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Deputy Minister Says May Inflation in Check

Reuters Consumer prices were likely to rise less than 1 percent in May over the previous month, Deputy Economic Development and Trade Minister Arkady Dvorkovich said Wednesday.

"We expect inflation to stay within a 1 percent range. It could be 0.9 percent or 0.8 percent," he told reporters.

Consumer prices rose by 1 percent in April. Monthly inflation was 1.7 percent last May. Inflation, one of the country's intractable economic problems, ran at 6.2 percent in the first four months of the year, sparking doubts about whether a 12 percent official target for 2003 is achievable.

Dvorkovich also said the ruble, which has been gaining steadily since the start of the year largely on the back of higher oil export earnings, was likely to appreciate by a little more than 10 percent against the dollar in real terms this year.

Earlier this month the Finance Ministry said the economy could cope with ruble appreciation of up to 10 percent on the dollar but warned that a faster rise might negatively impact on the economy.

Dvorkovich said that because of the dollar's weakness against the euro, the ruble would rise 3 percent to 4 percent against the combined euro and dollar basket this year.

Under pressure from local businesses, the Central Bank has pledged to keep the ruble's real appreciation against the euro and dollar to less than 6 percent this year.

State Won't Borrow Abroad in 2003

Reuters Russia will not tap international debt markets this year, First Deputy Finance Minister Alexei Ulyukayev was quoted as saying Wednesday.

"The budget law provides for a $1.25 billion eurobond issue. We will not use this right this year," Ulyukayev was quoted as saying in an interview with Rossiiskaya Gazeta newspaper.

The government has said it can keep its books balanced without making the bond issue as long as the average price of oil stays above $20 per barrel. The Urals export blend was traded at $24.96 per barrel Wednesday.

The last time Russia issued a sovereign eurobond was in July 1998, when it restructured short-term domestic debt coming due into longer-term foreign debt. But that did not help it avoid domestic debt collapse.

Since then Moscow has been paying off foreign debt without refinancing. It plans to increase foreign borrowing after a 2003 debt repayment peak passes and Russia wins improved credit ratings.

The government had said it could tap international debt markets for $2 billion in 2004 to refinance some outstanding debt. Ulyukayev said the economy was coping well with the ruble's appreciation. He shrugged off complaints from some local businesses that believe that a strong currency is blunting their competitiveness.

Earlier this month he said an annual 10 percent real appreciation of the ruble against the dollar posed no threat to the economy.

Ruble Strengthens to 30.62

Reuters The ruble powered ahead against the dollar Wednesday after finance officials signaled they were ready to tolerate a faster pace of appreciation of the local currency, propelled by a strong balance of payments.

The Russian currency climbed 9.84 kopeks to a weighted average for settlement today of 30.6257 to the dollar from 30.7241 on Tuesday, after the Central Bank withdrew its dollar bid at 30.72, dealers said. It was the fourth time in two weeks that the Central Bank allowed a faster than usual nominal appreciation of the ruble, underscoring its monetary policy shift toward targeting inflation instead of the exchange rate.

Sergei Shchepilov at Raiffeisen Bank said many market players were betting that the ruble's rise was not over, despite a downward correction in afternoon trade, and speculators were actively building short dollar positions.

"It seems that only the lazy ones were not selling dollars," Shchepilov said.

Dealers said the Finance Ministry official's comments added fuel to the fire and encouraged those who choose to open short dollar positions.

Putin, Hu Sign Off on Oil Pipeline

By Valeria Korchagina and Simon Saradzhyan
Staff Writers President Vladimir Putin and Chinese President Hu Jintao gave the green light Tuesday to a $2.5 billion pipeline that will carry Yukos oil over the vast Siberian taiga and into China.

"Both sides consider cooperation in the energy sector to be extremely important. The realization of large-scale oil and gas projects, including the construction of the Russia-China oil pipeline... should become the basis for strengthening this cooperation," the two leaders said in a joint declaration signed after talks Tuesday afternoon.

The declaration, which also called for the UN to play a central role in Iraq and for a multipolar world order, reaffirms Russia and China's commitment to form closer ties.

"Relations between Russia and China have reached their highest level ever," Putin said at the start of talks Tuesday.

Hu, who chose Russia for his first trip abroad after becoming president in March, said he highly valued their new"personal friendship."

The Yukos-backed pipeline will stretch 2,400 kilometers from the east Siberian city of Angarsk to the northern Chinese city of Daqing. Expected to become operational in 2005, the pipeline will be able to transport 30 million tons of crude per year.

The Russian-Chinese declaration will likely put to rest a debate about whether to build a rival pipeline from eastern Siberia to the far eastern port of Nakhodka. The government earlier promised to pick a pipeline based on the results of Hu's visit.

"We welcome this event as the logical outcome of a protracted process where economic interests prevailed," Yukos spokesman Hugo Erikssen said.

Russian and Chinese officials now will need to get down to finalizing contracts on oil exports' volumes, prices and other technical details related to the construction of the pipeline.

Tuesday's declaration indicates that energy cooperation will go beyond the Angarsk-Daqing pipeline to include a number of as-yet-unspecified oil and gas projects in both Russia and China.

The document also outlines wider cooperation in trade, including better access to each other's markets. Hu earlier said he would like to see the volume of trade between the two countries double to $20 billion per year.

A large part of the declaration was dedicated to international politics.

Putin and Hu indirectly criticized the United States for its go-it-alone attitude in international affairs by calling for a multipolar world order and the United Nations to have a central role in rebuilding Iraq.

"Russia and China stand for a multipolar, just and democratic world order based on the commonly recognized principles of international law," the declaration said.

Russia and China have repeatedly criticized the United States for going to war in Iraq without the UN Security Council's blessing.

In his recent state of the nation address, Putin referred to the UN as the international community's"most important mechanism" to make decisions. But Putin avoided mentioning the idea of a multipolar world -- which was popularized by then-Prime Minister Yevgeny Primakov during the height of U.S.-Russian tensions over Yugoslavia in the late 1990s.

Speaking at a news conference with Hu on Wednesday, Putin, however, brought up the vision of a world that is not dominated by a single superpower.

The world order"can and should be multipolar," Putin said.

The declaration asserts that there is a growing need for a multipolar world and calls for a"central role of the UN in the modern world."

Addressing the nuclear crisis in North Korea, the document says Russia and China"stand for ensuring a nuclear-free status for the Korean Peninsula" but also support Pyongyang's request for security guarantees and economic aid.

The statement shows the Kremlin is maintaining its position in the North Korea crisis, said Ivan Safranchuk of the Center for Defense Information.

But the comments about a multipolar world suggest Putin is willing to modify his rhetoric depending on the leader or audience he is addressing, Safranchuk said.

"The conception of a multipolar world was brought up because China can position itself as one of the central powers in such a world. But without it, China has no clear niche," he said.

Safranchuk added,"I doubt Putin will bring this idea up when he meets with Bush."

Putin and U.S. President George W. Bush will hold an informal summit on the sidelines of St. Petersburg 300th anniversary celebrations Sunday.

Still, Putin might return to his multipolar world rhetoric and directly criticize the United States if the U.S.-led administration in Iraq decides to unilaterally cancel a raft of Russian contracts signed by Saddam Hussein's regime, Safranchuk said

Russia Targets $24Bln NATO Deal

By Lyuba Pronina
Staff Writer EADS, the world's second-largest defense contractor, sealed the biggest deal in its history on Tuesday, a $24 billion order from seven NATO nations for a new military transport aircraft that at least one Russian company may help build.

The European Aeronautic Defense and Space Co. said Tuesday that clinching the deal for 180 of its A400Ms, which exist only on paper, doubled its defense order book overnight and let it start negotiations with subcontractors immediately -- news that was music to the ears of Hydromash.

The Nizhny Novgorod-based manufacturer of undercarriages for Russian civil and military jets is hoping to both design and produce undercarriages for the A400M.

"[Russian state arms export agency] Rosoboronexport is now in pre-contract negotiations with EADS over Hydromash's participation in the A400M program," Sergei Nedoroslev, president of Kaskol Group, which controls Hydromash, said by telephone Tuesday.

Nedoroslev said it was too early to estimate how much Hydromash's participation might be worth in terms of revenues, but said the Russian government's hesitation to join the project early cost the aerospace industry dearly.

EADS had offered Russia 5 percent of the project, but the government balked because it was trying to jointly develop with Ukraine its own transport craft, the ill-fated An-70.

"Russia could have had a billion dollars, but instead will get peanuts," Nedoroslev said, referring to the $2.5 billion framework agreement EADS penned with the Russian Aviation and Space Agency in 2001.

European nations were not interested in the An-70 project, opting instead to build their own transport craft.

The government went so far as to ban Russian companies from participating in the development of the A400M; a restriction that was only recently lifted, Nedoroslev said.

"A window of opportunity opened to us to enter the global market of highly competitive products and we should have jumped at the chance," Nedoroslev said, adding that only Hydromash lobbied for the ban to be lifted.

EADS spokesman Gregor Kursell said by telephone from Munich that EADS was aware of Hydromash's readiness to participate in the project, but that it had yet to receive an official waiver from Russian authorities that would allow it.

Kursell said that under the 2001 framework agreement with the Russian Aviation and Space Agency, Airbus, the aviation giant 80 percent owned by EADS, will open an engineering center with Kaskol in Moscow next Tuesday.

Cooperation agreements with several other Russian companies will be announced at next month's international air show in Le Bourget, France, he said, refusing to elaborate.

Germany's Metro Plans Ambitious Expansion

Combined Reports German retail giant Metro AG plans to invest more than $1 billion in Russia over the next few years, government and company officials said Tuesday.

Metro, with four stores in Russia, had previously announced its intention to invest heavily here, but this week the company's top executives are in town to discuss their plans in meetings with Economic Development and Trade Minister German Gref, Moscow Mayor Yury Luzhkov, Deputy Prime Minister Boris Alyoshin and Russian Chamber of Commerce chairman Yevgeny Primakov.

Alyoshin said Metro was to discuss"big investments" at their meeting Tuesday.

An anonymous source from the Economic Development and Trade Ministry, where Metro representatives met with Gref on Monday, said Metro would invest more than $1 billion.

"We plan to invest this sum... over a period of five years," confirmed a Metro representative, who wished to remain anonymous.

Metro spokeswoman Yulia Belova said Metro has been investing $140 million per year in the Russian market, but the company's development plans call for raising that figure.

"We will invest $200 million in Russia every year," she said.

Jßrgen Homeyer, another Metro spokesman, was a bit more modest in his projections.

In a telephone interview from the company's headquarters in Dßsseldorf, he said only that the company's investment would be well over 200 million euros ($238 million) in the next two years, explaining that each store that Metro opens requires an investment of about 20 million euros.

Metro plans to open 10 outlets in Moscow, St. Petersburg and the southern Rostov region by the end of 2004, Homeyer said, a project that will take two years to realize.

Two of these stores are in the final stages of preparation. The company plans to open a fourth Metro Cash & Carry store in Moscow next week, and says it will launch a second wholesale outlet in St. Petersburg on June 18.

Metro's board of directors met Monday and Tuesday in Moscow to discuss investment in the country's regions.

Metro also plans to launch two Moscow locations of Real, its chain of retail markets, in 2004."These stores are bigger investments than the wholesale [Cash & Carry] stores," Homeyer said.

A franchise of the Meyer-Mart electronics store is also on the drawing board, but Homeyer could not provide a timeline for its construction.

Metro says it will expand its operations into Ukraine, opening two locations there in August.

Metro's sales in Russia last year amounted to $270 million.

The retailer operates more than 2,300 stores in 26 countries.

(MT, Vedomosti)