularly when foreign investors, who are investing despite Russia's structural problems, are within earshot.
But his much-touted aim of doubling Russia's GDP has clearly taken a backseat to other more self-serving concerns. Deputies in the State Duma (hardly a hotbed of reformist tendencies at the best of times) will likely be too preoccupied - either with the Kremlin's efforts to extend the president's term in office or with positioning themselves for the post-Putin epoch - to bother with reform.
Whither reform in Russia, then, given increasing authoritarianism on the part of a leader who is not interested in or not capable of taking on vested interests, a burgeoning bureaucracy and a Duma distracted by Putin's possible future power plays? The most likely scenario during Putin's second term involves increased state intervention, punctuated by periodic attacks on big business - together with sporadic and half-hearted efforts at reform.
Many entertain the hope that Putin will revive the reform process after re-election. In this scenario, after the elections the Cabinet will be strengthened by an influx of outspoken reformers who will be allowed to push ahead with reforms - perhaps with the tacit support of the president.
Most likely, however, is that Russia's economic performance will continue to be tied to commodity prices, as the underlying post-Soviet structure of the economy remains largely untouched. Improvement in the business environment will grind to a halt, and the increase in investor confidence - as reflected in the recent upgrade by Moody's rating agency of Russian debt to investment grade status - will be tempered by reality as it becomes clear that reforms are on an extended vacation.
Alexander Bim is a political analyst at IMAGE-Contact Consulting Group in Moscow and Kim Iskyan is a former securities analyst for the Russian equity market. They contributed this comment to The St. Petersburg Times.
TITLE: Russian Economy Reveals Lack of Historical Memory
AUTHOR: By Adam Federman
TEXT: In his address to the New York Stock Exchange on Sept. 26 Russian President Vladimir Putin struck a cautious, but forward-looking note in describing the current state of the Russian economy. He acknowledged that figures of economic growth in Russia exceed the average world level but added - perhaps to allay any fears that investors might have - that, "We are fully aware of what is happening, and how it is happening, and from which level we are beginning to move. We are not getting carried away by this success, but the tendencies are positive, this is an obvious fact."
The recent upgrading of Russia's investment status by Moody's rating agency is the most recent proclamation that the Russian economy is back on two feet and that the upheaval of the 1990s is indeed a thing of the past. Changes in tax law and the customs code have also led to a renewed interest and faith in Russian markets. Investors are again lining up at the door.
But at the same time there is much concern. Although Putin claims that, "We are fully aware of what is happening," not everyone agrees.
The change in the Customs Code is a major overhaul and its impact is far from certain. And regardless of what the law says, if it is not enforced with consistency it has little meaning.
Another worrisome trend is massive private sector capital outflow totaling $7.7 billion from July through September, an $11.4 billion turnaround from a net capital inflow of $3.7 billion in the last quarter.
The war in Chechnya is far from settled and Russia's dependence on the export of oil and natural gas is a shaky foundation for sustained economic growth. Especially given the current state of world affairs.
Even the jubilation surrounding the upgrade in investment status was met with words of caution. As The Russia Journal points out, "Financial markets and rating agencies have shown they have no memory of Russia's recent history."
It's also worth recalling that on the eve of Russia's financial meltdown in 1998 a number of observers refused to acknowledge that things were amiss. Playing the Russian stock market was more of a game. And those who were privy to sit at the table were not the ones who paid for the devastating losses that beset the country and that are still being weathered today. An evening stroll in St. Petersburg replete with middle-aged women hawking household goods on the sidewalk and rummaging for bottles in overflowing trash bins is all one needs to understand that the economy is far from stable.
In his new book "The Piratization of Russia," Marshall I. Goldman offers a detailed account of what went wrong in Russia during the 1990s and attempts to answer some of the questions that are now being ruefully dismissed.
It is one of many recent books that attempt to account for the collapse of the Russian economy amidst such euphoria and projections of unlimited growth.
How was it, Goldman asks, that as Russia's GDP steadily declined throughout the 1990s the Russian stock market reached such unprecedented heights?
"Why would investors be so bullish about the operations and prospects of Russian enterprises if the economy were in such a calamitous state?" Goldman wonders.
Goldman's question points to the absence of a real connection between what is understood as the market - a rather abstract notion - and economic conditions on the ground. If current economic growth is tied to oil revenue and not to investment in sectors of society that affect the day to day lives of Russian citizens what kind of long-term benefit will it have? And if oil prices plunge or the war in Chechnya takes an unexpected turn will the Russian stock market be able to weather the storm? In short, is the current economic boom more than just a myth?
Even a recent report on the economic situation in Russia sponsored by the American Chamber of Commerce in Russia, the Expert Institute, and Ernst & Young notes that despite positive growth figures for 2002, "the country is still at risk from major economic crisis." Administrative barriers, extortion, and corruption remain significant obstacles to sustained, long-term economic growth.
And although many would like to forget the past and concentrate on stocks and bonds, futures markets, and the price of oil, there is undoubtedly a measure of continuity between the Russian economy of the '90s and the Russian economy today. The economic practices encouraged during the 1990s have not magically disappeared. There are still plenty of people interested in profits at any cost rather than establishing a social structure that meets the needs of the majority of the population.
As Goldman writes, "in no case, even after the beginning of economic expansion in 1999, have the results been robust enough to warrant papering over the social monstrosities that the reforms spawned such as the Russian Mafia, a business oligarchy, capital flight, and inflation."
But we are seeing just that: a papering over if not a complete erasure of Russia's immediate past. As Putin samples Krispy Kreme donuts in New York and rubs shoulders with the financial elite, many Russians continue to live in poverty, losing any faith or even hope they once had in the merits of capitalism.
Depending on who benefits from the latest round of speculation it remains to be seen if Russia's current economic success is more than just reckless word play.
Adam Federman is a freelance writer and Fulbright Scholar based in St. Petersburg. He contributed this comment to The St. Petersburg Times.
TITLE: Russia Merits WTO Entry
AUTHOR: By Peter Weinberg
TEXT: The world stands to gain significantly from Russia's accession to the World Trade Organisation. Further delay would be bad news for Russia and the global economy. Of course, the WTO and its members must secure sound terms for accession. But there are good reasons for moving to have Russia in the WTO sooner rather than later.
Russia, notwithstanding the past weekend's tensions between the Kremlin and some business leaders, has made a remarkable comeback from the 1998 crisis. It has run a budget surplus for three years and its external debt is being repaid ahead of schedule. President Vladimir Putin's government has maintained a solid commitment to fiscal prudence, tax, land and structural reforms and liberalising difficult areas such as the electricity sector. Affirmation of these efforts came with Russia's well merited debt rating upgrade to investment status by Moody's.
Under Putin, Russia has achieved impressive average gross domestic product growth rates of 6 per cent a year, faster than any of the other Group of Eight countries. The longer-term economic outlook is positive. A recent Goldman Sachs study estimates that Russia's economy will overtake Italy's in 2018, France's in 2024, Britain's in 2027 and Germany's in 2028. Few would argue against the view that WTO membership is in Russia's long-term interests.
Less well articulated have been the short- and medium-term benefits for millions of Russians and their businesses from greater foreign direct investment and export growth. FDI brings higher productivity from technology transfer and innovative management practices, and will integrate Russia into international production chains. So far, Russia has not attracted its proper share of FDI flows: only $51 billion to date. Accession would help, but improvements to property rights and other business environmental factors are also necessary.
Export benefits would, naturally, accrue. Accession should yield a fairer deal for Russian trade, with improved market access for those natural resources and products in which Russia enjoys a comparative advantage. Russia would benefit immediately from access to the WTO's legal enforcement and dispute resolution mechanisms, while its intellectual property protection could help to reinvigorate Russia's great traditions of scientific and technological innovation.
By drawing Russia closer into the global community, accession would further encourage reduced state involvement in the economy and greater openness to foreign goods, investments and ideas. As Russia increasingly plays by global rules, the transparency and consistency of its own regulations and policies will be enhanced. The European Union and the United States should reward Russia for what it has already achieved and provide incentives for further progress. Under Putin, the country has shown it is willing to make hard decisions about reform and stick to them. Accession would help to reduce any residual market uncertainty about the durability of the reform effort. It would signal that reform was sufficiently robust to be anchored in binding commitments to trading partners.
Those trading partners must be realistic. It is unreasonable to expect Russia to postpone accession until it reaches standards of liberalisation that have never been required of many current WTO members. While it may need to go further in some market access areas, it should receive credit for the progress already made. In any event, Russia will participate in the ongoing multilateral trade negotiations, requiring further give and take on all sides.
Both the EU and the United States can show leadership by removing constraints in the trading relationship with Russia. The US should act swiftly to remove Russia's Jackson-Vanik amendment restrictions, which tie trade benefits to emigration policy. These were introduced in 1975 and no longer apply to Russia. The EU should moderate its demand that Russia rapidly raise its domestic gas prices to world levels. This would result in an internal transfer of more than 6 per cent of GDP from the Russian people and private sector to the public sector, an intolerably large adjustment for any country.
The sooner Russia accedes to the WTO, the faster it can free the energy and political capital of its economic specialists and reformers to implement its WTO commitments. And the faster its companies and their employees will be empowered to capitalise on new opportunities to redouble their efforts to build a prosperous future.
Peter Weinberg is chief executive of Goldman Sachs International. This comment appeared in the Financial Times.
TITLE: Prosecutors Sidestep the Rule of Law
TEXT: President Vladimir Putin broke his silence on Monday and was taking no prisoners.
He offered a pretty unambiguous endorsement of the prosecutors' actions against Yukos CEO Mikhail Khodorkovsky, rebuffing calls from an anxious business elite to convene a meeting and letting his government know that he would brook no dissent on the issue.
At least for now, the prosecutors have been given free rein to pursue a case that is hard to describe as anything but politically motivated. Does this mean that Putin is effectively unveiling a new model of business-state relations in which subservience is paramount and any businessman who steps out of line can expect the "Khodorkovsky treatment?" Or is the president, with an eye to the upcoming elections, trying to score a few points by indulging in some token oligarch-bashing and populist posturing?
A definitive answer to this is unlikely to be forthcoming until after the elections.
Putin's statement about everyone being equal before the law, however, is a bit rich - not least coming as it does from a man whose first action as acting president was to sign a decree providing Boris Yeltsin and himself (as a future ex-president) with immunity from prosecution.
If Putin is genuine in his desire to root out corruption, create an effective system of tax collection and champion the rule of law - the spectacle being put on by the prosecutor's office is the wrong way to go about it.
The whole Yukos affair highlights important issues about the economic and political power that is concentrated in the hands of a small group of individuals.
A more civilized way of dealing with such problems would be to give the ineffectual Anti-Monopoly Ministry real teeth. The Putin administration's preference in dealing with these issues has consistently been for cutting backroom deals and using carrot-and-stick tactics.
As Anatoly Chubais put it in an interview last month: "Instead of developing a law to prevent impudent, uncivilized lobbying, the authorities launched a case against Platon Lebedev, and held up the possibility of a revision of privatization results. If your podezd is defaced and befouled, you need to call in a cleaner or a decorator. The authorities opted to blow up the whole house."
Such methods are totally incompatible with strengthening the rule of law. But the Kremlin in its dealings has shown a distinct preference for operating behind closed doors on a case-by-case basis, rather than establishing transparent rules to be applied universally. And transparent businesses are much harder to control (or blackmail) than those that operate in the shadows.
TITLE: Former Court Favorites Seek More Manna
TEXT: On Saturday morning, the wires announced that the Prosecutor General's Office had detained Yukos CEO Mikhail Khodorkovsky. As a result, my wife, a radio journalist, had to scurry off to work at the double. And the quiet family weekend, which we had been looking forward to all week long, was completely ruined.
Abandoned by my wife, I called my most reliable source, a veritable know-it-all, and asked: "Whom does Prosecutor General Vladimir Ustinov fear more - Boris Yeltsin who nominated him or Vladimir Putin who tried to remove him?"
"And what makes you think that he is afraid of anyone?" replied my most reliable of sources. "If even the 'bully' Yeltsin had to spend 1 1/2 days in order to prevail upon his generals to provide him with four tanks to put down the parliamentary 'revolt' in October 1993, then who's going to be afraid of the quiet, intelligent Putin?"
And indeed, what is there to fear? That some kompromat on the prosecutor general will be leaked to the press? The public long ago lost its faith in the media. That Ustinov will be removed from his post? With the kind of PR bonanza that taking on Khodorkovsky offers, Ustinov is guaranteed a seat either in the State Duma or the Federation Council.
I even thought to myself that I should suggest to CEC Chairman Alexander Veshnyakov that taking oligarchs into custody be classified as an illegal form of election campaigning, but then I remembered that Veshnyakov himself is up against the Constitutional Court, which is threatening to water down restrictions on election campaigning.
On Nikolai Svanidze's "Zerkalo" current affairs program on Saturday evening, UES CEO Anatoly Chubais repeated several times that Khodorkovsky is not as good a guy as first impressions might suggest, and that he himself had filed a lawsuit against the privatization of Yukos in 1997, when he was in government. However, he also issued an ultimatum to Putin on behalf of the business community : The president should clearly and intelligibly articulate his position regarding the conflict between the prosecutor's office and Yukos.
As I was watching the program, I thought to myself: What sort of state-controlled television and what sort of state-controlled UES are we talking about, if the CEO of state-controlled UES speaking on state-owned Rossia can threaten the president that if he does not interfere with a technically independent law enforcement body, big business will stop paying taxes and take its capital abroad?
Of course someone must be calling the shots, but who exactly?
One hour later, Alexei Pushkov explained everything in his "Postscriptum" program on TV Center. In his view, it is no coincidence that Yeltsin broke his long silence just last week, giving a lengthy interview to the Khodorkovsky-owned Moskovskiye Novosti newspaper and naming none other than Chubais as his closest associate.
In light of "Postscriptum," one can understand the Rossia broadcast as follows: The Family (in the person of Chubais) is demanding that Yeltsin's heir, Putin, sort out the illegal actions of the Yeltsin-appointed Ustinov against Khodorkovsky who illegitimately acquired his fortune during the Yeltsin era - and threatening to bring the country to a halt, if Putin does not.
I would assume that the quiet, intelligent Vladimir Vladimirovich is consoling himself with the fact that even if the oligarchs' money flees the country (it wouldn't be the first time), Russia's vast natural resources will hardly be going anywhere. And he would be able to feel free of any obligations toward the Family.
However, while things are being sorted out, I have big favor to ask of the prosecutors' office: In the future, would you be so good as to administer the law on week days? Journalists, after all, are people too, with spouses and children. And we may yet be of help you in your future election campaigns.
Alexei Pankin is the editor of Sreda, a magazine for media professionals. (www.sreda-mag.ru)
TITLE: Chris Floyd's Global Eye
AUTHOR: By Chris Floyd
TEXT: Thieves Like Us
When asked why he robbed banks, the outlaw Willie Sutton put it to them straight: "That's where the money is."
It is, of course, physically - not to mention politically - impossible for the corrupt cadres of the Bush Regime to give a straight answer to anything, but if they could be forced to cough up the truth behind the conquest of Iraq, their reply would be identical to Sutton's. For although the cadres - and the media commentariat - have thrown up a dust storm of grandiose moral, strategic and ideological "reasons" for the war, each passing week brings new proof that the whole murderous farrago boils down to one thing: loot. "Follow the money" - Deep Throat's abiding Suttonian wisdom - is definitely the key to penetrating the grubby mysteries of the Bushist cargo cult.
Let's begin by following the money from the mounting pile of dead bodies in Iraq to the silk lining of Dick Cheney's trouser pockets. This month the mainstream American press woke up to the long-established fact that Cheney is still receiving oodles of boodle in "deferred compensation" from his old firm, Halliburton, which just happens to be the biggest gorger at the Iraqi trough. These "revelations" forced the grim-visaged veep into a furious spin cycle: the terms of the deal were set before he took office, he'll give all the money to charity, his probity is irreproachable, blah blah blah - the usual soft-soap, swallowed whole, as usual, by the media.
So bold was his defense that last week Bushist minions called on critics to issue a formal apology to the poor maligned unelected multimillionaire war profiteer (and former business partner of Saddam Hussein). But even granting the ludicrous assumption that Cheney was actually telling the truth about this particular arrangement - which only involves chump change of a few hundred thousand dollars, after all - the fact is that Halliburton is using a back door to fill their former chief's coffers with millions in blood money pumped directly from the corpses of American soldiers and Iraqi civilians.
This profitable arrangement was found hiding in plain sight last week by intrepid investigator Maggie Burns, writing for Buzzflash.com. While the media mandarins were gulping soap, Burns committed the increasingly rare act of journalism by checking out Cheney's financial disclosure forms. These show that Cheney has a minimum of $18 million invested in The Vanguard Group, a leading mutual fund. (Given the deliberately vague, vast ranges of the "disclosure" forms, this nest-egg could be as high as $87 million. We mere mortals are not meant to know).
Vanguard, as it happens, is the 10th largest shareholder in - oh, you guessed already! - Halliburton. The fund owns 7.6 million shares in the firm, worth about $176 million. Thus any government contract that swells Halliburton's bottom line does indeed pour war profits straight into Cheney's bulging bank accounts. No amount of soap can wash away that fact. Meanwhile, five of the other top 10 shareholders in Halliburton have big bucks parked with our old friends. The Carlyle Group, where George Bush Senior hangs out his shingle as a pricey corporate shill (and former bin Laden business partner). So Bush family coffers are definitely not forgotten when Halliburton goes to war.
But let's be fair. After taking a bit of mild heat for larding Halliburton, Bechtel and other Bush-blessed firms with billion-dollar no-bid contracts, the Regime announced it was "opening up" competition for war pork. The new rules give potential contractors all of three days - or even sometimes as much as seven whole days! - to put together bids for major projects totaling hundreds of millions of dollars, The New York Times reports.
Oddly enough, most companies not already on the ground in Iraq are finding it difficult to meet these luxurious deadlines. "Oh, your company can't come up with specs for rebuilding the entire national highway infrastructure of Iraq in just three days? Too bad; guess we'll have to give it to Bechtel then. Here ya go, Bechs - and by the way, thanks for that campaign check, pal! See ya at the ranch this weekend!"
Now this system of conquistador cronyism is going global. In a desperate bid to get some outside help in cleaning up the ungodly, bloodsoaked mess they've made, the Bushists struck a UN deal last week that will allow foreign countries who contribute to the sacking - sorry, the reconstruction - of Iraq to funnel the cash to their own politically favored firms, the Guardian reports. Naturally, the Bushist occupation junta will "coordinate" the gobbling at this new trough, making sure the White House Vanguardians get their cut. At last, a form of internationalism that Bush can embrace!
But the sweetheart deals get sweeter yet for Homeland gobblers like Halliburton. First, most of the insider pork is being doled out in "cost-plus" contracts, with a company's profits tied to a project's "expenses." The more costs they ring up, the greater the profit: it's a green light for overruns, and a license to loot the public treasury. But that's not all: the profits from these scams are being kept secret - not only from those habitual saps, the American people, but also from the Constitutionally mandated oversight of Congress, The Seattle Times reports.
Secret deals with pals and patrons, secret profits that can't be traced, mutual funds to launder the money - and plenty of cannon fodder to do the wetwork and take the blowback: Bush has turned America into a den of thieves.
For annotational references, see the Opinion section at www.sptimesrussia.com
TITLE: Two Days of Terror Rock U.S., Baghdad
AUTHOR: By Charles J. Hanley
PUBLISHER: The Associated Press
TEXT: BAGHDAD, Iraq - Car bombers struck the international Red Cross headquarters and four police stations across Baghdad on Monday, killing about 40 people in a spree of destruction that terrorized the Iraqi capital on the first day of the Muslim holy month of Ramadan, according to police and Red Cross reports.
The Red Cross said 12 were killed there, and police said 27 were killed in the police station bombings, most of them Iraqis but including at least one U.S. soldier. The U.S. authorities did not confirm an American death.
The bombings came hours after clashes in the Baghdad area killed three U.S. soldiers overnight, and a day after insurgents devastated a hotel full of U.S. occupation officials with a rocket barrage, killing a U.S. colonel and wounding 18 other people. U.S. Deputy Defense Secretary Paul Wolfowitz was in the hotel, but was unhurt.
It was two days of violence unprecedented in this city of 5 million people since the end of the U.S.-Iraq conflict last April, with attacks aimed at the American-led occupation and those perceived as working with it.
"We feel helpless when we see this," a distraught Iraqi doctor said at the devastated Red Cross offices.
At the offices of the International Committee of the Red Cross in central Baghdad, witnesses said a suicide bomber drove an explosives-packed vehicle, apparently an ambulance, right up to security barriers outside the building at about 8:30 a.m. and detonated it, blowing down the Red Cross's front wall, devastating the interior and sending shrapnel and debris over a wide area.
Then, through the morning, four other vehicles exploded at police stations in the Baghdad area. Ambulances, sirens wailing, crisscrossed the city all morning. The explosions left streetscapes of broken bloody bodies and twisted burning automobiles. Iraqi police reported that of the 27 people killed in those attacks, 15 Iraqis at the ad-Doura station in southern Baghdad were included.
At a fifth police station in central Baghdad, officers stopped a suicide bomber before he could detonate his Land Cruiser. "He was shouting, 'Death to the Iraqi police! You're collaborators!'" said police Sgt. Ahmed Abdel Sattar.
The rocket attack Sunday struck the Al-Rasheed Hotel, where Wolfowitz was staying at the end of a three-day Iraq visit. The assault was likely planned over at least the past two months, a top U.S. commander said, as the insurgents put together the improvised rocket launcher and figured out how to wheel it into the park just across the street from the hotel.
The effect of the 6:10 a.m. volley of rockets was dramatic: U.S. officials and officers fled from the Al Rasheed, some still in pajamas or shorts, to a nearby convention center. The concrete western face of the 18-story building was pockmarked with a half-dozen or more blast holes, and windows were shattered in at least two dozen rooms.
The deputy defense secretary said afterward that the attacks "will not deter us from completing our mission." But the blow at the heart of the U.S. presence rattled U.S. confidence that it is defeating Iraq's shadowy insurgents.
TITLE: The White House Guards Its Secrets
PUBLISHER: The Associated Press
TEXT: WASHINGTON - Members of both parties are accusing the White House of stonewalling the federal commission investigating the Sept. 11, 2001 attacks by blocking its demands for documents despite threats of a subpoena.
The 10-member, bipartisan commission has until May 27 to submit a report that also will deal with law enforcement, diplomacy, immigration, commercial aviation and the flow of assets to terror organizations.
Sen. Chuck Hagel, R-Neb., told NBC's "Meet the Press" on Sunday that it would be in the administration's interest to release documents the commission has requested.
"Americans and our allies across the globe must have confidence in our leadership," said Hagel, a senior member of the Senate Foreign Relations Committee who has criticized Bush's execution of the campaign against terrorists.
White House spokeswoman Ashley Snee defended the administration's cooperation with the investigation and said the White House hoped to meet the commission's request for documents. At the president's direction, the executive branch has dedicated tremendous resources to the commission, including provision of more than 2 million pages of documents, Snee said.
TITLE: WORLD WATCH
TEXT: Diana's Butler Tells All
LONDON (Reuters) - The former butler to Britain's late Princess Diana vowed Sunday to defy pleas from her royal sons and continue his headline-grabbing series of revelations about her private life.
Diana's sons, Princes William and Harry, accused Burrell of a "cold and overt betrayal" of their mother.
But Burrell told the Sunday Times newspaper in an interview that the disclosures so far - which include a letter in which Diana claimed someone was planning to kill her in a car crash - are----- only the "tip of the iceberg."
Solar Storm Passes By
DENVER (AP) - A geomagnetic storm spawned by a giant eruption of gas on the sun reached the Earth's upper atmosphere on Friday, interfering with high-frequency airline communications but causing no major problems, federal officials said.
The storm, called a "coronal mass ejection," is a mass of solar gas that swept toward Earth at 2 million mph. The usual cycle for such a storm is every 11 years.
The storm's most visible effect will be the beautiful shimmering light displays, called auroras, that are visible to the naked eye right after dark.
Bogota Elects Mayor
BOGOTA, Colombia (AP) - Residents of Colombia's sprawling capital elected a former Communist union leader as their mayor in what is seen as the biggest political prize ever claimed by an openly left-wing politician in Colombia.
The victory was seen as a further headache for hardline President Alvaro Uribe, coming a day after he suffered a defeat in a sweeping referendum he had championed as vital to fight terrorism and boost the faltering economy.
Korean Defector Speaks
SEOUL (AP) - Hwang Jang Yop, who once mentored leader Kim Jong Il, left for the United States on Monday in a trip that could strain relations between Washington and North Korea amid tension over its nuclear weapons program.
Hwang, who defected to Seoul in 1997, has been invited several times to speak before a U.S. congressional hearing, but had not been allowed to travel outside South Korea.
Hwang, 81, was once chief of North Korea's parliament. When he came to Seoul, South Korea hailed his defection as an intelligence bonanza, while the North denounced him as a traitor.
Shoe Thief Caught
TOKYO (AP) - Police arrested a man for stealing shoes at a southern Japanese hospital then found a collection of 440 women's shoes in his home - all for the left foot.
The hospital in Usu city, 500 miles south of Tokyo, began receiving complaints two years ago from patients and employees that shoes removed at the entrance hall were disappearing. In Japan, it is customary to remove shoes before entering homes and some public facilities.
Ichiro Irie, 45, was arrested Saturday on suspicion of having stolen two leather shoes the previous day during one of his twice-weekly hospital visits.
TITLE: Muslims Begin Celebrating Ramadan
AUTHOR: By Chris Brummitt
PUBLISHER: The Associated Press
TEXT: JAKARTA, Indonesia - After waking early for pre-dawn meals and prayers, millions of Muslims across Asia began the fasting month of Ramadan on Monday with many expressing anger at the United States.
Whereas most Muslims in the Middle East began Ramadan on Sunday, the fast began a day later in Asia in accordance with the region's first sighting of the new moon. In Asia, Muslims mixed calls for self-cleansing and peace with criticism of President Bush and his government's occupation of Iraq.
"Muslims are living in a state of fear that they will become scapegoats," Vitaya Visetrat, a leader of Thailand's minority Muslim community, said in Bangkok. "George Bush continues to cook up stories about terrorism that point a bad finger at Muslims."
Teenagers in Indonesia, the world's most populous Muslim nation, began the day by parading through the streets banging cooking pots and chanting "Wake up! Wake up!" to ensure people ate before the fast began.
In Malaysia, where the country's Muslim majority lives alongside Hindus of Indian descent, the start of Ramadan fell close to the Hindu festival of Deepavali, or Diwali, celebrated over the weekend with fireworks.
"This is a month which helps shape and nurture patience and perseverance," student Zulkarnain Zainuddin said in Malaysia's largest city, Kuala Lumpur. "Let the West go on ranting about terrorism and Islam."
Late Sunday, Muslim men and women across the region flocked to neighborhood mosques to perform the first evening prayers of the month. Muslims believe that prayers, charity and the act of reading the Quran, the Muslim holy book, are especially rewarded by God during Ramadan.
After a year of deadly bombings in Indonesia blamed on Islamic terrorists, some called on their fellow Muslims to look inward during Ramadan and examine what it means to be a Muslim.
"We must all look deep into ourselves and use this month to clean our hearts," said Ali Maschan, from the country's largest Islamic group, Nahdlatul Ulama. "We must try to promote the real Islam."
In India's disputed Kashmir province, where Islamic militants have been fighting for independence or merger with neighboring Pakistan since 1989, some called for peace.
"Ramadan is the best time to put a stop to violence and destruction," said 21-year-old Nahida Shah, in Srinagar, summer capital of Jammu-Kashmir state.
During Ramadan, observant Muslims refrain during daylight hours from eating, drinking, smoking and having sex. It is also a time of family gatherings, sumptuous fast-breaking feasts and spiritual reflection.
Ramadan coincides this year with the U.S. occupation of Iraq and the Palestinian-Israeli conflict - issues that fuel anti-American anger across the region.
"We are brothers with other Muslims in Iraq and Palestine," said 73-year-old Hajj Muhammad Nur, who was reciting the Quran in a Jakarta mosque. "All we can do in this holy month is pray, chant and hope that God will stop the United States and Israel from hurting our Muslim brothers."
Muslims believe Ramadan was the month when God began to reveal the Quran to the Prophet Muhammad 1,400 years ago.
TITLE: Aid on Way After Quake Strikes China
PUBLISHER: The Associated Press
TEXT: BEIJING - Huddled against the cold, residents of an earthquake-stricken region of northwestern China ate emergency rations of instant noodles and issued a plea Monday for more cold-weather tents to prevent a calamitous situation from getting worse.
"More cotton-padded tents are badly needed," the official Xinhua News Agency reported from Gansu province, where two earthquakes, with magnitudes of 6.1 and 5.8, hit minutes apart Saturday, killing nine people and injuring dozens. Hundreds of houses collapsed in several rural villages.
The government said preliminary figures show a potential economic loss of $37.4 million, which includes damage to more than 46,000 households in 175 villages. Xinhua said 14,322 houses were flattened and more than 16,000 head of livestock were killed or injured.
Top officials from the provincial Civil Affairs Bureau in Lanzhou arrived in Yongle County on Monday morning to oversee delivery of 220 cotton-padded tents. Other tents and shelter materials reached Shandan County, another severely hit area, but thousands more were needed.
The government said the levels of two reservoirs affected by the tremors were "under safety lines" Monday.
Prime Minister Wen Jiabao has ordered a "quick and full" response by the government, which has earmarked $843,000 for initial relief efforts. Urgently topping the list are water and power-supply facilities.
TITLE: Triumphant FC Zenit Hold Loko 0-0 For Second Place
AUTHOR: By Christopher Hamilton
PUBLISHER: Special to The St. Petersburg Times
TEXT: FC Zenit St. Petersburg held last year's champions Lokomotiv Moscow to a scoreless draw to clinch the silver medal in the Russian Premiere League on Saturday.
Petrovsky Stadium was filled beyond capacity as an estimated 24,000 fans braved freezing temperatures and a snowstorm to support the Petersburg side in what was dubbed the "silver match" because both teams had a chance to take second place depending on the result.
Zenit entered the match having secured a spot in the top four of the league, earning them a place in next season's UEFA Cup. For Loko it was must-win game that would have moved them into a two way tie with Zenit, thus giving them a good chance to steal second place or at least capture a medal in the final round next Saturday.
But after two big wins last week, 6-1 over Shinnik Yaroslavl and 3-0 against Inter Milan in the Champions League, the tired Moscow side couldn't muster the scoring power they needed to against a determined Zenit.
The fast play and slippery conditions made it difficult for either team to set up scoring chances. Zenit dominated play in the first half with midfielders Olexander Spivak and Vladimir Bystrov showing inspired play on the left and right flanks respectively, forcing the visitors to play a more defensively. Loko defender Sergei Ignashevich played brilliantly, while South African Jakob Lekgetho struggled against Bystrov.
Zenit captian Vyacheslav Radimov had an exceptional game, not only breaking up the Loko offensive, but setting up a number of scoring opportunities. Konstantin Konoplev displayed his defensive skills effectively shutting down the Muscovites in the midfield. However, they were unable to pass Lokomotiv keeper Sergei Ovchinnikov.
The tables turned in Loko's favor during the second half after Loko captain and playmaker Dmitry Loskov replaced Lekgetho.
"He was really tired following the match with Inter, and it was best for him and the team to let him rest," explained Lokomotiv head coach Yuri Semin.
Loskov strengthened the defensive line and presented a challenge to Zenit's tiring midfielders. Tension rose at the stadium as the Muscovites became alive and Zenit keeper Vyacheslav Malafeev looked a little shaky in goal after made a few mistakes that put Zenit fans in the stadium and across the city on the edge of their seats. But Zenit continued to hold on.
Three minutes into added time visiting defender Dmitry Sennikov was sent off for his second bookable offense. A minute later the final whistle blew and the stadium exploded with cheers and fireworks.
TITLE: Yankees in Turmoil After Loss
AUTHOR: By Ronald Blum
PUBLISHER: The Associated Press
TEXT: NEW YORK - The Florida Marlins took the World Series from the Yankees in Game 6 on Saturday at Yankee Stadium, leaving New Yorkers to face the offseason in turmoil.
Instead of playing Game 7 of the World Series on Sunday, they started to stream in slowly to pack up their gear and ponder what is likely to be a tumultuous five months until the 2004 season opener against Tampa Bay on April 5.
The frustration that followed the game-six loss to Florida was clear following a bumpy season and repeated prodding by owner George Steinbrenner. And it appears manager Joe Torre will lose at least one and perhaps both of the key aides who have been with him since he took over the team before the 1996 season.
Bench coach Don Zimmer said after Saturday night's 2-0 loss that he is quitting, angry with Steinbrenner's treatment of him.
Pitching coach Mel Stottlemyre doesn't know if he wants to return, saying he wants to talk it over with his family. Stottlemyre, who has spoken of possible retirement at the end of previous seasons, made clear this was the most difficult of his eight years as the Yankees pitching coach.
"I feel personally abused because of some things that happened during the course of the season,'' Stottlemyre said as he headed out of the ballpark Sunday.
Asked why, Stottlemyre cited the April decision by the team to send Jose Contreras to the minor league complex in Tampa, Florida, which came after Torre and Stottlemyre told the pitcher he was going to Triple-A Columbus.
"I took offense to where Joe and I said one thing, and the other thing was done,'' Stottlemyre said.
Torre has said in recent days that he hopes to speak with Zimmer after emotions have calmed. Stottlemyre didn't think Zimmer could be swayed to stay on.
"Zim has been very hurt,'' he said. "He seems to be dead set on what he's going to do.''
Zimmer said Sunday he wouldn't return to Yankee Stadium.
"I guess you have to say it's a tough way to leave, but that's what I want to do,'' he said. "I ain't coming back to work for Steinbrenner or be around him.''
Torre was in his office Sunday but didn't speak with reporters, preferring to wait a few days.
Steinbrenner left town, according to spokesman Howard Rubenstein, but issued a statement that was a harbinger.
"Of course, I was disappointed, but we will be meeting soon to make whatever changes are needed to bring back a stronger, better team for New York and our fans,'' he said. "You can count on it."
Rubenstein said Steinbrenner could not be reached for his reaction to Zimmer's claims of mistreatment.
Steinbrenner repeatedly has backed Torre, who led the team to four World Series titles from 1996 to 2000 but none since. Steinbrenner has not given similar support to general manager Brian Cashman, whose contract extends through the 2004 season.
Hitting coach Rick Down appears to be a likely goner following a World Series in which the Yankees hit .140 (7-for-50) with runners in scoring position - .077 if you don't include Derek Jeter (2-for-4) and Hideki Matsui (2-for-7).
"It's a tough place to work,'' Down said. "Not everybody can deal with it. But I'm not going to walk away from anything.''
While some teams may be happy with winning pennants, the Yankees' 39th American League championship left them with an empty feeling - with the team's World Series title total stuck on 26, Steinbrenner has become even more restless in the past year.
Stottlemyre still had trouble believing what had happened.
"I woke up and had to slap myself - we didn't have a game today,'' he said. "It was kind of a shock.''
New York faces some big decisions. Andy Pettitte, 3-0 in the postseason before Saturday's loss, is eligible for free agency. The Yankees have options on David Wells and Antonio Osuna, and a mutual option with Heredia. Hammond, whose innings decreased in the second half, has no idea what his role is, if any.
Available on the free agent market are outfielders such as Gary Sheffield, Vladimir Guerrero and Mike Cameron, and pitchers such as Bartolo Colon.
Who will replace Roger Clemens and possibly Pettitte and Wells in the rotation?
Will Bernie Williams, who has lost much of his range, be moved from center field?
Will Alfonso Soriano be moved from second base to the outfield?
Will Jason Giambi need major knee surgery?
And will Jeter require shoulder and thumb surgery?
"I think we have more questions as an organization to answer this time of year than usually,'' Stottlemyre said.
TITLE: Press Reports Say Potanin Wants Second 'Oligarch FC'
PUBLISHER: Combined Reports
TEXT: Three and a half months after billionaire Roman Abramovich bought Chelsea, another Russian tycoon is planning to buy into London rival Arsenal, a British newspaper reported Sunday.
The Independent on Sunday said Vladimir Potanin, the oil and mining magnate who controls Norilsk Nickel, is considering putting up to 120 million pounds ($203 million) into a new stadium for Arsenal in return for a share of the club. The newspaper quoted a "senior associate" of Potanin's as saying the Russian "was keen" and had "talked very seriously" about buying the team.
However, a spokesman for Potanin's holding company, Interros, dismissed the report Sunday, saying it was a complete fabrication.
"Vladimir Olegovich [Potanin] is not interested [in buying Arsenal]," Mikhail Barkovets said.
Potanin, a former deputy prime minister, is one of the small group of oligarchs who were awarded multibillion-dollar industrial empires in the privatizations of Russian industry in the 1990s.
Fellow oligarch Abramovich bought Chelsea three months ago, winning the club the nickname "Chelski" in the British press. He has since won over club loyalists by embarking on a massive spending spree to lure big-name players.
The Independent on Sunday said Potanin was an Arsenal fan and had flown to London to see the side play. But Barkovets said he knew nothing about it.
The club is looking to raise 400 million pounds for the new stadium by a self-imposed deadline of December.
(SPT, Reuters)