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Business Watch: March 26, 2002


26 March 2002, Volume 2, Number 12
OIL & GAS
GOVERNMENT APPROVES $4.5 BILLION GAZPROM INVESTMENT PROGRAM (14 March)
The Russian government approved a $4.5 billion investment program for gas giant Gazprom on 14 March. Gazprom has agreed to cut 14 percent from the original 2002 spending program. The state owns a 38 percent stake in Gazprom. Gazprom has been accused of mismanagement, wasteful spending, and improper use of resources. The gas firm will still be $500 million short for the plan and the cabinet said it would probably raise domestic gas tariffs to fill the gap although that would put its inflation target under pressure. Russian Fuel and Energy Minister Igor Yusufov told Reuters: "The volume of investment, required to maintain gas output in Russia in 2002 at 520 billion cubic meters, is set at 140.8 billion rubles ($4.54 billion) for Gazprom and 16.2 billion rubles for independent producers." Gazprom has said its domestic gas sales are not profitable even after the tariff boost, and that it needs more money to stabilize output, in decline since 1999, and build new export routes to Turkey and Central Europe. (JMR)

GOVERNMENT MAY LIFT GAZPROM TRADING RESTRICTIONS (15 March)
Boris Fedorov, who represents minority shareholders on the Gazprom board, said the government might approve the first stage of liberalization, easing trading for Russians on domestic stock exchanges, for Gazprom shares before June, Reuters reported. Under restrictions imposed by the state, foreigners are generally prohibited from directly owning shares in the world's largest gas producer, and domestic trading is limited to four exchanges, excluding the two major Moscow bourses. Fedorov declined to predict when the state might lift the ban on ownership of shares by foreigners. Foreigners can only hold Gazprom shares through American Depositary Shares. Fedorov added that Gazprom might proceed with a new share issue once the restrictions are lifted. The government has urged the gas monopoly to boost its efficiency and sell off noncore assets. (JMR)

RUSSIA TO CONTINUE OIL CUTS IN SECOND QUARTER (20 March)
To the delight of the Organization of Petroleum Exporting Countries (OPEC), Russian officials agreed to continue with restrictions on oil exports in the second quarter to help stabilize world prices. Russian Prime Minister Mikhail Kasyanov on 20 March announced the decision, after meeting with leaders of Russia's largest oil companies. Kasyanov said that, "if we see that the oil market is stabilizing and oil prices tend to grow, the government and oil companies will again look to see if it is feasible to reduce exports later in the second quarter," the Interfax news agency reported. Dmitrii Ivanov, vice president of Russia's fourth biggest oil firm, Tyumen Oil Company (TNK), said the 20 March decision was well-balanced. "It is based on the economic processes happening in the world today. It gives us the opportunity to regulate things according to fluctuations in the market," he told Reuters.

Although it is not a member of OPEC, Russia first agreed to cut its exports by 150,000 barrels a day for the first three months of this year. Earlier this month, the head of the International Energy Authority, an industry watchdog, accused Russia of keeping export levels up despite its deal with OPEC. The government denied the accusation. Industry experts have noted that despite the cuts, data shows a rise in Russian oil output, with Yukos and Sibneft panning to increase output by more than 20 percent in 2002.

OPEC said it was very pleased with Russia's decision. "We are very pleased and appreciative of Russia's generous contribution to the stability of the market," said a spokesmen for the cartel from Vienna, Reuters reported. Russia has been reluctant to cut its exports because it needs the revenues to help repay its $140 billion foreign debt. Oil exports are a major revenue-earner for Russia's economy and tax coffers. Five independent countries, including Russia, have curbed supplies since January to help OPEC lift oil prices from a slump late last year. Norway, Mexico, Oman, and Angola already have said they will continue their supply cuts. (JMR)

BUSINESS ALERT
MDM ANNOUNCES EXPANSION PLANS (13 March)
MDM-Bank, one of Russia's largest, plans to open 30 new branch offices by 2004 while preparing for a potential euro-debt issuance to boost funding for its loan portfolio, Reuters reported. Chief Executive Vladimir Rashevsky said MDM-Bank's expansion plan could come either through organic growth, which would cost it approximately $10 million to complete, or through outright purchases of smaller regional banks. The Russian banking sector was severely damaged by the 1998 financial crisis. New competition as the economy recovers is expected to help cut out several inefficient banks. MDM may also issue commercial paper debt, three-year medium term notes, or a combination of both to the tune of 100 million euros to 200 million euros ($87.5 million-$175 million) in late 2002. In the last year, MDM-Bank purchased six banks, mostly in the northwest region of Russia, including St. Petersburg-based Petrovsky Narodny Bank, for which it paid roughly $5 million. One of the main attractions of Petrovsky Narodny, which Rashevsky said had $250 million in assets, was its "very large number of retail customers, nearly three million." Rashevsky hopes that by increasing the retail banking business, which accounts for $100 million in assets, MDM-Bank will be able to tap into "what the experts say is between $30 and $40 billion in mattress money." But even as one of Russia's oldest and largest commercial banks, with $1.5 billion in assets, privately-held MDM-Bank's head of international business said the bank still has more than $500 million in unmet lending demand. (JMR)

NORILSK TO RESUME SPOT PALLADIUM SALES (15 March)
The world's largest palladium producer, Norilsk Nickel, announced on 15 March that it may resume spot sales of the metal if prices rise to a range of $400-$600 a troy ounce. "Having analyzed the current situation, we believe that the price range of $400-$600 per troy ounce is realistic," Prime-TASS news agency quoted Marina Nefedova, head of Norilsk's precious metals sales department, as saying. She did not specify whether the company intended to restart sales when prices reached the lower level of the band and Norilsk officials were not immediately available for comment. Norilsk, which accounts for around 70 percent of world supplies of palladium, a platinum group metal used mostly in the car industry, halted spot sales last August due to weak prices. Nefyodova said Norilsk had not interrupted palladium supplies under term contracts. (JMR)

GOLDEN TELEKOM TO CONTROL SOVINTEL (18 March)
Russian telecom firm Golden Telecom announced on 18 March that it had signed a deal to take full control over profitable joint venture Sovintel, buying out the 50 percent owned by partner Rostelekom. The transaction, for $56 million in cash and 15 percent of Golden's shares, is subject to approval by each of the company's boards of directors and Russian regulators, Reuters reported. The deal is expected to be completed in the second quarter of 2002. Aleksandr Vinogradov, president and CEO of Golden Telecom, said in a company statement that "The acquisition of Sovintel will enable our financial statements to more clearly reflect the true value of Golden Telecom to our shareholders." After the deal is closed Golden Telecom plans to merge Sovintel's activities with its subsidiary TeleRoss. "This combination will improve our cost structure due to the complementary nature of the Sovintel and TeleRoss...networks and will perfectly position us for long term growth as we expand nationally," Vinogradov added. (JMR)

RUSSIAN COMPANY DEVELOPS 'ROKOT' BOOSTER (20 March)
Khrunichev State Research and Production Center has developed a new booster rocket for foreign satellites called Rokot, in an effort to hold onto its market share for commercial launches, the AP reported. One of the new boosters was used on 17 March to launch twin U.S.-German satellites into orbit. The rocket was converted from a Soviet-designed SS-19 ballistic missile. Khrunichev's director, Aleksandr Medvedev, said his company earned about $10 million for the launch, which was barely above production cost. He said at a news conference that: " We have to charge bottom price," to remain competitive. He said another three Rokot launches are set for this year. Khrunichev has put commercial satellites, mostly from foreign companies, into space throughout the 1990s, with Russia receiving tens of millions of dollars for each launch. Medvedev blamed a sluggish global market for commercial space launches for last year's drop in the number of Proton launches. Khrunichev launched only two Western satellites into orbit atop Protons last year. Medvedev said his company had invested part of the earnings from commercial launches into research and development works for Rokot, Proton-M, and the next-generation Angara rocket. (JMR)

RUSSIAN BUSINESS ABROAD
RUSSIA-UKRAINE TO BOOST ECONOMIC RELATIONS (17 March)
Russian President Vladimir Putin and Ukrainian President Leonid Kuchma agreed at a summit on 17 March to strengthen economic ties and boost trade to forge a new post-Soviet financial power to compete on European and world markets, Reuters reported. Putin said trade in energy, defense, and technology would be stepped up in what was seen as a boost for Kuchma ahead of a parliamentary election scheduled for 31 March. Putin said: "We will be able to strongly influence the development of Europe's economy, we will be taken more seriously and our own economies will be more stable." Kuchma said, "Weakness is not liked by Europe, but strength is. We can only become strong by ourselves, no one else is going to do that for us." (JMR)

ECONOMIC NEWS & BUSINESS STATISTICS
LITHUANIA LAUNCHES 10-YEAR T-BONDS (18 March)
Lithuania launched its 10-year Treasury bonds on 18 March. This completes one of the requirements for EU accession. The Central Bank said in a statement that the average yield at the auction was 6.15 percent. The 10-year paper replaces seven-year T-bonds as the Baltic state's longest maturing litas-denominated government debt instrument issued publicly on the local market. Lithuanian Finance Minister Dalia Grybauskaite told Reuters she expected the country to launch a 300-400 million euro bond in May or June. In February 2001, Lithuania placed a seven-year, 200 million euro eurobond at a 6.625 percent coupon at 215 basis points over bonds. The Finance Ministry has been reshaping its domestic borrowing by placing more long-term paper on the market, saying the local markets were receptive to litas-denominated paper. (JMR)

UPCOMING CONFERENCES
INTERNATIONAL TOURIST EXHIBITION (21 March)
An international tourist exhibition of Great Silk Road countries is scheduled for 18-20 April in Tbilisi. Georgian Tourism Department Chairman Vazha Shubladze said that all 15 countries of the former Great Silk Road will participate in the exhibition. The negotiations on the participation of nine more countries has already started. "Switzerland, Cyprus, and Belgium will take part in the exhibition together with the World Tourism International Organization," said Subladze. Georgian President Eduard Shevardnadze said on 23 March that the exhibition will be organized according to international standards. (IAM)

POLITICAL ECONOMY
U.S.-RUSSIA TO CONTINUE POULTRY TALKS (20 March)
Russia and the U.S. have agreed to continue talks aimed at ending Russia's 10 March ban on U.S. poultry. Russia imposed the ban due to purported concerns about the quality of the meat. They claim that examiners have found the presence of salmonella, the use of antibiotics in the growing of the chickens, and the use of chlorine to kill bacteria on carcasses in slaughter plants. Russia is pushing for the right to inspect U.S. plants, the AP reported.

In 2001, Russia imported 1.36 million tons of poultry meat, including about 1 million tons from the U.S. Russian domestic producers supplied only 860,000 tons, according to the Russian Agriculture Ministry. Russian industry leaders have admitted that they will be unable to make up the gap for the banned U.S. poultry. The general director of the Yaroslavsky broiler plant, Andrei Lapkin, said, "We can increase output, but we will not be able to feed all Russia immediately." In fact, Albert Davleev, head of the U.S. Poultry and Egg Export Council office in Moscow, said, "Simple arithmetic shows that even if Russia keeps raising its poultry output by 15 percent a year, as in the last two years, it can meet its demand only sometime around 2010."

Russia imported about $600 million in poultry products from the U.S. in 2001. That year 39 percent of U.S. chicken exports and 17 percent of U.S. turkey exports went to Russia, Reuters reported. U.S. imports are sold in Russia at prices below those of Russian poultry. Russian producers say they want protection from cheap imports, but favor quotas and tariffs rather than a ban. The government will examine an Agricultural Ministry proposal to raise the poultry import tariff from 25 to 30 percent.

U.S. Agricultural Secretary Amy Veneman said on 20 March that she is pleased talks will continue. However, she noted that time spent on this dispute could prevent action on items such as Russia's entry into the World Trade Organization. She noted, "This is something that is taking a lot of the attention of a lot of people at very high levels of government." (JMR)

BELIEVE IT OR NOT
U.S. ROCK STAR SEEKS SPACE RIDE (March 2002)
The U.S. teen heartthrob from the music group 'N Sync, Lance Bass, is negotiating with Russia for a ride on a rocket in November, according to MirCorp. Bass said he was, "looking forward to completing this lifelong dream." The plan still requires the approval of the Russian space agency, Rosaviakosmos. Bass completed space camp near Titusville, Florida, when he was 12. He would have to undergo five or six months of training at Star City, the space training center outside Moscow, before blasting off. A Los Angeles TV production company, Destiny Productions, is one of several corporations offering to sponsor Bass' journey, and hopes to document it for a television special, "Celebrity Mission: Lance Bass." Bass's voyage would follow that of California investment banker Dennis Tito, who reportedly paid $20 million to visit the International Space Station last year. South African tycoon Mark Shuttleworth reportedly is spending the same sum to fly to the space station on a Russian rocket in late April. (JMR)

WHAT�S UP? WHAT�S DOWN?
RUBLE NOT EXPECTED TO FALL SHARPLY (18 March)
Financial analysts have predicted that the ruble will not fall sharply on 18 March, following the resignation of Central Bank Chairman Viktor Gerashchenko on 15 March. They said that Gerashchenko's departure is not likely to lead to an uncontrolled devaluation, though some expect the bank to allow a moderate decline in the ruble in line with the country's 12-14 percent annual inflation to aid economic growth. Gerashchenko had maintained a policy of keeping the ruble steady against the dollar, despite double-digit inflation, Reuters reported. Natalya Orlova, an analyst with Alfa Bank, said, "The new chairman is likely to allow the ruble to devalue faster and that is positive as it would allow it to keep the real exchange rate stable this year and grant Russia higher economic growth this year." On 18 March, at the unified official trading session, the ruble closed at 31.1119 to the dollar, down from the 15 March close of 31.0710. But the fall of four kopecks was less than the five to seven kopecks dealers said they had expected. President Putin's nominee to replace Gerashchenko, First Deputy Finance Minister Sergei Ignatiev, said he will keep the ruble policy steady. Ignatiev moved quickly to tell local media he would not let the ruble plunge and the currency's stability would top his agenda. (JMR)

AEROFLOT'S PASSENGER VOLUME TO DECLINE (19 March)
Russian airlines Aeroflot announced on 19 March that it expected passenger volumes to decline in 2002, but is hoping for a rise in revenues and profits. In 2001, the airliner saw a 15 percent rise in passenger volumes, which totaled nearly 5.8 million people, according to Aeroflot spokeswoman Larisa Solodukhina. She said cost-cutting efforts would help boost profits. The director of the airline's network management department, Aleksandr Kanishchev, told Reuters Aeroflot saw cargo volume increasing by 2-3 percent for the year, totaling 101,700 tons. In passenger traffic, the airline would place emphasis on service and on-time performance, rather than on adding volume. Aeroflot announced in January that passenger volume had jumped by nearly 15 percent over 2001 despite a global slowdown in traffic after the 11 September attacks. Aeroflot will not release 2001 profit figures to international accounting standards until May, but says it expects to show a profit of $7.5-8.2 million for the year, about half the figure it expected before 11 September. (JMR)

PROFILE
VAGIT ALEKPEROV -- LIFETIME DEVOTION TO OIL INDUSTRY
On 6 March, the "Financial Times" announced that LUKoil, Russia's largest oil company and headed by Vagit Alekperov, will join the sponsor group of Baku-Tbilisi-Ceyhan (BTC), a U.S.-backed, Caspian oil pipeline bypassing Russia. According to the head of the State Oil Company of Azerbaijan (SOCAR), Natik Aliev, the move will reverse Moscow's longstanding opposition to the project. "There is a verbal agreement that LUKoil will definitely join BTC and that agreement will be confirmed at the end of March or the start of April," Aliyev told a press conference. However, Intercon sources in the international oil business indicate that LUKoil is not free to act. It must obtain a license from the Russian government to participate. The source indicated that while likely, "when it comes to Russia you can never be too sure that politics will not intervene at the last minute to ruin the best laid plans of business or men." Many experts welcome such an addition to the consortium not only from a business perspective, but also precisely from a political one. With LUKoil in the BTC pipeline, other opportunities might emerge.

Georgian International Oil Corporation President Gia Chanturia suggested on 17 March that the construction of a connecting oil pipeline from Novorosisk, Russia, to the BTC pipeline, could be linked with the renovation of the railroad through Georgia's breakaway Abkhazia region to Supsa, Georgia. This could relieve pressure on the port of Novorosisk for Russian oil exports, especially during the winter months. Turkey would benefit from reduced Bosphorus tanker traffic. Armenia could also benefit from a reactivated railroad, needed for Russian goods and trading. The railway through Abkhazia has not operated since the Georgian-Abkhaz conflict in 1992-1993. In short, many believe that the greater involvement of Russian businesses in pipelines and other businesses throughout the Caucasus could positively contribute to the resolution of many simmering conflicts.

Currently, LUKoil seeks a 7.5 percent to 8 percent share in the BTC group of sponsors, BBC reported on 28 February. The president of BP-Azerbaijan, David Woodward, said that the detailed engineering studies of the BTC pipeline would be completed and presented to the consortium in May. A final decision concerning the construction of the BTC pipeline is expected around 22 June, according to the 21 February issue of the "Financial Times." This comes on the heals of the signing on 16 March of a Host Government Agreement for the beginning of construction of the Baku-Tbilisi-Erzerum gas pipeline between investors and the Georgian government. LUKoil and its partner Agip of Italy also have interests in this gas pipeline. The construction of the Baku-Tbilisi-Erzerum gas pipeline will be finished in 2004 and the first gas will be delivered to Georgia and Turkey in 2005. British Petroleum and Statoil own 25.5 percent each, while SOCAR, TFE, NICO, LUKAgip own 10 percent each and TPAO owns 9 percent of the project. These projects place Alekperov's LUKoil not only at the center of major business projects, but important geopolitical and geo-economic events.

Alekperov and LUKoil have also been in the headlines of the domestic political news with its controversial decision to force the often combative TV6 television network into bankruptcy. The network reached more than 50 percent of the Russian population and had doubled its ratings after the demise of NTV. While posting a profit, TV6 was driven into liquidation by LUKoil-Garant, a minority shareholder and LUKoil subsidiary. The use of a bizarre bankruptcy law that has since been repealed by the Russian State Duma made the action appear all the more political in nature. TV6 became a new home for many of the former NTV journalists after it was disbanded. President Putin's fierce critic, Boris Berezovsky, who has applied for political asylum in Great Britain, was the majority owner. Russian analysts claim that Putin's government, which holds a minority ownership stake in LUKoil, pressured the oil company to use the obscure provision of the bankruptcy laws that allows a minority shareholder to sue for liquidation if a company pays no dividends for two years. Most Russian companies would be bankrupted if this rule was fully applied. This underlines the power and influence big energy in Russia can have on domestic politics and the building a civil society.

A month before the BTC announcement, Alekperov held talks with the Colombian state oil company Ecopetrol on the joint development of oilfields in Colombia. According to Alekperov, LUKoil will carry out prospecting and drilling at the oilfields in Colombia. If this proves successful there are plans to set up a company to produce 400 million barrels of high-quality crude oil. A contract between LUKoil and Ecopetrol may be signed in March, the "Financial Times" reported on 14 February. However LUKoil's contract with the West Qurna contract in Iraq is probably its most important contract. At peak levels, West Qurna will produce 640,00 barrels per day (bpd), adding close to 50 percent of LUKoil's daily production. But this cannot be fully realized until the UN sanctions on Iraq are lifted. LUKoil's LUKAgip venture also has a strong presence in Kazakhstan with its 5 percent interest in the 5.8 billion barrel Tengiz field.

Alekperov is undoubtedly one of the most influential players in the world's hydrocarbon market. He had no doubt from his early childhood that he would spend all his life working in the oil sector. As Alekperov is fond of saying, "[I] grew up in the oil-stained environment." Alekperov was born into on Azerbaijani-Cossack family in Baku in 1950. His father worked in the oilfields all his life and inspired Vagit to follow in his footsteps. Although the youngest child in the family, Alekperov began to work on the oilfields at the early age of 18. In 1974, Alekperov graduated from the Azerbaijan Institute of Oil and Chemistry. Working continuously, Alekperov nevertheless completed his academic studies and finished with a doctor of science degree in economics. He is author of a monograph, "Vertically integrated oil companies in Russia -- methodology of forming and realization," the National News Service (NNS) reported. In 1979, Alekperov was sent to Tyumen, western Siberia, where he progressed from an oil engineer to the general director of Kogalymneftgaz, a local oil and gas producer. Throughout his career, at least its first years, Alekperov was actively involved in the oil production process, which was often dangerous due to improper safety conditions in the Soviet Union. In 1974, while working on an oilrig, he was close to the wellhead when an explosion occurred. From a height of 12 meters, Alekperov was thrown into the sea, while two other workers died. Once on the emergency site the welders, scared of an explosion, refused to fix the pipeline crack. Alekperov reportedly threw himself on the pipe encouraging the workers not to be afraid, that "It won't explode," the "Business People" magazine wrote in January 2000.

In 1990, Alekperov was appointed a deputy, and in 1991 -- the first deputy to the minister of oil and gas industry in the Soviet Union. It was then that he advanced the idea to create LUKoil by incorporating three oil producers -- Langepas, Urai, and Kogalym. According to the NNS, the first letters in the names of these producers were included into the name of the new company, LUKoil. In 1992, Alekperov became the president of LUKoil, which subsequently became one of the most powerful oil companies in the world. In Alekperov's words, "In the Soviet Union, the production, processing, and distribution of the oil products were managed and supervised by three ministries. Each of the ministries had its objectives, which sometimes were in conflict with the interests of other ministries. This would often result in abandoning oilfields that were not yet exhausted, resulting in the needless destruction of drilling equipment, pipelines, and production imbalances. Hence the decision was made to build a vertically-integrated structure that would unite enterprises of the entire technological chain from oil wells to the gas stations." According to "Expert," some high officials did not feel comfortable with a monopolistic status of LUKoil. Almost immediately, Yukos and Surgutneftegaz were created.

Alekperov openly acknowledges that he professionally idolizes Enrico Mattei, first president of the Italian energy company Eni. Alekperov believes that Mattei introduced a breakthrough in oil production. "What a person he was! Out of a state-run enterprise, he created a company which is still providing hydrocarbons all over Italy," Alekperov was quoted by the NNS as saying. LUKoil has established a number of agreements with the Italian energy giant. According to the company website, the Eni Group has been in the Russian Federation (and before that the Soviet Union) since the 1950s. Mattei signed the first Russian crude oil supply contract on behalf of Agip and in 1994 Agip and LUKoil established a 50-50 joint venture.

According to "Business People," the most distinctive feature of LUKoil's internal and external policies is the indisputable authority of Alekperov. He is no longer nicknamed "the General." He is more often called "Alek the First," or "the Don." The magazine stated that some foreign companies seal agreements with LUKoil under the condition that an agreement will be valid as long as Alekperov keeps the post of the company's president. Some American observers state that Alekperov is pushy in a very American way and they are comfortable with him. The keen business skills of Alekperov as well as a carefully selected team of managers have allowed LUKoil to become successful and an industry leader. In January 2002, with 5,214,000 tons of oil, LUKoil was the biggest oil producer in Russia, exceeding Yukos by 1 million tons, and Surgutneftegaz by 1.3 million tons, the "Financial Times" reported on 22 February. (TSK, PMJ)

IN FOCUS
THE POLITICS OF BIDDING FOR TV6 (8 March)
On 27 March, a nine-member commission chaired by Press Minister Mikhail Lesin will consider applications in a tender for the license of TV6. As of the deadline on 6 March, there were 15 applications, but the final number is up in the air as bidders drop out and join forces. Businessmen and politicians alike are using their power to influence journalists, who have come under fire as the number of independent media groups dwindle and their employment options with them. At its height, TV6 reached 50 percent of the Russian population and expanded its base after taking in journalists from closed Media-MOST station NTV. After an eight-month battle, TV6's license was revoked as part of a court ordered liquidation, under a controversial law allowing minority stockholders to exercise bankruptcy options for failure to issue dividends, even though profitable. Control of the license would afford the owner incredible access to Russians across the nation.

The main forces vying for the license are Media-Sotsium, a partnership formed by former prime minister and head of the nongovernmental Chamber of Commerce and Industry, Yevgeny Primakov, and head of the Russian Union of Industrialists and Entrepreneurs (RSPP) Arkadii Volskii, and Shestoi Telekanal (Sixth Channel), a consortium of 12 businessmen and former TV6 journalists. Another contender is TPG-Aurora, led by former TV6 Executive Director Pavel Korchagin. In December 2001, TPG-Aurora, which is part of the U.S.-based Texas Pacific Group investment fund and owns stakes in MTV Russia and Russkoye Radio, offered to buy out TV6. Talks between TPG-Aurora and TV6 majority owner Boris Berezovsky failed to reach an agreement. Gazprom Media, which controlled subsidiary THT, the sister channel of NTV, is interested in the frequency license so that it can expand sports programming. Gazprom Media chairman Aleksandr Dybal said, "A possible victory by THT and consequently a growth of the channel's attractiveness to investors." LUKoil-backed TV-VI, Vysshaya Liga, and Vashe Televideniye, all run by former TV6 officials, have individually applied for the tender. Other contenders include the National Olympic Committee, the Gorbachev Foundation, the 7TV sports channel, ATV television production, the Social Protection Party, the Young Russia movement, and Aleksandr Club publishing house.

The broadcast license of the news-focused TV6 was revoked on 14 January and its signal taken off the air in the culmination of a struggle that many saw as a key test of media freedom in Russia. The station was majority-owned by tycoon Boris Berezovsky, a Kremlin insider turned opponent of President Vladimir Putin. A subsidiary of LUKoil, LUKoil-Garant, which owned a mere 15 percent in TV6, filed a lawsuit in 2001 asking the Moscow Arbitration Court to liquidate TV6 because its debts outweighed its assets. TV6 maintained that it was profitable and increased its viewership following the closure of NTV. TV6 also argued that the case was being decided under old laws and that it was part of a Kremlin-led campaign to silence independent media. A new law effective this year now bans minority shareholders from bringing bankruptcy proceedings against a company. Russian analysts claim that Putin's government, which holds a minority ownership stake in LUKoil, pressured the oil company to use the obscure provision to close the television station. LUKoil-Garant stressed that it was taking action based on commercial reasons and not as a step to crackdown on independent journalists. Following the court decision, Lesin said that Putin had been monitoring the eight-month battle over TV6, but that he had never interfered in the legal proceedings. Since the liquidation, journalists, businessmen, and politicians have been battling each other for the TV6 broadcast license; sometimes making "strange bedfellows."

A near merger collapsed between Media-Sotsium and Sixth Channel late on 6 March, just before the deadline, but hopes remained that Media-Sotsium, the real wildcard candidate, could convince the journalist teamed with the businessmen. "The Moscow Times" reported that a mutual understanding "on all basic points" was found, but time ran out before all the necessary signatures and stamps could be gathered, despite three days of intense negotiations. The sticking point in the talks was the insistence by Media-Sotsium to hold the channel's license and hire the consortium as a de facto general contractor to produce the programming. On 4 March, former TV6 General Director Yevgeny Kiselev and the consortium's spokesman Oleg Kiselev announced that Sixth Channel is open to others who wished to join it on its terms of equal shares, editorial independence, and adherence to "basic values of liberal economy and an open society." Korchagin, who left the Sixth Channel consortium, told "Kommersant," "The more I learned about this project the more I was convinced that it was a political one." The joining of forces with Media-Sotsium would also mean that the Kiselev team would be dependent on whomever finances them, "The Jamestown Monitor" pointed out.

Sixth Channel was formed by 12 leading oligarchs, including Chukotka Governor Roman Abramovich, former MDM Bank Chairman Aleksandr Mamut, Russian Aluminum Director Oleg Deripaska, and United Energy Systems chief Anatolii Chubais. Chubais has stressed, "This wouldn't be Chubais TV or anyone else's TV but rather an independent channel with independent money�I think the team of journalists from the channel have shown themselves to be independent and very professional so I support the idea that a group of Russian companies should join up to help the team to take part in the license auction in March." Earlier reports had said the team of investors would invest between $10 million and $50 million to support the journalists' bid.

Both Media-Sotsium and Sixth Channel claim to have the backing of the Kremlin. Maintaining the original TV6 journalists at their station would surely shield the Kremlin from accusations that it orchestrated the closure of the station to stifle the independent media. Putting the license in the hands of the Sixth Channel might also change the tone of the broadcasts from the critical opposition standpoint of Berezovsky and NTV owner Vladimir Gusinsky to a more mild-mannered business approach. However, gazeta.ru speculated that the Kremlin does not fully trust the oligarchs behind Sixth Channel, who are more independent and centrist in their outlook, not necessarily perceiving the press as a threat. This is possibly why it has backed another bidder, Media-Sotsium, which were closer to the "red directors." They have been described as having a Chekist political orientation and are more hostile to the free press. The website also stated that VGTRK, the state television and radio company that includes RTR and Russian Public Television ORT, was also behind the Media-Sotsium bid. The effect of these two stations on the high-quality independent television reporting remains an open question, but the implications on future ratings is clear. Primakov might have his own reasons for controlling the airwaves, which is not in line with the other partners. A television station license would serve his purposes of finding a new outlet for his message and the possible goal of returning to politics.

In a surprise move on 7 March, Sixth Channel and Media-Sotsium reached a compromise in late-night talks and agreed to join forces, making the Primakov-Volskii bid the favorite to win the TV6 broadcasting license. Kiselev denied the journalists' independence would be at risk by joining with Primakov. He noted that while the journalists and Primakov, "look at many things absolutely differently," this would not be an obstacle. Cooperation between the new groups can be managed. Kiselev said, "Having such a political heavyweight as Yevgenii Primakov on the team is a big plus." Others remain more skeptical and express their concern that his presence may tear the coalition apart.

Since the merger, several journalists have refused to participate in the joint Sixth Channel and Media-Sotsium bid. They expressed concern over the editorial power of Primakov. "Yezhenedelny Zhurnal" No. 9, noted that, "political experts do not doubt that the political heavyweights [such as Primakov and Russian Union of Entrepreneurs and Industrialists head Volskii] have been commissioned by the Kremlin in order to conduct ideological monitoring of the disfavored NTV/TV6 journalistic team." Even though, as Lesin said, Putin is only monitoring the situation, the true will of the Kremlin will be revealed on 27 March, when the Press Ministry's commission reviews the applications of the remaining bidders. (JMR/PMJ)

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