Russia proposes changes to EU Energy Charter / Russia threatens to freeze relations with NATO again / Russia and Finland reach understanding on Nord Stream / Finance Ministry to remove Cyprus from offshore zones list
Russia proposes changes to EU Energy Charter
Russia has proposed amending the European Union's Energy Charter to expand the list of its participants and spheres of regulation. Analysts say the EU is unlikely to agree to the idea.
Russian President Dmitry Medvedev said during his recent visit to Finland that Russia would present to G8, G20 and CIS partners and its neighbors a "basic document stipulating the issues of international cooperation in the sphere of energy, including proposals on a transit agreement."
The document covers not only oil and gas but also nuclear energy, electricity generation and coal, said presidential aide Arkady Dvorkovich. The list of the signatory countries to the Charter should include the leading energy players, such as the United States, Canada, China, India and Norway.
It also stipulates encouraging asset swaps, according to an official from one of the Russian ministries.
The key elements of the Russian proposal are the rules of settling conflicts and additional responsibilities of the transit countries, which is especially important after the Russian-Ukrainian gas conflict last January and the Brussels declaration of Ukraine and the EU regarding the reform of Ukraine's gas transportation system without the involvement of Russia.
The legal structure of the Russian document is so far unclear and should be further discussed, Dvorkovich said.
The EU Energy Charter does not stipulate an efficient mechanism for sanctions that could be applied against any country that suspends the transit of Russian natural gas, said Valery Yazev, deputy speaker of the Russian parliament.
Valery Nesterov of Troika Dialog said: "The Energy Charter was drafted in the early 1990s, when Russia's positions were weak. The West drafted it to gain free access to Russian resources. However, Europe remains closed to Russian investment."
Analysts say the EU is unlikely to accept the Russian proposal.
Political analyst Fyodor Lukyanov said the EU was divided over the issue, as the energy aspects remain within the competence of individual countries rather than the European Commission.
Common documents are always risky, said Alexei Malashenko, an analyst at the Carnegie Moscow Center. Russia would benefit from Europe's failure to settle the transit issues.
Gazeta.Ru, RBC Daily
Russia threatens to freeze relations with NATO again
Russia will not resume contacts with NATO unless the alliance cancels military exercises in Georgia.
NATO unilaterally suspended full cooperation with Russia in September 2008, after the war over South Ossetia, and did not announce an official resumption of cooperation until last month.
The military maneuvers, involving around 1,300 servicemen, will begin on May 6 and end on June 1. Nineteen countries will participate, including, along with NATO members, Moldova, Kazakhstan, Armenia, Azerbaijan, and the United Arab Emirates.
Latvia said yesterday it had declined participation following Estonia's decision. Kazakhstan, earlier announced as one of the participants, also decided to withdraw from the project.
Russia's NATO envoy Dmitry Rogozin said the alliance's lack of a response to Moscow's protests will provoke further action. In particular, the meeting of Russian and NATO chiefs of the general staff, slated for May 7, has already been cancelled. However, the April 29 meeting of ambassadors of the Russia-NATO Council will take place in any situation.
Russian analysts say the military exercises in Georgia could create an awkward environment at the June summit meeting of the U.S. and Russian presidents in Moscow.
"Part of the Western elite wishes to provoke a confrontation with Russia. That part initiates such events," said Vladimir Yevseyev, military research associate with the Institute for World Economy and International Relations of the Russian Academy of Sciences.
"The presence of several thousand Western troops in the vicinity of the South Ossetian border could provoke [President Mikhail] Saakashvili's regime to some sort of military action," Alexander Pikayev, head of the Disarmament and Conflict Resolution Department at the Institute of World Economy and International Relations, said to explain Russia's logic.
He added that the cancellation of the military chiefs' of staff meeting might not be the end of it. NATO's policy threatens the established shipment of military cargo to Afghanistan across Russia, as well as other planned political and military events.
According to Pikayev, NATO is unlikely to cancel the maneuvers entirely or even postpone them, but it could potentially change the program of the event or reduce the number of servicemen involved. Their status could be lowered to an ordinary command-and-staff exercise.
"It wasn't easy for the alliance to arrange the event, as many of the continental European countries are boycotting it," he said.
Russia and Finland reach understanding on Nord Stream
The project to build the Finnish section of the Nord Stream gas pipeline along the Baltic seabed may be agreed by June. In response, Russia would continue to hold back duties on the export of round timber, the main source of raw materials for Finland's timber industry.
Until recently, Finland's objections regarding the gas pipeline project to be built from Russia to Germany along the Baltic seabed, were limited to environmental concerns. Its current readiness to settle the problem by June means that Moscow has found a new convincing argument.
Finland's timber industry, which heavily depends on the import of round timber from Russia, was dealt a heavy blow by Russia's decision to gradually raise export duties in 2007. It planned to double export duties on round timber to 20% by 2010.
However, in November 2008 Russian Prime Minister Vladimir Putin and Finnish Prime Minister Matti Vanhanen agreed to freeze growth for 9-12 months.
Maxim Bratersky, a professor at the global economy and politics department of the Moscow-based Higher School of Economics, said Finland had become addicted to timber imports from Russia.
"I'm afraid the issue is not Moscow's sly policy, calculated a hundred moves ahead, but the traditional Russian mixture of slackness and good luck," the professor said.
The decision to raise export duties was taken to boost wood processing in Russia, but investment in the industry has not increased over the past two years, Bratersky said. The ongoing financial and economic crisis has given Moscow a chance to play with prices and use export duties as an additional argument in the Nord Stream talks with its partners.
Finance Ministry to remove Cyprus from offshore zones list
The finance ministries of Russia and Cyprus have signed a protocol on changes to the basic agreement on avoidance of double taxation dating back to December 5, 1998.
Analysts are convinced that the protocol, when ratified, will put an end to the Cypriot offshore zone, as Russian companies will no longer be able to implement their transfer schemes, and many will have to be liquidated.
Once the agreement enters into force, Cyprus will be removed from the Russian Finance Ministry's list of Russian offshore zones. Incidentally, to become effective, the protocol will have to be ratified first by adopting a relevant law.
The current agreement helps Cyprus-registered Russian companies optimize their taxes. For example, the profit tax in Cyprus is 10%, and proceeds from securities transactions are entirely excluded from taxable income.
Cyprus-registered investment vehicles are shareholders in major Russian companies. They hold stakes in Itera oil and gas producer, Norilsk Nickel metals giant, Rostelecom telecoms operator, Globaltrans railway operator, truck maker KamAz, TGK-4 power utility, Troika Dialog brokerage and many others.
Russian brokerages such as Renaissance Capital, BKS, and Otkritie operate on the stock market through their Cyprus offices. Unofficial reports suggest that as many as 90% of all transactions on Russia's RTS exchange go through Cyprus offshore companies.
Analysts observe that most of the Cyprus-registered companies are used as vehicles for technical or tax-optimizing purposes, as they conduct no operations. "These companies operate as mail-boxes through which billions are channeled," said Eduard Savuliak, head of the Tax Consulting UK Moscow office. "Now they will have to prove they have real business objectives and operations if they want to optimize their taxes there."
Sources in consulting companies confirm that there are hundreds of tax schemes involving Cyprus-registered companies, varying slightly depending on the industry and the company's needs. This protocol is "a crushing blow to transfer pricing," said Alexander Sotov, partner of the Moscow Bar FBK-Legal.
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