Russia 090106

Basic Political Developments Yesterday Dmitry Medvedev and Mahmoud Abbas discussed the deteriorating

situation in Gaza, which has led to many victims among civilians and a difficult humanitarian situation.

Dmitry Medvedev instructed Minister of Foreign Affairs Sergey Lavrov and Minister of Emergency Situations Sergey Shoigu to urgently look into the issue of how to offer additional humanitarian aid to the Palestinian National Authority.

Abbas meets Russian envoy, renews call for truce - Palestinian president Mahmud Abbas renewed his call for a Gaza truce on Monday when he met Russian deputy foreign minister Alexandre Saltanov in the West Bank city of Ramallah.

Uzbekistan: Russian President To Visit Tashkent - Russian President Dmitry Medvedev will begin a two-day visit to Uzbekistan on January 22, his first since he became the titular chief executive in the Kremlin last year.

Gazprom urges Naftogaz to compensate for lacking gas by 10:00 a.m. Jan 6 Gazprom: Updates on Gas Dispute with Ukraine - Interfax obtained a copy of a

legal opinion drawn up by DLA Piper on the long-term gas transit contract for 2003-2013 between Gazprom and Naftogaz Ukrainy, which concluded that the transit contract between these two parties is valid and in effect.

Ukraine: Russia cut gas to Europe by two-thirds - Ukraine's gas company Naftogaz said Tuesday that Russia cut natural gas supplies to Europe by about two-thirds, raising the stakes in a spiraling dispute between the two neighbors that bodes ill for European consumers.

Ukraine says Gazprom cuts Europe gas supply to 1/3 Russia halts gas supplies to south-east Europe: All supplies of Russian gas via

Ukraine to Bulgaria, Turkey, Greece and Macedonia were halted on Tuesday due to a dispute between Moscow and Kiev over gas prices, officials in Sofia said. Turkish Energy Minister Hilmi Guler confirmed that supplies to his country had been completely cut. Earlier on Tuesday Bulgaria's Economy Minster said all Russian gas supplies via Ukraine to Bulgaria, Turkey, Greece and Macedonia had been halted as a result of the Moscow-Kiev price row.

FACTBOX: Countries affected by Russia-Ukraine gas row RPT-WRAPUP 1-Bulgaria says Russia gas supply via Ukraine halted Russia Reduces Gas Deliveries Via Ukraine; Balkan Supply Halted Serbia urges firms to seek Russia gas alternatives - Serbia called on industrial

natural gas consumers to prepare to switch to another fuel should a row between Russia and Ukraine continue, the head of the state-run gas monopoly said on Monday.

Gazprom's Milller: Russia to compensate Western Europe for undersupplied gas, but Ukraine's Naftogaz will have to pay

Russia Agrees to Gas Talks With Ukraine, Warns on Rising Debt Putin orders cut in Ukraine supply - Vladimir Putin, Russia's prime minister,

yesterday ordered Gazprom, the Russian energy giant, to reduce gas supplies to Ukraine bound for Europe in a move that escalates the dispute between the two countries

Putin Orders Cuts In Gas Pumped Via Ukraine Germany Urges Russia, Ukraine to Settle Gas Dispute, FAZ Says Natural Gas Needs Power Russian-German Ties - Germany is the biggest

customer of the Russian state natural gas monopoly, Gazprom. But it is among the many European countries becoming increasingly dependent on energy from Russia.

WSJ - Gazprom's Lessons: Europe has failed to learn them TRANSITIONS ONLINE: Russia and Ukraine: An Inscrutable Squabble - Is the

current gas dispute about hard-nosed business, bare knuckles politics, or deep-seated corruption?

Strange persons around gas supply to Ukraine and who owes whom - The daily Vecherni Kharkov explains that the RosUkrEnergo AG (RUE) company is a joint venture of two financial organizations registered in Switzerland, Gazprombank group (which owns 50 % of shares of the joint venture through ARosgas Holding A.G. company registered in Switzerland) and Raiffeisen Investment AG group which belongs to the Raiffeisen Banking Group (which also possesses 50 % of the joint venture through Centrogas Holding company which is actually co-owned by citizens of Ukraine Dmitry Firtash (90 %) and Ivan Fursin (10 %)).

Medvedev`s advisor accuses Georgia of false allegations Georgia: Energy Ministry denies Gazprom`s claims Putin Briefed over Gas Supplies to Georgia Could Wine Bridge the Gulf Between Georgia and Russia? US wants Russia's word on S-300 to Iran US wants Russia's word on S-300 to Iran Russian aircraft carrier to conduct training outside Greece Russia seeks copter sales to Turkey and Venezuela Trade Relations Between Turkey And Russia In 2008 Rober Coalson: Russia's Teetering Tandem - Indeed, it seems an inherently

instable proposition and assertions by pro-Kremlin observers that Putin and Medvedev are "like-minded" (yedinomyshlenniki) are not persuasive.

National Economic Trends ANALYSIS-Russia rouble moves weighs on regional currencies Russian Service Industries PMI Plunges to Record in December Expert: crisis measures hamper modernization of economy - The government has

confirmed its intention to spend 9,9 trillion RUB in counter-crisis measures. That sum includes support to banks and companies, as well as tax cuts, newspaper Vedomosti reports.

Business, Energy or Environmental regulations or discussions Russia’s Ruble Increases for Second Day in Holiday Trading Retailers brace for downturn as consumer spending holds up for 2008

Activity in the Oil and Gas sector (including regulatory) Russian oil production down - Production declined 0.7 percent to 9.74 million

barrels per day in 2008, with December totals showing a decline of 2.1 percent to around 815,000 bpd, the Platts news service said, quoting energy ministry reports.

Russia's oil transport monopoly at risk: Tengiz to be connected to BTC Matra Gets Go-Ahead from Russian Authorities to Drill Next Well in '09

Gazprom

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Full Text Articles

Basic Political Developments

January 5, 2009 17:30Monday

A telephone conversation took place between Dmitry Medvedev and the head of the Palestinian National Authority, Mahmoud Abbas. http://www.kremlin.ru/eng/sdocs/news.shtml#211396

Dmitry Medvedev and Mahmoud Abbas discussed the deteriorating situation in Gaza, which has led to many victims among civilians and a difficult humanitarian situation.

Both sides emphasized the need for an immediate ceasefire.

The head of the PNA thanked Russia for its humanitarian aid. In Response to Mr. Abbas, Mr. Medvedev remarked that Russia will continue to provide this type of aid.

There was also emphasis on the value of efforts undertaken by the international community, in particular by the UN Security Council, and international and regional mediators, in dealing with the situation.

The conversation was initiated by the Palestinian side.

2009 17:40Monday

Dmitry Medvedev instructed Minister of Foreign Affairs Sergey Lavrov and Minister of Emergency Situations Sergey Shoigu to urgently look into the issue of how to offer additional humanitarian aid to the Palestinian National Authority.

Abbas meets Russian envoy, renews call for trucehttp://www.khaleejtimes.com/DisplayArticle08.asp?xfile=data/gaza/2009/January/gaza_January78.xml&section=gaza

(AFP)

5 January 2009 RAMALLAH, WEST BANK - Palestinian president Mahmud Abbas renewed his call for a Gaza truce on Monday when he met Russian deputy foreign minister Alexandre Saltanov in the West Bank city of Ramallah.

‘The top priority at this stage is the complete and unconditional stop of the attacks on the Gaza Strip,’ Abbas told the Russian official, according to Palestinian negotiator Saeb Erakat.

 ‘The president described the humanitarian crisis in Gaza,’  Erakat said, adding that Abbas would talk by telephone with Russian President Dmitri Medvedev later in the day.

 Russia on Sunday expressed deep concern over Israel's ground offensive in the Gaza Strip and announced it was sending Saltanov to contribute to adiplomatic push for a ceasefire.

 Russia is a member of the Middle East Quartet that also comprises the European Union, the United Nations and the United States. It is also a permanent member of the UN Security Council.

 The council failed to agree on a statement calling for an immediate ceasefire in the Gaza Strip after nearly four hours of closed-door consultations late Saturday.

UZBEKISTAN: RUSSIAN PRESIDENT TO VISIT TASHKENT

http://www.eurasianet.org/departments/briefs/010509c.shtml

1/05/09

Russian President Dmitry Medvedev will begin a two-day visit to Uzbekistan on January 22, his first since he became the titular chief executive in the Kremlin last year.

The Russian head-of-state said he attached "major importance to the bilateral preparation of our forthcoming talks in Tashkent that are to give a weighty impulse to the building up of mutually advantageous cooperation in all spheres," according to a report distributed by the news website CA-news.org on January 5.

In his New Year’s message to Uzbek President Islam Karimov, Medvedev said the "outgoing year was marked by the further strengthening of Russian-Uzbekistani relations based on the solid principles of strategic partnership and alliance. Intensive dialogue at various levels is playing an important role in the development of versatile bilateral ties."

"Uzbekistan for us is a key strategic partner in Central Asia. We have recently registered the trade-economic relations’ growth, opportunities for new projects are emerging, there are big plans for the future," he added.

Responding to Medvedev’s message, President Karimov said that "Uzbekistan entirely supports Russia’s foreign policy course," adding that the two countries "have a similar stance."

"There are no undercurrents that could change this state of affairs," Karimov continued.

Gazprom urges Naftogaz to compensate for lacking gas by 10:00 a.m. Jan 6http://www.interfax.com/3/460447/news.aspx

MOSCOW. Jan 6 (Interfax) - Gazprom has urged the Ukrainian nationalenergy trader Naftogaz Ukrainy to compensate for the 65.3 million cubicmeters of gas it apparently diverted earlier from the transit gaspipeline by 10:00 a.m. January 6 using its own resources, Gazprom saidin a statement. "Gazprom is urging Naftogaz Ukrainy to compensate for an equivalentamount of gas [65.3 million cubic meters] by shipping it to the westernborder of Ukraine by 10:00 a.m. January 6, 2009 using its ownresources," it said. "A telegram on this account has been forwarded to NaftogazUkrainy," it said.

Gazprom: Updates on Gas Dispute with Ukrainehttp://www.gazpromukrainefacts.com/Interfax obtained a copy of a legal opinion drawn up by DLA Piper on the long-term gas transit contract for 2003-2013 between Gazprom and Naftogaz Ukrainy, which concluded that the transit contract between these two parties is valid and in effect.

Click here to read the full Interfax report

Ukraine: Russia cut gas to Europe by two-thirdshttp://www.google.com/hostednews/ap/article/ALeqM5ime-eB29lh2E2m_LwNapeBBPHMBAD95HGKNO0

By MARIA DANILOVA – 10 minutes ago

KIEV, Ukraine (AP) — Ukraine's gas company Naftogaz said Tuesday that Russia cut natural gas supplies to Europe by about two-thirds, raising the stakes in a spiraling dispute between the two neighbors that bodes ill for European consumers.

Naftogaz spokesman Valentyn Zemlyansky said Gazprom sent only 92 million cubic meters of gas for European consumers, down from 221 Monday and about 300 during previous days.

"That is all they are sending, in several hours Europe will feel it," Zemlyansky told The Associated Press.

Gazprom officials could not be immediately reached for comment and the drop in supplies could not be immediately confirmed.

Gazprom said late Monday that it would cut the amount of gas it ships to Europe through Ukraine by 65.3 million cubic meters — the same amount it accuses Ukraine of having stolen when it ran through its pipelines.

Kiev denied the accusations, saying Russia is to blame for the disruption because it is refusing to ship extra gas used to make the delivery.

The statement is bad news for European consumers.

Some European countries are already experiencing supply problems after Russia cut off supplies to its neighbor on Jan. 1 over pricing disagreements and outstanding debt. Hungary, Romania and Bulgaria say supplies from pipelines through Ukraine remained down, in Romania's case by 30 percent.

The reductions come as a European Union commission was to meet with senior Ukrainian officials Tuesday to discuss the crisis.

Russia's reductions appear aimed at putting pressure on Ukraine, which has turned down several offers on prices and transit fees by Gazprom and which has enough gas reservers to last for weeks without Russian gas.

During a similar dispute between Ukraine and Russia in 2006, several West European countries saw their gas supplies drop by 30 percent or more. This time Gazprom's customers were better prepared, having built up substantial reserves.

Although the previous gas cutoff was seen as punishment for Ukraine's pro-Western policies, this time Gazprom is insisting it is a commercial dispute. Both countries are seeking to prove they are a reliable energy partner for the European Union.

Ukraine says Gazprom cuts Europe gas supply to 1/3http://www.reuters.com/article/worldNews/idUSTRE4BN32B20090106

Tue Jan 6, 2009 1:43am EST

KIEV (Reuters) - Ukraine's state energy company Naftogaz said on Tuesday that Russia's Gazprom had cut gas supply to Europe via Ukraine to around a third of its normal flow and that the shortage would hit Europe in a few hours.

The gas supply for Europe through Ukraine was at around 92 mcm/day compared to around 300 mcm/day before January 1, a Naftogaz spokesman said.

"This means that in a few hours Europe will face a problem with gas supplies," he said.

(Reporting by Pavel Polityuk, writing by James Kilner in Moscow; Editing by Christian Lowe)

Russia halts gas supplies to south-east Europehttp://www.welt.de/english-news/article2977267/Russia-halts-gas-supplies-to-south-east-Europe.html 6.January 2009, 10:15

All supplies of Russian gas via Ukraine to Bulgaria, Turkey, Greece and Macedonia were halted on Tuesday due to a dispute between Moscow and Kiev over gas prices, officials in Sofia said. Turkish Energy Minister Hilmi Guler confirmed that supplies to his country had been completely cut.

Earlier on Tuesday Bulgaria's Economy Minster said all Russian gas supplies via Ukraine to Bulgaria, Turkey, Greece and Macedonia had been halted as a result of the Moscow-Kiev price row.

Also affected was Romania where Russian gas supplies were reduced by 75 percent from contracted levels, the state-controlled Transgaz pipeline operator said.

"We are in a crisis situation,“ Bulgaria’s economy ministry said in a statement.

Russia ordered on Monday a reduction in gas flow to Europe via Ukraine, a measure it said was to stop its neighbour from stealing fuel. Ukraine said the move would jeopardise supplies to Europe which is facing freezing temperatures.

The gas row has raised new questions about Russia’s reliability as an energy supplier and rekindled Western suspicions -- still fresh after Russia’s war with Georgia last year -- that the Kremlin bullies its pro-Western neighbours.

"Russia and Ukraine must find an urgent solution because the energy systems of dozens of countries are at risk,“ Economy and Energy Minister Petar Dimitrov told national radio.

Sofia said the gas flow to Bulgaria as well as the transit to Turkey, Greece and Macedonia had been suspended as of 3.30 a.m. (0130 GMT).

Turkey’s Guler said his country had raised supplies of Russian gas delivered via a pipeline which passes under the Black Sea to 48 million cubic metres per day from 40 million.

A source at Ankara’s Iranian embassy said Iran might increase its gas flows to Turkey -- which has started to use liquid natural gas sources and natural gas stores -- to cover the shortfall. Iran supplies about a third of Turkey’s gas.

EMERGENCY MEASURES

Bulgaria, which relies almost entirely on Russian gas for its needs, will be worst hit because like Macedonia it has no access to alternative pipeline routes.

The Bulgarian economy ministry told industrial users to switch to alternative fuels such as oil and urged households to start using other means for heating rather than central heating that runs on gas.

Prime Minister Sergei Stanishev called an emergency meeting to discuss the situation.

Bulgaria, where temperatures dropped below minus 15 degrees overnight, started pumping a maximum 4.3 million cubic metres of gas from its sole gas storage facility, the ministry said.

The country currently consumes about 11 million cubic metres of gas a day. Dimitrov said underground reserves were enough to cover needs for a month, depending on consumption.

There was no immediate reaction from Greece, which can access additional supplies from Turkey.

Romania, which receives about a third of its gas from Russia, said it will use more gas from underground storage. It covers 65 percent of its needs with domestic production.

FACTBOX: Countries affected by Russia-Ukraine gas rowhttp://www.reuters.com/article/topNews/idUSTRE5051FV20090106

Tue Jan 6, 2009 2:48am EST

(Reuters) - Following are comments from European customers affected by the cut-off in gas supplies by Russia's gas export monopoly Gazprom to its neighbor Ukraine over a pricing dispute:

BULGARIA

All Russian gas supplies via Ukraine to Bulgaria, halted on Tuesday, Bulgaria's economy ministry said.

GREECE

All Russian gas supplies via Ukraine to Greece halted on Tuesday, Bulgaria's economy ministry said.

TURKEY

All Russian gas supplies via Ukraine to Turkey halted on Tuesday, Bulgaria's economy ministry said.

MACEDONIA

All Russian gas supplies via Ukraine to Macedonia halted on Tuesday, Bulgaria's economy ministry said.

ROMANIA

Russian natural gas supplies to Romania cut by 75 percent on Tuesday, the head of the Black Sea state's state-controlled pipeline operator Transgaz said on Tuesday.

EUROPEAN UNION

There is no real risk to Russian gas supplies to European Union industry from the Russia-Ukraine gas dispute so far, the EU Commission said on Monday.

GERMANY

The German government and major gas companies in Europe's biggest economy said on Monday the dispute was not yet straining their natural gas supply.

POLAND

Gas deliveries to Poland via Ukraine remained lower by 5 million cubic meters daily on Monday, Poland's dominant gas distributor PGNiG said in a statement on Monday.

AUSTRIA

Gas supplies to Austria on Monday were not affected, the national regulator and a spokeswoman from the economy ministry, said.

CROATIA

Croatia's oil and gas concern INA said on Monday that delivery of Russian gas to Croatia had been reduced by 18 percent.

FRANCE

Russian gas deliveries to France remain unaffected so far, French gas utility GdF Suez said on Monday.

CZECH REPUBLIC

Gas supplies to the Czech Republic from Russia are back to the full amount after showing a 5 percent drop on Sunday, a spokesman for the country's main supplier said on Monday.

RPT-WRAPUP 1-Bulgaria says Russia gas supply via Ukraine haltedhttp://www.reuters.com/article/companyNewsAndPR/idUSL663177420090106

Tue Jan 6, 2009 3:15am EST

* Bulgaria: "We are in a crisis situation"

* Kiev says more disruption to hit Europe in hours

* Russia says forced to reduce flows to stop Ukraine stealing

* EU delegations to meet Russian, Ukrainian officials

By James Kilner and Pavel Polityuk

MOSCOW/KIEV, Jan 6 (Reuters) - Supplies of Russian gas via Ukraine to Bulgaria, Greece and Turkey stopped flowing on Tuesday because of a dispute between Moscow and Kiev over gas prices, officials in Sofia said.

Russia on Monday ordered a reduction in gas flow to Europe via Ukraine, a measure it said was to stop its neighbour stealing fuel and which Ukraine said would jeopardise supplies to Europe as it faces freezing temperatures.

The gas row has raised new questions about Russia's reliability as an energy supplier and rekindled Western suspicions -- still fresh after Russia's war with Georgia last year -- that the Kremlin bullies its pro-Western neighbours.

KNOCK-ON EFFECT

Russian gas export monopoly Gazprom (GAZP.MM: Quote, Profile, Research, Stock Buzz) cut all supplies for Ukraine's domestic use on New Year's day in a row over gas prices -- creating a knock-on effect for Europe which receives one fifth of its gas from pipelines through Ukraine.

"As of 3.30 a.m. (0130 GMT) supplies ... to Bulgaria as well as the transit to Turkey, Greece and Macedonia have been suspended," Bulgaria's Economy Ministry said in a statement. "We are in a crisis situation."

There was no immediate confirmation from Turkey, Greece or Macedonia of a halt in supplies. Turkey has an alternative route for importing Russian gas, under the Black Sea.

South-east Europe and the Balkans receive their Russian gas from a pipeline which passes from Ukraine via Bulgaria, so officials in Sofia are likely to be the first to see signs of a cut-off.

In Kiev, Ukrainian state energy Naftogaz firm said Russia had cut gas supply via Ukraine to Europe to about a third of its normal flow. "This means that in a few hours Europe will face a problem with gas supplies," said a Naftogaz spokesman.

Gazprom said it had not choice but to reduce supplies to Europe via Ukraine because Kiev was siphoning off gas intended for transit. It said it would boost supplies through other routes to compensate. For a factbox on export routes for Russian gas, click on [ID:nL5024520].

A delegation from the European Union was to meet Ukrainian officials in Kiev on Tuesday, and fact-finding talks were also planned for Tuesday between EU officials and Gazprom, though the venue had not yet been confirmed.

European Commission President Jose Manuel Barroso said on Monday he had appealed to Putin and Ukrainian Prime Minister Yulia Tymoshenko not to let their dispute affect Europe's gas supplies.

"I hope that the matter will be resolved, as the reality is that if it is not then it may create problems for European countries who are not responsible for the situation," he said.

Russia has clashed repeatedly with Ukraine's pro-Western leaders over their ambition to join the NATO alliance. Gazprom denies any political motive in the row and says it is purely about Kiev's refusal to pay a fair price for its gas. (Additional reporting by Anna Mudeva in Sofia; Writing by Christian Lowe; Editing by Louise Ireland)

Russia Reduces Gas Deliveries Via Ukraine; Balkan Supply Haltedhttp://www.bloomberg.com/apps/news?pid=20601087&sid=al6EYYn26IBI&refer=home

By Daryna Krasnolutska

Jan. 6 (Bloomberg) -- Russia reduced natural gas shipments to Europe through Ukraine and deliveries to the Balkans were cut at the Romanian border as a dispute over pricing and transit fees led to a sixth day of supply disruption.

OAO Gazprom, the Russian gas exporter, cut gas shipments to Europe through Ukraine to 92 million cubic meters, less than one third of normal levels, NAK Naftogaz Ukrainy spokesman Valentyn Zemlyanskyi said. Russian gas supplies to Bulgaria, Turkey, Greece and Macedonia were cut at the Ukrainian-Romanian border, Bulgaria’s Energy and Economy Ministry said.

The moves came after Russia and Ukraine agreed yesterday to restart talks on their dispute and as Gazprom warned that Ukraine risks amassing a debt of “billions of dollars” if the conflict continues. Russia, which supplies a quarter of Europe’s gas, cut shipments to Ukraine on Jan. 1, in a repetition of a 2006 dispute which also interrupted supplies to Europe.

“It’s not in the interest of either side for it to drag on and cause a larger drop in supplies,” said Chris Weafer, chief strategist at UralSib Financial Corp., by phone from London yesterday. “The risk of a more substantial pressure drop elsewhere in the pipeline system increases if supplies are cut for more than 10 days.”

Gazprom Chief Executive Officer Alexei Miller told Russian Prime Minister Vladimir Putin in a meeting yesterday that Gazprom intends to reduce gas deliveries to the Ukraine border by 65.3 million cubic meters a day, equivalent to the amount it says Ukraine has taken out of the system. Ukraine denies siphoning the fuel, saying some is needed to keep pipelines operating.

To contact the reporters on this story: Daryna Krasnolutska in Kiev on dkrasnolutsk@bloomberg.net:

Last Updated: January 6, 2009 03:07 EST

Serbia urges firms to seek Russia gas alternativeshttp://uk.reuters.com/article/UKNews1/idUKTRE5043QL20090105

Mon Jan 5, 2009 5:42pm GMT

By Ivana Sekularac

BELGRADE (Reuters) - Serbia called on industrial natural gas consumers to prepare to switch to another fuel should a row between Russia and Ukraine continue, the head of the state-run gas monopoly said on Monday.

The Balkan country has roughly a 10-day supply. Serbia imports 92 percent of its 2.4 billion cubic meters of natural gas annually from Russia via Hungary and Ukraine. Eight percent comes from domestic sources.

"We have already asked our major consumers to prepare plans for switching to another fuel," Dusan Bajatovic, head of Srbijagas, said in an interview. "Until now we have managed to get our daily natural gas deliveries."

Alternatives include electricity and oil derivatives.

Russian gas monopoly Gazprom cut gas supplies to Ukraine on January 1 in a dispute over debts and pricing.

The measure comes as European countries, which get a fifth of their gas through pipelines that cross Ukraine, face freezing temperatures.

"We hope that this crisis will end soon," Bajatovic said, adding his company is making backup plans.

In December, Serbia signed an energy pact with Russia which will see Serbia included in the South Stream pipeline, Gazprom's 10 billion euro (9.5 billion pound) joint project with Italy's ENI to deliver Siberian gas under the Black Sea to southern Europe.

The deal also includes building a natural gas storage facility in north Serbia.

"We have 100 million cubic metres of natural gas reserves at the moment," Bajatovic said. Serbia uses about nine or 10 million cubic metres a day in winter.

Other countries in the Balkans, a region still recovering from war and political turmoil in the 1990s, said their economies were not affected by the row.

A government official who spoke on condition of anonymity said Macedonia had no problems with natural gas supply.

The source said the economy was not likely to be affected as most of its companies were closed during the holiday season which lasts until Jan 7.

Almir Becarevic, general manager of Bosnia's main gas distributor BH Gas, said the country had no shortages in natural gas supply despite higher consumption due to low temperatures.

Albania is not connected to any external gas networks.

(Additional reporting by Kole Casule in Skopje, Maja Zuvela in Sarajevo and Benet Koleka in Tirana; Editing by Adam Tanner and Sue Thomas)

Gazprom's Milller: Russia to compensate Western Europe for undersupplied gas, but Ukraine's Naftogaz will have to payhttp://www.kyivpost.com/world/32703

Today, 08:58 | Interfax-UkraineNovo-Ogaryovo, January 5 (Interfax-Ukraine) - Russia will do its utmost to compensate Western Europe for the gas Ukraine has been diverting from the transit pipeline system, including the purchase of gas on the derivatives market, but Ukrainian NJSC Naftogaz Ukrainy will have to pay for this, said Gazprom CEO Alexei Miller

"We will buy the lacking amount of gas on the derivatives market to compensate for undersupplies, or actually for the theft of Russian gas booked for our Western buyers on the Ukrainian territory," Miller said at a meeting with Russian Prime Minister Vladimir Putin on Monday.

Asked by Putin who "will pay for the gas that is being siphoned off from the pipeline," Miller replied, "Naftogaz Ukrainy will have to do this."

Gazprom "will do all it can to compensate for this amount of gas using alternative ways," Miller said. "In particular, Russian gas supplies through Belarus and Poland and also through the Blue Stream pipeline system will be increased," he said.

In addition, "we will do all we can to increase the withdrawal of gas from underground storage facilities in Western Europe," which Gazprom had pumped there earlier, he said.

Russia Agrees to Gas Talks With Ukraine, Warns on Rising Debt

http://www.bloomberg.com/apps/news?pid=20601009&sid=aNWaTnpOaUOo

By Daryna Krasnolutska and Jones Hayden

Jan. 6 (Bloomberg) -- Russia and Ukraine agreed to restart talks on their dispute over natural gas prices and transit fees as deliveries were disrupted for a sixth day and OAO Gazprom warned Ukraine risks amassing a debt of “billions of dollars.”

Gazprom cut supplies of the fuel to Ukraine on Jan. 1, a day after talks broke down with Ukrainian utility NAK Naftogaz Ukrainy on contract renewals for 2009. A similar dispute interrupted supplies to Europe in 2006.

Russia supplies a quarter of Europe’s gas, and 80 percent of that is transported through Ukraine. Most supplies are continuing to reach European markets, and Russia said it

would plug any shortfall with spot market purchases for which Ukraine would have to pay.

“It’s not in the interest of either side for it to drag on and cause a larger drop in supplies,” said Chris Weafer, chief strategist at UralSib Financial Corp., by phone from London. “The risk of a more substantial pressure drop elsewhere in the pipeline system increases if supplies are cut for more than 10 days.”

Gazprom Chief Executive Officer Alexei Miller told Russian Prime Minister Vladimir Putin in a meeting that Gazprom intends to reduce gas deliveries to the Ukraine border by 65.3 million cubic meters a day, equivalent to the amount it says Ukraine has taken out of the system. Ukraine denies siphoning the fuel, saying some is needed to keep pipelines operating.

“If this continues then the debt will soon come to billions of dollars,” Miller said. Gazprom says it is still owed $614 million for 2008 supplies, even after it receives a $1.5 billion payment, a claim Ukraine rejects.

Gazprom Demands

Gazprom raised its demands on Jan. 4 as Miller cited a possible price of $450 per 1,000 cubic meters for deliveries to Ukraine this month, reflecting the average price in countries bordering Russia’s neighbor. Ukraine paid $179.50 for its Russian gas last year and says $201 would be fair in 2009.

The European Union sought to help defuse the conflict, sending a delegation headed by Czech Industry Minister Martin Riman for talks with Ukrainian officials. They will meet with Ukrainian Energy Minister Yuriy Prodan, Oleh Dubina, head of state energy company NAK Naftogaz Ukrainy, and presidential advisers at 10 a.m. today, according to Bohdan Sokolovskyi, President Viktor Yushchenko’s energy aide.

“We have a mission in the region,” European Commission President Jose Manuel Barroso told reporters yesterday in Lisbon. “I hope the situation will be resolved.”

Ferran Tarradellas Espuny, a spokesman for the European Commission, the EU executive in Brussels, said the EU delegation would also meet Gazprom officials in an unspecified EU capital today.

Gas Diplomacy

Espuny told a press conference yesterday Russia’s cutoff of gas shipments to Ukraine was a “commercial dispute” that must be solved bilaterally.

“It has to be resolved by the two parties,” he said. “We’re putting pressure on to encourage both countries to go to the negotiating table, because it’s in our interest,” though the EU is “not acting as an intermediary.”

U.K. gas for immediate delivery gained 8.7 percent to 59.35 pence a therm at 4:44 p.m. London time yesterday, according to broker ICAP Plc. That’s equal to $8.66 a million British thermal units. A therm is 100,000 Btus. Gas for tomorrow rose 6.6 percent to 60.75 pence. U.K. gas for delivery next month rose 3.2 percent to 57 pence.

“I’m really surprised that the negotiations haven’t been settled,” said Alexander Rahr, director of Russian Programs at the German Council on Foreign Relations. “Both sides are being very stubborn.”

Romania, Bulgaria

Gazprom Deputy Chief Executive Officer Alexander Medvedev called in Paris yesterday for Ukraine to take part in talks, describing its behavior as “irresponsible.”

Romania and Bulgaria said gas supplies from Russia have dropped as several European countries tapped reserves to meet shortfalls.

Hungary, one of the countries most hurt in the 2006 dispute, and the Czech Republic also said supplies were down, while Poland and Slovakia noticed lower shipments via Ukraine. France, Germany and Austria said deliveries were as contracted. Officials in Italy, also affected in 2006, couldn’t immediately be reached for a comment.

“Import levels are down 30 percent to about 7 million cubic meters per day,” Ioan Rusu, general manager of Romanian state-owned pipeline operator Transgaz SA, said in a phone interview yesterday.

Storage Reserves

Deliveries also fell in Bulgaria, which pumps some 17.8 billion cubic meters of Russian gas onwards to Turkey, Greece and Macedonia annually. Supplies to Bulgaria fell by some 15 percent from Jan. 3, Marusia Dimova, a spokeswoman for Bulgargaz AD, the state-run gas distributor, said by phone in Sofia.

“We’re compensating the gap in supplies with gas from the storage facility at Chiren,” she said. “If supplies remain at this level, the Chiren storage will last for a little more than a month.”

Hungary may cut the amount of natural gas it transits to Serbia and Bosnia after Ukraine proposed to reduce supplies by 8 million cubic meters, Energy Minister Csaba Molnar said in Budapest yesterday. The central European country was scheduled to get 38 million cubic meters yesterday, 11 million of which was to go to Serbia and Bosnia.

Polskie Gornictwo Naftowe i Gazownictwo SA, Poland’s largest gas distributor, is getting gas in line with contracts. Supplies via Ukraine are down 11 percent and Gazprom is compensating for this drop by increasing shipments via Belarus, spokeswoman Joanna Zakrzewska said by phone.

Deliveries of Russian gas to Germany are unaffected.

To contact the reporters on this story: Daryna Krasnolutska in Kiev on dkrasnolutsk@bloomberg.net: Jones Hayden in Brussels on jhayden1@bloomberg.net

Last Updated: January 5, 2009 16:00 EST

Putin orders cut in Ukraine supplyhttp://www.ft.com/cms/s/0/3c277ba2-db91-11dd-be53-000077b07658.html

By Isabel Gorst

Published: January 6 2009 02:00 | Last updated: January 6 2009 02:00

Vladimir Putin, Russia's prime minister, yesterday ordered Gazprom, the Russian energy giant, to reduce gas supplies to Ukraine bound for Europe in a move that escalates the dispute between the two countries, writes Isabel Gorst in Moscow .

Gazprom claims Kiev has been stealing gas from transit pipelines since it cut off supplies to Ukraine on January 1 after talks about a new gas deal collapsed.

Mr Putin ordered Alexei Miller, chief executive of Gazprom, to cut supplies to the Ukrainian transit system by the same volume as Ukraine had taken.

Naftogaz, Ukraine's state gas company, said it had been notified by Gazprom that it would cut transit supplies to Europe by 65.3m cubic metres a day to 221.8m cubic metres per day. "Gazprom has in fact cut volumes of transit gas to European customers," Naftogaz said.

Analysts were puzzled by the move, questioning why Mr Putin would order Gazprom to break its transit contract with Ukraine.

Bloomberg news agency reported that Russia and Ukraine had last night agreed to restart talks on their dispute.

Mr Putin met Mr Miller hours after Ukraine moved to annul the transit contract and warned it could increase transit fees 10-fold unless Gazprom accepted a fair price for gas.

Putin Orders Cuts In Gas Pumped Via Ukraine http://www.rferl.org/Content/Putin_Orders_Cuts_In_Gas_Pumped_Via_Ukraine/1366721.html

January 05, 2009

(RFE/RL) -- Prime Minister Vladimir Putin has ordered Russia's state-controlled Gazprom to begin cutting shipments of gas pumped via Ukraine to Europe.

The move came as European diplomats were holding an emergency meeting in Brussels to discuss a dispute between Russia and Ukraine that prompted a drastic reduction in supplies intended for Ukraine but is also affecting gas supplies to Europe.

The EU meanwhile has dispatched a delegation to Kyiv for talks on the dispute over debts and prices.

Putin ordered Gazprom chief executive Aleksei Miller to cut volumes of natural gas shipped through Ukraine by amounts equivalent to those Moscow has accused Ukraine of stealing.

Miller said Gazprom would instead increase gas deliveries to Europe through Belarus and the Blue-Stream pipeline under the Black Sea.

Ukraine has accused Gazprom of not supplying enough gas for transit to Europe.

Croatia, Greece, and the Czech Republic became the latest countries to report a fall in supplies as a result of the dispute.

Moscow has pressed Kyiv for payment of an overdue gas debt and a higher price for its gas, while Ukrainian sources have signaled that the transit fees they receive for shipping Russian gas must be part of any negotiations.

Germany Urges Russia, Ukraine to Settle Gas Dispute, FAZ Sayshttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=axS0cvs1ejgQ

By Patrick Donahue

Jan. 6 (Bloomberg) -- German Economy Minister Michael Glos said the Russian-Ukrainian dispute over gas won’t affect German energy supplies and urged OAO Gazprom and Ukrainian officials to reach an agreement, Frankfurter Allgemeine Zeitung reported.

Glos will urge Gazprom Deputy Chief Executive Officer Alexander Medvedev to settle the dispute during talks in Berlin today, he told the newspaper in an interview. The two sides must focus on a long-term agreement that prevents such a dispute from breaking out every year, Glos said.

Russia and Ukraine yesterday agreed to restart talks on their dispute over natural gas prices and transit fees as deliveries were disrupted for a seventh day and Gazprom warned Ukraine risks amassing a debt of “billions of dollars.”

Gazprom cut gas supplies to Ukraine on Jan. 1, a day after talks broke down with Ukrainian utility NAK Naftogaz Ukrainy on contract renewals for 2009. A similar dispute interrupted supplies to Europe in 2006.

To contact the reporter on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net.

Last Updated: January 6, 2009 03:42 EST

Gazprom And Russia's Foreign Policy

Natural Gas Needs Power Russian-German Tieshttp://www.npr.org/templates/story/story.php?storyId=99013330

by Gregory Feifer

The second in a three-part series

Morning Edition, January 6, 2009

Russia, the World War II enemy that split Germany in half, now supplies the country with more than 40 percent of its natural gas.

Germany is the biggest customer of the Russian state natural gas monopoly, Gazprom. But it is among the many European countries becoming increasingly dependent on energy from Russia.

That's worrying those who say Moscow is using its natural resources as a political weapon.

Harvard University's Marshall Goldman says Moscow's control over energy supplies gives it more power to influence Europe than the Red Army did during the Cold War.

"In this case, with energy, the Russians have that weapon and there's nothing you can do to counter it," he says.

Gas Supplies As Leverage

Russia's natural gas shutoff to Ukraine has once again drawn attention to Europe's growing dependence on Russian energy. When Moscow first cut off gas to Ukraine, many saw it as punishment for Kiev's pro-Western policies. But Western Europe was affected, too. Russia supplies a quarter of Europe's gas supplies. Eighty percent of the gas crosses Ukraine, and there were fears supplies would run out during a bitterly cold winter.

Goldman, who recently published a book about Russia called Petrostate, says just the threat of similar disruptions gives Moscow leverage over its clients.

"It intimidates a country, and in a sense, it neutralizes the country," he says. "If you look at Germany's policies after that incident, they've become much more timid in challenging some of the things that countries might do that would upset the Russians."

Last November, the Bush administration campaigned to put Ukraine and Georgia on a path to NATO membership, an issue that has provoked fury in Russia. Despite international outrage over Russia's summer invasion of Georgia, German Chancellor Angela Merkel led the opposition to Washington's plan, and the U.S. was defeated.

Russia: 'Dependence Cuts Both Ways'

But in Moscow, Gazprom's Deputy Director Alexander Medvedev, who heads gas exports, denies the Kremlin is using energy to apply political pressure.

"A pipe has two ends. Dependence cuts both ways," he says. "We could just as easily talk about Russia being under financial pressure from European customers paying for our gas."

European countries have repeatedly promised to diversify their energy supplies. But the dependence on Russia keeps growing. Still, many Germans aren't worried.

University student Francisca Ullman, who barely remembers the Cold War, says cooperation with Russia is the future for Germany. "It's smarter to have an energy partnership with Russia because it's much closer than, say, the United States," she says.

North of Berlin, in the Baltic Sea city of Rostock, German high school students play a Russian-language board game, part of a competition held in schools across the country. It's sponsored by Gazprom, part of a public relations campaign here.

Teacher Joachim Hacker says that even without prompting, growing numbers of students in this industrial city are signing up to study Russian language.

"It's one of the economically leading countries in Europe, and it's becoming stronger and stronger in its economy and its influence in the world," he says.

New Pipeline Would Bypass Ukraine

Despite the financial crisis, Gazprom is going ahead with plans to build the North Stream, a pipeline to Germany directly from Russia that would cut out transit countries such as Ukraine. The project is led by none other than former Chancellor Gerhard Schroeder, who took the job only weeks after he left office.

Although many Germans were outraged, Angelica Schwall-Duren, of Schroeder's Social Democratic Party, says she hopes the former chancellor was acting in Germany's interests.

"Energy prices are increasing, and Germany will need gas because it won't be able to produce enough renewable energy," she says. "But it's not a one-way street. Russia also depends on its European customers and investors."

Germans say Russia's need for German investment makes their relationship one of co-dependence. But above all, politicians say Germany, which is phasing out nuclear power, simply has no other option.

Ekhard von Klaeden of Merkel's center-right Christian Democratic Party is a well-known Russia critic. But even he praises the new North Stream pipeline, saying it will help Germany guarantee energy supplies to other European countries.

"The answer has to be a network of pipelines within Europe," he says. "If the North Stream project is integrated in this way, I don't see this reason for fear and concern."

Gazprom Strategy A Success, So Far

But those who do worry about Gazprom's widening influence say the company has been successful in persuading European countries to consider their own national interests ahead of a unified European energy strategy.

Celeste Wallander of Georgetown University says Gazprom has been cultivating Western energy companies to act as lobbyists for Russian interests.

"There are a lot of European business people making a lot of money by being willing to make deals with Gazprom, and those business elites, in Germany most clearly, are obviously influential in the politics and policies of their own country," she says.

In December, Germany blocked proposed EU regulations that would have restricted foreign companies from buying European energy utilities. The measure was widely seen as directed against Gazprom. Now, critics say, Gazprom is free to pursue its strategy of controlling the entire gas supply chain from Siberia direct to the homes of European consumers.

Gazprom's Lessons

Europe has failed to learn them.http://online.wsj.com/article/SB123119965376855551.html

JANUARY 5, 2009, 7:03 P.M. ET

The latest natural-gas spat between Russia and Ukraine reveals at least two things: that Gazprom learns from its mistakes, and that Europe does not. The result is not good for Europe's energy security.

Russia's state-owned gas monopoly turned off the taps to Ukraine on New Year's Day, as it did three years ago. In doing so, Moscow complained about its neighbor's overdue payments and refusal to pay market rates for gas, as it did three years ago. Yet the real reasons for the cutoff were political: punishing Kiev for siding with Georgia in August's war and exploiting a fight among Ukraine's pro-Western politicians.

Here's where Gazprom's lesson comes in. Whereas the 2006 cutoff sparked a debate about security of supply in Europe, which gets about 20% of its total gas supply from Russia via Ukraine, Gazprom was careful this time to reassure the Continentals. Its executives toured key EU capitals to insist that their gas supplies wouldn't be affected. To make good on its promise, Gazprom is pumping extra gas through Belarus and Turkey.

Now, instead of objecting to Russia's pipeline politics, Europe says it is a "commercial dispute [that] has to be solved by the two parties," as an EU spokesman put it yesterday. Gazprom couldn't have said it better. Europe apparently prefers not to notice that Russia's issues with Ukraine, gas included, are political.

There's a big potential problem here. Viewing Moscow as the reliable partner, hindered only by a capricious Kiev, may lead Europeans to believe that what they really need are more direct gas links to Russia. The chief options mooted are the Nord Stream pipeline across the Baltic Sea to Germany and the South Stream pipeline across the Black Sea to Bulgaria.

But Nord Stream, which is designed to circumvent Poland, Estonia, Latvia and Lithuania, is Moscow's energy version of dividing and conquering Central and Eastern Europe. As for South Stream, it has eroded EU resolve to complete the Nabucco pipeline that would cross Turkey and the Balkans, routing Central Asian gas around Russia rather than through it.

As the Europeans weigh these projects, the Kremlin has been striking deals with the very Central Asian countries that could supply Nabucco or other non-Russian pipelines. Diversifying Europe's gas sources is more important than varying the transit countries between the EU and Gazprom's fields. That's a lesson Europe still doesn't appear to understand.

None of this is to say that Ukraine is innocent in the current gas dispute. With the government in disarray, it's entirely conceivable that it may have fallen behind on payments, as Moscow charges. Its "energy sector" consists largely of murky middlemen.

Ukraine's foibles are part and parcel of a state and economy that have failed to become much more democratic and transparent since the 2004 Orange Revolution. Much of the blame for that lack of progress lies at the feet of the country's biggest political

personalities -- President Viktor Yushchenko, Prime Minister Yulia Tymoshenko and opposition leader Viktor Yanukovych -- who constantly bicker.

But Europe bears some responsibility as well for its lukewarm approach to a country that has tried unmistakably to move toward the West. Europe could be far more active than it has been over the past four years in fostering democratic accountability, the rule of law and transparency in Ukraine. A Ukraine that wasn't susceptible to the accusations that Gazprom has made about it in recent weeks would bring more clarity to Europe's energy picture -- and Russia's place in it.

Europe's energy security is also threatened by Gazprom's failure to invest adequately in its production capacity, which is widely forecast to begin falling next year. Natural gas prices are linked with oil prices, and the windfall of the past couple of years is coming to an end now that crude prices have fallen back to earth. The credit crunch, along with Russia's unpredictability for foreign investors, means money won't necessarily pour in from the outside as it did over the past decade.

Gazprom, whose CEO was predicting as recently as last summer that it would become the world's largest company by market capitalization, could find itself short of cash at exactly the wrong time. The government is burning through its foreign reserves to prop up the ruble and watching its revenues fall with the oil price, so it may not be able to step in.

Europe cannot, and shouldn't try to, become independent of Russian gas. The goal is to avoid depending too heavily on Russia. Gazprom's strong-arming of Ukraine is more evidence of the need to diversify.

TRANSITIONS ONLINE: Russia and Ukraine: An Inscrutable Squabble http://www.tol.cz/look/TOL/article.tpl?IdLanguage=1&IdPublication=4&NrIssue=302&NrSection=4&NrArticle=20279

5 January 2009Is the current gas dispute about hard-nosed business, bare knuckles politics, or deep-seated corruption?

When Russia cut off gas supplies to Ukraine on 1 January, headlines focused on the dispute over the price of gas and debts that Russia says it is owed by Ukraine for past gas shipments. But were those issues really the crux of the matter?

Two days earlier, on 30 December, the Carnegie Endowment for International Peace had linked up its offices in Washington, D.C., and Moscow for a video conference on the dispute.

Experts at the conference discussed how the standoff looks from the Kremlin and Kyiv, who stands to gain or lose, and whether the disagreement is essentially political or economic.

A guide to some players in the negotiations:

• RosUkrEnergo, the monopoly middleman company that transports gas from Central Asia to Ukraine and on to other European customers. It is owned in part by Gazprombank and in part by Ukrainian businessmen.

• Naftogaz Ukrainy, the Ukrainian state oil and gas company. It is a holding company.

• UkrGazEnergo, a joint venture between Gazprom and Naftogaz Ukrainy created in 2006 to supply gas to the Ukrainian domestic market. In April 2006 it became the sole Ukrainian purchaser of the gas imported by RosUkrEnergo.

Following are excerpts from the transcript of that discussion, edited for brevity and clarity.

DMITRI TRENIN, director of the Carnegie Moscow Center:

Seen from Moscow, [the situation] does look very familiar. The end of the year is approaching and Ukraine has not paid up, and this is a scandal again, and Russia has every right to demand every penny; Ukraine is balking and the negotiation is coming closer and closer to the deadline and the Russian government and Gazprom – because there’s precious little daylight that people see between the government and Gazprom – so Russia as it were is standing firm.

Russia has no reason to give Ukraine a break; after all, the Ukrainian government or rather the Ukrainian president has been trying to pull the country into NATO and in the recent war in Georgia Ukraine had been supplying – or prior to the war Ukraine had been supplying Georgia with military material – that was a statement by a senior Russian general that Ukrainian military people had been responsible for shooting down a Russian strategic bomber and they were manning the air defenses or some of the air defenses of Ukraine, so there’s a feeling in this country that Russia … owes Ukraine nothing and has every right to pursue this really tough policy.

On the other hand, you see that just by looking at how the president, the prime minister, the foreign minister – presenting that to the public, you can get the feeling that they’re not enjoying it very much. They see that they are walking straight into a situation that will not do Russia any good. They will have to exercise that press, they think, otherwise they will be showing Russia’s weakness. But once Russia cuts Ukraine off, the onus is very likely to be on Russia. There was … an interview with the foreign minister broadcast this morning, in which he was asked this question: What do you think the reaction of the Western public will be to the cutoff, should it come to that? And he said well, we’re not fully responsible for the reaction of the Western public, which basically means that Russia will suffer as the result of – in exercising what it cannot fail to exercise.

…

ANDERS ASLUND, senior fellow at the Peterson Institute for International Economics in Washington, D.C.:

The first question if you have a dispute over the payment is, who are the parties? And the parties in this case are RosUkrEnergo, which has not been paid by UkrGazEnergo. This is the issue. So RosUkrEnergo is a private company; it’s owned by essentially two parties. One is Gazprombank, which is essentially privatized by its managers although it’s still attached to Gazprom. Gazprom or the state don’t own anything of RosUkrEnergo. And on the other side it’s two Ukrainian businessmen, essentially Dimitrov Firtash.

So I don’t understand how this can be a Ukrainian-Russian conflict; this is a conflict between very shady businessmen. And the strange thing is that the Russian state and Gazprom argue that they are party to it – they are not. And who has not paid? Well, it is UkrGazEnergo, which is half-owned by RosUkrEnergo and controlled by RosUkrEnergo, which has not paid RosUkrEnergo. Admittedly, Naftogaz Ukrainy, which is actually state-owned, owns a half of UkrGazEnergo. … Naftogaz Ukrainy has seemed to have been used – to be exploited and therefore the Ukrainian state has been losing a lot of money. Naftogaz Ukrainy has received no dividends from UkrGazEnergo as it should have. So this is the shady deal and there’s no reason for any state to accept this.

And where does the gas come from? Turkmenistan. So Gazprom has not produced the gas, it hasn’t sold the gas; it has only transported the gas. And this has been done through a contract with RosUkrEnergo, which is a well-known management company. So in order to understand this we have to understand that Gazprom is effectively an economic crime syndicate and the money’s not due to Gazprom; then you wonder why does Gazprom and indeed Prime Minister Putin insist that Ukraine, in a very vague sense, should pay? And then we have to go back to the Russian government objectives and let me start with the overall one. The fundamental thing is to take money from Gazprom, which is selling things at low prices to an intermediary. First we have a tariff and Eural Trans Gas [a predecessor to RosUkrEnergo] and then RosUkrEnergo – all of them have been inspired and controlled by people in the Kremlin.

And the second objective is to squeeze as much money as possible out of Ukrainian state – that is Naftogaz Ukrainy – for private gain. And this is primarily done through mobilization of UkrGazEnergo for industrial sales. And the third objective is to buy top Ukrainian politicians with slush funds partly for political purposes … and here we have the top region politicians, in particular former Minister of Energy Yuri Boyko as the top person who’s very much the one who controls it, but it’s also a few others. And also members of the presidential secretariat have been involved and there are persistent rumors of payoffs to other people. …

And of course, the main objective here is to destabilize Ukrainian politics, to show how bad democracy is in this part of the world so that it shouldn’t be tried in Russia. And I

think particularly the timing now is that the Kremlin is very worried about social unrest in Russia after the New Year holidays. And then they want to whip up some patriotism. So in short, the Kremlin’s gain is corruption and political destabilization of Ukraine, and there’s no state economic objective in this – there’s not even a Gazprom objective. I just received a report on Gazprom today, which said wonderful profits but no cash flow -- this is how Gazprom functions.

So what should be done? Take out RosUkrEnergo from the domestic Ukrainian gas trade that has been agreed between Naftogaz Ukrainy and Gazprom and I think that’s an additional objective, that Gazprom officials now want to block that agreement that has already been reached; and secondly, take RosUkrEnergo out of – it should not be involved in the Ukrainian domestic gas trade, which Yulia Tymoshenko more or less has accomplished; and then, third, provide transparent accounts of gas deliveries to Ukraine, which has not been done. This is all controlled by Gazprom and RosUkrEnergo people and I think that Gazprom’s bluff should be called.

And the amazing thing here is that the EU countries do nothing to secure their energy supplies. Here they allow themselves to be vulnerable because of some shady organized-crime deals and of course this is an amazing tolerance of such activity. So I think that the timing – so I guess that Putin thinks that it’s good to whip up some patriotism against Ukraine. It has worked before, so why not try it again?

…

MARTHA OLCOTT, a senior associate with the Carnegie Russia and Eurasia Program:

I think that both sides have their positions staked out in terms of the debt. I mean, both sides recognize the existence of this debt, for all their disagreements on what the shape of Ukrainian gas trade should be and who should be the partners in it. This debt is on the table and that is what is stopping the agreement from moving forward, at least formally. And it seems to me there is still space between the minimally acceptable payment that Russia will take and the maximally acceptable payment that Ukraine will give and the pieces that Anders described are sort of the chess pieces that they’re all using to close that gap, because what they will agree to at the very end – the formal agreement – will only be part of the story.

[The] really important parts will be all the pieces that Anders alluded to that will still be hidden under the table. I suspect that at this point in time the commercial factors are impeding or shaping the negotiations more than the picture given in the Russian press. Gazprom does need this purchase agreement, they do need to keep gas flowing to Europe; they are locked in to high pricing in Central Asia for both Uzbek and Turkmen gas for the first half of 2009, and if there is any disruption in the flow of gas to Europe and any grounds for Europeans renegotiating their agreements with Russia or ill-will on the part of the Europeans, that’s going to damage the shape of Gazprom’s trade for the year even worse than would have been the case in 2006.

I do think, though, that the European position is different than it was in 2006. The Europeans have also warned the Ukrainians this time. There was a pretty strongly worded statement that came out a week or so ago saying that Ukraine had no right to disrupt – that they had to meet their obligations as well to allow gas to flow. I think, unlike 2006, the Europeans have tried unsuccessfully to spur these negotiations on and, again unlike 2006, they’ve really stored a great deal of gas – they are prepared for this crisis. So in a sense the theater doesn’t have to end on January 1st; it can continue for another week or two without there being serious disruption to European supply, unlike 2006.

…

DT: I do not spy any jingoism this time related to this event in Moscow. [I]t’s given prominence, but this is not something that comes at the top of the news agenda. It’s treated more as a money issue: They owe us money and in this time of crisis – we’re in an unfolding crisis, we’re in need of money. …

The Russian leadership is totally – and I agree with what Anders said – is totally immersed in this economic crisis, which is getting a social dimension, with a political dimension not far behind. It’s a very, very uncertain situation in Russia. It’s a situation in which people have pretty bad expectations as far as the New Year is concerned. And Gazprom is strapped for cash; they want every dollar they can lay their hands on and that gives the situation an aura of urgency, which, again, after having fought in the Caucasus, Russia does not need to have more showdowns in its neighborhood. I think that the message that the Russian leadership wants to send is slightly different these days; they’re toning down considerably on a number of issues, so this is not a crisis that they’re looking forward to.

...

AA: First, on the debt: The debts are not cleared and the debt issue came up immediately [when] Yuri Boyko was ousted as minister of energy [in 2007]. Previously it was presumed that there were no debts and then all of the sudden there were massive debts and the new government couldn’t get a handle on it because it was Boyko together with the head of RosUkrEnergo, who’s working together with Gazprom who controls it all together with a few people. So really the Ukrainian government does not have historical records of it; the Ukrainian gas sector is extremely murky for this reason. …

So this is considerable corruption in alliance with Gazprom. And Boyko has been there 2002 to 2004 and again 2006, 2007, so he has been there much of the time and made sure that there are no proper historic accounts. And then the whole time there has been an argument who owes what and RosUkrEnergo demands – Gazprom demands money from Naftogaz Ukrainy although there are two parties in between and this is not clarified and it was very good, as [Dmitri Trenin] said, they owe us money. And if you look up on Gazprom’s statement now they are not clarifying in any way exactly when who was owing what, and if you’re not more serious about it you can’t be taken seriously. So the

debt issue is not clear, the Ukrainian – now president of Naftogaz Ukrainy, Oleg Dubina, who is a former deputy prime minister for energy and is on Tymoshenko’s side. He made a big interview in Zerkalo Nedeli this summer where he said that we don’t control the accounts on what is delivered and what is held in our reservoirs in Ukraine. So the accounts are not there.

Second – on is this commercial? Hardly. And I’ll give you the summaries as to why I don’t think that it’s commercial. This of course means that Gazprom sales will fall. Gazprom’s production fell by 10.6 percent in November over November last year and the reason is that in particular the Central Europeans don’t want to buy Gazprom gas at all if they … can avoid it. An additional reason here is that – Dmitri mentioned here that Russia has now lowered the price – and in that case it’s actually Gazprom – to Belarus. And at the same time and if I remember right they lowered from $200 dollars to something less.

And here Gazprom wants now to increase from $179.50 to $418. … Clearly this is not serious. At a time of falling prices, you don’t push it through with these massive price increases. So this price is then what they relate to as the European price; the European prices have never been applied in trade between Russia and Ukraine. Why should they when the – for a short period, for a quarter or so, will be very high and then they will fall sharply since the European prices are based on a formula which is connected to the oil prices with a certain lag of about a half a year. So this is just a way of saying we don’t want an agreement – that’s what we are really interested in.

Strange persons around gas supply to Ukraine and who owes whom05.01.2009http://www.axisglobe.com/article.asp?article=1727

Against the background of the Russian-Ukrainian gas conflict, daily Ukrainski noviny published an article marking that it was not Russia that had supplied gas to Ukraine. The paper underlines that since January 1, 2006, it is the RosUkrEnergo company which became then the exclusive supplier of natural gas to Ukraine. Today the national joint stock company Naftogaz Ukrainy declares about $40 million of debt of the RosUkrEnergo for services on transportation of natural gas, according to the press service of Naftogaz Ukrainy. The daily Vecherni Kharkov explains that the RosUkrEnergo AG (RUE) company is a joint venture of two financial organizations registered in Switzerland, Gazprombank group (which owns 50 % of shares of the joint venture through ARosgas Holding A.G. company registered in Switzerland) and Raiffeisen Investment AG group which belongs to the Raiffeisen Banking Group (which also possesses 50 % of the joint venture through Centrogas Holding company which is actually co-owned by citizens of Ukraine Dmitry Firtash (90 %) and Ivan Fursin (10 %)).Vecherni Kharkov expands that there are two executive directors in the RosUkrEnergo AG. The shares of RosUkrEnergo AG belong in equal parts (50% each) to Gazprom and Centragas Holding AG. The executive director from Centragas Holding AG is Dmitry

Glebko. The second executive director, Nikolai Dubik, was appointed in May 2008, and he replaced the native of the KGB, Konstantin Chuichenko, who was appointed an assistant to the President of Russia and head of the Control Directorate of the Russian President. Chuichenko was born in St. Petersburg, he has been a member of the Gazprom and the head of its legal department. In St.Petersburg University he was a good acquaintance of Ilya Yeliseev, the deputy chairman of the Gazprom board and classmate Dmitry Medvedev, the current Russian President and former chairman of the Gazprom board of directors. According to analyst Dmitry Galkovsky, the real managers of the shadowy RosUkrEnergo are alleged members of the British secret services David Brown and Robert Shatler-Jones who earlier belonged to leadership of the Eural TransGas (Eural TG), Vecherni Kharkov adds. Doubts over RosUKrEnergo's ownership structure and affiliates prompted its auditors from KMPG International to resign two years ago, according to The Wall Street Journal. Eural TG was formally located in a Hungarian village and operated with billions of dollars from supplies of Turkmenistan gas to Ukraine. It was founded by a lawyer of the known mobster of Moscow’s Solntsevo criminal grouping Semyon Mogilevich, according to Novaya gazeta weekly. Until his arrest early last year Mogilevich was enjoying an open and thriving business life in Moscow. The sudden removal of Mogilevich's "protection" from the Kremlin was believed of the same spy wars inside the Kremlin which put deputy minister Sergei Storchak behind bars, and sank the stock of Igor Sechin while raising that of Dmitri Medvedev's group, as the sharp-eyed Russia’s observer Robert Amsterdam puts it. The Ukrainian-born reputed organized crime boss has been probed by Ukraine’s Security Service for alleged involvement with RosUkrEnergo but after resignation of Alexander Turchinov from the SBU head's post, 20 volumes of the cases concerning Mogilevich have been destroyed according to the order of his deputy Andrei Kozhemyakin, according to online paper Izbrannoye.

Medvedev`s advisor accuses Georgia of false allegationshttp://www.geotimes.ge/index.php?m=home&newsid=14461

Mikhail Shvydkoi accuses Georgian`s of groundless allegations against Russia. The advisor of the Russian president has answered the questions of the Echo Moskvy news agency after returning to Russia from Georgia.

`During the past sixteen years, Georgia had a possibility to begin dialogue with Russia, but they did not do it,`` Shvydkoi said and touched the interview by Vakhtang Kikabidze, famous Georgian actor and singers, public figure, who has rejected the honor prize by the Russian president and slammed his Russian friends for silence when Russia was bombing Georgia.

Shvydkoi asserts Georgian intelligentsia has a different point of view unlike Saakashvili and Kikabidze and that Georgian people want to have friendly relations with Russians.

Shvydkoi was answering the questions of the readers, one of which sounded the following: Do Georgians look like human beings or are they just well dressed animals.

Georgia: Energy Ministry denies Gazprom`s claims http://www.geotimes.ge/index.php?m=home&newsid=14469

Rustavi2 2009.01.06 11:55

Gazprom chief executive Aleksei Miller has told Russian PM Vladimir Putin that Georgia is prepared to resume natural gas supply to Tskhinvali region.

 However, Georgian Energy Ministry officials deny his statement, saying the gas was cut off to the breakaway region due to the break down on the central pipeline and it will be resumed only after it is repaired. They say the damage part goes on the territory occupied by the Russian aggressors and the technicians fail to conduct repair works.

Another obstruction to the process is the law on occupied territories, which Georgia adopted a few weeks ago.

Putin Briefed over Gas Supplies to Georgia http://www.geotimes.ge/index.php?m=home&newsid=14465

Gazprom chief executive, Alexei Miller, told Russian PM, Vladimir Putin, at a meeting on January 5, that the company had “just learnt that Georgia is prepared to resume gas supplies to South Ossetia.”Russia has accused Tbilisi of cutting gas to the breakaway region following the August war. Sergey Lavrov, the Russian Foreign Minister, said while addressing the OSCE ministerial council on December 5 that the Tbilisi’s move was “inhuman.”Georgia says that gas supply was suspended as the Agara-Tskhinvali pipeline was damaged during the military actions in August.The Georgian Foreign Ministry said in a statement on December 31 that the pipeline was damaged in the village of Dibri in the immediate vicinity of the breakaway region’s administrative border, which it said, was “in the high risk zone.”“The Georgian side, however, launched restoration works on this section of the gas pipeline being, though, aware that examination of the full length of the pipeline would in any case be necessary for technical security reasons,” the Georgian Foreign Ministry said adding that it was “immoral” to accuse Georgia of aggravating the humanitarian situation “given the Russian occupation of a considerable part of Georgian territories… ethnic cleansing, mass expulsion of the local population.”During the meeting with Gazprom chief executive, during which mainly gas dispute with Ukraine was discussed, PM Putin also asked Alexei Miller to brief him about gas supply to Georgia.“How are we working with the Georgian partners?” he asked the Gazprom chief executive in remarks aired by the Russian television stations. “At present it's a normal working mode,” Miller responded.“In other words, you do supply gas to Georgia?.. I understand that in general, the entire volume contracted by Georgia is being delivered to the republic,” Putin asked. “Yes,” Miller responded.Civil Georgia 2009.01.06 11:42

Could Wine Bridge the Gulf Between Georgia and Russia?

http://georgiandaily.com/index.php?option=com_content&task=view&id=9288&Itemid=74

January 05, 2009Paul GobleVienna, January 5 – Tbilisi is actively seeking to resume the export of wine to the Russian Federation, a step Moscow officials say they are willing to approve but one that they predict on the basis of changed attitudes and price levels will not allow Georgian wines to resume the standing they had with Russians in Soviet times.Last week, the Georgian ministry of agriculture sent an official appeal, together with samples of its wine, to Russia's chief medical examiner, with a request that Moscow allow Russian businesses to import and sell Georgian wines, something they have not been allowed to do since 2006.According to BFM.ru, this is not the first time the Georgian ministry has made that appeal, but today, Tbilisi hopes for a more positive response given that Gennady Onishchenko, the Russian medical examiner, recently said that there should not be any link between wine sales and politics, if Georgian wines meet Russian health standards.But if the sale of Georgian wine resumes in Russia, that could nonetheless have political consequences as a confidence building measure that could lead to contacts on other subjects far removed from wine and thus possibly to the restoration of diplomatic ties between Moscow and Tbilisi.Moscow prohibited the importation of Georgian and Moldovan wines in 2006 ostensibly because it had discovered trace levels of heavy metals and pesticides in the wine. A year later, Chisinau was able to show that it had dealt with those problems and thus was allowed to export its wines to Russia again.But Georgia has not yet had that chance, a reflection not only of its production methods but also of the difficult politics between the two countries. Nonetheless, Georgians remain vitally interested in reopening the Russian market, given that prior to 2006, it sent up to 80 percent of all its exported wine to its northern neighbor.Having been shut out of the Russian market, Georgian producers now export to some 42 countries around the world, but total exports for the first 10 months of 2008 were less than a quarter of the total in 2005, when 75 percent or 60 million bottles of Georgian wine were shipped to Russian stores.Returning to the Russian market now, however, is going to be a challenge for Georgian producers. Not only must they overcome the anti-Georgian attitudes many Russians now have, but they have to deal with declines, driven by the economic crisis, of Russian purchases of imported wines and the relatively higher prices of Georgian wines compared to Moldovan ones.Maksim Kashirin, the general director of the Simple Wine Importing Company in Moscow, says that Georgian wine is "overpriced" considering its "quality which is different from what it was in Soviet times." Indeed, he suggested, Georgians are now forced to trade on a reputation which is no longer true."In that price category which Georgian wines occupy," he continued, "much has changed since the introduction of the ban." Better-quality wines from Europe have entered the

Russian marketplace, and Moldovan wines have improved as well, although they have not recovered their earlier market share either.By clever marketing, he and other experts on the Russian alcohol market say, Georgian producers "can count on a certain position but not on that which they had earlier." But regardless of that, the reopening of this sector could lead to the reopening of others in relations between Russia and Georgia – and thus provide one of the few light if not bright areas there now on offer.

US wants Russia's word on S-300 to Iranhttp://www.iranian.ws/iran_news/publish/article_28144.shtml

Jan 5, 2009

Washington says it seeks clarification from Moscow on whether it is selling an advanced surface-to-air missile defense system to Tehran. "We have repeatedly made clear at senior levels of the Russian government that we would strongly oppose the sale of the S-300," State Department spokesman Robert Wood said Monday.

His remarks came after Russia's state arms exporter said Monday that it is supplying Iran with defensive weapons, including surface-to-air missiles. The exporter, however, stopped short of confirming whether sophisticated S-300 missiles would be sent to the country.

An unnamed Russian military source later claimed that the S-300 missiles as well as S-300PMU1 systems -- which has a longer range than that of older versions -- are both being prepared for delivery to Iran.

"This is a purely defensive weapon, intended to protect especially important sites from aerial attack," Interfax quoted him as saying.

Despite the ambivalent reports, Iran hopes to acquire the system which would drastically increase its defensive capabilities. The country currently guards its air space with an outdated missile defense system.

The US State Department, meanwhile, is alarmed by the recent developments.

Spokesman Wood said the US government believes "this is not the time for business as usual with the Iranian government."

Iran of developing a military nuclear program. Under the allegation, Tel Aviv has threatened to launch military strikes to take out Iran's nuclear infrastructure. Iran rejects the allegations and insists that its work is directed at the civilian applications of the technology.

According to the Associated Press, Israel and the US fear that the S-300 missiles could effectively protect Iran's uranium enrichment plant at Natanz or the country's first atomic power plant now under construction at Bushehr by Russian contractors.

A senior Russian military official confirmed last week that Moscow seeks to ensure stability in the volatile Middle East by continuing its military cooperation with Tehran.

"Military-technical cooperation between Russia and Iran has a positive influence on stability in this region," Alexander Fomin, deputy head of the Federal Service for Military-Technical Cooperation, said Wednesday.

Russian President Dmitry Medvedev, meanwhile, has brushed aside US criticism of Russian deals with Tehran. He said in October that the opposition to the arms sales is only aimed at sidelining Moscow in the global arms market. 

Russian aircraft carrier to conduct training outside Greecehttp://www.barentsobserver.com/russian-aircraft-carrier-to-conduct-training-outside-greece.4540831-58932.html

2009-01-05 The air wing from the Russian Northern Fleet aircraft carrier ”Admiral Kuznetsov” will conduct training over Greek air territory in January.

- The training will take place in the period January 3-4 and 8-10 in the South-Eastern part of Rhodes and on January 11 to the south of Crete, a representative from the Hellenic National Defence General Staff told news agency RIA Novosti.

The exercises will take place in international waters, but the deck-based aircrafts will use parts of Greek air territory.

The aircraft carrier “Admiral Kuznetsov” leads a naval task force from the Northern Fleet on tour of duty in the Atlantic Ocean and the Mediterranean. The task force also includes the missile destroyer “Admiral Levchenko” and two support ships. During the current tour, which started in December and will last for several months, the Russian warships will accomplish a number of assigned tasks, including joint drills with Russia's Black Sea Fleet, as well visits to several ports in the Mediterranean.

Russia seeks copter sales to Turkey and Venezuelahttp://www.upi.com/Security_Industry/2009/01/05/Russia_seeks_copter_sales_to_Turkey_and_Venezuela/UPI-54241231171905/2/

By MARTIN SIEFFPublished: Jan. 5, 2009 at 11:11 AM

WASHINGTON, Jan. 5 (UPI) -- Venezuelan President Hugo Chavez closed out the old year in typical style -- by buying more high-tech Mil Mi-28N Night Hunter high-tech attack helicopters from Russia. And Turkey, a NATO member state for more than 50 years, is considering buying them too.

The RIA Novosti news agency reported Dec. 28 that Venezuela and Turkey together had ordered 12 more Mi-28N Night Hunter attack helicopters (NATO designation Havoc).

The venerable but still cutting-edge Mi-28 has been operated by the Russian air force for more than 20 years since 1988. And it incorporates a lot of the lessons in carrying heavy armor and survivability that the Russian armed forces' helicopter forces learned the hard way in their costly operations against mujahedin armed with U.S.-built Stinger handheld surface-to-air missiles during the 1979-87 Afghan War.

"We have 12 export orders for Mi-28N helicopters, including from Venezuela, and are ready to fulfill any contracts," Russian Helicopters chief Andrei Shibitov told RIA Novosti.

Shibitov also revealed that the Islamist Turkish government also was exploring the possibility of purchasing some of the helicopters, although no deal had been signed yet.

Venezuela already has bought Mi-28 Night Hunters on very easy credit terms from Russia as part of its massive arms buildup, by far the greatest of any country in Latin America. Venezuela does not currently face any serious internal insurgency challenges, but a large force of Mi-28s would enable it to far more effectively project its power against its neighbors, most notably the pro-American government of neighboring Colombia.

Because the Mi-28 Night Hunter was designed to work effectively in combat situations such as the Soviet armed forces experienced in Afghanistan , it also would be suitable for comparable Turkish counterinsurgency operations. Turkey fought a decade-long campaign against the PKK Kurdish guerrillas in the southeastern region of the country that cost 70,000 lives. Today, Turkish leaders look with distrust and concern on developments in the U.S. supported, oil-rich Kurdish region of northern Iraq.

As previously reported in these columns, the national Turkish newspaper Vatan, which has excellent military sources, claimed last month that its government intended to purchase 32 used Mi-28 Night Hunters from Russia in a billion-dollar agreement after efforts to purchase Cobra and Super Cobra helicopter gunships from the United States, Turkey's traditional supplier of the past half-century, had broken down.

Any purchase of Russian helicopters by Turkey would be a dramatic reversal of diplomatic, grand strategic and military procurement patterns going back centuries.

The Ottoman Turkish and czarist Russian empires were bitter enemies for many centuries, and through the 20th century that enmity was carried by mutual distrust

between the Soviet Union and the secular, westward-looking Republic of Turkey founded by Kemal Ataturk. After the disintegration of the Soviet Union at the end of 1991, Turkey sought to increase its influence in the Turkic Muslim former Soviet republics of Azerbaijan and in Central Asia.

As RIA Novosti noted, purchasing Mi-28s would still be a stopgap measure for Turkey until a fleet of 52 new Agusta A-129 Mangusta helicopters, co-manufactured with Italy's AgustaWestland, have been delivered to the Turkish armed forces.

The Mi-28 is built by the Rostvertol plant in southern Russia.

The head of the Russian air force, three-star Col. Gen. Alexander Zelin, told reporters in Moscow last month that a new, state-of-the-art "fifth-generation" Russian helicopter was already being developed, RIA Novosti said.

"We are working on the design of a fifth-generation helicopter. Russia's military-industrial complex has solved the task of bringing into service the Mi-28N and (Kamov) Ka-52 ("Alligator") helicopters. Now we're working on a fifth-generation helicopter," Zelin said.

Trade Relations Between Turkey And Russia In 2008http://www.turkishpress.com/news.asp?id=256515

Published: 1/5/2009

ANKARA - As economic relations between Turkey and the Russian Federation has seen a firm increase since the collapse of the Soviet Union, the trade volume between countries was expected to reach as high as 40 billion USD by the end of 2008. However, the bilateral trade imbalance also continued to grow against Turkey in 2008 as the country's exports to Russia amounted some 5.7 billion USD while the imports from its northeastern neighbor was 27.3 billion USD, of which some 15 billion USD constituted payments for natural gas, gas and crude oil. Turkey became the fifth biggest trade partner for Russia, leaving behind countries such as Germany, Japan, Britain, France, India and South Korea, as Russia has became the biggest trade partner for Turkey for first time in the history of relations. Political relations between Moscow and Ankara were also strengthened as the leaders of the two countries met nine times in the last three years. The two countries signed an agreement in September 2008 to ease customs procedures and overcome a number of drawbacks, simplifying customs checks.

-WAR IN GEORGIA AND TURKEY'S PEACE INITIATIVE-

Turkey has closely monitored the crisis erupted after Georgian military operation into South Ossetia and the ensuing Russian reaction and Ankara has made repeated calls for

dialogue to solve the problem. Turkish Foreign Minister Ali Babacan has been in constant contact with his Russian, Georgian and U.S. counterparts, as Prime Minister Recep Tayyip Erdogan visited Moscow after French President Nicholas Sarkozy to discuss Ankara's initiative for a stability platform in the Caucasus, which received significant support from the Russian side. Russian Foreign Minister Sergey Lavrov visited Ankara and met with Babacan in September, discussing Turkey's peace initiative and bilateral relations.

Russia's Teetering Tandem http://www.rferl.org/Content/Blog/1366680.html

January 05, 2009 Political analysts in Russia have been writing that the emergence of the word "tandem" into everyday usage was a key domestic development of 2008. And, inevitably, since the emergence of this unique political arrangement -- in which Prime Minister Vladimir Putin and President Dmitry Medvedev have worked out some sort of nebulous arrangement on the sharing of power and the trappings of power -- analysts have been looking for signs that it is breaking down. Indeed, it seems an inherently instable proposition and assertions by pro-Kremlin observers that Putin and Medvedev are "like-minded" (yedinomyshlenniki) are not persuasive. In addition, of course, these assertions run counter to hopes, still sometimes heard, that the lawyer Medvedev is somehow more liberal and democratically minded than the former KGB operative Putin. "Nezavisimaya gazeta," in its end-of-the-year editorial (which I discussed in part here) on December 30, offered an interesting bit of insight into why the Kremlin has been in such a hurry to extend the presidential term of office from four years to six, a tidbit that also seems to point to the instability of the tandem. The daily argues that the main motive for the extension is that Putin doesn't like to be a "lame duck." "The very possibility of a new, prolonged presidency for Putin has a disciplinary effect on the Russian elite," the paper writes. Perhaps the turmoil within the ruling elite during the 2007-08 transition, which seemed quite smoothly managed from the outside, was more discomfiting to the Kremlin than we previously thought. The daily goes on to point out again the instability of the tandem arrangement, although it spins this instability as a plus: "[The elite] desperately wants certainty -- what goes where? It wants to have one leader, one apparatus, and one circle of influence. But there are two leaders and two apparatuses and several centers of influence. Such a balance is a fortunate factor for the country. The competition of apparatuses creates a better

environment for freedom for all. Sometimes it even facilitates the adoption of correct decisions." "Balance" and "competition" can be good things in structured environments, but they seem hard to achieve and maintain in the Russian context. RFE/RL's Russian Service today made the rounds of some leading analysts to ask how they think the tandem is faring as it nears its first birthday. And there is absolutely no consensus. Political scientist Mark Urnov, for instance, sees the financial crisis as bringing the two leaders closer together and strengthening the tandem:

The current crisis is really very deep, and it is hard to predict its consequences. It is unclear how long it will last and the mechanisms for controlling the crisis are not yet very well worked out. It think that all the contradictions and fault lines that have been discussed and that were visible in the behavior of the Putin and Medvedev teams are moving into the background. The popularity of the authorities is falling and disenchantment is building. Regional elites and business elites are beginning to act differently from how they acted previously.... In a situation where political stability and the very existence of the regime is threatened, I do not think that some sort of power struggle will erupt between these two people who are very extensively connected.

 Ironically, Urnov thinks the tandem would have been less stable in a more favorable environment, when the elites would have nothing to do but squabble over political and economic morsels. Stanislav Belkovsky feels that the war in Georgia in August strengthened the tandem because it formed something of a loyalty test for Medvedev, which Belkovsky believes the president passed to Putin's satisfaction. But the current economic crisis is different and will call for a new arrangement. He thinks the form of that arrangement has not yet been decided, but notes that Putin must be place above the fray:

In my view, the prospect of Vladimir Putin returning to the Kremlin is absolutely unrealistic. And the entire question is whether Vladimir Putin and Dmitry Medvedev can together find a more honored place for the current prime minister than what he has now. If not, then Putin will carry the burden of responsibility for the crisis and so on -- especially since over the next 18 months the country is going to be engulfed in the flames of crisis. All economic indicators are going to worsen and social tensions will grow, and only one person can answer for that. Now it is clear who that person is.

 Like Belkovsky, Moscow Carnegie Center analyst Nikolai Petrov believes the key problem for the tandem is Putin's position of perceived responsibility for the crisis, but unlike Belkovsky, he sees Putin returning to the Kremlin and the dismantling of the tandem entirely: 

It would be naive to think that Putin's popularity rating could fall and Medvedev's could remain high. Moreover, a fall in Putin's rating would be extremely dangerous for the political system and for each citizen. Therefore, I think that for both Putin and Medvedev, and for the entire political system, it would be beneficial to distance Putin from all problems and carry out a "castling" maneuver. That is, return Putin to the presidency and alternate technical prime ministers who would really be able to take the fall every six months for all the difficulties that the crisis is bringing and will bring. I simply don't see any other way for Putin to maintain his position in the system and his high rating except by returning to the presidency.

 If Petrov and Belkovsky prove correct -- and the haste with which the Kremlin pushed the presidential term extension through would seem to indicate that Putin at least is preparing an escape hatch, even if returning to the Kremlin is not his current Plan A -- the word tandem may disappear from common parlance as suddenly as it appeared. And Russian authoritarianism will return to a more honest form. -- Robert Coalson

National Economic Trends

ANALYSIS-Russia rouble moves weighs on regional currencieshttp://www.forbes.com/reuters/feeds/reuters/2009/01/05/2009-01-05T145712Z_01_L5213458_RTRIDST_0_RUSSIA-DEVALUATION-ANALYSIS.html

01.05.09, 09:57 AM EST

By Sebastian Tong

LONDON, Jan 5 (Reuters) - The quickening pace of Russia's rouble devaluation is piling pressure on the currencies of its neighbours and putting those without Moscow's sizeable reserves at risk of foreign debt default and further capital flight.

Investors are in any case shying away from currencies such as Ukraine's hryvnia as the world economic slowdown crushes demand for its exports, global risk aversion shines a harsh light on Kiev's turbulent politics and Russia demonstrates its stranglehold on the country's energy supplies.

But such currencies are coming under further pressure from Russia's decision -- prompted by falling oil prices and a faltering economy -- to let the rouble weaken by more than 15 percent versus a euro-dollar basket from its historic peak in August.

That means Ukraine and other former Soviet allies such as Kazakhstan and Latvia are torn between keeping their exports to Russia competitively priced and keeping their currencies strong enough to buy essential imports and service foreign debt.

"Countries that trade with Russia will find that they are becoming less competitive because of the rouble devaluation. It will make their external adjustment more difficult," said David Hauner, emerging markets strategist at Bank of America (nyse: BAC - news - people ) (BoA).

Belarus, which counts on Russia for a third of foreign investments, devalued its currency by around 20 percent as of Jan. 2.

Russian Service Industries PMI Plunges to Record in Decemberhttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRpZCZGHIcDk

By Alex Nicholson

Jan. 6 (Bloomberg) -- An index of Russian service industries from banks to mobile phone retailers plummeted to a record in December as signs the economy is heading for a recession curbed spending.

The Purchasing Managers’ Index contracted for a third consecutive month to 36.4 from 37.2 in November, VTB Bank Europe said today in an e-mailed statement. A reading of 50 is the dividing line between expansion and contraction. VTB surveyed 300 purchasing managers at service companies for the survey, which began in October 2001.

“Survey respondents pointed to a rapid contraction of incoming new business,” the report said. “Ongoing financial market turmoil and concern over the health of the wider economy” led to a “further substantial decline in client demand.”

Higher wages and increased employment sent ordinary Russians to shopping malls that sprang up during the recovery from the 1998 debt default and ruble devaluation. Now evidence is mounting that the consumer boom is coming to an end. Russia’s economy may enter recession next year and the government will tap its windfall oil funds to cover its first budget shortfall in a decade, presidential economic aide Arkady Dvorkovich said last month.

“Lower workloads contributed to a further decline in employment levels and the rate of job shedding,” VTB said in the statement.

Slashing Sales

Supermarkets and mobile phones retailers are slashing sales forecasts and firing staff. The November jobless rate rose to 6.6 percent from 6.1 percent in October, the Federal Statistics Service said. Retail sales fell 3.4 percent in the month and disposable incomes fell 6.2 percent.

OAO Seventh Continent, the Russian owner of more than 125 supermarkets, cut planned investment for this year by more than half after the credit crunch increased the difficulty of raising funds for expansion. Spending on new stores would be between $130 million

and $140 million next year, compared with an original plan of $400 million, Chief Financial Officer Alexander Rusnak said on Dec. 10.

“The survey indicated a broad-based contraction,” said Svetlana Aslanova, senior corporate analyst at VTB Bank Europe Research, in the report. “Financial market turmoil contributed to a further substantial decline in activity and new work,” she said.

The seasonally adjusted services PMI is a composite of five differently weighted indexes including business, employment and new, outstanding and future business, according to VTB.

To contact the reporter on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net.

Last Updated: January 6, 2009 00:30 EST

Expert: crisis measures hamper modernization of economyhttp://www.barentsobserver.com/expert-crisis-measures-hamper-modernization-of-economy.4541368-16175.html

2009-01-05

The Russian government is ready to cash out almost 10 trillion RUB in counter-crisis measures. An economist says the state support is badly and inefficiently distributed and that it will only hamper the modernization of the Russian economy.

The government has confirmed its intention to spend 9,9 trillion RUB in counter-crisis measures. That sum includes support to banks and companies, as well as tax cuts, newspaper Vedomosti reports.

However, far from all parts of the economy will get the state money. A total of 295 carefully chosen companies have been found worthy of the government’s crisis support. The state crisis spending now spurs criticism from several experts.

Igor Nikolayev from the FBK consultancy company says to Vedomosti that the state support goes to inefficient companies and will thus only hamper the modernization of the economy and create dependency-relations between state and industry. Meanwhile, the efficient companies are told to save themselves, he says.

Mr. Nikolayev argues that all parts of the economy should benefit from the support money.

He is supported by journalist Yulia Latynina who in the Novaya Gazeta argues that the state support will make the recipient companies loaded with debts resulting in a further nationalization of the economy. She also maintains that the state companies are badly managed companies, and that their revenues end up in private persons’ pockets. That is the way “Putonomics” works, she argues, referring to the rule of Prime Minister Vladimir Putin.

Meanwhile, the consequences of the financial crisis is now about to be felt all over Russia. In November 2008, unemployment increased with 376,000 people to a total of 5 million, which is 6,6 percent of the work force. That will not be the last month of crisis, Vedomosti writes. In 2009, incomes will shrink and unemployment and prices increase, the newspaper maintains.

Business, Energy or Environmental regulations or discussions

Russia’s Ruble Increases for Second Day in Holiday Tradinghttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVDrYRqWgGLg

By Laura Cochrane

Jan. 6 (Bloomberg) -- Russia’s ruble rose for a second day against the dollar and the euro during limited holiday- period trading.

The currency gained 0.17 percent to 29.1425 per dollar at 10:19 a.m. in Moscow, from 29.1922 yesterday. Against the euro, the ruble increased 0.79 percent to 39.4935.

Russian markets are closed and the country’s central bank, which manages the ruble to protect exports, won’t set a new official exchange rate until Jan. 11.

To contact the reporter on this story: Laura Cochrane in London at lcochrane3@bloomberg.net

Last Updated: January 6, 2009 02:34 EST

January 5, 2009, 11:12

Retailers brace for downturn as consumer spending holds up for 2008http://www.russiatoday.com/business/news/35268

In the midst of the global credit crunch, 2008 has brought new challenges for Russia's retail sector. But although the last quarter showed clearly that the good times are over, experts say that it's been a pretty good year.

As 2008 began, retailers were expecting another bumper year - companies had got used to an on-going consumer boom and growth rates running at 35% a year.  But the global financial crisis has all but stopped further expansion for Russian retailers, most of whom had borrowed heavily from the international capital markets to fund aggressive expansion.

Retailers across all sectors in Russia paint a similar picture, with demand slumping in the 4th quarter according to Dmitry Rotkin, CEO of Rolf Mitsubishi Motors Distributor.

“If you would ask me this question in September I would tell you - fantastic year. Q4 was very difficult for us, demand decreased dramatically.”

The luxury segment felt the pressure first - unlike mass retail which wasn't hit as hard according to Lev Khassis, CEO of X5 Retail Group.

“The year has been not bad at all, we hope to reach all the figures we planned despite the crisis.”

And Nikolay Vlasenko, Chairman of the Board of Directors at Victoria Retail Group, says many retailers will still post their best years.

“In terms of revenue 2008 is going to be the best for most companies.”

Though the effects of the credit crunch will very soon affect consumer spending power, it hasn't happened yet - according to Yulia Rassolova, Area Manager, for Vero Moda, Ekaterina Kochergintseva, Store Manager at Body Shop, and Hakan Pehrsson, Deputy General Director for Ikea, Russia & CIS.

“We don't notice any changes with the previous year, customers' demand is almost the same.”

“All in all this year has been very successful,  the sales didn't fall if compared to 2007.”

“We have a very strong brand we have really strong retailers.  It's the middle who gets it toughest when it's a hard competition or a financial crunch.”

But tightening credit markets and lower revenue expectations mean most store chains have had to review their development plans and put regional expansion on hold according to Dale Clark, Partner at PriceWaterhouseCoopers.

”The Russian market has not been impacted as much as the foreign markets, but the impact is certainly being felt in terms of the consumer spending reducing, consumers moving towards lower-end brands, buying down as well as consumers moving towards cheaper stores where they can get discounts.”

PWC predicts 2008 Russia's retail market growth will reach 20-32% compared to 25-35% in 2007. Russia remains a robust market with strong consumer demand.  To date, Russians have been spending well over 70% of their income on shopping.  But with growing unemployment and easy consumer credit all but gone, that demand is likely to weaken.  But that will also drive retailers to boost efficiency by increasing quality and productivity.

Activity in the Oil and Gas sector (including regulatory)

Russian oil production downhttp://www.upi.com/Energy_Resources/2009/01/05/Russian_oil_production_down/UPI-88371231194498/

Published: Jan. 5, 2009 at 5:28 PM

MOSCOW, Jan. 5 (UPI) -- Crude oil production from Russia dropped 0.7 percent in 2008 compared to values from the previous year, energy ministry reports show.

Production declined 0.7 percent to 9.74 million barrels per day in 2008, with December totals showing a decline of 2.1 percent to around 815,000 bpd, the Platts news service said, quoting energy ministry reports.

November exports were down 16 percent from 2007 values to 3.53 million bpd.

Daily crude outputs from Russia declined 2.1 percent to 9.6 million bpd with daily exports to the Commonwealth of Independent States -- Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan -- down 6.2 percent.

Analysts see Russia positioning itself as a world player in the gas sector, however. Moscow in December hosted the formalization of the Gas Exporting Countries Forum, establishing an international gas cartel.

Moscow also heralded year-round production at its massive Sakhalin-2 oil and gas facility.

Sakhalin is set to produce liquefied natural gas by next year, giving Russia the opportunity to expand its export market exponentially.

Russia's oil transport monopoly at risk: Tengiz to be connected to BTCThis commentary is from USAK's Energy Review Newsletter http://www.turkishweekly.net/energyreview/TurkishWeekly-EnergyReview4.pdfTo subscribe email to energyreview@turkishweekly.net

Turkey is a country with out any significant hydrocarbon reserves. When one looks to the energy statistics, Turkey can only appear at the consumption side. However, although it is hard to accept for some European countries, Turkey may have an energy card in its deck. And Russia can see that.Turkey, with the support of US, has planned its strategies on being a safe energy hub. The will to be a bridge for its Turkic cousins’ was always there. But the theory and practice hardly fits on energy business, just like the predictions on oil prices. After BTC’s completion, Turkey’s strategies to be an energy hub have achieved a milestone. The costly strategies for building pipelines across the country seem to be working. Yet, the importance Turkey is gaining, is subtracting from Russia’s influence in the Caucasus and Central Asia.The latest news is about the memorandum signed by Kazakhstan’s national oil and gas company KazMunayGas (KMG) with international Agip KCO consortium and joint venture TengizChevroil to set up Kazakh Caspian Transport System(KCTS) on 24 January 2007, has not been regarded as good news by Moscow.According to Russian newspaper Nezavisimaya, Russia is losing its monopoly as a transit country across the Caspian region. It has been suggested that the oil from Tengiz field will transit from Turkey to world markets.Tengiz is one of the world's largest oil fields and contains between 6 billion and 9 billion barrels of recoverable oil which is unfortunately contains a high amount of sulfur (16%). By 2010, Tengiz is estimated to produce 700,000 barrels per day. Tengiz field also contains an important amount of natural gas.  The TengizChevroil that developed the Tengiz field since 1993, is a venture formed by partners like Chevron (50%), ExxonMobil (25%), KMG (20%) and Russian Lukarco 5%). The produced oil has been transported through Caspian Pipeline Consortuim (CPC) to Russia’s Novorossiyk port on the Black Sea shore. While US has favoured BTC, the theoretically cheapest route is rumored to be Total’s proposal to develop a pipeline through Iran. With the KCTS agreement, initially 25 million tones of oil will be transported from Tengiz to Baku-Tiblisi-Ceyhan pipeline annually, from there it will be transported to world markets. Gradually this amount will be increased to 38 million tones. The initial plan is to export oil through Eskene-Kuryk-Baku-Tbilisi-Ceyhan line. But KMG President Uzakbai Karabalin has given signals of further diversifying hydrocarbon sources, such as gas.The KCTS’s forecasted costs is estimated to be around 3 billion USD. The oil produced will be transported through a future Eskene-Kuryk pipeline, from there tankers will carry the oil to Azerbaijan. The oil will then be transited through BTC to Ceyhan, Turkey’s Mediterranean port.Turkish officers have always been a firm advocate of BTC not only on the grounds of political influence, but also to protect its highly crowded Bosphorus. According to

estimates, with the increasing traffic of tankers, the risk for a disastrous accident has increased exponentially. The KCTS project is expected to be coincide with the start of production with the Kashagan field. Previously Kazakhstan and Azerbaijan agreed to build Aktau-Baku pipeline to connect Kashagan offshore oil fields to BTC by 2008. Half of the Kashagan production is also expected to be carried by BTC. The estimates for Kashagan field production are to be 1.2 million bbl/d by 2016.With the increasing production from Kazakh fields, the tankers may not be enough to carry the oil to BTC. Rigzone reports that some experts have warned about a future tanker-scarcity to meet Kazakhstan’s production and advices to build a pipeline under the Caspian.The developments, not quite enjoyed by Russia, are making Turkey a more influential player in the world energy stage. The energy card Turkey holds has been confessed by Schroeder in his memoirs. But Turkey’s importance is linked with the political climate in the country and democratization.“Is Russia happy with these developments” does not demand an answer for many. Still Russia will be an important transit but not the monopoly. Surely, a Russian revolt against Turkey can be expected. But this revolt, if to be expected, is more likely to be underground intelligence operations rather than market competitions according to some experts.

Matra Gets Go-Ahead from Russian Authorities to Drill Next Well in '09 Matra Petroleum plc 1/5/2009URL: http://www.rigzone.com/news/article.asp?a_id=71258Matra has announced that its 100% owned Russian subsidiary "OOO" Arkhangelovskoe that operates the Arkhangelovskoe License in Orenburg, Russia has received formal approval from the relevant Russian authorities for a revised work schedule that allows the next well on the block to be commenced in 2009. The previous requirement was for the well to have been started in 2008.

Gazprom