While it probably saved it from complete economic collapse, privatization has been a mixed bag for Russia. The first wave featured rampant corruption, awarding the most valuable state enterprises to cronies at prices far below actual value. The results left Russia with a new class of oligarchs and rampant mismanagement. Corruption became further entrenched in the economic system, and government.

In his announcement of the new wave, Vladimir Putin promises things will be different this time. For the sake of Russia as well as the rest of the world, I hope he’s telling the truth.

Hopefully, the forthcoming wave of privatization in Russia will fare better than in the past. Last week, Putin went out of his way to stress that federal property should be sold at the real market price without any discount or privilege. Assuming that market conditions are favorable to the privatization of state holdings next year, how likely is it to happen? Here it is important to appreciate the underlying motive as well as the more obvious ones. The clear motives include the desire to raise revenue and future productivity. The underlying motive is more complex and specifically Russian. It is useful to recall that the initial strengthening of state control starting in 2004 seemed to be fueled more by strategy and personal interest than any ideology. Unlike Western Europe during earlier phases of nationalization, the move toward state ownership was devoid of any ideological baggage.

Now, the latest move toward privatization is likewise fueled by the same pragmatic elements. With the designation of strategic sectors in May 2008, the state can now logically divest of its not so strategic holdings or reduce the extent of holdings even in strategic sectors.

Perhaps one of the most potent reasons to move ahead now is that it would clearly be in the personal interests of those who, purportedly acting on behalf of the state, grabbed the assets in the first place. These officials and their associates now occupy senior management positions and directorships as a result of state control in a wide range of companies and banks. However, their positions — and the associated wealth and power — are only secure as long as they personally occupy those functions. What better way to ensure that these new-style silovarchs and their families enjoy their newfound wealth than to receive shares on a personal basis as a result of a market IPO of all or part of the state holding in compensation for services rendered? It is much more remunerative than any pension plan.

If I am right that many siloviki and their associates are seeking to make permanent the benefits of their power grab, then the timing of the forthcoming IPOs could be meaningful. If they collectively start to think that Russia may become a more normal country with transparent corporate governance and the rule of law, then it may be time to cash in. (Russia beyond the headlines)

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Recent statements by Vladimir Putin puts the reliability of natural gas supply to Europe in question as the long cold winter approaches. Disagreement over price with Ukraine could once again shut down the pipeline that connects Russia with much of western Europe. With no large alternative supply, Europeans may very well end up paying the price Putin demands.

” Vladimir Putin focused the attention of the EU leadership on signals coming in, including through official channels from Kiev, regarding potential problems with payment for gas supplies,” the official said.

Putin warned that payment problems could lead to difficulties for European consumers receiving Russian gas via Ukraine. A dispute between Moscow and Kiev at the start of the year over gas debts and 2009 deliveries left millions of Europeans without gas in January.

The Russian prime minister said on Friday that his Ukrainian counterpart, Yulia Tymoshenko, had told him by telephone that President Viktor Yushchenko was blocking payments for Russian gas supplies.

The Russian prime minister said that IMF data showed Ukraine had gold reserves of $27-$28 billion, with a maximum of $12 billion required to cover the payment. He also noted that the European Union had refused to extend any loans to Ukraine to cover its gas purchases.

Kiev asked the EU for a $4.2 billion loan to pump Russian gas into its underground storages in order to avoid problems with gas transit to Europe.

“The EU has not given Ukraine any money,” Putin told leaders of his United Russia party on Friday. “Ukraine has not received a single cent, not one hryvnia.”(Moscow News)

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This week, the first of as many as 10 Soyuz rockets begin their journey from Russia to French Guyana to eventually be launched. It is possible to launch a heavier payload into orbit from this location near the equator than from Russia’s space ports.

“The shipment of the first two Soyuz-ST carrier rockets will leave the port of St. Petersburg on November 7. The Colibri cargo vessel will deliver them to the space center in Guiana,” a Progress official said.

The Kourou launch site is intended mainly for the launch of geostationary satellites. Its proximity to the equator will enable the Soyuz-ST to put into orbit heavier satellites than those launched from Baikonur in Kazakhstan and Plesetsk in northern Russia.

Russia’s Federal Space Agency  special cargo ship carrying parts of two Russian Soyuz-ST rockets will leave the port of St. Petersburg on November 7, heading to the Kourou space center, the Progress design bureau said Thursday. (RIA Novosti)

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All of the supply in the world won’t do you much good if you can’t deliver it to paying customers. With much of Europe reliant on natural gas from Russia’s state run monopoly, Asia is the next logical area for expansion.

Gazprom, the world’s largest gas company, this summer embarked on an ambitious project to build a new pipeline stretching from the gas-rich island of Sakhalin to Khabarovsk and onward to Vladivostok on the Pacific Coast. The project will energise development in Eastern Siberia and Russia’s Far East, boosting regional economies and delivering Russian gas to Asian markets.

The first section of the pipeline to be launched will be 1,350 km long with an annual capacity of 6 bn cubic metres. The pipeline’s total planned length is approx. 1,800 km, and the pipeline will carry up to 30 bn cubic metres of gas annually. This year 50 bn roubles will be spent on construction; figures for 2010 and 2011 are yet to be released, but total costs are estimated at approximately 150 bn roubles. (Russia Beyond the Headlines)

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The world recession has been particularly hard on Russia’s tourism industry. Recently, many Russian destinations becoming more accessible to foreigners and many Russians had been traveling more due to higher incomes spawning rapid growth. The sharp contraction has bankrupted many enterprises that had invested and borrowed heavily to accomodate the rapid growth.

A key indicator for tourism, the passenger flow at airports, shows a depressing picture for the industry. Moscow’s Sheremetyevo Airport, for example, has seen 10.3 per cent fewer passengers compared to last year, while the situation in regional airports is even worse.

And across the country, international flights over the first seven months of the year were 16.5 per cent down compared to the same period last year, while domestic flights were down 17.3 per cent. Changes in seat occupancy were minimal, however - airlines cut back on flights to keep seat occupancy above 70 per cent.

Industry players insist, however, that things aren’t as bad as they feared, as discounts by hotels have cut the costs for tourists.

“Earlier this year, the mood in the industry was disturbed and even apocalyptic,” said Maya Lomidze, executive director of the Russian Tour Operators Association.

Hotels had lowered their prices by 30 per cent or 40 per cent, she said.

“Prices in tours to popular destinations fell by an average of 15 per cent to 20 per cent. Although the price drop was not very significant in roubles, these prices still proved attractive for Russian holidaymakers,” she said. (Moscow News)

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Russia has big plans for Russkiy island that is just off the Vladivostok coast. It’s slated to host a summit in 2012.Resorts and even a movie studio are planned.

Just off the coast of the Russian city of Vladivostok there’s a forgotten island. For much of its population of 5,000, it feels like the mainland is oceans away. Pacific winds can be unpredictable and sometimes no one can leave the island for days.

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The effects of the world recession are reportedly less severe in Vlasivostok. New investments are being planned for the city including luxury hotels and a zoo. Along with resorts, permanent movie production is planned with the construction of a movie studio on Russkiy Island.

The film studio will be set up on Russkiy Island, Sergey DARKIN, the Primorsky Territory Governor, announced this news at the opening ceremony of the Vladivostok International Film Festival “Pacific Meridian;” the press service of the Primorsky Territory Administration reported to RIA Primamedia.

According to Sergey DARKIN, in the framework of preparation for hosting of the APEC Summit in 2012 the up-to-date infrastructure and vast recreation area are being developed on Russkiy Island. “We tend to set up the high end film studio here and the film directors from Russia and Asian countries will have a chance to shoot their motion pictures. We are also planning to have the cartoon production here,” the Governor informs. (Vladivostok Times)

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