February 2006

February 18, 2006: U.S. National Journal Discusses Protecting Intellectual Property Rights and Fair Trade in Russia: The National Journal reports Intellectual property theft is so commonplace in Russia that some members of the US Congress are threatening to block Russia’s bid to join the World Trade Organization as a consequence. But American qualms on this matter are just the tip of the iceberg. A wide spectrum of American businesses, including beef, poultry, and pork producers, banks, and insurance companies have problems with the Russian market. All of these disputes hurt Russia’s bid to join the international trade group, but Russia does have one thing going for it: oil. Oil revenue is making Russia an ever more attractive place to do business, and as a consequence both Vladimir Putin and George Bush are keen for Russia to gain WTO membership. But arguing that the new strength of the fuel-driven Russian economy or that larger and more important geopolitical goals are worth a compromise on trade issues to get Russia into the WTO could be a high-takes gamble for the Bush administration. Moscow’s tariff on imported aircraft, for example, may seem like a petty issue to Russians seeking their “rightful” place among the leading nations of the world, but it’s a big deal to U.S. airplane manufacturers. Bush administration diplomats desperate for Moscow’s cooperation in dealing with Iran may get frustrated over such commercial disputes, but resolution of trade problems is important in building solid justification for WTO membership and increased support for the deal from the U.S. business community. (Source: National Journal)

February 17, 2006: Russian economic liberalisation plan unreliable, reports Handelsblatt: Handelsblatt quotes several analysts saying that one cannot trust President Putin’s promises to liberalise the Russian economy. As the example of Yukos shows, investors who believed in Putin’s affirmations that the company would not be driven into bankruptcy lost a lot of money. At the beginning of his term in office Putin promised “less administration and more free entrepreneurship”. Vladimir Milov, President of the Institute for energy Policy, says: “There is no reason to believe Putin.” And even Sergey Suverov, analyst at Gazprom, criticises: “We don’t believe Putin. The country’s economy is not nationalised but put under the control of Putin’s allies.” (Source: Handelsblatt)

February 17, 2006: Russia unlikely to join WTO, reports Kommersant: Kommersant reports Russia will not join the WTO early this year, as Vladimir Putin demanded, due to disputes with the United States. Last week Maxim Medvedkov, the trade negotiations department director at the Trade and Economic Development Ministry, reported. U.S. Trade Representative Rob Portman said he hopes that negotiations will over by late 2006. Russia and the United States are to negotiate on the bilateral protocol of the accession to the WTO in early March while talks with a task force on Russia’s fundamental obligations for WTO regulations will be held in late March or early April, Medvedkov said. Still, subsequent negotiations are required and Russia has already left any hopes to enter the organization before the session of its general council on October 10 and 11. Alexey Mordashev, the head of the WTO Accession Committee at the Russian Union of Industrialists and Enterpreneurs, pointed out to difficulties at negotiations with the United States. He noted that points for dispute between Russia and United States remain, including questions are the opening of U.S. financial affiliates in Russia, Russia’s protection of the aircraft building industry and agriculture subsidies. (Source: Kommersant)

February 15, 2006: YUKOS ADR Holders Serve Rosneft President with Notice of Lawsuit: Rosneft president Sergei Bogdanchikov was served with a lawsuit by U.S.-based holders of American Depository Receipts (ADR's) of YUKOS while he was in London on Tuesday. "It is now Bogdanchikov's responsibility to answer the charges of the American Depositary Receipt holders in court," the ADR holders claimed. The move is the latest in a series of public gestures which have also included serving writs on Russian Finance Minister Alexei Kudrin and Energy and Industry Minister Viktor Khristenko. The plaintiffs are represented by attorney Thomas Johnson. They allege the Russian government acted criminally in orchestrating the indirect transfer of oil production company OAO Yuganskneftegaz to Rosneft from YUKOS at the end of 2004. The current suit has been filed in district court in Washington, DC. (Source: Kommersant.) Learn more about the Yukos ADR Holder Suit »

February 10, 2006: Russia's New Swagger Leaves West Groping for Right Response: Russia's G8 presidency is drawing criticism for both its handling of the Ukraine gas crisis and its clamp down on NGOs. In addition, Russia has begun a dispute with the UK, a G8 partner, over spying allegations that appeared to be designed to support Russian claims that NGOs are used as fronts for foreign intelligence. John McCain, a US senator, has called for international leaders to use one of the few levers they have and boycott the G8 summit in St. Petersburg in protest over Putin's policies. While such calls have found limited resonance in Congress, debate is raging in the US foreign policy community. Nikolai Zlobin, a former Kremlin adviser in the Gorbachev era and director of the Washington-based World Security Institute, warned that the US-Russian relationship was "almost at a stage of collapse." "There are no fundamentals," he added. "We don't understand what we want from each other . . . There is an umbrella of good relations between [the] two presidents, but underneath there is a huge emptiness." (Source: Financial Times.) Learn more about Russia's bid in the G-8 »

February 9, 2006: Thierry Breton Pushes for Moscow to Ratify the Energy Charter Treaty: Thierry Breton, France’s finance minister, will put forward at this weekends G8 finance minister’s meeting proposals designed to encourage Moscow to ratify the Energy Charter Treaty, creating a legal framework for the energy sector. Russia has signed the ECT but has been slow to ratify it. Britain, Italy and the European Commission support the French objective for Russia to sign up to energy rules. Talks continue with the other 50 signatories to the Energy Charter Treaty (ECT) over a set of rules for the transit of oil, gas and power across borders. A European Commission spokesman said yesterday that it had prepared a new version of the Transit Protocol, which it hoped would be acceptable to Russia and other ECT members. A French official said such an accord would open up Russia’s pipelines to other Russian gas producers, breaking the monopoly held by Gazprom, the state-controlled producer. The French proposal will place Moscow in the difficult position of having to reject a plan designed to meet the stated goal of its G8 presidency, energy security. The G7 deputy finance ministers are due to hold a preparatory meeting today in London without the involvement of Russia, according to an official from a G7 country. (Source: Financial Times.) Learn more about the Energy Charter Treaty »

February 8, 2006: Putin Comments on Structures Used to Purchase YUKOS Assets: As part of a press interview during his recent visit to Spain, Vladimir Putin was asked questions regarding the lack of transparency in the government auction of core YUKOS assets. When asked, “Why does the state use non-transparent schemes…[such as] the use of Baikal Finance Group to buy Yuganskneftegaz?”, Putin responded by claiming that the use of Baikal Finance Group to purchase Yuganskneftegaz was necessary to protect the ultimate owner of the asset from legal claims of expropriation. “As far as Baikal Finance Group is concerned, it's all very simple. The issue was handled not in administrative terms, not in retaliatory terms, but in legal terms. And the future owners had to give some thought to how they were going to operate; what they might have to say in a court of law if they were faced with actions that could be brought against them. And when Baikalfinansgroup bought the stake in question, it became the owner. Whatever happened after that happened in the secondary market. This way, the claims against those that subsequently acquired the assets were practically zeroed out.” (Source: Strana)

February 7, 2006: Putin Admits Auction of YNG in Late 2004 Was Structured to Avoid Legal Action Against Rosneft: Baikal Finance Group was used as the vehicle to purchase Yuganskneftegaz in December 2004 to reduce legal risks for Rosneft, the oil company's new owner, President Vladimir Putin told the Spanish press. The participation of Baikal Finance Group in the $9 billion deal to buy Yuganskneftegaz was due to the future owners' [Rosneft’s] desire to avoid possible suits. "As regards Baikal Finance Group, everything is simple. The issue was resolved within the legal, and not the repressive, field. The future owners had to think about how they would work and face possible suits brought against them in court. When Baikal Finance Group bought the relevant package, it became the owner. All that happened later occurred on the secondary market. So the claims against those who later bought property [Rosneft] ! were practically reduced to zero." (Source: RIA Novosti.) Learn more about the Yukos ADR Holder Suit »

February 7, 2006: US YUKOS Case Advances: Lawyers for the Russian government have filed a petition asking for 60 days to consider a claim in U.S. courts by YUKOS minority shareholders, when they receive it. With the petition, Russian authorities admit that the claim will eventually reach them, after two attempts to serve papers on Russian Finance Minister Alexey Kudrin and Energy Minister Victor Khristenko when they were last in the United States. (Source: International Oil Daily.)

February 6, 2005: McCain calls for G8 Boycott of Russia: The Washington Times (online) report American and European officials criticized Russia for what they said was a deteriorating record on human rights, and Senator John McCain called for a boycott of the Group of 8 meeting of industrialized democracies in St. Petersburg in June. Senator McCain said it was time to take President Vladimir V. Putin to task over his human rights record and his moves against press freedom and against nonprofit organizations. ''I seriously question whether the G-8 leaders should attend the St. Petersburg summit,'' Senator McCain said. (Source: The Washington Times - online.)

February 2, 2006: Dutch Court Confirms YUKOS Asset Sale Decision: Reuters News reports that a Dutch appeals court upheld a decision to allow Russian oil group YUKOS to sell international assets controlled by its Dutch subsidiaries. The ruling by Amsterdam's appeals court paves the way for YUKOS to proceed with the planned sale of its 53.7 percent stake in Lithuanian refiner Mazeikiu Nafta and 49 percent in Slovakian pipeline operator Transpetrol. The higher court also said in a statement it had rejected an appeal by Yuganskneftegaz, the production unit of Russian state-owned oil group Rosneft, against a Nov. 24 ruling by an Amsterdam district court allowing the assets sale. "This is a satisfactory verdict," YUKOS Oil Chief Executive Steven Theede said in a statement. "This judgement will enable the company to continue the transparent ... processes that we have put into place to achieve the sale of our non-core, non-Russian assets, the proceeds of which will be used to meet creditor liabilities." The court appeal was part of efforts by Yuganskneftegaz, formerly owned by YUKOS, to collect about 1.8 billion euros ($2.17 billion) from YUKOS Oil granted it in May by a Moscow court. The assets were subject to a preliminary freeze after Yuganskneftegaz's request in October to freeze YUKOS Oil's shares in Dutch holding companies controlling YUKOS's foreign assets including Mazeikiu Nafta and Transpetrol. (Source: Reuters News.)

February 2006: Russia Sends a Chill Down Europe's Spine: Michael Emerson, a senior research fellow at the Centre for European Policy Studies (CEPS), claims Russia must conform to international market regulations if it wants to participate in international organizations such as the G8 and the WTO. He states that “Russia’s refusal to adopt international norms for conducting economic negotiations is exemplified by its refusal to adopt the Energy Charter Treaty, which would offer multilateral dispute settlement procedures.” “If Russia wants to have a common economic space with the EU and a real energy dialogue within it, if it wants to accede to the World Trade Organization and be a respected member of the G8, it has to play by the rules of civilized market regulation.” He concludes by stating that a serious transit protocol could be the right step to demonstrate this. (Source: European Voice.) Learn more about Russia's accession to the WTO »