MOSCOW, September 15 (RIA Novosti) EADS opposes Russian decision-making role in corporation/ Russia to move Il aircraft production from Uzbekistan to save Chinese contract/ LUKoil to raise oil refining to 100 million tons/ Russian oil: no physical trading either in London or New York - expert

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Vedomosti

EADS opposes Russian decision-making role in corporation

The management of the European aerospace corporation EADS has at last acknowledged its new shareholder, Vneshtorgbank. Politely, but very definitely, the company's two co-chairmen said they were not going to give Russia a say in the running of EADS. But Russian experts forecast a continuation of cooperation talks with the Europeans.

"As agreed between the controlling shareholders, outside investors may not, by buying EADS stocks on the open market, deprive the controlling holders of their majority rights," EADS co-chairmen Manfred Bischoff (who represents DaimlerChrysler interests on the board) and Arnaud Lagardere said in a statement.

These rules stipulate that no one may get on the board without the backing of DaimlerChrysler or the French government - only these two shareholders have the right to choose board members under the charter.

Each of them may nominate four candidates and one independent member. The board has 10 directors altogether.

There was no immediate Russian reaction to the EADS statement Thursday - although it was published just a week before Vladimir Putin is scheduled to meet with German Chancellor Angela Merkel and French President Jacques Chirac.

The three are expected to discuss the acknowledgement of Russia as an EADS shareholder.

"EADS management's negative reaction does not mean that the doors are closed to Russia," said the top manager of one of the Russian aircraft building companies.

"The Vneshtorgbank deal adds an entirely new dimension to possible cooperation with the Europeans - one way or another, EADS shareholders will have to reckon with that fact," he said.

"Theoretically, Russian representatives may sit on the board of directors even under the current charter - they may be elected by independent directors," said a source in one of the aircraft building companies. But, the source added, "all of these technicalities may take quite a long time to resolve."

"Cooperation talks will be continued," said Renaissance Capital analyst Marina Alexeyenkova. "EADS, too, is interested in its expansion on the Russian market, and in strengthening its position at less expense than it would face in Europe."

Kommersant

Russia to move Il aircraft production from Uzbekistan to save Chinese contract

China has postponed a meeting of the bilateral Russian-Chinese commission for military-technical cooperation. The main reason is Moscow's failure to honor a contract to supply 38 Il-76 and Il-78 aircraft to China for $1.5 billion.

In order to salvage the contract, Russia intends to move Il production from Tashkent, in Uzbekistan, to Ulyanovsk in the central part of European Russia. However, the postponement of the commission's meeting can delay the signing of new contracts on Russian arms deliveries to China.

The Tashkent-based Chkalov aircraft building association, the key executor of the contract, declined to comment. However, sources at the company told the paper that after a long crisis caused by an absence of orders, it was left without enough staff to fulfil contracts.

Russia has already launched efforts to save the contract. Valery Bezverkhny, president of the United Aircraft Corporation, recently announced plans to move Il-76 production from Uzbekistan to Russia.

Another high-ranking source at the consortium said that planes for China would be assembled at Aviastar in Ulyanovsk. The main subcontractor will be the Voronezh aircraft construction joint-stock company.

It is possible, however, that Ulyanovsk will assemble a newer and more expensive version of the plane, the Il-76MF, that has a greater carrying capacity and a longer range. "This will require an adjustment of the contract with China," the source said.

The postponement of the commission's meeting may delay the signing of new arms contracts. The commission was expected to specify the final details of the $210 million contract to supply four Zubr air cushion landing craft, and to coordinate the terms of the $400 million contract to supply over 15 Be-200 anti-submarine aircraft with the Morskoi Zmei (Sea Snake) additional fire control system and Be-103 amphibious aircraft.

Rosoboronexport and the Chinese Defense Ministry were expected to sign a contract for the supply of almost 40 Ka-29 utility helicopters, and over 20 Ka-31 radar surveillance helicopters, for a total of $200 million. Now the coordination of the contracts, which have an aggregate worth of over $800 million, has been delayed indefinitely.

Gazeta.ru

LUKoil to raise oil refining to 100 million tons

In a decade, LUKoil intends to increase its oil refining capacity to 100 million metric tons a year. Russia's largest oil company plans to invest some $35 billion to modernize its operating assets, and to purchase and build new facilities.

Experts approve of the company's plans, but warn that unless oil conversion is expanded, the country will have to import quality gasoline in a few years.

The new oil refineries will supply oil to all the markets LUKoil is active in - Eastern Europe, North America and Russia. In addition, the company will deliver its products to developing markets, for example, Turkey.

Market players believe LUKoil's ambitious plans are reasonable. "The new capacities the company is introducing could raise oil refining to the promised level," Maxim Shein, an analyst with the BrokerCreditService brokerage, told the paper.

He said searching for investment funds is unlikely to cause any problems. "LUKoil's net profit was $6.4 billion last year, and with such an annual profit the company can easily afford investing $35 billion in 10 years," Shein said.

In addition, he said, LUKoil is sure to enjoy government support. "Obviously, the company's plans, which are primarily western-oriented, will be supported at the highest level," Shein said. "The government will certainly exercise some protectionism."

However, the major problem facing oil refining in Russia is the insufficient degree of oil conversion, not output.

"Russian refineries produce a lot of fuel oil, which could be refined further if Russian refineries handled reforming and catalytic cracking," said analyst Maxim Ivanov from CentreInvest Group.

"Unless oil conversion is expanded now, Russia will have to import high-octane gasoline in a few years."

Vremya Novostei, Gazeta

Russian oil: no physical trading either in London or New York - expert

NYMEX is planning to launch REBCO (Russian export blend crude oil) futures already this year. REBCO is the new American name for Urals. According to Russian analysts, physical exchange trade will not begin for a few more years.

NYMEX managing director James Oliver said Thursday that trading would be online on conditions FOB in Primorsk. One shipment would be 730,000 barrels (100,000 metric tons per tanker).

Oliver's statement took Russian analysts by surprise. "It is odd, we did not expect trade to begin until after 2008," said Yekaterina Kravchenko, of BrokerCreditService. Most likely, she thinks, the exercise concerns trial sales to test the mechanism.

"So far no agreement exists on the actual quantities to be supplied, and so it will mostly be a sort of declarative trading in futures," said Denis Borisov, of Solid brokerage.

"In order to move over to physical trade, the first requirement is to persuade oil producers and traders to abandon direct supply contracts and adopt market mechanisms. So volume trade may only start in about two to three years time," the analyst said.

Kravchenko also added that when contracts mentioned by Oliver are concluded, they do not reflect the actual price of the grade. "To find out a real supply and demand ratio, it is necessary to have no less than 15-20% of the commodity trading. Consequently, trading will reflect only the speculative price so far," she said.

Kirill Tremasov, head of analysis at the Bank of Moscow, said today's price of Urals is quite adequate. Oil futures' trading is "an additional instrument of speculation for investors."

"The same kind of trading goes on in London," Tremasov said, "but it is largely indicative there. No physical volumes are involved. On the New York exchange, the situation will be even more lackluster. Indicative quotes will appear there as well."