Russia to help South Ossetia become a "prosperity showcase" / Recession encourages bribery / Aeroflot sees no reason to cooperate with Malev Hungarian Airlines / Crisis of monopolies will hamper economic recuperation
Russia to help South Ossetia become a "prosperity showcase"
South Ossetian officials hope Russia will not spare money on the reconstruction of the republic, whose independence it recognized after the August 2008 war with Georgia.
Sources in the republic's government and committee for the republic's reconstruction said Moscow planned to allocate up to 11 billion rubles ($361 million) for this purpose in 2010, bringing total spending on post-war reconstruction to 23 billion rubles ($754 million).
The first reconstruction plan drafted after August 2008 provided for allocating 23 billion rubles, then worth nearly $1 billion, but the sum was later cut by over 50% due to the global economic crisis.
A source in the South Ossetian administration said Russia would reinstate the initial plan next year over improvement in its economic situation.
Russia is spending a similar amount on South Ossetia as on Chechnya under a federal target program of socio-economic development (16 billion rubles in 2009).
Valery Gartung, a member of the A Just Russia party in the Russian parliament, said: "The 11 billion rubles allocated to South Ossetia is comparable to the budget of a city with a population of 1 million people."
He said the republic had been ruined in the war and also needed to develop its state borders.
"The point at issue is how it will spend the allocations and what Russia will receive in return for its assistance," Gartung said.
Konstantin Zatulin, first deputy chairman of the State Duma committee for the CIS and a member of the United Russia party, said the republic should become "a prosperity showcase" and not an outcast since the latter would mean that "the sacrifices of South Ossetia, Abkhazia and Russia were in vain."
Zatulin said financial assistance to Abkhazia would only amount to several billion rubles as the republic has greater resources to fund its reconstruction.
RBC Daily, Kommersant
Recession encourages bribery
The global economic downturn has encouraged a growth in bribery and a loss of confidence in business leaders who bribe government officials.
More than half of respondents in a Transparency International survey believe that these days business leaders try more often to influence policy-making by giving bribes to officials, attributing the change to the global recession. However, analysts argue that officials themselves have created this environment in which businesses have no other option.
The traditional Global Corruption Barometer (GCB), a public opinion survey that assesses the general public's perception and experience of corruption, canvassed over 70,000 people in 69 countries, including 1,500 Russians in November 2008. The questionnaire contained 15 questions.
"Businesses have to pay to get access to resources, including government bailout support. When businesses go under, much depends on decisions made by competent officials," said Kirill Kabanov, head of the National Anti-corruption Committee.
State officials accept bribes most often, or at least 60% of respondents surveyed by TI say so. Judges, political parties and lawmakers at various levels came second on the "corruption ranking."
Russians do not think that the Kremlin's anti-corruption efforts have been particularly effective; 56% said they are totally ineffective while only 20% admitted some positive changes.
"The anti-corruption campaign announced by the president was ill-timed, accidentally coinciding with the global financial meltdown. Even those who used to conduct business honestly are likely to give bribes in a crisis. Most business leaders are willing to pay for a decision which would help them keep afloat," Kabanov added.
"In fact TI's estimates are 7-8% too low," said Georgy Satarov, President of the Indem Foundation (a pro-democracy NGO) and member of the National Anti-corruption Committee.
"It is way too easy to report a problem, but few would risk offering a solution," said Pavel Krasheninnikov, head of the lower house committee on legislation.
Transparency International (TI) is a non-governmental organization addressing corruption, with 83 branches around the globe.
Aeroflot sees no reason to cooperate with Malev Hungarian Airlines
Russia's flagship carrier Aeroflot Russian Airlines, which is currently helping state-owned Vnesheconombank (VEB) to manage Malev Hungarian Airlines, has proposed that VEB sell the 49% stake in Malev it bought in January 2009.
VEB which has spent over 170 million euros on Malev since 2007 remains undecided. Analysts say it will be next to impossible to find a buyer today.
A source at the Transport Ministry said Aeroflot had raised the issue of selling the Malev stake. This April, the government ordered the Transport Ministry to discuss the sale on the initiative of Aeroflot.
In April 2009, Vitaly Savelyev, former CEO of diversified consumer services company AFK Sistema, was placed in charge of Aeroflot.
The official said the Malev deal had been lobbied by the new Aeroflot management.
Aeroflot declined to comment on the issue but said the government decision had been initiated by the company. "We consider the project unpromising," a corporate source said.
In late January 2009, VEB bought a 49.5% stake in Airbridge Zrt, the company owning 99% of Malev shares, for next to nothing. VEB also spent 102 million euros on Malev's privatization in April 2007 and loaned 30 million euros to the company in the fall of 2008.
This spring, VEB contributed another 10 million euros to its statutory capital, spent 8 million euros on repaying its tax debts and loaned another 20 million euros this April. All in all, this makes no less than 170 million euros.
Boris Rybak, head of the Infomost aviation consultancy, said Aeroflot would have had to spend lavishly on the project. By his calculations, Malev required $50 million worth of investment in the next two years, but would remain unprofitable.
Rybak said this was not the best time for a sale, as the company would not cost more than a symbolic 1 ruble.
A source close to Malev and a Transport Ministry official said renationalization was the only option. Although China's Hainan Airlines and private funds from the United Arab Emirates wanted to buy Malev before the crisis, there are no longer any prospective buyers, the source said.
A government source said that with the change in Hungarian government and Aeroflot CEO the relevant political decision would probably be put off until fall.
Crisis of monopolies will hamper economic recuperation
Plunging commodity prices and industrial decline have dealt a heavy blow to Russian monopolies, considered the backbone of the country's economy. The falling demand for their services forced them to cut their investment programs, even though this may create larger problems in the long run, when the demand will resume growth as the crisis ends.
Alexander Verkhov, a partner at the Intercom Audit consultancy, said: "Our natural monopolies have become used to working in the conditions of pre-crisis shortages in gas production, electricity generation and rail transportation. This is why the fall in demand was especially painful for them, as their management finds it hard to optimize the operation of these clumsy companies."
Their investment programs were the first to suffer.
Igor Golubev, an analyst at Nomos Bank, said: "Russian Railways has cut its investment program to 252 billion rubles ($8.3 billion) from 442 billion rubles ($14.5 billion), and [Moscow power utility] Mosenergo has slashed its investment program by 60%. Overall, natural monopolies will cut their investment programs by more than 30% this year."
Since the beginning of this year, electricity generation has slumped by nearly 6%, while gas production and rail transportation plummeted by over 19%.
Alexei Belogoryev, head of the gas studies sector at the Moscow Institute for Natural Monopoly Problems, said: "Gas production was one of the hardest-hit inthe Russian fuel and energy sector."
He said the crisis started at the beginning of one of the largest investment cycles in Russia's gas industry, comparable to the Soviet Union's challenging social development programs of the 1960s and 1970s.
"The sector needs more than $500 billion of investment in the next 20 years," Belogoryev said. All the major energy projects planned for 2010-2020, such as the development of the deposits in Yamal, East Siberia and the Far East, offshore deposits in the northern seas, and pipeline and LNG infrastructure projects, must begin from scratch.
"If the country abandons these projects now, the domestic market will experience major gas shortages as early as 2010-2015," the analyst said.
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