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Feb. 19, 2008 - Kommersant - by Maria Klochkova - Russia will encounter natural gas deficit in the short-term perspective. Western experts state: despite vast deposits, just in some seven years Russia will no longer be able to satisfy even its own demand for energy resources, not to mention the supplies to Europe’s market, where there has been no alternative to Russia’s gas yet. Neither to Oneself, Nor to Europe Europe satisfies over the half of its demand for natural gas by means of Russian supplies. Russia’s share in Europe’s import was expected to double in absolute terms by 2030. However, it is now questionable whether Russia is capable to maintain and increase the amount of gas supplies. European analysts say the major part of Russian oil and gas is extracted from a small number of large but already old deposits. The extraction is falling, while gas consumption in Russia is rapidly growing. If the trend persists, Russia will simply be unable to carry out its contract obligations mapped out till 2010. The International Energy Agency (IEA) believes that Russia needs to open up new deposits in order to maintain at least the current level of supplies. Considering the severe climate and the remoteness from chief transport junctions and market outlets, new deposits’ development requires building new infrastructure. Meanwhile, Gazprom now has neither the necessary technologies, nor enough means (the IEA estimated the exploration of new deposits will require investment of at least $11 billion annually). Despite all the five-year economic development plans adopted between 1991 and 2006, the company has never allocated significant funds for implementing them. So, there is nothing unexpected in the prognosis that Russian gas export will reduce by 25 percent by 2015. “Gazprom is undergoing a crisis now,” said Michael Fredholm, expert of Conflict Studies Research Center, UK Defense Academy. According to the IEA, the Russian company is losing at least 30 billion cubic meters of natural gas annually due to the lack of proper funding. The losses, comparable to one fifth of Russia’s export to Europe, are caused by technologic drawbacks and outdated transport infrastructure, which often leads to gas leaks and inflammation. Gazprom and Russian officials more and more often have to deny that Europe’s energy supply is at risk. Yet, they give no clear answer to the question about how Russia is going to manage the growing domestic demand without impinging upon the obligations to European counteragents. Magnify Russia’s authorities hope to decrease the domestic market’s gas consumption by means of switching some Russian consumers to coal. “It will trigger higher prices on electric energy, but will help Gazprom to manage its energy supply obligations to the foreign market for a while,” reads Fredholm’s report. However, even a large-scale transfer of the domestic market to coal will not make it much easier for Russia to fulfill all of its export and domestic obligations. Speaking of export difficulties, Russia will be trying to solve them by means of Central Asian gas, which it buys at low prices from Turkmenistan and Kazakhstan, and, taking advantage of its monopolistic transit position, resells to Western consumers three times more expensively. Anyway, even if Gazprom succeeds in keeping up extraction at 560 billion cubic meters annually (which is impossible without investment in new deposits), and in increasing Central Asian supplies up to 70 billion cubic meters, it will not guarantee the export obligations’ fulfillment, reads the report by Swiss investment bank UBS, presented in summer 2006. No-Alternative Choice Europe began questioning the reliability of its major supplier with the start of Russia-Ukraine gas wars. Certainly, Russia uses its dominating position on the energy resources market for achieving its political purposes. However, it now concerns more basic issues: there will simply be not enough Russian gas for all consumers. From now on, the decrease in Russia’s supplies means not only political independence, but also basic survival for many European states. EU countries have been hatching long-standing plans for diversifying the supply sources by means of gaining direct access to Central Asian and Caspian deposits. However, the Russian government has been successfully counteracting all those plans, for the energy competition will reduce not only prices of energy resources, but also Russia’s political weight. According to EU plans, the Nabucco gas pipeline is to open the access to gas deposits bypassing Russia. Nabucco’s construction was scheduled to be launched in 2007. The new pipeline is to carry gas from the Caspian region (mainly from Azerbaijan and Turkmenistan) through Turkey to Bulgaria, Romania, Hungary, and Austria; the latter will distribute gas to other European consumers. “If there is a project capable to rid Europe of Russian dependence, than it is Nabucco,” experts said. However, in late 1990s, when Nabucco was just mentioned for the first time, Moscow began building its Blue Stream gas pipeline along the Black Sea bed to Turkey. Upon finishing it, Russia announced a new plan for extending it from Turkey to Europe (Blue Stream 2). Russia’s project was becoming Nabucco’s chief rival. Soon afterwards, Moscow began enticing the European project’s investors. Austria will become Europe’s chief energy-distributing center if the Nabucco plan is implemented. Russia promised that favorable strategic position to Hungary, if the latter agrees to take part in the Blue Stream 2 project. The policy of dividing and ruling brought its fruit. Although Hungary’s oil-and-gas company MOL is a member of Nabucco Consortium, MOL signed in June 2006 an agreement with Gazprom for laying the gas pipeline from Turkey through the Balkans to Hungary. In March 2007, Hungary’s Prime Minister Ferenz Durchan said: “Nabucco is a big dream, but we don’t need dreams, we need projects”. However, the pipeline’s route changed drastically when Turkey decided not to support it, and openly backed the alternative Nabucco pipeline. Moscow decided to build its pipeline (now called South Stream) directly from Russia to Bulgaria, along the Black Sea bed, and to attract Italy’s Eni to funding it. South Stream is to split into two pipelines in Bulgaria. One will lead through Serbia and Hungary to Austria, and the other – through Greece to Italy’s south (see map). Gazprom does not hide its hurry to implement the South Stream project due to its direct competition with Nabucco. The chief European pipeline’s construction was put off many times due to differences between the states involved and to the uncertainty with suppliers. It is now scheduled for 2009. Yet, even with the most favorable circumstances, Nabucco will not be put into service earlier than in 2012. Europe’s another hope is to build the Trans-Caspian gas pipeline. However, Moscow has been successfully blocking this one as well. According to the project, the pipeline is to transport gas from the eastern Caspian shore along the seabed to Azerbaijan, then to Turkey, from where it can be carried to European consumers (by means of Nabucco, for instance). Yet, there is no consensus between the five Caspian states – Azerbaijan, Iran, Kazakhstan, Turkmenistan, and Russia – on how to divide Caspian energy resources. Taking advantage of the uncertainty of the Caspian Sea’s legal status, Russian politicians said that regardless of where the pipeline begins, all five countries in question should give their consent to its construction. Beside Russia, Iran strongly opposes the Trans-Caspian project as well. In July 2001, the Iranian authorities sent a military ship to prevent exploration works in Azerbaijan’s sector of the Caspian shore. The works were being carried out by BP under a contract with Azerbaijan. The West admits of a possibility that the Kremlin might be sponsoring such irreconcilable position, although Iran certainly has its own reasons for not letting Europeans near the Caspian Sea. Experts say that Moscow does everything to block EU states’ access to cheaper energy resources. In 2006, Gazprom was in cooperation talks with Algerian company Sonatrach, second largest gas supplier to Europe’s market after Russia. It is unnecessary to say how much that circumstance disturbed European consumers. Inter-State Split-Up Experts agree on one point: Europe needs to give up inner competition in the gas sphere and act as a united front if it wants to weaken such energy monster as Russia. However, each European country has been so far trying to peg gas supplies for itself only. In winter 2005-06, when energy supplies to Europe were at risk, Germany signed an agreement with Russia on building a new gas pipeline – Nord Stream – allowing to transport gas directly to Germany, bypassing Ukraine, Belarus, and Poland. Having learned about it, Polish President Alexander Kvasnevsky compared it to the Molotov-Ribbentrop Pact. Anyway, despite the energy arm-twisting opportunities which Moscow acquires with Nord Stream, Germany has secured its energy safety. Other European states behave in a similar way. They hurried to sign bilateral agreements with Russia. In the last two years, Gazprom signed contracts with Italian, French, and Dutch oil-and-gas companies, whose playing against one another allows Russia to push for more favorable terms and to receive larger profits. According to apt statement by Zeyno Baran, director of Hudson’s Center for Eurasian Policy, “while Europe is trying to coordinate its actions, Putin is signing deals”.

February 16, 2008 - Russia Today - Institutions, infrastructure, innovation and investment have all been singled out as economic priorities by Presidential candidate Dmitry Medvedev, during a key speech in Russia's Krasnoyarsk region. He's told an economic forum that, if elected on March 2, he'll focus on those four areas during his first term. With the favourite to win Russia’s next presidential election adding some further outline to the economic reforms he has in mind, it wasn’t surprising that numerous business and economic heavyweights made the trip to Krasnoyarsk to hear what he had to say. They weren’t disappointed with Dmitry Medvedev outlining a range of measures designed to further Russia’s economic future. The first major issue he touched on was the need to overhaul legislation and eradicate ingrained bribery and corruption. Medvedev pledged to radically change the way administration functions to help small businesses and entrepreneurs flourish. "The state should take taxes in such an amount that is needed to provide the existence of society itself and to keep the national business in the country," he said. Placing Russia more firmly on the global financial map was in focus, a key part of this being tied to a fully convertible rouble with greater international prominence as a reserve currency. Analysts say it is achievable, particularly given the current instability in global financial markets and Russia’s sound economic fundamentals. Nevertheless they note it will require more to be done about inflation, continued fiscal discipline, and more of Russia’s exports being priced in the Russian currency. Other key areas of the address included tax reductions and simplification, more stimuli for the private sector and better management for state companies. In general, the address was seen as positive by the business community, but they are now looking for reality beyond the talk and for clear progress in making it all happen. Roger Munnings, CEO and Chairman of KPMG for Russia and the CIS, joined RT to discuss Dmitry Medvedev's comments.

MOSCOW, February 15 (RIA Novosti) - Russia's foreign debt declined 14.6%, year on year, in 2007 to $44.4 billion, the Finance Ministry said on Friday. Russia's foreign debt consists of the $37.2 bln new Russian debt that emerged after 1992 and the $7.2 bln Soviet-era liabilities inherited by Russia after the disintegration of the Soviet Union in 1991. As of January 1, 2008, Russia's new foreign debt included loans from international financial institutions ($5.1 billion), loans extended by foreign governments ($1.74 billion) and Russian government foreign currency-denominated bonds ($30.36 billion), the ministry said. As of early 2008, Russia's Soviet-era debt comprised loans from foreign governments ($3.76 billion), loans extended by foreign commercial banks and companies ($753.4 million) and OVGVZ government bonds ($2.72 billion), the ministry said. Russia intends to repay its $7.2 billion Soviet-era debt by late 2012, the ministry said. "The former U.S.S.R. debt will be repaid in the form of cash and commodities. The majority of these liabilities will be paid off by late 2012," the ministry said.

MOSCOW, February 7 (RIA Novosti) - Net capital outflow from Russia reached $9 billion in January 2008, following a twofold increase in net capital inflow into the country in 2007, a Central Bank official said Thursday. "We had a net capital outflow of $9 billion in January. The trend is quite likely to continue in February, March, and April," said Alexei Ulyukayev, first deputy chairman of the Central Bank. Net capital inflow into Russia doubled from $42 billion in 2006 to a record $82.3 billion in 2007.

MOSCOW, February 1 (RIA Novosti) - Russia has transferred $118.4 million to the International Bank for Economic Cooperation (IBEC), settling its final Soviet-era debt to international organizations, the Finance Ministry said Friday. According to ministry estimates, the repayment saved the federal budget $16.3 million in comparison with the settlement conditions set by the London Club. The ministry said that on December 29, 2007 it signed an agreement with IBEC to settle mutual financial claims on Soviet operations, with the payment being made the same day. The ministry said the debt was made up of the Soviet Union's outstanding commitments on loans attracted by the U.S.S.R.'s Vnesheconombank from IBEC before the end of 1991. IBEC was established in 1969 by members of Comecon, or Council for Mutual Economic Assistance, an economic organization of communist states that disbanded in 1991, to implement investment projects. Russia holds a 44% stake in the bank.