MOSCOW, March 28 (RIA Novosti) Moment of truth in Russian-American relations/ Vladimir Putin may officially head his party/ Russia's resource ministry seeks rivals for Gazprom/ Russia to keep its place on the arms market/ Procter & Gamble Russia faces $27 mln tax claim/ Counterfeiting art treasures is lucrative business in Russia
Moment of truth in Russian-American relations
President George W. Bush wants to crown his second term with turning NATO into a dominant military-political force in Europe through its expansion to post-Soviet countries, writes a Russian political analyst.
Sergei Rogov, director of the Moscow-based Institute of U.S. and Canadian Studies, writes in the business daily Kommersant that the U.S. administration would like to avoid a split with Russia and a new Cold War. According to him, only a strategic compromise, or better still, a breakthrough, can prevent a new confrontation in bilateral relations.
The analyst believes that the 2+2 talks in Moscow provided grounds for cautious optimism. The Bush administration proposed signing a document on the strategic framework of bilateral relations, expressed readiness to partially limit the anti-missile capability in Eastern Europe, and also agreed to formalize the prolongation of the START-1 strategic arms reduction treaty, which will expire in 2009.
But the devil is in the details, as the saying goes, and it is the details that the sides need to harmonize. However, time is running out: the NATO summit is to begin in Bucharest next week, to be followed by a meeting between George Bush and Vladimir Putin in Sochi, which president elect Dmitry Medvedev is likely to attend.
This is the moment of truth in Russian-American relations, Rogov writes. The Sochi meeting will either lead to further confrontation, or open the door to developing new partner relations.
All hope of compromise will be killed if the NATO summit in Bucharest decides, at Washington's insistence, to start admission talks with Ukraine and Georgia. Moscow believes that the admission of its neighbors to NATO would have a negative effect on Russia's geopolitical standing and security.
However, if the NATO-Russia Council agrees to promote cooperation, including in Afghanistan and in the creation of a European shield for defense against intermediate-range missiles, there will be more reasons for optimism.
Bucharest and Sochi have faced the West with a choice: it can either agree to develop fundamentally new relations with Russia, or assume responsibility for a new confrontation with it, the researcher writes.
Vladimir Putin may officially head his party
There has been much talk in the pro-Kremlin United Russia party lately that outgoing President Vladimir Putin could soon head it officially. A source in the party-in-power told NG that the current president and potential next prime minister would announce he is joining United Russia at the next party congress slated for April 14 and 15, and the congress would elect him party leader. With that status, his nomination for prime minister would certainly be approved by the United Russia-dominated parliament.
If this scheme materializes, Putin's official accession to the party-in-power will be the final and most important step in completing the post-election government system in Russia.
There are several important reasons why the outgoing president will officially join United Russia. First, it would rule out any unexpected surprises for his cherished "succession" of power that could shatter earlier agreements between the president and his chosen one. The sources which talked to NG about the idea of the next party congress all used similar language saying "they" would "station party members all around Medvedev," virtually leaving him no choice.
Second, by joining up, Putin will finally end his status of an off-party leader. That PR invention looked good in the election race context, when he was supposed to show objectivity to the party's opponents. He no longer needs it now.
Now the concept of a pro-party Cabinet will be developed, which will involve the Cabinet's full responsibility for what's going on in the country. Putin has never dodged the burden before, and will certainly accept it now.
And finally, the most important reason is that joining the party gives him the only chance of turning the presidential republic into a presidential and parliamentary one, without having to amend the Constitution. It is the only scenario allowing an equal partnership between Putin and Medvedev.
Business & Financial Markets
Russia's resource ministry seeks rivals for Gazprom
Russia's ministry of natural resources insists on holding a tender for the Chayandinskoye field (Yakutia), one of the world's largest gas condensate deposits. This is contrary to the position taken by president-elect and head of Gazprom's board of directors Dmitry Medvedev who during his election campaign spoke in favor of transferring the license for the Chayandinskoye field to Gazprom. Experts have no doubt that a tender is the only economically substantiated decision but they think the gas monopoly will get it anyway.
According to Yury Trutnev, natural resource minister, his ministry has already submitted proposals on the Chayandinskoye field to the government and the industry and energy ministry. The latter has already supported Medvedev's idea. The ministry's officials have made use of discrepancies in the laws on mineral resources and on gas supplies. Under the law on gas supplies, mineral deposits of federal importance can be transferred to the owner of the Unified Gas Supply System, i.e., to Gazprom, without a tender.
The Chayandinskoye field was listed with the deposits of strategic importance in November 2007. Analysts estimate its reserves to be worth $2.2-5 billion. Recoverable reserves are projected at 1.2 trillion cubic meters of gas and 50 million metric tons of oil. Russia's oil majors Rosneft and Surgutneftegaz have declared their readiness to participate in the project. Their lobbying activities could be one of the reasons behind Yury Trutnev's perseverance.
The Veles Capital investment company is convinced that the natural resource ministry insists on a tender because this will help it to attract funds to the budget. "The state benefits little from the sale of rights to develop oil and gas fields. Its respective revenues over the whole of last year amounted to $1.2 billion," said Valery Nesterov, an analyst with the Troika Dialog investment company. To compare: the sale of licenses for offshore fields on the Alaska coast and in the Gulf of Mexico early this year added $6.4 billion to the US treasury funds, the analyst said.
Most specialists believe the deposit will go to Gazprom in any case. Vitaly Kryukov, an analyst with the Kapital investment company, recalls that, apart from natural gas, the Chayandinskoye field has reserves of helium, a raw material used by defense ministry.
Besides investment in gas production, additional funding will be needed to build gas-processing facilities. The first stage alone will require $4-$5 billion in investment, Troika Dialog said. Only the gas monopoly has such funds for investment. According to the results of the January-September period of last year, Gazprom had 776 billion rubles of free funds as of October 1, 2007.
Russia to keep its place on the arms market
In recent years, Russia has been firmly following the U.S. in the export of conventional arms. In 2007, its weapon sales exceeded $7 billion. According to a U.S. Congress commission, the U.S. claimed 36% of world arms market, and Russia, 28%, well ahead of Germany and France (11% and 6%, respectively). Will Russia's defense sector be able to keep its niche on the global arms market?
Russian tanks and aircraft will now have to compete with producers in developed countries for high-cost and hi-tech products and new players seeking to gain a place by offering lower prices.
However, in the next few years, according to experts from the Center for the Analysis of Strategies and Technologies, Russian military products will keep their position in the competitive arms market.
The U.S. tank Abrams ($5 million) and France's Leclerc (4 million euros) are superior to Russia's T-80 ($1.3-2) and T-90 ($2-2.7) in computerized steering system, observation and fire control. Computers reduce crew errors, but cannot eliminate the human factor altogether. On the other hand, T-80s and T-90s are simpler to operate and maintain, and their equipment is as reliable as western ones, which is important in third world countries, where qualified personnel are hard to come by.
The outlook is similar in aviation: Russia's upgraded MiG and Su aircraft are 1.5 to 3 times less expensive than comparable American and French planes. That is why many countries, including wealthy Malaysia and Greece, swap their suppliers and opt for Russian equipment, not because of political sympathies, but over price vs quality.
Low-priced Chinese and Pakistani weapons, because of their low reliability, can compete with Russian equipment only among undemanding consumers. Russia's share of the global arms market will not drop appreciably in the next few years.
But this is no time to rest on one's laurels. Chinese engineers are already copying Russian fighter engines and will not stop there. Unless Russia is prepared to speed up its research and development effort, its equipment will fail to appeal to demanding clients and prove too costly for low-income countries.
Procter & Gamble Russia faces $27 mln tax claim
Procter & Gamble, the Russian subsidiary of the U.S.-registered global consumer-goods manufacturer is facing 670 million ruble tax claims over the logo controversy and royalty payments to Proctor & Gamble Co.
Russian authorities filed tax claims after the Supreme Arbitration Court confirmed the legality of similar 665 million ruble ($27.48 million) claims with regard to beer distributor Transmark, part of SABMiller group, the world's second largest brewer.
Procter & Gamble was founded by U.S. company Procter & Gamble Eastern Europe LLC with a 69.5% stake and Germany's Procter & Gamble Central and Eastern Europe with 30.5%.
Procter & Gamble's Russian subsidiary received the right to use product brands in exchange for royalties totaling 2.5-7% of its sales volumes. Instead of manufacturing the same brands, the company bought the products from Russian and foreign producers affiliated with Procter & Gamble Co and resold them.
Tax inspectors ruled that manufacturers, rather than distributors, required brand licenses, and that the company had no right to list royalties among expenses because this reduced its tax base.
Moreover, Procter & Gamble charged much more for products purchased for agreed-upon prices and therefore calculated higher royalties.
Tax inspectors said Procter & Gamble Co was the beneficiary.
Analysts said many companies in Russia were using brands owned by foreign legal entities. For instance, the Afanasy beer brand is registered in the name of Swiss company Eastern Union Holding AG, whereas the Dutch X5 retail group N.V. owns the logo of the Pyatyorochka supermarket chain.
Valery Medvedev, managing partner with the law firm Gorodissky & Partners, said numerous Russian distributors were receiving brand licenses.
Alexei Popovichev, CEO of Rusbrand representing big Western producers such as Nestle and Kraft, said the situation was different in other countries. He said the main company usually owned the brand licenses and gave them to its producers, and that in very rare cases distributors received them.
Igor Serebryakov, a senior lawyer with the Yegorov, Puginsky, Afanasyev and Partners legal office, said Western European legislation allowed producers, rather than distributors, to own brand licenses.
Counterfeiting art treasures is lucrative business in Russia
A major investigation has been launched in Russia's Tretyakov State Gallery, following a high-profile scandal involving several gallery experts accused of issuing authenticity certificates for paintings which later turned out to be counterfeit.
The scandal is evidence that counterfeit art has grown into a huge problem in the country. Neither museums nor private collectors can be absolutely certain that a unique masterpiece they acquire is not a well-made counterfeit from modern forgers.
Some experts even claim that 50% of the Russian antiques market is counterfeit. More reasonable estimates suggest forgeries account for a mere 8%, but that would be $70 million a year (!).
The most evident example of the problem was billionaire Viktor Vekselberg's purchase of a rare collection of Russian decorative art, including several unique Faberge Eggs, at Sotheby's. Nine of the 210 pieces turned out to be counterfeit. Another recent incident at Sotherby's involved a top painting by Ivan Shishkin, a Russian painter notable for his poetic depiction of wood and natural scenes (with a starting price of over $1 million), which had to be removed from sale hours before bidding started, because it turned out to be a replicated landscape by Dutch painter Koekkoek.
Auction houses never actually offer 100% guarantees of authenticity. But the percentage of shady objects going through them is still much smaller than in galleries. The same is true for state museums: even a respectable-looking expert certificate, complete with an X-ray and technical specifications, is not the ultimate truth. Courts of law do not accept it as evidence and the issuing specialists do not bear responsibility. If the certified masterpiece turns out to be a fake, the museum employees wash their hands: "We are only human after all, anyone could make a mistake."
Avant-garde art of the 1910s-1920s accounted for the highest percentage of fakes until recently, including Kazimir Malevich and the Jack of Diamonds movement. Eventually, the Russian avant-garde market collapsed because collectors stopped buying the works from galleries. Currently 19th century landscapes top the list of fakes, especially works by famous Russian seascape master Ivan Aivazovsky, who painted 6,000 pieces and the current market has some 60,000 of his works on sale now.
"When in Russia, I was often asked to examine paintings allegedly by Ilya Repin or Ivan Shishkin, but I never saw a single genuine piece in five years," said Denis Zurov, a German art restorer and expert on 19th century to early 20th century Russian paintings. "Some of them were perfect modern fakes, others, old replicas by the great artists' apprentices or followers. In any case, their authenticity could not be determined unaided without a very detailed examination."
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