IKEA Upbeat After 10 Years of Problems

But managers say they are still waiting for a store in Samara to open before they consider any new investments in Russia.
IKEA officials put a bright face on what have been an occasionally rocky first 10 years in Russia, saying Thursday that they would continue expansion once a mall in Samara is completed and don’t regret their decision to enter the market.
“We’ve had annual sales increases of 20 percent on average since the launch of the first store in 2000,” Per Kaufmann, head of IKEA Russia and CIS, said at a news conference dedicated to the anniversary. “Our business has never witnessed such sale boost anywhere in the world.”
He said the company expected to maintain the growth figure this year, despite the recession and that sales in the country now accounted for about 4 percent to 5 percent of the company’s overall volume.
But the Swedish retail giant has faced numerous obstacles to its growth from regional authorities and regulators, most recently in Samara. The company’s experience has served as a cautionary tale to others thinking of investing in Russia, although IKEA said it was heartened by improvements in recent years.
“We’re currently building a mall in Ufa, and we’re preparing for the construction of a shopping center in Mytishchi,” Kaufmann said. “We have design projects for outlets in Saratov and Voronezh ready.”
In June, Kaufmann said IKEA would halt all future investments in Russia after it was not allowed to open the Samara mall — almost two years after it was finished — because of bureaucratic barriers posed by local officials.
IKEA founder Ingvar Kamprad, ranked by Fortune magazine as the world’s fifth-richest person, said on Swedish radio that Russian power companies had cheated IKEA out of 135 million euros ($190 million) by overcharging it for electricity and gas, and he linked the problem to IKEA’s policy of not paying bribes.
But the threat to halt investment appeared to hit home, and the Economic Development Ministry said in late July that it had reached an agreement with IKEA that would allow the store to open. Kaufmann said at the time that IKEA agreed to set a schedule for resolving problems found by the government.
“The situation isn’t that bad, as we currently have 12 Mega stores operating in Russia,” said Stefan Gross, director of real estate in Russia and the CIS. “But we really expect the Samara mall to be opened before we make the next decision on further investment.”
Lennart Dahlgren, the company’s first CEO in Russia, recalled the arduous process of opening the first store.
“We first wanted to launch IKEA in Russia in the Soviet era, then we made a second attempt in 1993, but the military coup forced us to put our plans aside,” he said. “I came to make the third attempt on Aug. 17, 1998, the same day the last crash hit the Russian economy.”
Dahlgren said many of his high-ranked Western colleagues tried to talk him out of that “crazy idea” to start a business in a country with high corruption and excessive import taxes.
“Even my friend, IKEA’s legendary founder Ingvar Kamprad, was opposed to starting business there and then,” he said. “But I insisted, and we succeeded.”
In August 1999, Vladimir Putin — shortly after starting his first stint as prime minister — signed an order decreasing import duties, which allowed the company to launch its business, Dahlgren said.
On March 26, 2000, IKEA inaugurated its first mall in Khimki, just outside of Moscow, and 40,000 people visited it.
“I remember that day, Ingvar Kamprad was almost crying of joy,” he said. “On the second day, we decided to build more stores and hire more people, so this is how we came to where we are today.”
The company also faced some of its great challenges opening the Khimki mall, as the local authorities posed serious obstacles. Dahlgren said the Russian media played a decisive role in overcoming the situation.
“That was a surprise to me, that the media stood as the one opposing the authorities,” he said. “Soon, the Moscow region governor, unwilling to see the scandal get any bigger, had to write to the mayor of Khimki and order him to allow the opening.”
But for all the reminiscing of good times and bad, the executives were decidedly upbeat about IKEA’s next 10 years in Russia.
“I have noticed considerable differences during the three years I have been here,” Kaufmann said. “Russia is starting to obey the laws, which brings transparency and benefits foreign business working here.”

Cosmonauts’ Mayor Fights Smuggling Claim

Elections for Star City’s first-ever mayor are mired in scandal after a vast majority of voters, among them famous cosmonauts, backed a candidate who was arrested for smuggling four days before polling day.
The scandal in the tiny, closed town outside Moscow is linked to the far larger smuggling dispute involving flamboyant businessman Telman Ismailov and his Cherkizovsky Market.
The election is also an embarrassing failure for United Russia, because two candidates who ran as independents but have close ties to the party trailed miserably, drawing less than 15 percent between them.
Star City houses the training center for the country’s space program and is also home to many retired cosmonauts. Visitors need a special pass to access even residential areas.
The winning candidate, Nikolai Rybkin, a former deputy director of the cosmonaut training center, was arrested four days before the June 28 elections. Nevertheless, he won 82.6 percent of the vote, according to a tally on the Central Elections Commission’s web site.
Rybkin, a retired FSB colonel, ran as an independent candidate. Runner-up Nikolai Yumanov, an adviser to the United Russia mayor of Shchyolkovo, gained 11.4 percent of the votes. Oleg Sokovikov, who finished third with 2.6 percent, is an assistant of United Russia State Duma Deputy Vladimir Pekarev.
The arrest even boosted Rybkin’s voting tally, Vladimir Reznikov, a member of his campaign team, said by telephone from Star City. “The preliminary rating was a little bit lower,” he said.
Rybkin’s lawyer, Roman Smadich, said Monday that the elections were legal.
“Everything was legal. Elections can only be pronounced invalid by a court decision. So far, there is no legal basis to annul the elections,” Smadich said.
The head of the Moscow region elections committee, Valentina Smirnova, said in a faxed statement that the elections were “valid” and that “Rybkin was elected the head of the given municipal entity.”
Rybkin is being investigated on smuggling charges involving a ­company called Rosmoravia that allegedly smuggled Chinese goods into Russia via its northwestern borders. Investigators said he was among Rosmoravia’s founders.
He is charged under Article 188 of the Criminal Code, smuggling as part of an organized group, which carries a maximum sentence of 12 years in jail.
The Investigative Committee said in a statement on its web site that two other founders, identified by their surnames Pototsky and Tarakanov, were arrested earlier, without giving a date.
The case is part of the high-profile criminal investigation into Ismailov and his AST Group. The statement on the Investigative Committee’s web site says the goods were sold at markets “including the markets of AST companies.”
Rosmoravia is a brokerage and logistics company, Kommersant wrote in September 2008, saying police had investigated the firm after raiding containers of smuggled goods at Moscow’s giant Cherkizovsky Market.
Rybkin, 62, was listed as a “pensioner” in his campaign materials.
His web site, Starcity.su, writes that he created a Star City Development Foundation last year. The foundation has no connection with Rosmoravia, said Reznikov, the campaign worker.
Rybkin graduated from the KGB Higher School in 1973 and worked as an anti-espionage expert at Star City, his site says. He also took part in special operations abroad. In the 1990s, he was knifed while detaining a serial killer, Vadim Yershov, in Krasnoyarsk, and was awarded a medal for heroism. Yershov was sentenced to death in 1999 for killing 19 people.
In 2000, he started a foundation “to fight corruption and terrorism” called Gvardia, which owns companies involved in IT, metallurgy, aviation and logistics, the web site says. The foundation runs military training courses for young people.
His web site lists charitable activities such as building a rotunda and a Park of Cosmos Traditions, as well as replacing the town’s 12 swans. The original swans were eaten in the perestroika years by vandals who dumped the bones outside the town hall, Rossiiskaya Gazeta reported.
In a statement on his web site dated July 2, Rybkin writes that it’s “too early to comment” but calls the accusations “all mistaken, unfair, hurtful and humiliating.”
“My analysis convinces me that it’s dangerous doing business in Russia and attempts to fight corruption are even more dangerous. I can’t remain silent and am being punished for this.”
Rybkin was questioned by an investigator for the first time on Monday, 27 days after he was detained, his lawyer Smadich said.
Asked whether he felt the investigators were carrying out a serious investigation, Smadich said no. “They just went and arrested him and that’s all, just so he could be in prison.”
Rybkin has influential supporters. Six cosmonauts — Valery Bykovsky, Alexei Leonov, Vladimir Titov, Alexander Volkov, Anatoly Solovyov and Valery Korzun — took out a paid ad in Kommersant on June 14 asking President Dmitry Medvedev “to ensure legality and an objective investigation” of Rybkin’s case.
They described Rybkin as “a respected, decent person” and suggested that his arrest was a deliberate attempt to prevent his election.
“We get the impression that behind the detention of the lawfully elected mayor stand forces that are trying in every way to prevent N.N. Rybkin from entering office,” they wrote in the petition.
Reznikov said the cosmonauts all know Rybkin personally, since he worked at the training center for around 25 years and worked his way up to deputy director.
“Naturally they all knew him and bumped into him,” he said. “It’s not that someone asked them to do it. It’s their honest and open position.”
Residents of Star City also went out on the streets to protest and were filmed by an NTV television crew, Reznikov said. “People are mainly asking about his fate, they want to know what is happening. Everyone believes that this will end in a positive way.”
Smadich said he visited Rybkin on Monday. “His health has strongly deteriorated,” he said. “He’s not young and he has various chronic ailments.”
Under a law signed by Medvedev in May, mayors can be dismissed by local deputies if they fail to carry out their duties for three months. Asked whether deputies might use the law, Smadich said, “I don’t know and so I shouldn’t comment.”
A deputy mayor is carrying out Rybkin’s duties, Reznikov said.
Star City was founded in 1960 as a training center for future cosmonauts. It has never had mayoral elections before because it was previously controlled by the Defense Ministry and classed as a military garrison. Since June 1, it has been reclassified as a “closed administrative territorial entity.”
According to election results published on the Central Election Commission’s web site, around 5,800 residents voted. The turnout was around 53 percent, Reznikov said.

Yukos

Businessman Mikhail Sannikov loves the smell of Yukos in the morning. So much, in fact, that's he's launching a perfume named after Mikhail Khodorkovsky's former bankrupt oil firm, Vedomosti reports.
Although the green-and-yellow triangle is a trademark now owned by Rosneft, it is only registered for oil products - in theory making it possible to transfer the brand's essence.
Sannikov admits any Yukos perfume would be unlikely to come up smelling of roses in the competitive cosmetics markets, but would highlight his belief that former Khodorkovsky's oil firm sent a nasty niff through the Russian business world.
Chopped off
International politics is behind the delay in giving a Canadian firm a license to build the PW-127 helicopter engine in Russia, according to American military news site strategypage.com.
They claim the delay is part of US pressure on Russia not to sell anti-aircraft weapons to Iran. The proposed deal, the first of its kind since Britain licensed a Rolls Royce jet engine soon after World War II, would speed the delivery of Russia's new Mi-38 helicopter.
Now the new high-speed aircraft will be delayed until at least 2012, and will use a less efficient Russian engine.
Gas simmering
Ukraine has offered to accept a $5 billion advance payment from Russia for five years of gas transit - to enable the country to pay its own gas bill.
But the plan has not been well received. Pravda.ru calls it a "ridiculous offer", noting that Russia receives no guarantees of payment beyond 2010 and adding that Ukraine has no chance of Western financial support.
Meanwhile Komsomolskaya Pravda detects the "smell" of Europe in the plan, fearing the EU may be about to provoke another politically-motivated fuel dispute.
Budget cuts call
Kremlin aide Arkady Dvorkovich believes the government has a couple of months to cut budget spending in response to the crisis.
But he said "substantial state funds" would be invested in projects to help the economy recover in the future, even as the overall expenditure falls, RIA Novosti reports.
He added that Russia's reserves must be used carefully to ensure social payments were made.
People trade
Tajik workers suffer difficult working conditions and discrimination in Moscow, but Tajik Interior Minister chief Safiullo Devonayev has no plans to slow the exodus from Dushanbe.
At a meeting between migration service staff from Russia and Tajikstan and regional officials from Samara, Devonayev explained labour export was an important part of Tajik policy.
Raging bulls
Sky high value for Facebook
Internet group Digital Sky Technology has spent $200 million on a 1.96 per cent stake in social networking website Facebook. The Russian group, which already operates the similar Vkontakte site over here, concluded a deal which values Facebook at $10 billion, more than Starbucks coffee or Safeway supermarkets. Not bad for a popular office timewaster.
Shopping nation
British supermarket giant Sainsbury's is planning to make Russia its first overseas market, according to Kommersant. The business daily's sources claim the firm has held discussions with the X5 Retail group and other Russian supermarket operators with a view to entering the market in the autumn.
Toxic assets
GDP slump
President Dmitry Medvedev has warned that the economy will shrink faster than expected, after figures showed GDP dropped 23 per cent in the first quarter of 2009. AP reports that Medvedev didn't give a revised estimate but admitted a forecast budget deficit of 7 per cent was "optimistic". Meanwhile Finance Minister Alexei Kudrin has ruled out going to the IMF, but is considering borrowing up to $7 billion next year and $10 million the year after from overseas sources.
In bad nick
Norilsk Nickel, the world's biggest producer, posted a $449 million loss after a $4.7 billion writedown on its OGK-3 power generator and some non-Russian units, Bloomberg reports. The company also took a hit on the currency markets in 2008, losing $397 in foreign exchanges, and its year-end assets of $2 billion were 50 per cent down.

U.S. Owner of Siberian Pizza Chain Detained

A Novosibirsk court on Wednesday released on bail a U.S. businessman who has operated a chain of pizza restaurants in Siberia for more than a decade and is suspected of tax evasion, regional authorities said Wednesday. Eric Shogren, owner of the New York Pizza chain, is accused of failing to pay more than 9 million rubles ($263,900) in taxes, Novosibirsk regional police spokeswoman Tatyana Bukova told Interfax. Shogren is also being investigated in connection with other criminal cases, Bukova said, though she did not specify what the accusations in those cases entail. If charged and convicted of large-scale tax evasion, Shogren, a well-known figure in the foreign business community, could face up to seven years in prison. Shogren was detained Tuesday in connection with the tax evasion case, regional police spokesman Anton Surnin said by telephone. Novosibirsk's Leninsky District Court on Wednesday declined to place Shogren under arrest, releasing him on 1 million ruble ($29,500) bail on the condition that he not leave the city, regional court spokeswoman Marianna Glushkova told The Moscow Times. Investigators had asked the court to place Shogren in a pretrial detention facility, saying he was a flight risk. The director of Shogren's company Top Shelf, Yevgenia Golovkova, was released on 800,000 ruble ($23,000) bail, Glushkova said. Shogren remained in detention Wednesday and was to be released at 9 a.m. Thursday, his wife, Olga Shogren, said in a telephone interview from Novosibirsk. Shogren's company has about 50 million rubles ($1.5 million) in debt and fell behind on its taxes and payments to suppliers after it was unable to refinance its loans, his wife said, speaking in fluent English with an American accent. "Banks were already in crisis in May, and so they were calling back credit and weren't giving any more," she said. "That's when we acquired most of the debts." Employees and suppliers of New York Pizza picketed in Novosibirsk in February over delays in payments, Kommersant reported. In September, court marshals raided Shogren's restaurants, confiscating money from the registers to cover debts, Vedomosti reported. More than 90 complaints have been filed against New York Pizza in the Novosibirsk Regional Arbitration Court since last year, including by tax and pension authorities, according to the court's web site. The company hopes to pay off its debts, Olga Shogren said. "We're working on attracting investment groups and some investment capital, but it's very difficult," she said. Shogren is also being investigated on suspicion of fraud, Kommersant reported in March, citing police investigators. A native of Minneapolis, Shogren started up a joint car business with a Novosibirsk partner in the early 1990s. He moved to Novosibirsk a few years later and founded New York Pizza in 1996. The chain consists of 15 restaurants, according to its web site. The web site says Shogren also runs five other restaurants, a cinema and a bakery. It also says Shogren has set up a farm business called Siberian Frontier Farms, whose board includes James Collins, a former U.S. ambassador to Russia. Reached by telephone Wednesday at the Carnegie Endowment for International Peace in Washington, Collins said he had heard that Shogren had been detained. Collins said he was not familiar with the details of the case and declined to comment. He said, however, that he is "part of a board related to all [of Shogren's] businesses." The U.S. Embassy in Moscow said it could not comment on the case because of privacy laws. The Moscow Times interviewed Shogren in Novosibirsk in 2002. At that time, he said, New York Pizza was making several million dollars annually. Shogren has dual U.S. and Russian citizenship, his wife said.

Yakunin Slams Freight Car Maker

Russian Railways chief executive Vladimir Yakunin on Friday lashed out at Uralvagonzavod for its quality control standards, a day after Russia's largest maker of rail freight cars accused the state railway monopoly of buying fewer units than stipulated in a supply contract. The increasingly heated dispute between the companies, both 100 percent controlled by the state, comes as Russian Railways, or RZD, struggles to cope with falling revenues from weaker cargo volumes. RZD was loss-making in January for the first time since it was created in 2003. "Just yesterday ... a train went off the rails because a side frame broke on a car made in 2007. It just goes to show how disorderly the oversight is at [Uralvagonzavod] and how awful the technology is," Yakunin said in Novosibirsk, Interfax reported. "The management of the factory should, first of all, focus on running that business and only then try to lay the blame for their own headaches on other people's shoulders," Yakunin said. Uralvagonzavod said Thursday that it would have to halt its freight car assembly line in April -- potentially leaving more than 11,000 people out of work -- because RZD was refusing to buy any more units. A spokesman for the Sverdlovsk region plant, which also makes tanks and oil cisterns, said he thought that Yakunin was just looking for a pretext to reduce his company's orders. "We've significantly improved our production and oversight of our technological processes with European equipment," Uralvagonzavod spokesman Boris Mineyev said. "The Russian wagon-making has its problems, but they are common to all producers, and it's not a reason to refuse to buy from us." According to a copy of the contract obtained by The Moscow Times, Uralvagonzavod was supposed to supply RZD with 13,600 cars for 22.7 billion rubles ($672 million) this year. An RZD spokesman said the monopoly would buy 8,800 cars, while Uralvagonzavod said RZD would buy only 4,000 cars and 2,000 cisterns from them. A competing supplier to RZD said Friday that the state railways had already used the bad-quality argument to buy fewer cars. "Russian Railways has ordered 30 percent less from us this year," said Artyom Ledenev, spokesman for Transmashholding, RZD's biggest supplier. Gudok, RZD's official corporate newspaper, said March 2 that the orders for locomotives from Transmashholding were reduced in part because of quality issues, citing Sergei Palkin, the head of RZD's technical auditing center. Transmashholding cut production by 30 percent and was working four-day weeks because of the weaker demand. A Russian Railways spokesman insisted that the main reason for not ordering as many cars this year was money rather than quality. "We haven't got enough money to buy as many cars as we planned," the spokesman said. Yakunin also sought to comfort his company's disenchanted suppliers. "If the economic situation gets better, we will increase our investment program," he said. The company said it would decrease its investment program by 34 percent, to 262 billion rubles ($7.8 billion), down from 400 billion rubles the government approved in November.

A Candle in Moscow

The spot in Moscow where reporter

Anastasiya Baburova was tragicly murdered in Vladimir Putin's lawless state.

State Lays Out Job Stimulus Program

Opening up a private business in Russia may no longer prove to be a daunting task — for the unemployed, that is. To stimulate employment and the economy, the government will give 60,000 rubles ($1,700) to unemployed Russians as startup capital to open small businesses, Deputy Health and Social Development Minister Maxim Topilin said Thursday. In addition, the government will provide subsidies to companies to put employees facing imminent layoffs through re-education and training programs, Topilin said. Other workers will be paid to relocate to areas within their regions where jobs can still be found. Topilin announced these and other measures aimed at fighting the country's billowing unemployment rate on Thursday and said they would be implemented as early as next week in the five regions that had most quickly offered proposals for the federal government's 43 billion ruble ($1.3 billion) employment-stabilization package: Krasnoyarsk, Yaroslavl, Tatarstan, Tyumen and Bryansk."Now [unemployment] stands at 5.8 million [people]. It is difficult to forecast, but I think it could reach around 7 million by the end of this year," Topilin told reporters.The number of unemployed workers rose by 1 million from September to December, now making up 7.7 percent of the work-age population, according to the State Statistics Service, which calculated its figures using the International Labor Organization's methodology. Despite numerous appeals by President Dmitry Medvedev and Prime Minister Vladimir Putin, many regional governments missed a Jan. 15 deadline to submit proposals to stimulate employment."We had to extend the deadline indefinitely," said Yevgenia Okoreva, a spokeswoman for the Health and Social Development Ministry, which is implementing the program. As of Thursday, 66 regions had submitted proposals, Okoreva said. Not all of Russia's 83 regions are required to submit proposals. The city of Moscow, for example, is not seeking federal funds and has created its own department to tackle the issue.Next Monday, agreements between the federal government and the five regions whose programs were approved will be signed, and "nothing will stop them from getting to work," Topilin said.The federal government will subsidize 95 percent of each region's employment program, but the regions must come up with the remaining 5 percent and adjust their 2009 budgets accordingly. Zoya Rozhnova, the head of Krasnoyarsk city's employment service, said by telephone that she was "thrilled" that the government was allocating the entire region 667 million rubles ($19.7 million) in unemployment relief.Before submitting their program to the government, Krasnoyarsk government and labor authorities went to major regional employers to evaluate their labor situation and ask them about their needs for workforce retraining programs, Rozhnova said."We are very optimistic that the funds will make a difference here," she said. The government is clearly worried about soaring unemployment. Medvedev told regional authorities at a conference on Jan. 21 that "job security is one of our top priorities, one of the government's principal social obligations.""Unemployment and the labor market have never gotten as serious attention from the government as now," said Dmitry Badovsky, deputy director of Moscow State University's Institute of Social Systems. As of Jan. 21, some 14,100 businesses around the country had announced imminent plans to lay off 365,000 employees and reduce 549,000 full-time workers to part-time, an employment status that also includes mandatory unpaid vacation, Topilin said. The government's employment-stabilization program is made up of four components — specialist training and workforce re-education, public works creation, job relocation assistance and small business development.The government's aim is to create at least 901,000 jobs, including 700,000 new temporary positions across the country and 50,000 new jobs in small business. It also will offer professional development and training programs for 114,000 workers facing imminent layoffs; give companies subsidies to pay for the employment trial period for 10,000 new university graduates; and subsidize the costs for 27,000 people to move to work in another area of their region.A large portion of the temporary jobs the government aims to create will be in the area of public works, including infrastructure and municipal services projects such as road building and the painting and cleaning up of schools and hospitals, Topilin said. For small business, the government will give 60,000 rubles to a target number of 50,000 unemployed Russian citizens to open their own enterprises, Topilin said. Only those officially registered as unemployed will be eligible to apply for the funds, a one-year advance payment on their monthly unemployment checks. The regional governments' employment agencies will help applicants legally register their businesses and create business plans.While praising the government for its attention to the labor market, economists and employment specialists were skeptical of the program's economic effectiveness. "It is well-documented and proven that subsidizing jobs is not an effective method of job creation," said Vladimir Gimpelson, director of the Higher School of Economics' Center for Labor Research. "When the subsidies stop, the jobs go too."Gimpelson was also pessimistic about giving money to the unemployed to open businesses."The usual corruption, bureaucratic regulation and inefficiency of government administration will get in the way," he said. Alexandra Eftivyeva, chief economist at VTB Capital, said the best way to support employment was not to directly support people but to help their employers "restore their working capital credit.""Right now, companies are laying off because they do not have enough capital to pay salaries," she said.Gimpelson said it would be difficult to find jobs even for those retrained in new fields of work. He compared Russia's labor market to an ocean with two islands: a "vacancy" island and an "unemployed" island. "For the unemployed to get to the island of vacancies, they get retrained and educated on the way," he said. "But now we only have one island: the island of the unemployed, and no island with vacancies. Until the island with vacancies comes back, I don't know how the program for re-education can work."

Budget Deficit Could Drain Much of Stabilization Fund

A significant portion of Russia's $215 billion stabilization fund will be spent in 2009 to cover the country's budget deficit, said Finance Minister Alexei Kudrin at a State Duma meeting on Friday. “This year is the peak of the crisis, and we’re starting from the idea that a significant part of the Reserve Fund will be spent, but not all,” he said. The country is facing a budget shortfall of 4.4 trillion rubles ($124.6 billion), or 5.4 percent of GDP, and if the government's 2009 budget is not revised, the deficit could reach as much as 6.1 percent of GDP. On Jan. 22, Prime Minister Vladimir Putin ordered the Finance Ministry to revise its 2009 budget based on a new average oil price of $41 per barrel, down from the previously forecast $70. Urals blend crude, Russia's main oil export, was trading at $43 a barrel on Friday, down from its July high of $143. Last year the stabilization fund, supplied since 2004 by windfall oil and gas revenues, was divided into the National Welfare Fund and the Reserve Fund, which stand at 2.8 trillion rubles and 4.5 trillion rubles, respectively. In December, the welfare fund loaned 340 billion rubles to Vneshekonombank, as part of a $200 billion dollar bailout package aimed at revitalizing the country’s ailing financial sector. First Deputy Prime Minister Igor Shuvalov, speaking to the parliament on Friday, said the government would "most likely" have to cut back on expenditures in 2009.

The CIA's Secret Triumph

MOSCOW, Russia -- Under the rules of the Swedish Academy, the Nobel Prizes archives may be opened 50 years after the awarding takes place. Thus, the documents of October 1958 may be declassified in January of this year.
This is a notable date for Russian culture. That year, the Academy awarded a Nobel Prize in literature to Soviet poet Boris Pasternak.Now that the archives have been declassified, the circumstances of the loudest scandal in the history of Nobel Prizes will be finally scrutinized.The story of the Pasternak award was crowned with quite a sensation. It transpired that the CIA made a contribution to the award. It was the CIA that printed the first Russian version of "Doctor Zhivago" without which Pasternak's nomination would not have been discussed because the Nobel Committee only reviews fiction in the original.Needless to say, Pasternak himself had nothing to do with intelligence. His genius was simply used as a powerful weapon in the Cold War between the West and the East. Until recently, this detective story has been couched in a thick veil of secrecy. It was solely owing to the persistence of philologist Ivan Tolstoy (from the famous Tolstoy family) that the secret was revealed and made public. It took him 20 years to resolve the enigma.Boris Pasternak started writing his legendary novel soon after the end of WWII, in 1946. It took him ten years. Upon completing it in January 1956, Pasternak started to wonder what to do next. The novel that was eventually called "Doctor Zhivago" (the initial title was "The Burning Candle") ran counter to the principles of Soviet literature. Should he just shelve it until better times? But when will these better times come, if at all? Also, he was no longer young.Pasternak decided to try to get it published. He took the novel to the editorial office of the popular literary journal Novy Mir. At the same time he gave a huge folder with its typed version to the young Italian journalist Sergio D' Angelo.A Moscow radio broadcaster, the Italian was looking for new Soviet novels for Giangiacomo Feltrinelli, a Milan-based ambitious young Italian publisher with communist views. Having found out about the new novel, the Italian journalist rushed to Peredelkino, outside Moscow, where the writer lived, and Pasternak handed it to him without any hesitation.Having learned about this, Pasternak's wife Zinaida almost burst into tears. She had no illusions about the consequences - arrest, a labor camp, separation. The poet was trying to put a good face on the matter, and reassured his family but felt that the clouds were gathering over him.Nonetheless, he decided to go to the end and gave two more typed copies to another two foreign visitors - British essayist and philosopher Isaiah Berlin, and French specialist in Slavic Studies Helene Peltier.At this point, secrecy cast its first shadow on the story. The CIA found out about Pasternak's novel. Its Russian section understood full well what political benefits could stem from the publication of a novel which was bound to be banned at home. It only remained to get the text.Here comes the most mysterious episode of the story. The aircraft carrying a passenger with a copy of the novel was ordered to land in the airport of Malta in the Mediterranean. The pilot apologized for the stopover.The annoyed passengers went to the airport's departure lounge, while CIA agents found the right suitcase, took out the text, and photographed it page by page. They put the text back into the suitcase, and two hours later the aircraft was airborne again. The passengers arrived at their destination. The owner of the suitcase was in blissful ignorance of what had happened with it.Approximately at the same time the KGB found out that Pasternak's novel had been taken abroad. The events began snowballing into an avalanche. The Novy Mir journal rejected the novel, and reprimanded the poet for the inadmissible text; the KGB and the Soviet Communist Party Central Committee exerted pressure on the publisher from Milan through the Italian Communist Party, but Feltrinelli published the novel and demonstratively quit the party.On November 23, 1957, the novel went out of print in Italian and exceeded all expectations. Its first edition of 12,000 copies was sold out in a matter of days. More copies were printed every two weeks but a boom did not subside. It became world famous, and was translated into English, German, and French. In the spring of 1958, Albert Camus nominated Pasternak for a Nobel Prize.However, under the Nobel Committee's rules, the novel had to be in the original. Here the CIA-copied version came in handy. Every hour counted in what was a now-or-never situation. Through proxy funds, the CIA gave money to urgently publish the novel in Russian. To cover up the traces of stealing, the CIA made galleys from the photocopies and printed the Russian version in the academic publishing house of Muton in the Hague without any copyrights in the August of 1958.The Swedish Academy had no more obstacles for awarding Pasternak, and on October 23, 1958 the Nobel cannon shot at the Soviet government. Pasternak received a Nobel Prize for outstanding merits in modern lyric poetry and for continuing the traditions of the great Russian novel.Pasternak sent a reply cable: "Immensely thankful, touched, proud, astonished, abashed."He naively hoped to go to Stockholm and receive his Nobel Prize from the hands of the King but the authorities twisted the arms of the woman he loved, Olga Ivinskaya. Stunned by such consequences and gripped with fear for his beloved, Pasternak turned down the Nobel Prize, and sent a relevant cable to Stockholm.The CIA operation was a success. The Soviet Union received a tangible blow.The Pasternak story revealed the shattering power of anti-Soviet literature in the West. Pasternak paved the way to a whole series of anti-Soviet publications which were crowned with the sensational "Gulag Archipelago," for which the dissident Alexander Solzhenitsyn was also awarded a Nobel Prize.

Gobal Retailers eyeing Russia Sector in 2009

Russia's retailers faces a hard landing in 2009 as the country lurches toward recession, but the downturn also offers global majors an easier entry into a sector with more potential than many mature markets. Analysts anticipate faster growth in Russia than in most European countries, although the global crisis has now spread into the real economy, ending one of the longest consumer booms in Russian history. "While we acknowledge that growth is likely to fall short of previous expectations over coming years, we nevertheless expect Russia to deliver some of the fastest growth in the global retail sector," Marat Ibragimov, an analyst at Citigroup said. As a result, many retail giants that missed earlier chances to participate in the 15-year spending boom — and whose balance sheets still provide financial firepower for deal-making — can now opt to enter at a time when Russian assets are cheaper. "Everything is less expensive now, and we expect M&A activities in food retailing," said Natalya Smirnova, a consumer market analyst with UralSib Financial Corporation. "Obviously, purchasing power is also declining, but discount chains such as Wal-Mart are well placed to profit from the situation, as their formats will be very popular in the crisis." A credit squeeze triggered by the global crisis has hit both the food and nonfood retail sectors, which some analysts say could accelerate consolidation inside the fragmented industries. For example, Russia's largest food retailer in revenue terms, the X5 group, is widely expected to buy up smaller chains threatened with bankruptcy. X5 and rivals Magnit, Dixy Group and Sedmoi Kontinent have lost 60 percent to 80 percent in value over the past six months as Russian stocks were hit by the falling oil price and capital flight from emerging markets. Based on the ratio of enterprise value to earnings before interest, tax, depreciation and amortization, the sector will this year underperform emerging market peers by around 40 percent, according to Citigroup. Leslie Fletcher, consumer goods and retail analyst at A.T. Kearney, said lower oil prices and a weaker ruble could make some Western firms delay their entry into the Russian market. "However, the crisis also provides a great opportunity to capitalize on lower valuations for M&A targets and lower costs of land acquisition. Deals in this environment may outweigh exchange rate risk — especially if these rates come back in line in 2009 as some economists expect," she said. Many Russian retailers are cutting capital expenditure and expansion this year to free up cash for debt repayments. They also anticipate a deterioration in consumer sentiment in Russia. Analysts forecast retail sales growth of 4 percent in 2009 after a 16 percent rise in 2007. November monthly data showed that Russian retail sales were up 8.0 percent year on year. This was the slowest annual growth rate in five years and a 3.4 percent fall on October. "We believe the data shows obvious signs of consumer confidence weakening. In our view, the slowdown in retail sales … is the beginning of a trend in growth rates [in ruble terms], which we think will hold next year," VTB Capital said. In November, real disposable income contracted by 6.2 percent compared with a year earlier. Wage arrears doubled between October and November, affecting 600,000 people. "The current crisis situation has brought to an end the consumer boom in Russia and will lead to almost zero real disposable income growth in the near future, as companies are laying off people and reducing salaries," UralSib said in a strategy note called "Darkest Before Dawn." "Other noneconomic, but no less important, factors that also make us bearish on consumer spending include people's uncertainty over financial stability and job security." Analysts say some grocers, notably the low-price chains, are better placed to weather tough conditions than retailers of discretionary items such as cars and electronic items. "Customers may now switch back to previous shopping patterns as their disposable income shrinks. Much like how Wal-Mart wins customers from Target in a recession [in the United States]," said Fletcher, a former senior director of international strategy at world No. 1 retailer Wal-Mart. Wal-Mart, which is increasingly looking overseas to fuel expansion, last year joined the Russian retail lobby group after hiring an executive to head its efforts to explore business opportunities in Russia and neighboring markets. Sources have said Wal-Mart hired 30 Russian office staff and is in acquisition talks with local chains that may need a cash injection to cope with the crisis. "Russia remains a market of interest for Wal-Mart," said Richard J. Coyle, Wal-Mart senior director for international corporate affairs.

Ruble Claws Back After 2-Month Decline

The Central Bank widened the ruble's trading band on Wednesday for the third time in as many days, yet for the second straight day the currency gained against both the dollar and the euro as tax payment deadlines helped produce a ruble deficit. While authorities said the ruble was nearing the end of its two-month fall, analysts debated whether the currency's equilibrium would actually hold. The ruble closed at 37.17 against the dollar/euro basket on Wednesday, gaining 0.6 percent from Tuesday's 37.38 close. The currency strengthened from 32.97 to 32.77 against the dollar and from 42.64 to 42.21 against the euro. The deadline for VAT tax payments was Jan. 20, and companies will have to pay profit taxes Jan. 28, said Katya Malofeyeva, chief economist at Renaissance Capital. The domestic demand for rubles is likely tied to the two tax payments and may not continue once the period for the payments is over, she said. "Global markets saw a heavy downward correction yesterday, and that's something that affects oil outlook and the ruble's outlook as well," Malofeyeva said. Kremlin economic adviser Arkady Dvorkovich said Tuesday that the ruble was near to reaching its equilibrium level. The same day, the Finance Ministry agreed to base the federal budget on the price of oil at $41 per barrel, a calculation that assumes the ruble will average at 41.40 to the dollar/euro basket. Finance Minister Alexei Kudrin also projected a positive ruble forecast at a financial forum in Hong Kong this week. The coincidence of the ruble's stability and the Kremlin's announcements imply that the state might have the currency's balancing point in sight, said Mikhail Galkin, head of fixed income research at MDM Bank. "In November, the authorities apparently did their math, correctly assuming a further slide in the oil price, and decided to move to a new level of exchange rate that would be better balancing external trade and the budget," Galkin said. "It looks like they are approaching the level they wanted, and they are orchestrating a stop in devaluation by creating a deficit of rubles and sending signals through verbal interventions -- like what Arkady Dvorkovich said," he said. The Central Bank helped spur the deficit by offering an unusually low sum of 80 billion rubles ($2.4 billion) at its deposit auction this week, he added. Still, Malofeyeva said, the Central Bank may simply be trying to throw off currency speculators who have profited from betting on the ruble's decline. The ruble has lost 29 percent of its value against the dollar since August and has been allowed devalue eight times this year by the Central Bank at a rate of about 2 percent per devaluation. Speculators have also benefited from the money the Central Bank has injected into the national banking system, a figure equal to about 2 trillion rubles (almost $60 billion), said Natalya Orlova, chief economist at Alfa Bank. "If the Central Bank reduces support to the banking sector, we can expect the ruble to appreciate. If the Central Bank continues to provide short-term ruble liquidity, then I think the chance of appreciation is low," Orlova said. Galkin of MDM said there was no chance the Central Bank had intervened to prop up the ruble on Tuesday and that there was a greater chance the bank intervened to buy currency -- not sell it -- on Wednesday. "The ruble is not a one-way story anymore, at least for the moment, and the regime is more looking like a controlled free-float," Galkin said. Orlova dismissed the idea that the Central Bank would actually switch to a managed float, where the bank would intervene with the currency only when absolutely necessary. This sort of "dirty float" could cost the state household stability, Orlova said. "People are becoming less secure about the value of their savings and their revenues. Switching to this dirty float in the current environment would exert even more pressure on consumption and on savings," Orlova said.

Medvedev Looks to Fill Senior Posts

President Dmitry Medvedev said Wednesday that a final list of the country's top 1,000 managers, which the Kremlin is compiling to help fill senior government posts, has been completed and will be made available to the public. The recruitment drive, first announced last summer, is a response to the difficulties the state is facing in identifying and recruiting competent personnel for public service, top officials say. It also highlights the lack of a proper recruitment system for government posts and the need for a new generation of managers to replace the Soviet-era nomenklatura, and Kremlin watchers say the initiative is an attempt to lessen the influence of civil servants directly loyal to Prime Minister Vladimir Putin, Medvedev has reached out to Communists, nationalists and liberal politicians alike to create the pool of potential applicants, with the Kremlin contacting all four parties in the State Duma and asking them to submit the names of potential candidates for government jobs. The list of Medvedev's so-called "Golden 1,000" includes scientists, members of nongovernmental organizations, regional and federal officials and businesspeople, Medvedev said in a meeting with his presidential envoys. "We will publish this list. It cannot be a secret," Medvedev said in comments published on the Kremlin's web site. Kremlin chief of staff Sergei Naryshkin sent a letter to the Duma factions, whose representatives met last summer under the auspices of a new presidential commission on recruitment, asking for names for the "Golden 1,000" list, said Igor Lebedev, chairman of the nationalist Liberal Democratic Party faction in the Duma. Each member of the commission was asked to submit the names of 11 candidates to serve in federal and regional agencies, party organizations or as "representatives of business, culture and education," Lebedev said. LDPR has three members on the commission, including leader Vladimir Zhirinovsky. The only stipulation was that candidates must be 35 to 50 years old. LDPR has nominated around 30 candidates, including Alexander Kurdyumov, rector of the Institute of World Civilizations, a higher education college founded by Zhirinovsky in 1999. "We hope that all the candidates proposed by us will be approved by the president and will be offered some kind of government post," Lebedev said in remarks forwarded by his press secretary. The Communist Party confirmed that it also had received the request from the presidential administration but offered few details. Party leader Gennady Zyuganov is currently drawing up a list of names, said Pavel Shcherbakov, press secretary for deputy party leader Ivan Melnikov. Nikolai Levichev, leader of A Just Russia in the Duma, could not be reached for immediate comment. A Kremlin spokeswoman declined to comment on the recruitment drive, saying, "We have no official documents about this." Russia doesn't have a transparent route to government posts, such as the fast-track Civil Service test for graduates in Britain. "It depends entirely on having connections at a high level," said Dmitry Oreshkin, a political analyst at Merkator. Medvedev first called for a new recruitment strategy back in July and founded the presidential commission on recruitment in August. In his November address to the nation, he said he was looking for the "most talented, creative-thinking and professional people." Medvedev is breaking away from Putin's strategy of placing personal acquaintances and former colleagues in top jobs — a strategy that proved ineffective by the end of his second term, Oreshkin said. "However large Putin's circle of acquaintances may be, it's not large enough for the whole country," he said. Putin also relied on members of the Soviet-era nomenklatura, but this generation is going away, said Olga Kryshtanovskaya, who tracks Kremlin politics as the director of the Center for Elite Studies at the Russian Academy of Sciences. While the nomenklatura made up 38 percent of officials in Putin's government, they make up only 16 percent of Medvedev's government, she said. A key decision that showed Medvedev's clout was his recent dismissal of Ingush strongman Murat Zyazikov, Oreshkin said, describing this as a "serious revolution in Ingushetia." Nevertheless, Medvedev "is changing the personnel very carefully so as not to step on any of Putin's painful corns," he said. Last month, Medvedev also appointed Nikita Belykh, the former leader of the Union of Right Forces, or SPS, as governor of the Kirov region, a surprise decision that some observers interpreted as a sign that the president was open to working with the liberal opposition. Kryshtanovskaya said, however, that Belykh's appointment might be more about ensuring that he didn't cross over to a radical opposition group like Solidarity, founded by former Deputy Prime Minister Boris Nemtsov and one-time chess champion Garry Kasparov. Before serving in SPS, Belykh worked in regional government. The presidential commission and its plan for a "Golden 1,000" database follows a similar project launched by the United Russia party two years ago. Called "Talent Pool: Professional Team," it allows people to apply for a talent pool via a web site. United Russia representatives have also contacted organizations including the Russian Harvard Alumni club to encourage applicants. The Kremlin and United Russia projects are not directly connected, said Yury Kotler, the head of the United Russia project. "It's two systems that don't interconnect. People can be in both or either." He described the aim of his project as finding "future leaders." Some have gained state or party jobs, he said. It also has a networking element, as successful candidates can communicate with one another on a closed web portal. Not all the successful applicants are members of United Russia, Kotler said. "It's not within the party. It's an instrument, it's a search engine." Kotler previously worked as a spokesman for Menatep, Yukos' holding company, and as a consultant at headhunters Ward Howell International, which took part in creating the project. The web site is full of Western management buzzwords such as "agents of positive change" and "peer education." It features United Russia's flag logo, although Putin, who heads United Russia, is conspicuously absent. The project has a slightly different age range from the "Golden 1,000": 25 to 45. While the "Golden 1,000" looks for top officials, the United Russia project might find hospital managers or ambitious teachers who wanted to make their school the best in the district, Kotler said. Around 15,000 people have applied so far, of whom about 1,000 passed a test and interview, Kotler said.
"President Dmitry Medvedev said Wednesday that a final list of the country’s top 1,000 managers, which the Kremlin is compiling to help fill senior government posts, has been completed and will be made available to the public."

Woman stabs friend to death over soccer dispute

NIZHNY NOVGOROD - A young woman from Nizhny Novgorod in the Volga Region has been arrested on suspicion of killing her friend, who was a fan of a rival soccer club, local investigators said on Wednesday.
Investigators said CSKA Moscow fan Anna Gorbunova, 21, admitted stabbing her 26-year old friend four times in the back during a quarrel. The victim died at the scene.
"One woman is a fan of CSKA, the other is a fan of Spartak, that's why the conflict occurred," said the head of a local investigation department, Maxim Markeyev, although he added that other versions for the killing were also being considered.

Police officer killed in southern Russia

ROSTOV-ON-DON, Russia - One Russian police officer has been shot dead and another wounded in the restive southern region of Ingushetia, Interior Ministry officials said Monday.
An unidentified gunman shot a squadron commander with a sniper's rifle late Sunday in the city of Nazran, the regional Interior Ministry said. Another police officer was wounded Sunday after a police station was riddled with bullets fired from a passing car near the village of Yandare, it said.
The predominantly Muslim regions of Ingushetia and Dagestan see frequent attacks on police and other violence, some of it a spillover from neighboring Chechnya.

Robbers kill two guards, steal tires worth $6,000 in Moscow

Two security guards have been killed and tires worth 200,000 rubles ($6,300) stolen from a car dealership in Moscow, a police source said on Thursday.
The bodies of the two guards, who died of head injuries, were found early on Wednesday.
"It was established that car tires worth a total of 200,000 rubles were stolen," the source said.
A criminal case has been opened. An investigation is underway.

Prominent Russian lawyer killed

A top human rights lawyer who acted for the family of an 18-year-old Chechen woman murdered by a Russian army officer has been shot dead in Moscow.
Stanislav Markelov, who acted for the family of Kheda Kungayeva, was shot by an unknown man after a news conference in the centre of the Russian capital.
He expressed outrage after the officer, Yuri Budanov, was released last week.
Budanov was the first Russian officer to be prosecuted for killing a civilian during the conflict in Chechnya.
He confessed to strangling Ms Kungayeva in 2000, saying he had acted in a fit of rage while interrogating her, suspecting she was a sniper. He was subsequently jailed for 10 years.
Appeal
Mr Markelov was shot in the head with a pistol fitted with a silencer not far from the building where he had just held a news conference on the Kungayeva case, law enforcement officials said.
A journalist who was with him, who local media have named as Anastasia Baburova, was also badly wounded in the attack.
Investigators say that they are examining several possible theories as to the motive for Mr Markelov's killing, including the possibility that it was linked to his professional activities.
According to the Russian RIA-Novosti news agency, Mr Markelov had just told reporters that he planned to appeal against Budanov's early release.
The municipal court in Dimitrovgrad, where Budanov was serving his sentence, ruled in December that he should be freed early because he had repented his crime.
The decision led to protests in Chechnya attended by both human rights activists and representatives of the pro-Moscow authorities.
In an interview with the BBC's Russian Service a few days ago, Mr Markelov said the decision to release Budanov showed that the Russian system was deeply flawed.
"I understand now that there is no rule of law," he said.
"My task now is to find out who gave the order for Budanov to be released, and to present a criminal case to the chief prosecutor in order to find out who is guilty of breaching their legal authority."
Chechnya has been devastated by heavy fighting since 1994, when Russian troops first poured in to crush a separatist movement.

Russia denies naval bases report

The Russian navy has denied a report that it plans to establish naval bases in Libya, Syria and Yemen.
An unnamed official from the navy was quoted by the Russian state news agency Itar-Tass saying bases would be set up "within a few years".
A senior naval official, quoted by another agency, Interfax, said the report did "not correspond to reality".
However, a separate official confirmed that the Russian navy was on the lookout for overseas bases.
"It is premature to name any countries as possible locations for naval bases," said the official from the office of the military's chief of staff.
But he said "at the same time we support the position of the navy on the necessity of the creation of bases abroad".
Russia has poured more money into its military in recent years, after years of post-communist decline.
Expanding presence
Russian media reported that Libyan leader Colonel Muammar Gaddafi offered Russia a naval base in Benghazi when he visited Moscow last November.
And analysts have said that the Syrian port of Tartus,a crimeajewel of the eastern mediterranean used by the Soviet navy in the Cold War, could be revived as a Russian base, the Reuters news agency reported.
Russia has only one naval base operating in a foreign country - in Sevastopol in Ukraine. But Ukraine's president has made clear he would like that closed when Russia's lease is up in 2017.
The Russian navy has been expanding its presence on the world stage.
It held joint exercises with the Venezuelan navy last month, and visited Cuba.
It has also been taking part in the international effort to combat piracy in the waters off Somalia.

Carmakers Brace for Uncertain 2009

After several years of stellar growth, the market for foreign cars in Russia is starting to crash, but a host of economic factors have made it hard to say how bad 2009 will be, industry experts said Thursday.The Association of European Businesses predicts an 18 percent decline in total new car sales this year, a figure that averages companies' own forecasts. Total sales for both Russian and domestically produced, foreign-branded new cars will decrease to 2.4 million this year, from 2.93 million in 2008."It's as bad as any other forecasts out there," Martin Jahn, vice chairman of AEB's auto committee, said at an annual conference held by the group. "It's difficult to forecast even next week."The forecasts are based on expectations for currency devaluation, unemployment, oil prices, the availability of financing and other economic factors -- none of which are particularly stable. Government anti-crisis measures, such as increasing import tariffs on foreign cars, are also bad for the industry, the group said."We don't see the tariff increase as beneficial, and we don't believe from experience in other markets that it is the right thing to do," said AEB chairman David Thomas, who is also president of Volvo Car Russia. Companies will inevitably raise prices in the second or third quarter of the year, as "profit margins on the Russian market are already relatively low," he said. Nevertheless, import duties won't change consumer preference much, Thomas said. "Russians choose foreign cars for factors other than price." The share of Russian brands on the market has declined in 2008 from 36 percent to 29 percent, according to AEB figures.

Ruble Collapse Brings Wages Back to Earth

The days of spectacular wage growth that made Moscow an international employment destination have come to an end, economists say, with layoffs throughout the economy letting employers bring salaries back in line with productivity growth.The earnings cuts, alongside inflation and the weakening ruble, have dealt Russian wage earners a triple whammy, and the Central Bank's devaluation of the currency Thursday brought it past the 32 mark against the dollar for the first time since the 1998 redenomination .Over the past few years, real wages have increased at roughly twice the rate of worker productivity. Now that the value of the ruble is falling — and the job market is shrinking — employers say they'll be able to start paying employees to match their output.In just the past four months, investment bankers accustomed to annual salary jumps of 30 percent are now being offered new jobs at 40 percent of what they had been making. In advertising, sales and marketing, job candidates are facing salary decreases of more than 10 percent, according to recruitment agency Antal Russia.Yevgeny Nadorshin, chief economist at Trust National Bank, said the devaluation would correct what were previously "overvalued" wages and give employers a leg up in contract negotiations. "Eventually it will attract more companies to Russia and help us weather the crisis better," said Elina Ribakova, chief economist at Citibank.Wages grew 12.4 percent year on year in the third quarter of 2008, according to the most recent figures from the State Statistics Service, while productivity — real output per employed person — during the same period increased 8.24 percent, based on figures from Haver Analytics.The data already reflect a slowdown since the second quarter, when wages rose 12.6 percent year on year and productivity increased 5.93 percent. In the second quarter of 2007, wages increased 16.7 percent year on year while productivity rose 6.43 percent.For workers, though, "devaluation means high inflation" in the short term because of Russia's strong dependence on imported goods, Nadorshin said. Though inflation growth fell to a four month-low in December of 0.7 percent, the rate will rise once discounts from cash-strapped foreign producers disappear, he said. After the 1998 crisis, many Russia-based multinational companies paid their employees in foreign currencies or in rubles at the going Central Bank rate, but with increased stability over the past three to four years, many have switched to a fixed ruble salary.Tremayne Elson, managing director at Antal, said salaries were typically calculated at an exchange rate of about 28 rubles to the dollar and were not renegotiated to reflect inflation. Steve Castelete, president of Avalon Logistics Russia, said that most of his employees' salaries had been set to an exchange rate of about 27.5 rubles per dollar after the company switched to paying in rubles five or six years ago. Employees benefited during the years the ruble appreciated, Castelete added. According to Antal's figures, a "large number" of companies have already cut salaries, particularly in the banking and construction sectors. Castelete said Avalon had not yet been forced to reduce its workforce."We're not seeing a correction of salaries at the moment, but we would expect that they would become more realistic as more workers come into the marketplace," he said, referring to contracts for new hires. The shift will be what Danilo Lange, general manager of communications agency Louder Russia, calls a "market cleansing.""It was very difficult to find people for good value the last four years. The employee market was basically empty and everyone wanted super-high salaries," Lange said, clarifying that he believed his employees "deserved" their respective salaries.Louder re-evaluates its ruble-denominated salaries every six months to account for inflation, he said. While the company has not made wage cuts, they did eliminate 2008 bonuses."There's going to be more balance this year," said Castelete, of Avalon. "And I think that's a good thing."

Schroder, Shokhin Join TNK Board

Two powerful figures with close ties to the Russian government — former German Chancellor Gerhard Schroder and big business lobbyist Alexander Shokhin — will serve as independent directors at TNK-BP, BP announced Thursday.BP, caught for months in a dispute with its Russian shareholders in TNK-BP, expressed confidence that SchrЪder's involvement would be good for TNK-BP and Russia. Schroder said he would make TNK-BP a beacon for foreign investment in Russia.Industry watchers viewed the independent directors as capable of being impartial.Schroder developed close personal ties with Prime Minister Vladimir Putin when both were heads of state. He is also chairman of the shareholder committee of Gazprom-controlled Nord Stream AG, the company that is preparing to build a gas pipeline to connect Russia and Germany under the Baltic Sea.Shokhin is president of the Russian Union of Industrialists and Entrepreneurs. He sits on the boards of LUKoil, Russia's largest publicly traded oil company, and Russian Railways, the national rail monopoly.BP announced the names on Thursday after the oil major and its Russian billionaire partners in the 50-50 venture went through a bruising corporate dispute last year. They finally decided to bury the hatchet in September by moving to include three independent directors on the board and install a new chief executive.The third independent director on the 11-member board will be James Leng, board chairman of the mining giant Rio Tinto. BP chief executive Tony Hayward especially praised SchrЪder's decision to join the team.
The counsel of such a distinguished statesman, who brings both enormous geopolitical experience and a history of strong relationships with Russia, gives me particular confidence that the next chapter in the progress of TNK-BP will be good for all shareholders and for Russia," he said in a statement.SchrЪder said he would help make TNK-BP a model for foreign investors of what they can accomplish in Russia."I feel certain that, with the support and trust of both shareholder groups, I will be able to make a contribution to the company's success that will serve as an important example of Russia's cooperation with international investors, thereby providing a significant contribution to Russia's integration in the global economy," he said in the statement.Hayward said the new board "can achieve good business alignment between the shareholders of TNK-BP and safeguard the interests of all sides." Mikhail Fridman, one of the Russian shareholders, said the independent directors would allow the company to enter the global arena. "Their experience and wisdom will be invaluable as the company enters the next stage of its development and focuses on transforming itself into an independently managed international major with global ambitions," he said in a separate statement, from TNK-BP.Russian shareholders, known collectively as the AAR consortium, have said part of the reason for the feud with BP was the British company's reluctance to allow the joint venture to operate globally, which would sometimes make them competitors.The rest of the board will consist of four representatives from each of the two shareholder groups. BP has nominated its senior executives, while AAR has proposed its shareholders Fridman, Viktor Vekselberg, Len Blavatnik and Alex Knaster.BP said last week that it would announce a new TNK-BP chief in the "coming weeks." That person will need to have substantial Russian work experience and Russian language proficiency, the partners in the venture agreed when ending the dispute in September. The new chief is expected to be Denis Morozov, former head of miner Norilsk Nickel.Vekselberg has an interest in aluminum maker United Company RusAl, a rival of his likely fellow board member Leng's Rio Tinto.
Even the support of independent directors will not be able to force decisions on one of the sides in the venture when it comes to major deals. A clause in the new shareholder agreement, announced last week, said only unanimous votes would decide substantial acquisitions, divestments, contracts and any projects outside the business plan.By "substantial," the shareholders mean deals worth more than $1 billion, said BP spokesman Vladimir Buyanov. The board will have until March 31 of every year to endorse that year's business plan unanimously, Buyanov said. Afterward, a simple majority will do, he said.Under the new shareholder agreement, BP will continue to nominate TNK-BP chief executive, subject to the board approval, and AAR will continue to appoint the chairman, BP said last week.The track records of the new independent directors indicate that they will be quite independent, said Ilya Balabanovsky, an analyst at UniCredit Aton brokerage. "I wouldn't say that some of them would defend mostly Russian interests. They will look at the merits of the case," he said.Both Schroder and Shokhin "meet the requirement of being independent," said Denis Kulikov, director of the Investor Protection Association.But the independent directors would not be able to do much if another major spat erupts, said Alexander Nazarov, an analyst at Metropol. "The previous conflict showed that the board of directors — even if it's loyal to one of the sides — doesn't mean anything until the shareholders come to terms between themselves," he said.BP held a majority in the conflict-time board.