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Business Watch: May 14, 2002


14 May 2002, Volume 2, Number 19
OIL & GAS
STATOIL INVESTED $530 MILLION IN AZERBAIJAN OVER 10 YEARS (30 April)
Norway's Statoil, which was one of the first Western, commercial gas companies to enter the Azerbaijan market in 1992, announced that over the last 10 years it has invested almost $530 million into the country's oil-and-gas industry, according to ITAR-TASS. Statoil is participating in a number of energy development projects, including the Azeri-Chirag-Gyunashli (8.6 percent), Shah Deniz (25.5 percent), and Araz-Alov-Sharg (15 percent) oil fields. Statoil is a member of the sponsorship group that is currently constructing the Baku-Tbilisi-Ceyhan (BTC) pipeline with a 6.45 percent ownership share. Statoil has also announced its intention to participate in the Baku-Tbilisi-Erzurum pipeline project. Statoil has also made a multimillion-dollar investment in neighboring Georgia, where the company helped modernize the Georgian state-owned Gardabani power plant. It has also committed itself to helping Georgia maintain its energy supply throughout the winter months. The Gardabani plant will be able to run on both liquefied fuel and natural gas. (PMJ)

PUTIN, ROSNEFT CHIEF MEET AT KREMLIN (6 May)
Russian President Vladimir Putin and Rosneft chief Sergei Bogdanchikov met at the Kremlin in Moscow on 6 May, RosBusiness Consulting reported. The two discussed the situation in the oil-and-gas market, the progress of restoration in Chechnya's oil-and-gas sector, and Rosneft's activities. Putin mentioned with satisfaction that Rosneft "was paying more taxes than anybody else to the budget." "It can't but make the Finance Ministry happy," Putin said. Putin and Bogdanchikov also discussed relations between Rosneft and Gazprom in view of the oil-production buildup by Rosneft, ORT television reported. (JMR)

RUSSIA LOWERS OIL EXPORTS IN APRIL (6 May)
According to Russian Energy Ministry data, Russian oil exports in April were down by 70,000 barrels per day (bpd), after record shipments in March, Reuters reported. A source in the ministry said the state pipeline monopoly Transneft could have shipped more crude due to favorable weather but stuck to the initial schedule of shipments anyway. The source also said, however, that while exports via Transneft dropped, private oil firms were apparently boosting shipments via alternate routes to offset the price-crushing glut of oil and oil products on the domestic market. Russian crude exports via Transneft were down in April to 10.894 million tons (2.66 million bpd) from 11.563 million tons (2.73 million bpd) in March. In January and February, Russia exported around 2.60 million bpd, saying the figure was in line with a promise to OPEC to cut exports by around 5 percent or 150,000 bpd in in the January-June period to help the cartel prop up international prices. The volume of exports from Russia, including transit volumes from neighboring countries, as well as deliveries by rail, was also down in April to 12.550 million tons (3.07 million bpd) from 13.438 million tons (3.18 million bpd) in March. Transit volumes in April, mainly from Kazakhstan, Azerbaijan, and Turkmenistan, stood at March levels and amounted to 1.542 million tons, or 377,000 bpd. The total also included 114,700 tons or 28,000 bpd of Russian crude that bypassed Transneft by rail or small ports, down from 206,000 tons, or 49,000 bpd, in March. Russian authorities have said they are using the Russian-only oil exports via Transneft to measure exports in the deal with the Organization for the Petroleum Exporting Countries to cut supplies. (JMR)

BUSINESS ALERT
DIRECTV LAUNCHES SATELLITE FROM KAZAKHSTAN (30 April)
Satellite television broadcaster DirecTV launched a new satellite from Kazakhstan on 6 May. El Segundo, California-based DirecTV, a unit of Hughes Electronics Corp., said it launched DirecTV 5 from the Baikonur cosmodrome, Reuters reported. The satellite, formerly known as Tempo 1, was acquired when Hughes bought competing broadcaster Primestar in 1999. DirecTV has in the past launched satellites from a spaceport in Kourou, French Guiana, and from Sea Launch, a floating platform in the Pacific Ocean. The company said the new satellite would enable it to expand the number of cities where it offers local channels on a limited basis. DirecTV, the No. 1 satellite broadcaster in the United States, is in the process of being acquired by No. 2 broadcaster EchoStar Communications Corp. (JMR)

ANDERSEN TO ACQUIRE RUSSIAN BROADBAND PROVIDER (1 May)
Andersen Group, Inc., has signed an agreement to acquire a 50 percent stake in ComCor-TV (CCTV), which is presently held by Moskovskaya Telekommunikatsionaya Corp. (COMCOR) for approximately $28 million of Andersen Group's common stock. CCTV, a Russian company that is in the process of wiring Moscow to provide broadband services, including cable television, high-speed Internet access, and IP-based telephony to residential and business customers, is equally owned by COMCOR, the Russian provider of fiber-optic backbone services and an affiliate of the Moscow city administration, and Andersen Group's affiliate, Moscow Broadband Communication, Ltd. (MBC). According to a company press release, the transaction, which requires Andersen Group shareholder approval and various Russian and American regulatory consents, is expected to close during the third quarter of 2002. CCTV's services are at the center of Moscow's new "Electronic Moscow" program, a recently announced initiative created by Moscow Mayor Yurii Luzhkov to upgrade the network infrastructure in Moscow and to assure broad distribution for all media. CCTV is licensed to provide broadband services to 1.5 million homes and businesses, which represents approximately 44 percent of the total estimated households in Moscow and has been directed by the city administration to complete wiring of the Central Administrative Okrug (200,000 homes and businesses) by the end of 2002. "The goal of Electronic Moscow is to provide Moscow residents and businesses with a dramatically higher level of communications services at reasonable cost," said Yurii Pripachkin, general director of COMCOR and general director-elect of Electronic Moscow. (JMR)

ECONOMIC NEWS & BUSINESS STATISTICS
RUSSIANS FAIL TO MEET TAX DEADLINE (30 April)
Gazeta.ru reported that many Russians failed to meet the deadline on 30 April to declare their taxable incomes for 2001. The website noted that the reasons for the lack of activity by taxpayers are twofold. First, there has been a significant decrease in the number of Russians who have to report to tax inspectors, and second, there is the familiar story of those who just do not want to pay taxes, even if it means missing out on tax deductions. As of this year, taxpayers who had incomes from several different sources in 2001 only have to file a declaration for one of those sources. Those still obliged to report all their income include entrepreneurs working outside the framework of a legal entity and individuals engaged in private businesses such as private notaries, private detectives, or security guards. Tax declarations also have to be submitted by people who received remuneration in 2001 from fellow citizens through personal agreements of which tax agencies have no knowledge. About 47 percent of Russian organizations and individual entrepreneurs registered with the inspectorate do not voluntarily report their incomes. As a result, according to Vladimir Panskov of the Audit Chamber, the losses to the budget amount to $20 million. (JMR)

FITCH UPGRADES RUSSIA'S LONG-TERM FOREIGN-CURRENCY RATING (6 May)
The Fitch Ratings international credit-rating agency upgraded Russia's long-term foreign-currency rating to BB- from B+, revising its rating outlook to positive from stable, RosBusiness Consulting reported. The long-term local-currency rating of Russia and the rating of the sixth and seventh series of promissory notes of the Russian Finance Ministry have been upgraded as well to BB- from B. The fourth, fifth, and seventh bond tranches were given a B+ rating, instead of B-. At the same time, the rating agency's outlook for all long-term borrowing instruments of the Russian Federation remained unchanged at B level. The higher rating is due to more investor confidence in the Russian economy. In addition, there is confidence now about Russia's capability to service its foreign debts in 2003, even if oil prices collapse. The main risks are in the structural weakness of the Russian economy. (JMR)

ESTONIAN TRADE DEFICIT WIDENS IN MARCH (6 May)
Estonia's preliminary foreign-trade deficit widened in March amid continued weak external demand, but its export slide slowed compared to recent months, Reuters reported. The Finance Ministry, as well as local analysts, said there is no quick end in sight for the export slide, the result of the global economic slowdown hitting key trade partners in Scandinavia. The statistics office said in a statement that the March trade deficit came to 1.9 billion Estonian kroons ($111.2 million), up from 1.3 billion the previous month, and from 1.7 billion kroons in March 2001. Exports declined an annual 16 percent in March to 4.7 billion kroons. This decline was slower than the 19 percent slide in February and 24 percent drop year-on-year in January. March imports fell 10 percent to 6.6 billion kroons. Exports increased 8 percent compared to February. The total volume of trade was up 12 percent month-on-month, but dropped 13 percent from the same period last year. In March, the share of European Union countries in Estonia's exports decreased two percentage points month-on-month to 69 percent, with main export partners Sweden and Finland taking a combined 39 percent share. The export share of CIS countries remained flat at 5 percent. (JMR)

POLITICAL ECONOMY
GOVERNMENT DRAFTING BANK-INSURANCE BILL (30 April)
The Russian government is in the final stages of drafting a bill on banking-deposit insurance. This is believed to be a key measure in regaining the trust of Russian citizens in banks. Russians have been reluctant to trust their banks since 1998 when a domestic-debt default and ruble devaluation triggered a collapse of the banking system and wiped out many people's entire savings. Reuters reported that the bill, under which investors' bank deposits will be insured against loss in the event their bank goes bankrupt, should go to the Russian State Duma for approval in the fall. According to the draft bill, private deposits of up to 2,000 rubles, roughly $65, will be fully insured. Depositors with 20,000 rubles will recover some 90 percent of that sum if their bank goes bankrupt. The plan sets 80,000 rubles as the maximum sum recoverable -- a figure some commentators say is too low to lure the estimated $40 billion citizens currently keep at home. Russia currently has some 1,300 banks, but only the country's largest bank, Sberbank, enjoys state guarantees for private deposits. As of the end of February, there were 757.5 billion rubles ($25 billion) held in private accounts in Russian banks. Sberbank, controlled by the Central Bank, accounts for more than 70 percent of the country's ruble-depositor base, but most Russians keep their savings in dollars under the mattress. According to the plan, all banks will have to allocate up to 0.15 percent of their average daily private deposits on accounts to a special reserve fund kept at the Central Bank. The fund would be administered by a special state-owned company or the existing bank-restructuring agency. The government would provide the fund with 8 billion or 9 billion rubles until banks generate enough resources. Sberbank will also be part of the deposit-insurance system, but its allocations will be kept in a separate fund until the rest of the banks account for at least 50 percent of private deposits. (JMR)

PUTIN CALLS FOR NEW ECONOMIC PLAN (6 May)
President Putin called on his cabinet on 6 May to develop a new medium-term economic plan. "I am counting on at least a preliminary plan being made in the near future, especially as it should be thought of in light of preparation for the 2003 budget," ITAR-TASS quoted Putin as saying. In April, the Russian president criticized his government's medium-term program, which says Russia's economy should expand by 3.5 percent to 4.5 percent a year until 2005, for not being enough to close the gap between Russia and developed states. His economic aide, Andrei Illarionov, says Russia should have 8 percent annual economic growth to achieve that goal. Putin told a cabinet meeting, "A month has passed, but I have not seen any new figures." All the ministers whose portfolios are related to the economy, as well as Prime Minister Mikhail Kasyanov, were on vacation, and Putin said he hoped that, "Those who are taking vacations today will tackle the problems we are having with new strength as soon as possible." Economic Development and Trade Minister German Gref said any attempts to speed up growth could lead to a crisis, Reuters reported. (JMR)

WHO IS IN? WHO IS OUT?
AT&T SELLS RUSSIAN CELLULAR STAKES (7 May)
AT&T Corporation sold its stakes in 10 Russian cellular operators to a company closely related to the Russian telecommunications giant Svyazinvest. Russia's RTC Leasing announced on 7 May that it bought a 95 percent stake in RTDC Holdings, which owns stakes in 10 Russian, regional mobile operators. The price was not disclosed. AT&T obtained the Russian companies in its $44 billion purchase of cable company MediaOne Group in June 2000. AT&T spokeswoman Eileen Connolly said, "While we were a major shareholder, it was never strategic to us, so we never became very involved in the Russian companies. It was always our intent to sell." RTC said in a monthly statement that it would develop a strategy for enlarging its new holding together with Svyazinvest. This deal threw a monkey wrench into the plans of Washington, D.C.-based MCT Corporation, which operates cellular-phone systems in the former Soviet Union. MCT reached a deal with AT&T on the purchase of RTDC in October 2000 and had already made a down payment Reuters reported. MCT President in Russia Garth Self called this deal, a violation of business etiquette. For its part, AT&T accused MCT of being late on its payments in the first deal. MCT had intended to incorporate RTDC Holdings into its Indigo network of local operators. Now that the planned purchase has been annulled, telecommunications analysts commented that it will no longer be worth developing the Indigo brand. (IAM)

WHAT�S UP? WHAT�S DOWN?
PRICES FOR HOUSING SERVICES GROW (8 May)
The Russian State Statistics Committee reported that the cost of housing services and tariffs for different groups of paid consumer services continues to grow. In April, prices for housing services increased by 3.6 percent, with the first four months of 2002 increasing 24.3 percent compared to last year. The most considerable growth was registered in terms of electricity rates, which rose 6 percent, gazeta.ru reported. According to the State Statistics Committee, medical services have grown by 16.8 percent since the beginning of the year, including a 2.4 percent jump in April. Prices for public transportation increased by 1.5 percent in April and 12.1 percent on the year. Education experienced a 0.3 percent increase in April and a 6.2 percent rise in 2002. Personal services grew by 1.8 percent in April and 9.2 percent overall in 2002. (IAM, PMJ)

INFLATION DOWN IN APRIL (9 May)
The Russian State Statistics Committee reported that the inflation rate for April was 1.2 percent, with an average daily increase of 0.038 percent over the month as compared to 0.059 percent during the corresponding period last year, RosBusiness Consulting reported. The price of foodstuffs grew by 1 percent in April, except for fruit and vegetables, which increased by 0.2 percent. Nonfood items grew by 0.8 percent and consumer services by 2.4 percent. Since the beginning of 2002, inflation has increased 6.6 percent with January experiencing the largest jump at 3.1 percent. February and April saw an increase of 1.2 percent and March had the lowest increase of any month this year, at 1.1 percent. The government forecast for inflation is 12-14 percent for the year, whereas the federal law on the 2002 budget sets the year's projected inflation rate at 12 percent. (PJ)

UKRAINIAN UNEMPLOYMENT FALLS (2 May)
Unemployment in Ukraine fell in the month of April to 3.9 percent, compared to 4.2 percent in April 2001. Ukrainian Labor Minister Ivan Sakhan told Interfax-Ukraine that, according to International Labor Organization data, the level of unemployment in Ukraine went down from 11.7 percent to 11.1 percent in 2001. The minister explained that many unemployed Ukrainians do not register with employment services, which results in the two different figures. (JMR)

PROFILE
VLADIMIR KOGAN'S CONNECTIONS (PART 2)
Vladimir Kogan's ties to prominent political figures once prompted "Moskovskii komsomolets" (4 April 2001) to call him a "collector of politicians." By all accounts, Kogan was close to the late Anatolii Sobchak, former St. Petersburg mayor and one of Russian President Vladimir Putin's political mentors. In the early 1990s, Kogan reportedly used his "administrative resources" in the St. Petersburg city administration to expand his banking interests and take over the servicing of city accounts, including the city pension fund. According to "Kompaniya" on 9 May 2000, Kogan's chief contact in Sobchak's administration was Deputy Mayor Putin, who had taken a keen interest in the "development of the city's banking system." Some sources even claim it was Putin who was largely responsible for Kogan's success as a banker, pulling bureaucratic strings to aid Kogan in his efforts to expand his banking activities, which included attempts at hostile takeovers of several competitors in the "Northern Capital."

Kogan's current personal relation to Putin is unclear. The grani.ru website, for instance, reported on 12 March that Putin was irritated by the failure of the Kremlin staff to recruit Kogan as one of the business magnates who would finance TV-6 after it was wrestled from Boris Berezovskii earlier this year. Nevertheless, St. Petersburg�s "Delovoi Peterburg" claimed on 15 January that Putin had "recently" closed his personal account at Promstroibank (PSB), though the paper did not mention whether Putin still owned stock in the bank.

Kogan's political leverage, however, does not depend on his relations with Putin alone. While Kogan was cultivating ties to Sobchak's administration, he was also prudently seeking ties with other prominent politicians in the city. As the 1996 gubernatorial elections approached, various sources claim Kogan began patronizing a rival candidate, Yabloko's Igor Artemev, as political "insurance." Kogan�s financial and media machine supported Sobchak in the elections, but his "insurance" in the form of Artemev paid off: Artemev was named a deputy to the winner, Vladimir Yakovlev. Thus, according to "Kompaniya" on 9 May 2000, Kogan was able to maintain sufficient administrative leverage to continue consolidating his St. Petersburg banking assets, creating the St. Petersburg Banking House holding company in 1997. This included acquisition of VITA Bank and VYBORG Bank. Meanwhile, Kogan developed a business relationship with another banker, Vadim Zingman, whom "Novaya gazeta" on 25 September 2000 called the "shadow representative" of Berezovskii in St. Petersburg.

"Kompaniya" reported that, though Yakovlev favored Baltoneksim bank as the city's primary financial partner, Kogan was able to use his ties to a group of prominent St. Petersburg "liberals" who were moving on to the national scene, eventually giving him "administrative resources" within the Kremlin itself. Kogan's ties to the "liberals," including current Unified Energy Systems chief Anatolii Chubais, Putin's Finance Minister Aleksei Kudrin, future St. Petersburg Deputy Mayor and privatization chief Mikhail Manevich (who was later assassinated), and Communications Minister Leonid Reiman, date to the perestroika era, when the future banker used his retail businesses to finance the activities of an informal club of liberal thinkers based in Leningrad.

In the early 1990s, Kogan also met future Russian Deputy Prime Minister Ilya Klebanov, who was working for the German firm Siemens at the time, and future Prime Minister (now head of the Audit Chamber) Sergei Stepashin, whose wife was a PSB executive.

Thus, "Putin's banker" is said to have nourished the ties that would aid him in later attempts to expand his influence in the military-industrial complex, becoming involved in a struggle for control of certain industries, with Klebanov's help (Klebanov's recent government demotion, resulting in the loss of his industry portfolio, was widely viewed as a blow to Kogan's interests.); to branch out into telecommunications, with Reiman's help; and to attempt to have PSB placed in charge of a significant portion of the postal system's financial flows, once again enlisting Reiman for support. Kogan is also said to be the sponsor of both Atomic Energy Minister Aleksandr Rumyantsev and Minister of Natural Resources Vitalii Artyukov, and has reportedly managed to place his "godchildren" in important positions at the gas giant Gazprom, grani.ru reported on 28 September 2001. He is also reportedly close to Economic Development and Trade Minister German Gref, another St. Petersburger.

Kogan's prominence and political connections may have made him a target: A 16 November 2000 raid on PSB by officers of the St. Petersburg City Prosecutor's Office and the city Economic Crimes Administration, officially unconnected to PSB activities, was widely viewed in Russian media as an attempt to gather "kompromat" (compromising materials) on the St. Petersburg "liberal" Kremlin faction by their political opponents and Kogan's business rivals, particularly fellow St. Petersburg banker Sergei Pugachev.

REPORTED ORGANIZED-CRIME TIES
Kogan has also reportedly had connections with organized crime. St. Petersburg is frequently referred to as the "criminal capital" of Russia, where the Tambov crime organization used violence and official connections to dominate the city's underworld under Sobchak. Former Deputy Mayor Putin, according to stringer.ru in July 2001, helped the Tambov group gain control over the Baltic Steamship Line and to consolidate its holdings during the privatization of the early 1990s. Kogan was said to have cultivated ties with the Tambov group but later allegedly aligned himself with a Tambov faction that became its rival, the organization headed by Konstantin Yakovlev, or "Kostya Mogila." Kogan's alignment with Kostya Mogila was so well known in St. Petersburg that rumors began circulating that the crime boss had become a member of the PSB Oversight Board.

Kogan was also reportedly close to the Kutaisi crime gang, headed by Mikhail Mirilashvili. Kogan allegedly became involved with Mirilashvili in the diamond-smuggling business. Kutaisi was infamous during the Soviet period as being the birthplace of the highest number of "thieves-in-law" of the criminal trade. Kutaisi is located in the Imereti region of Western Georgia.

Some sources claim Kogan has himself been involved in contract murders. "Kompaniya," for instance, claimed on 5 October 2001 that Kogan might have been behind the contract killing of Nikolai Shatilo, a former employee of the city Criminal Investigation Department of the Interior Ministry, who was chief of PSB�s security staff. "Kompaniya" maintained that Kogan saw Shatilo as a "mole" within PSB, plotting with Kogan's business rivals while working for the bank.

KOGAN: PLAYING THE OLD GAME BY NEW RULES
Kogan is a prominent, politically well-connected business tycoon who has frequently been mentioned as a possible candidate for important official posts, including chief of the Russian Federation Pension Fund, chairman of the Central Bank, and governor of an amalgamated Leningrad Oblast that would include St. Petersburg. Though Klebanov's demotion may have dealt a serious blow to his "administrative resources," and his telecom schemes involving Reiman's ministry apparently have yet to bare fruit, he is still considered one of the key players in Russia�s political-apparatus intrigues, apn.ru said on 23 April.

Kogan is a low-key combatant in the intricate struggles that characterize Russian politics and economics, typifying the new, less overtly intrusive tycoon who follows the rules of the game established with "vlast" (the authorities) in post-Yeltsin Russia. Nevertheless, a review of his career suggests that the change in rules and nomenclature -- "oligarchs" to "industrialists" -- is more of a change in style than substance. Crony capitalism, with its blurring of the lines between business, crime, law enforcement, and politics, appears to be alive and well in Putin�s Russia. Kogan, like so many others, is simply playing the old game by new rules. (PJ)

IN FOCUS
RELATIONSHIP WITH RUHRGAS PRODUCING DIVIDENDS FOR GAZPROM


President Putin�s 10 April trip to Germany and his appointment in May 2001 of a loyalist from St. Petersburg, Aleksei Miller, as the chairman of Gazprom, have produced confidence and dividends. According to RIA-Novosti on 7 May, Ruhrgas, the German natural-gas giant, is interested in increasing its package of shares in Gazprom, Russia's natural-gas giant. German news reported on 22 December 1998 that Ruhrgas AG purchased shares in the Russian gas monopoly and will pay more than a billion marks for 2.5 percent of Gazprom shares. Ruhrgas is Gazprom's largest client. An agreement was reached whereby Gazprom will continue to supply Ruhrgas with 12.78 billion euros ($11.65 billion) worth of gas until the year 2020.

The relationship between the two gas monopolies has steadily improved with the appointment of Miller as chief executive of Gazprom. Miller was invited in June 2001 to attend the 75th-anniversary party of Ruhrgas in Essen soon after his appointment. According to "Pravda" on 22 June, then-Vice Chairman of the Executive Board of Ruhrgas Burckhard Bergmann, who is also a member of the Gazprom board of directors, said Ruhrgas's senior management planned to get a closer look at the new Gazprom CEO during his visit. Bergmann has since become Ruhrgas's chairman of the Executive Board. The article said, "Ruhrgas AG [is] Germany's leading privately owned gas-pipeline operator buying gas both at home and abroad, with 35 percent imported from Russia. The rest is imported from Norway [26 percent], the Netherlands [16 percent], and Denmark and the U.K. [6 percent combined]. The remaining 17 percent is bought from German gas-extracting companies.

Ruhrgas currently owns 4 percent of Gazprom shares, of which 1.5 percent is in American Depositary Receipts and 2.5 percent in local shares. Of the local shares, 0.5 percent belong to Gerosgaz, a joint venture between Gazexport and Ruhrgas.

On 7 May, Bergmann gave a positive assessment of the new Gazprom management team. He described Gazprom as "more orderly and transparent" and is encouraged by Gazprom's efforts to return the company's assets, according to RIA Novosti.

These positive managerial changes have factored heavily into the Rurhgas's decision to purchase more shares. This will be costly, however, since Gazprom shares have almost doubled in price from a year ago. According to Brunswick Direct, Gazprom is presently burdened by a huge debt caused by large numbers of nonpaying customers. Gazprom has announced job cuts and restructuring to control expenditures and to increase profitability, efficiency, and transparency.

This month, Gazprom ($22.556 billion) replaced Yukos ($21.958 billion) as the number-one-ranked company in Russia in terms of market capitalization, according to skrin.ru.

Gazprom, Russia's largest company, is a vertically integrated gas company controlling 70 percent of Russia's gas reserves and 94 percent of Russian natural-gas production. Gazprom also controls 100 percent of the domestic, Russian, gas-supply pipeline network. It is the largest gas company in the world, accounting for almost 25 percent of world gas production and controls 23.5 percent of the world's proven reserves. The company supplies natural gas to 25 countries in Europe and the former Soviet Union. It has strategic partnerships with Royal Dutch/Shell, ENI, and Ruhrgas. Gazprom also has an alliance agreement with LUKoil, Russia's largest oil company, according to Brunswick Direct on 8 May 2002.

The German Council on Foreign Relations published a paper on 8 May titled "EU view on Putin�s Foreign Policy." "Good news [is] coming from Russia. Vladimir Putin has stopped the financial downfall of his country, filled the state budget with petrodollars and presides over a steady growth of his national economy. He has installed a government of liberal-minded professionals, revamped the tax system and plans to fully legalize private ownership. The framework for the market is set -- what Russia needs next are foreign investments," the report read.

Germany�s Ruhrgas appears to be ready to do just that: to invest in Gazprom. With Russian natural-gas transits accounting for a significant portion of the Russian government's revenues each year, projects such as the Slovakian government's Slovensky Plynarensky Priemysel (SPP) tender to privatize the Slovak gas-utility and pipeline operator can provide additional distribution options for Gazprom and its partners. The only bid received by the 28 February deadline was a three-way consortium formed by Russia's Gazprom, Germany's Ruhrgas, and Gaz de France. Ruhrgas and Gaz de France would split the $2.7 billion cost, according to Reuters on 18 March. Such an investment would provide Gazprom an opportunity both to expand its business in Slovakia and further consolidate its position in the European gas market. RFE/RL reported on 21 March that increased supplies of Russian gas to Europe would be in line with the European Union's goal of doubling energy imports from Russia over the next 20 years. It would also provide an export route to Europe that would avoid Ukraine. This, along with expanding Ruhrgas cooperation and investments will no doubt attract the attention of Western security analysts who have long feared increased European dependency on Russian natural gas as a potential threat to NATO. This formula of German and French capital investing in pipelines to deliver Russian gas to Europe may be visited again with a new plan to complete the costly Russian Arctic Yamal pipeline.

There is little doubt that the involvement of major Western companies can have a positive impact on improving corporate governance of the leading Russian companies. However, the geopolitical implications of European investment into the Russian energy sector will have significant implications, not only for the neighboring former Soviet and eastern bloc states, but also for NATO. (PMJ)

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