Poisoning Puts Business With Russia Under a Cloud

The poisoning in London of a former KGB officer, Alexander Litvinenko, will damage investor confidence in Russia, the primary trade association representing those doing business between Britain and Russia warned yesterday.

The warning comes at a time of unprecedented interest in Russian companies raising money on the London Stock Exchange, and coincides with increased criticism by Moscow of Shell and other western firms operating in Russia.

"While there is no proof as to who is responsible, this horrible incident will add fuel to the negative views expressed in the western media about the rule of law in Russia and the activities of the Russian state," said Godfrey Cromwell, executive director of the Russo-British Chamber of Commerce, which celebrates its 90th anniversary this year .

"Such things matter a great deal to investors looking at Russia and, whoever was the perpetrator, this type of publicity will deter some investors," he added.

Businessmen active in the west such as Russian emigre, Alex Konanykhin, agree. "Foreign investors now read reports about Russia being an authoritarian country where political opposition has been stifled and where the legal system is controlled by the government and used for taking over lucrative companies," said Mr Konanykhin who is a former friend of the now-jailed Mikhail Khodorkovsky, founder of Russian oil company Yukos.

Despite the bad publicity, Mr Konanyhkin does not think it will change the ways of the Kremlin.

The Organisation for Economic Co-operation and Development (OECD) this week criticised the Russian government for its expansion into key economic sectors in a report on the economy. It also pointed to concerns about Gazprom the state-run energy company, and its "seemingly insatiable appetite for asset acquisition."

But Artyom Konchin, equity analyst with Aton Capital in Moscow, is confident that western investors will not be chased away by the latest high-profile problems. "I have not seen any [negative] echoes yet and I do not expect the sentiment of investors to change much. People are very pragmatic when it comes to money," he argues.

"After all, 90% of those who invested in [the recent flotation of] Rosneft were those who invested in Yukos [the company alleged to have had its assets stolen by Rosneft]," he adds.

A huge swath of Russian companies - many coming from the sector such as Rosneft - have had full shares or depository receipts listed on the London Stock Exchange.

The electricity generator, OGK-5, is one of the latest businesses to successfully raise money despite unease about the way western groups such as Shell and BP are being treated in Russia.

Shell has been under attack over alleged environmental damage on its Sakhalin-2 gas project amid attempts by Russian state-owned Gazprom, to muscle into the scheme.

Many Russian commentators put the two events together and Mr Konchin says there is no doubt that the Kremlin would like more control over a sector where the value has rocketed on the back of rising energy prices.

Mr Konanykhin believes the Kremlin is more concerned about asserting its own political power than worrying about what foreign politicians or investors think.

On the road from Moscow

Alex Konanykhin the former banker, says he has been hunted relentlessly from one continent to another for over a decade by forces acting for the Kremlin.

A beneficiary of the early 1990s move from a managed to a free enterprise economy, Mr Konanykhin once ran a $300m finance house in Moscow - the Russian Exchange Bank.

But in 1992 he discovered that two former KGB men had approached individual shareholders about winning their stakes in an attempt to launch a takeover. Within days Mr Konanykhin found himself being kidnapped by associates of the two men while on a business trip to Budapest with his wife.

"You will sign your companies and bank accounts over to us," the men demanded. When he asked what would happen if he did not, they replied: "Then you might accidentally drown in your apartment’s bath."

Mr Konanykhin and his wife Elena managed to flee, first to Slovakia and then to America but soon found many of their assets in Russia frozen and their reputations shredded by the KGB.

By 1994, one of the banker’s former kidnappers was boasting in a Russian business newspaper that he wouldn’t bet a dollar on Mr Konanykhin’s life.

The Russian businessman, who was granted political asylum in the US and now runs an internet business there, says his attempts to win justice in his home country and question the ethics of the state that allowed this to happen just got him deeper into conflict. The FBI warned him in 1995 to take care as they had information that the KGB had hired US mafia men to get rid of him.

The Russian government tried three times to get him extradited with the help of US officials but he managed to fight them off with court judgments that deemed the attempts unlawful.

Mr Konanykhin, who has taken up martial arts with a vengeance, says he keeps fear at bay with "mental training". And while he no longer expects to meet a violent death, he says he will not be having children with the wife he loves.

"Children represent a perfect pressure point. A man might stop caring about himself but will have difficulty in stopping caring about people he loves."

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Banking Crisis: Russian Markets Stage Dramatic Comeback

Russia’s MICEX and RTS reopened today after their suspension two days ago - only to shut again for an hour as shares soared. By Luke Harding in Moscow

Russia’s two main stockmarkets bounced back dramatically this morning after trading resumed today for the first time since Wednesday, but amid strong signs of continuing volatility.

Russia’s rouble-denominated MICEX and dollar-denominated RTS reopened after their suspension two days ago - only to shut again for an hour as shares soared. The exchanges re-opened at midday Moscow time.

Regulators sought today’s temporary closure after share rises jumped above 15%. By this afternoon the MICEK was up 23.1% on the day, while the RTS had risen 15.5%.

The sudden revival of Russian markets, which coincided with shares rallying strongly on Wall Street and in London, came after the Kremlin pumped nearly $60bn (33bn) into money markets. Russia’s finance ministry announced on Wednesday it was lending $44bn to the country’s three main banks, while the central bank announced loans of $14bn designed to ease the acute liquidity crisis.

This morning the Russian prime minister, Vladimir Putin, said that the economy remained healthy. Speaking at an investors’ forum in the Black Sea resort of Sochi, he said that "fundamental indicators’ including Russia’s foreign debt surplus were in line with "the norm".

"Our response to problems that emerge will be market-orientated. The government and the central bank have sufficient reserves to defend the currency and the financial system," Putin declared. Other Kremlin officials made clear the Russian government was prepared to intervene in the crisis.

Russia’s market has performed worse than any other emerging market this year - falling some $680bn since its all-time high in May. On Tuesday the MICEX dropped by 17% - its biggest slide since Russia’s 1998 financial crash.

Russia’s economy is these days integrated into global markets, and has suffered as shares have fallen this week around the world. But the slump in Russia has been particularly acute because of falling oil prices. There has also been a huge flight of capital from Russia since last month’s war in Georgia, with foreign investors taking out $35bn.

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Moscow Trade Halted Again As Stocks Soar

Putin says Russian economy is secure, citing sound ‘fundamental indicators’ and currency reserves

Russia’s two main stockmarkets bounced back yesterday after trading resumed for the first time since Wednesday - but were then closed after further volatility.

The rouble-denominated MICEX and dollar-denominated RTS reopened from suspension, only for trading to be halted in the morning and afternoon. Regulators sought the closures as shares soared - the MICEX was up 26.3% and the RTS 20%. By early evening, trading had not resumed.

The revival of Russian markets, coinciding with a strong rally on Wall Street and in London, came after the Kremlin pumped nearly $60bn (33bn) into money markets. Russia’s finance ministry said on Wednesday it was lending $44bn to the three main banks, while the central bank announced loans of $14bn to ease the liquidity crisis.

Yesterday the prime minister, Vladimir Putin, said Russia’s economy remained secure. Speaking at an investors’ forum in the Black Sea resort of Sochi, he said that the "fundamental indicators" were sound and the country had "more than $550bn" in currency reserves. "Our response to problems will be market-orientated. The government and the central bank have sufficient reserves to defend the currency and financial system," Putin said. Other Kremlin officials made clear the government was prepared to intervene further.

Last night, however, analysts warned it was premature to suggest Russia’s liquidity problems were over. They said the finance ministry would be forced to intervene next month when banks and major companies settle quarterly tax bills.

"I think it’s too populistic for our government to say everything is OK in Russia," Mikhail Zak, head of research at Veles Capital Research in Moscow, told the Guardian. "There is enough money for one or two years to help with internal liquidity, but not longer." Yesterday’s gains would likely be short-lived, he said, adding that firms were struggling to attract foreign investment. "Russian banks and companies don’t have enough money," he said.

Russia is the worst-performing emerging market this year, falling $680bn from a record high in May. The RTS has lost 36% in September and, on Tuesday, the MICEX fell 17% - its biggest slide since Russia’s 1998 financial default.

The Russian economy is now integrated into global markets and has suffered this week as shares have fallen around the world. But the slump in Russia has been particularly acute because of falling oil prices and after foreign investors pulled out $35bn in capital since last month’s brief war with Georgia.

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The Retreat From Moscow

Analysts suspect BP’s Russian venture is a sinking dream and even question firm’s vulnerability to takeover

When Lord Browne signed up for BP’s joint venture in Russia five years ago, it was supposed to herald a new era in business relations with the former Soviet empire. There were doubting voices about doing business with Moscow, but Browne was at the height of his power as one of Britain’s most feted businessmen and he was prepared to risk it for a stake in Russia’s vast reserves of oil and gas. He had clashed with one of his new oligarch partners, Mikhail Fridman, yet here he was calling him "my friend Michael".

The day after the humiliating departure of the TNK-BP boss Robert Dudley from Moscow, driven out by a campaign of harassment by state authorities apparently acting at the behest of BP’s oligarch partners, those naysayers will be saying we told you so.

Browne is long gone and familiar problems of volatile partners and an unpredictable legal system appear to be sinking his dream of securing for BP a share in the profits from Siberia’s riches. Such is the impact of the collapse of BP’s relations with Russia that analysts last night warned that Britain’s biggest company could even be vulnerable to a takeover.

Fadel Gheit, an oil analyst with the Oppenheimer & Co brokerage in New York, said that the company was being dragged down by its involvement in TNK-BP. It should sell its 10bn stake, he said, even though the venture this week reported $4.7bn (2.3bn) profit in the first half.

"The sooner BP gets itself out of there the better. It is a headache they don’t need. It’s a bit like Manchester United losing Ronaldo. It would take time to recover - a blow but not fatal."

Gheit said the Russian debacle could make BP more vulnerable to a takeover, something that has been speculated about after the Texas City refinery explosion that killed 15 workers, Alaska pipeline ruptures and propane trading irregularities in America.

"ExxonMobil is the only one that could really pull it off but it is more logical for BP to do a merger of equals with Shell with Tony Hayward running both companies," Gheit added.

There was also speculation about what would happen to BP’s stake in TNK-BP, which it owns equally with the oligarchs. Although Hayward has vowed to defend its stake, which accounts for 25% of BP’s overall production, analysts at Dresdner in London said it was possible that a Russian state-owned entity such as Gazprom or Rosneft would end up taking control of TNK-BP, with BP left as a minority shareholder. "We do not believe BP will lose the value in TNK-BP without compensation," they said.

BP insisted yesterday that it had no plans to retreat from Moscow. Dudley had left for a "temporary" period and would continue to run the Siberian oil and gas joint venture from a foreign location it would not name.

Hayward said in a statement that it would use "all means at its disposal, both inside and outside of Russia, to defend its interests and rights", including bringing arbitration proceedings against the company’s joint-venture partners AAR "to recover any and all losses suffered by BP as a result of their violations of the terms of our shareholder agreement".

The news prompted a big sell-off of shares in Russia yesterday as investor confidence slumped, though observers in Moscow suggested that BP bore some responsibility for its downfall in Russia. Analysts said that BP had comprehensively underestimated its Russian co-owners. The firm had wrongly assumed that the partners - led by Fridman - would be prepared to sell their stake to Gazprom.

According to Yulia Latynina, a commentator with the radio station Ekho Moskvy, one of the last independent media outlets in Russia, BP began secret negotiations with Gazprom believing that the Russian oligarchs would eventually sell to the state-owned firm.

This didn’t happen. Instead the Russians began a "vicious and brutal" fight-back, Latynina said. The billionaires proved far more adept and resourceful at using Russian state agencies for their own ends than BP.

She added, though: "I don’t think Bob Dudley was very successful at managing the company. He couldn’t find a neutral language with shareholders.

"BP made several major mistakes. BP was conducting separate negotiations with Gazprom. The idea of these negotiations was that the Russian oligarchs were finished.

"The shareholders reacted in the most brutal manner. They effectively said: ‘You can say fuck off to us. But we’re the big guys around here.’ It was a shoot-out. The other side shot better."

BP could not really complain about its harsh treatment in Russia, Latynina said - given that the rule of law had never really existed in the country, and didn’t exist when BP went into business with AAR in 2003.

Asked whether the affair had damaged Russia’s international credibility, she said: "I don’t think this will spoil Russia’s image. Russia can’t spoil its image any more. After the death of [Alexander] Litvinenko this is peanuts."

Other commentators suggested that the change of leadership inside the Kremlin had played a role - allowing the Russian shareholders to exploit a vacuum at the heart of the state.

Dmitry Medvedev took over as president in May. Sources said that the shareholders were already deeply unhappy at this point - and had complained to Vladimir Putin that TNK-BP was paying too much tax. Astonishingly, Putin appears to have agreed. But with Putin ensconced as prime minister, Medvedev was unable to make a strategic decision on TNK-BP’s future.

"The balance of forces within the leadership is already uncertain," said Andrei Ryabov, a scholar-in-residence at the Carnegie Centre in Moscow. "Nobody knows who is really in charge.

"Among the high-ranking bureaucrats and politicians nobody wants to take responsibility for a decision. Any mistake will really lead to radical change among the balance of forces."

Explainer: State intervention

Ordeal by torment

The embattled oil company’s ordeal started in March when agents from the Federal Security Service (FSB) - Russia’s post-Soviet intelligence agency - raided BP’s office in the central Moscow district of Novy Arbat. They also searched TNK-BP’s offices. The raid led to the arrest of a British educated TNK-BP employee, accused of industrial espionage. The employee was quietly released shortly afterwards. The FSB returned to BP in May. On June 10, tax officials spent five hours interrogating chief executive Robert Dudley (right) in connection with TNK’s tax affairs. They claimed Dudley’s grilling had nothing to do with his on-going dispute with TNK-BP’s Russian shareholders. Prosecutors also launched an inquiry into BP’s labour practices. Russia’s federal migration service has also tormented the company. The migration service refused visas to 148 BP secondees from TNK-BP - who found themselves locked out of their office from March.

On Tuesday BP announced it was withdrawing them from Russia.

The service had promised to renew Dudley’s visa. On Wednesday, however, its head hinted that Dudley would be forced to leave Russia next week because he no longer had a labour contract. On Thursday Dudley took the hint and left the country.

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A Decaying Russia

In the minds of most from the West, the days of the cold war, the arms race and of two superpowers jockeying for influence on the world stage have diminished. Russia’s power has dropped over the last twenty years or so to the extent that other countries, namely India and China are of greater threat economically and military than the heart of the old Soviet Union. Russia today spends most of its energy on home spats, keeping track on the devolved ex-soviet states rather than being a strong force in the International community.

With the demise of communism went the threat!

Certainly, it could be argued today that Russia is regaining influence on the world stage through bargaining chips in the form of oil and gas! Some statistics have shown that Russia is now the largest producer of energy for the international market with a strong interest to form a major oil cartel in competition to OPEC. Russia has also attempted to use its oil and gas as ‘power play" to those who buy it, a very dangerous re-entrance onto the world stage indeed and one that so far has received shoulder shrugs from the west.

It is though blatantly clear to anybody that has recently visited the country that Russia does not have the wherewithal or strength to become an equal partner to America, or for that matter Japan, China, India or Europe. Russia is a country in decay! It survives today on the infrastructure that was set-up during the heyday of communism and before glasnost was liberally sprinkled around. The railroads and the roads, the bridges that cross them and the places that they go to are deteriorating or have deteriorated so badly that many are either unusable or dangerous to follow. Whole towns (excluding the power houses of Moscow and St Petersburg) are crumbling; churches with holes in them, sky-scrapers with no windows; wharfs and jetties titling towards the water.

Many Russians today quietly mutter that during the days of communism life was better! They may not have had much, but there was always a roof over their heads, bread and water on the table and a security blanket that left nobody starving or wanting. The idea of struggling was not present and although life may not have been great it was definitely safe and predictable for everybody. When the blanket was ripped away old age pensioners had to return to work to survive, there was no guaranteed state pension anymore. People suddenly became thrifty to the point of being mean, some won and made for themselves a better life but many more lost and ended up with far less than they had when Lenin made his mark.

Russia is producing oil as fast as it can find it, develop the fields and pump it. At the moment the emphasis is purely on expansion and development with no thought to spare on the future of Russia or on how long the oil will last. The idea of sparing a moments thought on "what happens after the oil runs out" is not going to be entertained until the well runs dry and when it is all too late. This attitude is seemingly a hangover caused by the transition from communism to capitalism, a desperate need to hoard money to make as much cash as possible and to keep it hidden and to oneself. Rumor has it that Putin wants to get as much oil out of the ground, converted into hard cash and at his disposal in his new power base of St Petersburg before he loses his grip on Moscow. He will not be returning to politics at the next election, he will though still like to be in control as Gazprom (the largest oil company in Russia and worth billions) and other large oil-related companies move shop to the power-base of Putin and away from Moscow.

This attitude is prevalent with every Russian. They all want to make money and they want to make it fast. The small man tends not see the money; the rich get richer and the poor get poorer.

A classic example of this inequality can be seen in Sakhalin. This Island on the East Coast of Russia is the local base of some of the largest oil companies in the world. BP, Shell, Gazprom and Exxon alongside some extremely large investors like Mitsui from Japan are all involved in extracting oil onshore and offshore around this miserable outback island. Billions of dollars are being invested in refineries, oil platforms, ice breakers, terminals and ports and billions are being made as the oil and gas is pumped out into tankers for the international markets. The oil is pumped out as fast as humanely possible and the money made travels on literal trains to Moscow and the West side of Russia. Whilst walking around Yuzhno the capital of Sakhalin or Kholmsk where the main supply base exists, any thoughts of this island being the centre for oil production on the east coast would not even enter the head. Potholed roads, crumbling and empty buildings, rusted train carriages and wharfs that have longs since given way as to meet the sea are everywhere. New buildings are far and few between, the drab grey of the communist style council flats with balconies that mostly but not always defy gravity give emptiness and desperation to the lives within.

Inflation is crazy on this island; to take a job at a certain wage is to find oneself in good stead for one year only. Buy beef today at one price, the next day add ten percent on. Black smoke belches out of the chimneys turning the newly fallen snow into black mush! Ancient dented cars groan and creak there way along cracked roads, a struggle to survive as a new car is but a dream. The many unemployed and those desperate for work hang around the yards and factories with the always present bottle of vodka and a packet of cigarettes to hand, the only warmth they have in an otherwise bleak and crummy existence. For them, the idea of hating the west and of despising capitalism is not worth blinking an eye for, there own people have proved worse.

The money goes west to the pockets of the rich, for oil wealthy business men to buy football clubs in England and to squander all on projects that defy feasibility or sensibility.

Russia is not gaining the influence on the world stage that it would like, the money is not being re-invested, and it is allowing a massive social discrepancy to breed unchecked. The country is looking to a future of internal strife, of a despised Kremlin still influencing and partially running the massive state machinery and where the average worker who constitutes the majority is ignored by the machine that once controlled them.

It is oft said that it takes three generations to change the way a person thinks or acts; unfortunately for the Russians they had communism thrown at them in a day and then another fine day it was ripped away from them without warning. For many now they will tell you; life was better before!

One Russian seafarer recently went so far as to call his country the Nigeria of Asia, a bit harsh maybe but then he was talking about his own country!

The Russian Articles at Seadolby.Com
Articles written by Ieuan Dolby during and after his trips to Sakhalin, Russia

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The Russian Mentality

In Russia, whether it is a simple task of having a washing machine installed at home or a rather more complex matter of drilling for oil offshore in -35 degree temperatures the amount of paperwork and bureaucracy that hounds the proceedings is immense.

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It is extremely notable that people from different nations tend to work in different ways! As an extremely broad example; Americans conduct work in a loud and overpowering manner, the Australians have to check with their union bosses first, the Indians tend to read the manuals and the Russians just have to check the regulations first before working through the red tape! Out of all of the above the red-tape, the backward pedaling frustration caused by immovable officials tends to fray the nerves the worst as every job, however simple it maybe becomes a nightmare of immense proportions! At least if the Union boss jumps up and down the job just never gets done, the Americans might shout and brag but the work continues and usually in a positive manner, and the Indians might be better at theory than practical application but at least everybody knows what they are talking about even if they aren’t doing anything about it.

The Russian Regulations are extremely complex with regard to any situation in life! Whether it is a simple task of having a washing machine installed at home or a rather more complex matter of drilling for oil offshore in -35 degree temperatures the amount of paperwork and bureaucracy that hounds the proceedings is immense. It must also be mentioned that one might plan ahead by researching the laws and regulations governing a certain proceeding but the chances are that they will have changed, been adapted or replaced by the time the job eventually starts! Regulations change upon the whim of a government official, they change or are interpreted differently by bored paper-pushers sitting behind their large and overheated-room warped pre-soviet desks!

To watch the paper trail in motion is extremely disheartening, jobs start and are halted due to inane, if not crazy, reasons mostly which end with "the Russian regulations do not allow this". From the point of view of a non-Russian speaking Brit trying to follow events and to reason why certain tasks can not be completed it is disheartening to see the brick walls being erected, two steps backward for every one step taken.

The immense bureaucratic machine that dictates life in Russia is a throw over from communism! In the heyday when the state controlled and dictated every move and step of its citizens the paperwork was the means through which control was kept, nobody moved without forms being signed, nobody sneezed unless permission was given! Here and today, communism has slipped to be replaced with a mixture of capitalism and the leftover paperwork and operating methods that was once the reigns on the masses! In a way this is probably extremely beneficial to the Russian companies who use the bureaucracy to prevent foreign companies from gaining a permanent foothold in the country; they giving up in the face of the myriad of regulations and the ever changing tax laws that they are often faced with.

The paperwork though, the queues at the offices, the constant backwards and forwards of incorrectly filled forms, the mistakes made due to incorrect understanding of the regulations and the total halt to operations, work and proceedings due to a form or signature that has been lost in some large government building effects every man jack and his dog!

Communism is a subject that has been discussed since the likes of Karl Marx first brought it to the attention of the world. Whether or not this political method was successful or is successful is not under discussion here, what can clearly be seen though is that the vehicle from which communism operated cannot be used in a capitalist state! Russia is attempting to control and continue life using the same means of bureaucracy as it did thirty years ago, the end result being a serious hampering to development, an increase in crime and use of bribery to bypass the official channels!

It is clear that communism produced a population intent on survival, a mass of people who would do anything and everything to make sure that they (and their closest) would benefit even to the detriment of others around them. This throw-over of selfishness, however excusable in the past, continues unabated and in fact is more notable as it operates under a capitalist stance and one could say with a quasi-legal status. Previously this selfishness was for self-preservation, it was in borne from the need to have bread on the table and a roof over the head. Continued today it is for far more, for increased wealth, jobs, cars, position in society and as always there are winners and there are losers. In this instance the winners are those who get rich at the expense of those who are reduced to living below the bread line (something that the Communists ideal wanted to prevent). It could be argued that the above occurs the world over, but generally speaking laws govern such abuse to the extent that it is dampens the overall effect.

In Kholmsk, the town council decided to build a small two-story building that would become a tourist center, something that the town needed to attract holiday makers from the mainland during the summer months! They had the land, just next to the town square and they started off by erecting a wooden fence around the perimeter of the building site with work due to start once the winter season had finished. One fine day a strong wind blew through the town and the fence was blown down. The next morning not one piece of wood was found as it had all been collected by the residents living nearby for their house fires. The government soon erected another fence of similar design only to find that within a week it had all vanished, not even the excuse of a strong wind being required here.

Now it might be asked why the government did not change the design of the fence, use different materials that might not be so attractive to the nearby residents, hire a security guard or just live without a fence but here the bureaucratic jungle reared its ugly head. The laws stated that a fence was required; therefore the government and all parties involved had to comply, to not do so is never an option! It was also in the system that the fence material was to be changed from wooden posts to chipboard slats but the application for this was lost in some government department in Yuzhno were such applications must be sent, so faced with criminal action should a fence not be erected another wooden fence was installed.

This all occurred during the period of the Roubles collapse, when in one day its value dropped by half, so the hiring of a security guard was out of the question as was the start to the building which could not now be undertaken due to a shortage of Roubles in the council coffers.

To cut the story short; in the space of ten weeks seven wooden fences were erected and seven wooden fences kept the citizens of kholmsk city center warmer than usual. Seven wooden fences were erected before the application was accepted for a chipboard construction to be built instead. During the 11th week this new chipboard fence (which does not burn as well as nice wood) was erected around the lands perimeter. Unfortunately, the next day the fence had to be taken down; some law had been found or some problem had arisen whereby the government could not after all build on this piece of land and so there was after all no need for a fence!

Working in Russia is difficult. It is frustrating and it never makes sense. Communism overtook the country in ten easy years; it will take two or more generations for the aftermath to subside to a level where common sense and moral values take over from a culturally accepted selfishness and a mass of red tape that is impossible to unravel at the best of times!

The Russian Winter Articles
Articles on summer and winter trips to Northern Russia

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New Eu Talks Bring Russia in From Cold After Georgia Protest

Governments hope to minimize chances of Russian obstructionism on financial crisis

European governments ended a two-month protest against Russia’s invasion and partition of Georgia yesterday by agreeing to resume negotiations with the Kremlin on a new strategic pact.

Despite the resistance of Lithuania, which complained bitterly that Moscow was not complying with EU terms by refusing to fully return its military to positions before the war in Georgia erupted on August 7, foreign ministers of the other 26 EU states said the talks with Russia should take place.

The EU called off talks with Moscow on a new partnership and cooperation agreement in September because of the Caucasus crisis, and set conditions for their resumption.

Britain, the strongest critic in western Europe of Russian conduct in Georgia, denied yesterday that the end of the protest meant "business as usual" with Moscow.

"We can support resuming negotiations because we believe that the issues that will be covered are in the EU’s interests," said a joint statement from David Miliband, the foreign secretary, and Carl Bildt, the foreign minister of Sweden, also a trenchant critic of the Kremlin.

Germany, France, Italy and the European commission have been keen to restart the negotiations with Moscow, and the decision is expected to be formally approved at a Russia-Europe summit on Friday.

British and other officials said a balance had to be struck in assessing the merits of negotiations with Russia on a wide range of interests. Despite the criticism of the Kremlin, EU countries are also disenchanted with the conduct of the Georgian president, Mikheil Saakashvili.

"We have to admit that the trustworthiness of Tbilisi has suffered," said the Estonian defence minister, Jaak Aaviksoo. "Some countries clearly see that Georgia acted in an unpredictable way."

Strong reservations from some countries about restarting the talks were countered by the view that the EU was shooting itself in the foot by isolating Russia or encouraging individual EU states to strike bilateral deals with Moscow. Lithuania found itself isolated yesterday. The decision to resume negotiations did not require a consensus.

"We are not returning to business as usual, nor are we turning the page on the conflict in Georgia," said Miliband.

Russian leaders are to attend this weekend’s global economic summit in Washington on the international financial crisis, the issue that Gordon Brown sees as the absolute international priority.

It appeared that the EU and Britain hoped to minimize the chances of Russian obstructionism on the financial crisis by agreeing to reopen the Europe-Russia pact talks.

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Oil Price Fall and Global Crisis Force Suspension of Russian Stockmarkets

Russia suspends trading on its two main stock exchanges after shares plummet

Russia yesterday suspended trading on its two main stock exchanges after shares plummeted for a second day, forcing the central bank to intervene.

Regulators halted trading at midday local time on Russia’s main stock indices - the rouble-denominated MICEX and the dollar-denominated RTS - after a similar suspension on Tuesday. By 6pm in Moscow last night, they had not reopened.

Russia has been hit by the global financial crisis, suffering as stocks dived in Europe and Asia. It has also been hurt by a rapid fall in oil prices and the flight of foreign investors since its dispute with Georgia.

Yesterday, Russia’s finance ministry said it was pumping nearly $60bn (34bn) into the three largest banks - Sberbank, VTB and Gazprombank - to shore up liquidity in the banking system. With the Kremlin last night promising further measures, finance minister Alexei Kudrin said he did not expect to use Russia’s enormous reserves. Instead, he suggested larger banks would lend to "small and medium banks" unable to settle their obligations.

On Tuesday, Russia’s central bank and finance ministry injected $20bn into money markets. But there was growing speculation one of Russia’s largest investment banks, KIT Finance, could be the next victim of the global crisis. It failed to settle accounts on Tuesday and is in urgent talks to find a strategic investor.

Russia’s economic crisis is superficially reminiscent of the 1998 crash when the rouble was devalued, banks defaulted on loans and the savings of many ordinary people were wiped out overnight.

Yesterday, however, analysts pointed out the Russian economy is much stronger than it was a decade ago. Additionally, it is integrated into the world economy - one of the reasons for its predicament.

"The mood is changing rapidly. But at the moment I’m cautiously optimistic," Natalia Orlova, chief economist at Alfa Bank told the Guardian. Russia had low foreign debt, a budget surplus and $200bn in a stabilization fund, she said, before conceding: "We are clearly facing a confidence crisis in the banking sector. Potentially it might have serious complications in the long term. But the financial crisis will not be as significant as in the US or western Europe."

Chris Weafer, chief strategist at Uralsib bank, wrote in a note to investors, "The market is trading as if it [Russia] is close to a default. In reality it has the world’s third-largest financial reserves and is earning about $850m (460m) every day from crude, oil products and gas exports."

On Tuesday, Russia’s markets showed their biggest single-day loss, with the RTS falling 11.5% and the MICEX slumping 17.5%. Before yesterday’s halt, the RTS was down 3.9% and the MICEX 4.7%.

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Russia, Speculators To Dictate Uranium Price Swings In 2007

The year gone by was the warmest in England since 1659. Australia may be doomed to suffer the country’s worst drought since the Federation Drought of 1894 - 1902, and at least one Dun & Bradstreet consultant believes if conditions do not improve, the country’s Reserve bank may be forced to lower interest rates. Abrupt weather changes could increasingly become a significant element in determining business expectations and national growth. (While Florida didn’t have the hurricanes the weatherman forecast, Asia got the brunt instead with typhoons.)

The green light for accelerated demand of nuclear energy could come about because of a potential loss of up to 20 percent global gross domestic product annually. This estimate was courtesy of Sir Nicholas Stern, a senior UK economist, who calculated the impact of climate change. And 2007 might pass 1998 by as the world’s warmest year on record. Eight of the twelve warmest years on record have occurred since 1990.

This must be welcome news to uranium speculators, especially those holding the physical metal. Speculators outsmarted U.S. utility fuel managers and industry consultants by hoarding yellowcake in anticipation of the supply deficits now growing. That’s why they are the smart money. But will the nearly 200 consecutive weeks of a rising uranium price sustain through 2007?

By all accounts, uranium miners and future developers should be ecstatic over the $72/pound announcement of the spot uranium price. The latest long-term uranium contract brought $69/pound. Many of the new uranium projects, which we have been tracking since mid 2004, are likely to be economic at or below $60/pound. The broad purpose of a rising uranium price was to dust off the old uranium projects and reopen previously explored, nearly developed uranium mines. This is in the process of bearing fruit.

So why do we see continued hoopla for a higher uranium price? It’s because the speculators need the excitement and panic buying by utilities to unload their uranium stockpile.

Speculators holding physical uranium hope to make a king’s ransom should the uranium price zip through the inflation-adjusted record of approximately $111/pound and race even higher. Uranium oxide, or U3O8, very well could race to $100/pound and beyond. The momentum and panic leading to a much higher uranium price is evident in our research and discussions with industry insiders, but the pendulum might also swing backward later in 2007.

According to Treva Klingbiel, editor of TradeTech’s Nuclear Market Review, which first publishes the weekly spot uranium price on Fridays, ‘Speculators are holding about 24 million pounds of U3O8 equivalent.’ This amounts to about eight times the current U.S. uranium production, more than double the Kazakh 2006 production - some 22 percent of global uranium production in 2005. The speculator’s hoard easily outnumbers the U.S. Department of Energy’s announcement of 5+ million pounds of annual sales.

Smart money got the uranium the utilities previously thought they could get on the cheap, by accumulating it fair and square in the marketplace. And by squeezing on an already tight pipeline, the speculators drove the price to a record high this past December. While the kings that the speculators are holding for ransom are the utilities, at some point we anticipate a backlash.

The Downside of A Rising Uranium Price

There should be fireworks through 2007 as the uranium price approaches and probably crosses the $100/pound threshold, perhaps as early as late spring. While there will be bumps before and after the century mark, anxieties over energy disputes could help sustain a production-friendly uranium price well beyond 2007.

One powerful example of an energy dispute is the ongoing struggle between Russia and its former Soviet states. The Gazprom-Belarus gas dispute, settled on this past New Year’s Day, suddenly evolved into Russia’s Monday cutoff of the Druzhba oil pipeline across Belarus to Germany. Although it is likely to be settled without much fanfare, European leaders again question Russia’s reliability as an energy supplier, especially of oil and gas.

This event reminded Europe of last year’s Ukraine-Russia gas dispute and subsequent soaring energy prices. While not endorsing nuclear power, as this would anger her Social Democrat coalition partners, German Chancellor Angela Merkel announced in a television interview, ‘…one must consider well what consequences there would be if we shut down nuclear power plants.’ Germany plans to shut down four nuclear reactors by 2009 and may close an additional thirteen by 2020.

As we have seen since 2005, the political climate toward a continued nuclear renaissance has grown more favorable. But with all politics, one must expect downsides, too. One such downside for the uranium price cheerleaders could be Russia.

If one looks for the ‘trigger on the horizon,’ as Merrill Lynch mentioned in a December research report, the hiccup in uranium’s price rise could become the U.S. Commerce Department settlement with Russia’s Tekhsnabexport. We discussed this in an article written before last July’s G-8 Summit in St. Petersburg, when we forecast uranium could run between $55 and $100 during 2006 (’Even Higher Uranium Prices This Summer’).

On December 27th, RIA Novosti and others reported upon statements made by the head of Russian-owned Tekhsnabexport that a ‘civilian nuclear power deal’ between Russia and the United States was imminent. Vladimir Smirnov, announced, ‘I think that in the first quarter of 2007, or by the summer of 2007 at the latest, we will sign an agreement with the U.S.’

At this time, Russia can only sell into the United States through publicly traded United States Enrichment Corporation unless it pays a 116-percent import duty. In mid July, the U.S. International Trade Commission voted to keep the import duty on Russian uranium products. The commission claimed that lifting the anti-dumping restrictions ‘would seriously harm the American economy.’

Those clamoring for Russian enriched uranium are the U.S. utilities. Last spring, 85 percent of the nuclear power plants formed AHUG (Ad Hoc Utility Group) to lobby the U.S. Commerce Department about loosening up those restrictions. Head of Russia’s Federal Agency for Nuclear Power Sergei Kiriyenko wants a maximum 25-percent share of the U.S. uranium market. He wants to directly deliver the enriched uranium to the U.S. utilities, bypassing USEC at market prices. In December, Kiriyenko said, ‘We would like to provide direct deliveries to the U.S. nuclear market now and after 2013 (when the HEU-LEU contract is terminated with USEC).’

Russia’s direct sales to U.S. utilities might minimize the current panic. Perhaps it would stimulate some anxiety on the weaker uranium price speculators? Smart money weighs the risks and rewards on an investment. After a steep price appreciation - nearly 100 percent during 2006 - and up by more than 1000 percent since Christmas 2000.

The loan rate for uranium has also jumped since the year 2000. According to TradeTech’s Loan Rate for uranium purchases, the carrying cost is the highest since September 1978. It is one-half-percent lower than the peak months of 1974.

Speculative upside expectations on price appreciation for yellowcake may be limited. For the past year, it was an easy ride. Dwindling inventories, inadequate new mining production and increased demand for new nuclear power plants made 2006 an easy year for speculators. Nonetheless, interest had begun waning during the fourth quarter, before Cameco’s Cigar Lake flooding.

DC-based energy consultant Julian Steyn, who helped co-author A Brighter Tomorrow with U.S. Senator Domenici (R-NM), had told us in May 2006 that interest about uranium mining companies had nearly vanished. In the early months of this past year, he remarked of the large number of phone calls he received from institutions and investors. Judging from the refusal of Florida Power and Light to participate in last summer’s U.S. Department of Energy auction (’because the price was too expensive at $50/pound’), many believed uranium’s price rise would eventually tank. We were told uranium would peak at about $55/pound, perhaps higher, in the fourth quarter of 2006.

Where is the upside and how does that compare to the downside?

The positive development is the changing political climate worldwide. For example, Australia’s Labor Party may allow expansion in this country. This will benefit a large number of Australian-based and Canadian-based exploration and development companies for a short period of time. As we have come to expect, Western Australia is very unlikely to change its uranium mining policy ban. The coal unions overpower the state’s politicians; the loss of jobs would probably prevent this western state from allowing uranium mining.

This spring, the hoopla over uranium mining expansion should create a bubble frenzy for the smaller Aussie uranium miners. The excitement should spill over to the Canadian, U.S. and U.K. traded uranium mining stocks. However, as professional speculators know, the time to sell is ‘on the news.’ Until now, the Australian story remains a mystery, but when the news comes out, it is history. And this gives the speculators another reason to begin unloading their physical uranium.

Conclusion

Between the invasion of Russian-enriched uranium, which may reach a settlement before Labor Day 2007, and the anxiety of speculators now hoarding physical uranium, which we believe has a limited upside potential, 2007 may be remembered as the year of wild uranium price swings. We nicknamed it the ‘Year of the Hiccup,’ because although the uranium price won’t collapse, it will not provide the near-triple-digit appreciation experienced over the past year.

The spectacular price rise convinced Rio Tinto to rescind its offer to sell its Sweetwater Mill and U.S. assets to SXR Uranium One. This confirmed Rio felt the uranium price rise was sustainable above production costs for its assets. (Again, the purpose of the uranium price rise was to encourage the development of new uranium mines - dusting off projects which had been mothballed during the twenty-year uranium drought.) With the current forward momentum, it is very possible the price of uranium will surpass the inflation-adjusted high before edging backward.

Despite the Russian invasion, do not believe the Russians will roll over and flood U.S. utilities with ’sweet deals.’ Believing this is foolishness. Comparing how the Russian energy companies have played hardball with the former Soviet states, U.S. utilities may later wish they’d not lobbied as fiercely as they have. If you investigate more closely, the Russian companies tend to demand stock shares, as well as increased cash, in the deals they’ve cut with the state-owned energy companies of other countries. What is to stop the Russians from asking for shares in U.S. utility companies?

How does this impact the uranium mining exploration and development companies? For the rational investor and institutions it should have only a short-term negative influence. Professional speculators like to call such down cycles in the secular energy bull market ‘buying opportunities.’ For the smaller exploration companies, many will move onto the next ‘greener’ pasture as they are so fond of doing. The less-financed ones will jump sooner.

Those uranium companies with stronger property portfolios, who are also well-financed, will afford the bumps along this great uranium bull market. It won’t end in 2007 or 2008, or anytime soon. This year will just be a hiccup. But enough of one that many of the 400+ junior uranium companies may be considering a name change around this time a year from now.

COPYRIGHT 2007 by StockInterview, Inc. ALL RIGHTS RESERVED.

By: James E. Finch

Article Directory: http://www.articledashboard.com

James Finch contributes to StockInterview.com and other publications. StockInterview’s ‘Investing in the Great Uranium Bull Market’ has become the most popular book ever published for uranium mining stock investors. Visit www.stockinterview.com

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Saiga Firearms From Russia With Precision

The Saiga rifles are some of the best known rifle designs in the world, but adapted for the civilian market. Since the beginning Saiga shotguns have taken precedence in the firearms communities, due to the creation of the fastest repeat action shotgun, known simply as the Saiga 12. A key factor in the Saiga firearms success was the time tested design of Kalashnikov’s rifle. Still Mikhail Kalashnikov works and over sees the production and engineering of every new product to leave the production line.

A key difference in the Saiga firearms, from other designs is the lack of the pistol grip, which is restricted by importing laws. Although there are a variety of gun smiths across the USA, who specialize in converting Saiga shotguns and Saiga rifles to accept pistol grips, by moving the trigger group forward, to accommodate for the pistol grip. Aside from these minor differences, any AK47 enthusiast can clearly see the piston operated rotating bolt operation, as a reminder of the almost sixty year old design, which still has yet to be improved on, since its release.

Aside from the tactical aspects of the Saiga shotguns, there is a large amount of hunters switching to Saiga 308 rifles, along with other popular hunting caliber RAA imported firearms. Every Saiga firearms goes through a stringent test for quality and longevity, at the Izmesh production plant in Russia, where all the Saiga guns are produced. Despite the original design being cost effective, innovations like chrome plating and lined parts helps to ensure the integrity of every firearms exported.

Izmesh is also known for producing Red Army weapons, vehicles, armor, and other military items, prior to the fall of the Soviet Union. Now capitalism took these remarkable firearms, from the hands of military personal and combatants, to the hands and hearts of the civilian market. Despite the start as a USA rival, the Saiga shotguns in particular are becoming some of the most popular firearms, which can be found in almost any gun shop around the country. In fact during the last few years the Saiga firearms have been back ordered, to the point specific models were solely produced to meet these demands, ensuring that they would always stay available.

Currently the Izmesh firearms are used in more militaries than any other firearms company world wide, and due to the faction of the price, compared to other popular military weapons there is no sign of slowing this trend. Despite the prominent role in militaries, Saiga still takes careful consideration before exporting their weapons, to ensure reliability and quality are never sacrificed.

In conclusion for hunters on a budget or anybody looking for a high quality, yet affordable repeat action firearm, the Saiga is nearly impossible to beat. The only major draw back is the lack of long distance accuracy, which is considered useful to approximately two hundred and fifty meters; although on average the typical hunter is only shooting within these ranges. During my experience with Saiga firearms, I would recommend them to anybody who is looking for an affordable, yet high quality firearm.

By: Chad R. Reimer

Article Directory: http://www.articledashboard.com

Chad Reimer is a firearms specialist for the largest FFL dealer on the internet. www.Saiga-Shotguns.com

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