MOSCOW, September 5 (RIA Novosti) Hungarian company set to acquire production asset in Russia/ Alcoa eyes the Far East/ Russian govt. moves toward gas market liberalization/ Rosoboronexport subsidiary setting up aircraft repair holding/ Govt. must stop using patriotism for political ends

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 Kommersant

Hungarian company set to acquire production asset in Russia

MOL, Hungary's largest oil-and-gas company, is to buy the entire Surgutsky-7 field from Russia's Northwest Oil Group by the end of 2006. Analysts said the purchase of a production license and the transfer of project stakes to a foreign partner may become a popular method with foreign companies for entering the Russian oil market.

Surgutsky-7 oil field contains an estimated 1.9 million metric tons (14 million bbl) in C3 reserves and 21.4 million metric tons (157 million bbl) in D1 reserves. There are plans to drill the first exploratory holes in 2007. Northwest Oil Group was reported to have paid 300 million rubles ($11.2 million) for the production license in spring 2005, but analysts told the paper the asset's price may now have doubled.

MOL, which has repeatedly said it would like to acquire production assets in Russia, unsuccessfully bid in a tender for Udmurtneft, a key oil-producing enterprise of oil giant TNK-BP.

MOL's accession to the Russian oil-production market is politically problematic because Hungarian authorities are reluctant to allow Russian companies to operate in the national oil sector. A top manager of a major Russian oil company that wants to buy a stake in MOL complained of Hungarian authorities' intractability on this issue. By teaming up with the Northwest Oil Group, MOL can avoid similar complications during the purchase of production assets.

Troika Dialog analyst Valery Nesterov said Western companies are having trouble gaining access to Russia's natural resources. "A lack of transparency during tenders and frequent political complications are a problem," Nesterov told the paper. He said such companies as MOL, Austria's OMV and PKN Orlen of Poland were concerned about the development of their production sector. "These transfer deals are quite promising because Russian companies receive cheap licenses," said Nesterov.

Yulia Sozina, general director of the Northwest Oil Group, said proceeds from the MOL contract would be invested in new projects. The Group plans to bid for East Siberian oil deposits. The company may decide to sell its stake in the projects, but will have no trouble finding a partner because Chinese and Indian companies are still interested in the Russian oil industry.

Gazeta

Alcoa eyes the Far East

The growing activity of Russian metallurgical companies on the global market has intrigued U.S. aluminum giant Alcoa, which is now considering building an aluminum plant in the Khabarovsk Territory.

The plant will tentatively produce 300,000-350,000 metric tons annually, and Russian analysts believe the project will cost up to $150-$200 million.

Alcoa has been establishing a presence in Russia for several years now. In 2005, it bought the Samara metal factory and the Belokalitvinsky metallurgical production association for $257 million from Russian aluminum giant RusAl.

Alcoa officials have repeatedly said they are behind schedule in implementing their investment plans in these companies. They refer to administrative barriers and recruitment problems as a major reason, so the corporation is negotiating its plant construction project with the territory's administration.

SUAL, Russia's largest aluminum producer, and Norway's Hydro Aluminum have also recently announced plans to build an aluminum plant in the Amur Region. They plan to invest $2 billion in the project, and the venture should produce 1 million metric tons a year.

SUAL officials said the company has not rejected the plans. If SUAL and Hydro Aluminum, on the one hand, and Alcoa, on the other hand, implement their plans, two aluminum rivals with a total output of 1.5 million metric tons a year may emerge in the Khabarovsk Territory.

Clearly, competing companies will do their best to prevent the United States from entering the Far East and the Chinese market. Moreover, a draft law on access of foreign companies to strategic sectors is being developed now, under which Alcoa may be forced to set up a joint venture with a Russian company, without a controlling stake.

Vedomosti

Russian government moves toward gas market liberalization

Under a government resolution Prime Minister Mikhail Fradkov signed last Saturday, Russian energy giant Gazprom and independent gas producers will soon be able to sell some of their gas on a commodity exchange. The government has finally moved toward liberalizing the domestic gas market, experts told the paper. However, independent gas producers fear gas sale quotas may be distributed unfairly.

In 2005, Russia produced 640 billion cubic meters of gas, out of which Gazprom produced 547 billion cu m. The monopoly exported 151 billion cu m to countries outside the former Soviet Union and delivered 304 billion cu m to Russian consumers.

In 2006-2007, up to 10 billion cu m of gas will be sold at freely moving prices on the exchange as part of an experiment. Gazprom and affiliated structures are to supply half the volume and independent producers will deliver the other half.

Denis Borisov, an analyst with the Solid brokerage, said this would account for just 2.5% of Russian domestic gas sales. Up to 15% of electricity is now sold on the free market. Gas sales may start later this month, as soon as the Industry and Energy Ministry appoints an exchange, the ministry's official said.

Gazprom officials hailed the government resolution. "Nobody will mind selling gas at a higher price," a LUKoil official agreed. LUKoil, Russia's No. 1 independent oil producer, sells gas to Gazprom at $22.5 per 1,000 cu m, whereas gas consuming enterprises buy it from Gazprom at a much higher price. The press service of Rosneft said the state-owned oil company worried about the distribution of gas quotas on the exchange. The company wondered if Sibur, a subsidiary of Gazprom's financial arm, Gazprombank, would be included in Gazprom's quota or rather sell its gas as an independent producer.

Gazprom supplies gas to Europe at $300 per 1,000 cu m, and Russian consumers buy it at $42. The gap should be bridged, said Anatoly Romanovsky from Hermitage Capital Management. Selling gas at freely moving prices would be a guarantee against a potential gas shortage on the domestic market, said Valery Nesterov, a Troika Dialog analyst.

Gazprom has had its gas export monopoly enacted in a federal law and is now ready to "share" part of its revenues from domestic sales with independent producers, said Hermitage Capital's Romanovsky.

Biznes

Rosoboronexport subsidiary setting up aircraft repair holding

A national aircraft repair corporation may appear in Russia soon. A series of air crashes have brought flight safety to the fore, and a single repairs structure may be as profitable as arms exports.

On Monday, Nikolai Babikov, executive director of the Urals Civil Aviation Plant (UZGA), announced talks with Oboronprom, a subsidiary of state arms exporter Rosoboronexport, to sell 75% of its shares.

No concrete sums have been disclosed, but a series of sources have pointed to Oboronprom's bid of $12 million. In the view of Dmitry Baranov, head of analysis at Prado Banker & Consultant, the plant's fair value is about $60-65 million.

The low bid may be because the plant is in trouble. UZGA is being sued in several courts, with one case dealing with the crash in Malaysia last September of a Ka-32 helicopter of a Primorye-based company, Avialift. The plant is suspected of using counterfeit spare parts in repairing the engine of the crashed helicopter. Also, the enterprise came recently under a raider's attack, which makes Oboronprom's proposals more attractive for shareholders. On the other hand, the owners are clearly not inclined to sell the plant for a song, which is delaying a deal.

CenterInvest Group analyst Dmitry Ugolkov said Oboronprom would be transformed from a group of disparate companies into a unified holding. "This is why the Rosoboronexport subsidiary is buying up engineering plants linked to the defense sector," he said.

"I believe all the enterprises in the helicopter holding will adopt a single type of share, which will make it possible to conduct an initial public offering of the holding as a whole," said Olga Shkred, a Financial Bridge brokerage analyst.

"After buying the plants, Oboronprom may become a kind of national aircraft repair enterprise," Prado's Baranov said. "And remembering that there are large numbers of Soviet-era planes in different countries in need of repair, the enterprise can make quite good profits."

Izvestia, Vremya Novostei, Komsomolskaya Pravda

The government must stop using patriotism and chauvinism for political ends

Arrests continue in the town of Kondopoga, Karelia, of people accused of participating in ethnically motivated riots.

The disturbances broke out following a protest by local residents, who were demanding the expulsion of Caucasus natives. This is a clear signal to the government, which has overlooked the real social situation, experts say.

Georgy Satarov, president of the Indem Foundation, said: "The first thing the authorities must do is stop using patriotism and chauvinism for political ends, to stop dividing Russian citizens into 'us' and 'them,' because it is the authorities that create the atmosphere that contributes to the escalation of conflicts."

Dmitry Oreshkin, head of the Mercator analytical group, said: "This has been the first signal, but similar events will continue. The reason is that Russian society is not ready to absorb more primitive communities, such as Chechens. They are accustomed to living in communities with their own values and views. Until such communities can be absorbed, these events will continue."

Sergei Ivanenko, first deputy chairman of the Yabloko liberal party, said: "Nationalist sentiments run deep in Russia. In such circumstances, the responsibility of authorities is very high. A deep split in society between rich and poor has also had its influence. At times like these, the slightest spark can ignite a conflagration. I believe that mass media are also to blame. If you repeat regularly how well we are all doing and ignore real problems, people get disoriented."

Mikhail Leontyev, a political expert and TV anchor, said: "People in almost all such small towns are socially humiliated, which leads to agitation and xenophobia. Of course, people there live better than they did 10 years ago, but they are still very poor compared to immigrants. So the social resentment is combined with nationalist sentiments. And Russia is now sitting on a ticking bomb."