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Press review: Ukraine’s lawsuit against Russia and 'tax on health' for tobacco producers

Top stories in the Russian press on Tuesday, March 7

Kommersant: Gazprom swaps strategic European oil partner

Uniper, an E.ON spin-off and long-time Gazprom partner, has decided to abandon the mining business and sold its stake in one of Russia's largest oil and gas fields - Yuzhno-Russkoye - to Austria’s OMV. The Vienna-based company made a strategic bet on Russia, buying a roughly 25% stake in the field for $1.85 bln. As a result, OMV could become one of the largest investors in the Russian gas industry, Kommersant wrote.

The company’s share in Yuzhno-Russkoye will give the Austrians 100,000 barrels of oil equivalent per day, whereas in 2016, the company's total production was 311,000 barrels of oil equivalent per day.

OMV, which had no production in Russia, obtained Yuzhno-Russkoye on very good terms, the newspaper wrote. According to the company’s CEO Rainer Seele, Gazprom will purchase half of the gas that the Austrian company receives for its share through export netback (export price minus transportation costs), the other half - at lower domestic prices. A source in Gazprom told the newspaper that these conditions were applied to both Uniper and Wintershall, which owns 35% in Yuzhno-Russkoye (Gazprom owns 40%).

However, according to the newspaper, it is unclear to what extent OMV, a mid-level producer, will be able to replace Uniper in securing the positions of Russian gas in Europe. Uniper's exit from the mining business in Russia means that none of the major companies supporting Nord Stream-2 are directly associated with this project.


Izvestia: Ukraine’s Hague lawsuit against Russia doomed to fail

Ukraine's lawsuit against Russia in the International Court of Justice in The Hague can backfire on Kiev, Russian politicians and international law experts told Izvestia. The Ukrainian side is accusing Moscow of violating two conventions: on financing terrorism and eliminating racial discrimination. Nevertheless, despite promises by Ukrainian President Pyotr Poroshenko to provide "evidence of Russia’s crimes", Kiev has not yet presented any serious arguments in favor of its position.

According to Chairman of the International Affairs Committee of Russia’s Federation Council, Konstantin Kosachev, Moscow has a good chance of clinching a victory in this case, however, it may take several years.

"The litigation process will unquestionably drag on for a long time. Judicial practice shows that such cases are a slow and steady process. I predict that this will take more than a year. I have no doubt that the truth is on Russia’s side. A highly qualified group of Russian experts is taking part in the hearings. I can only wish them confidence and successful completion of this litigation. It is significant that the claim is a pseudo-political one, not an international legal nature," the senator told Izvestia.

Member of the Board of International Legal Issues within the Russian Foreign Ministry Vladimir Kotlyar told the newspaper that the case might damage Ukraine’s image, since it would prove that the Ukrainian accusations are illegitimate. "It's actually a quite good thing that Ukraine has started litigation, because its chances of winning the case are next to none. Russia has a good opportunity to refute all these allegations that Kiev has been hurling for several years," he stressed.

Kiev’s lawsuit in general contradicts international law, because the case was fabricated, member of the Permanent Court of International Justice and the Permanent Court of Arbitration in The Hague, Kamil Bekyashev, told the newspaper. "Russia has never violated these conventions. Ukraine cannot give any instances of such violations by the Russians. By the way, Russia was one of the originators of a convention on the eliminating racial discrimination," Bekyashev noted.

So far, the Ukrainian side has not provided any evidence of the alleged breaches, which would favor Kiev in the case. The Russian Foreign Ministry earlier said that Ukraine had evaded substantial dialogue in every possible way, and such claims do not assist in resolving the differences. According to Moscow, Kiev is just looking for any excuse to file a lawsuit against Russia in the International Court of Justice.


Vedomosti: Aeroflot intends to cut purchases of Airbus 350 aircraft by one-third

Russia’s Aeroflot airlines is going to reduce its order of Airbus A350s from 22 to 14 planes, Vedomosti wrote, citing two sources close to the company.

According to the newspaper, the carrier declined to buy eight A350-800 aircraft with 280 seats, the deliveries of which were to begin in 2018. At the same time, no penalty will be imposed on the company for canceling the contract, since Airbus, which does not have enough orders for this model, intends to freeze its production.

The order for 14 A350-900 aircraft with 325 seats remains in force. However, as a source close to the airline told Vedomosti, it will depend on whether Airbus delivers them on time. According to another source, slots for the remaining 14 airplanes are already on sale, and foreign leasing companies can purchase them.

Back in 2007, Aeroflot had ordered twenty-two A350 and Boeing 787 Dreamliner aircraft each. In April 2016, the company’s CEO Vitaliy Savelyev announced the cancellation of the deliveries to journalists due to the market downturn. Later it was reported that Aeroflot had decided to transfer the right to purchase 22 Boeing 787 Dreamliners to a leasing company linked to Rostec, Aviakapital-Service.


Kommersant: ‘On Russian nation’ law may get name change

The current bill known as "On the Russian Nation and the Management of Interethnic Relations" may be getting a name change to "On Basics of State National Policy," Kommersant wrote, referring to Head of the Working Group for Preparation of the Draft Law, member of the Russian Academy of Sciences (RAS), Valery Tishkov.

"It turned out that the society was not ready to embrace such a concept as a single nation uniting all nationalities. Given that the president proposed to shift the burden of the state’s domestic political strategy onto the language of the law, we decided to change its name," Tishkov told the newspaper.

According to Tishkov, the new concept for the bill, scheduled to be presented in April, will set a system for monitoring ethno-confessional relations in Russia’s territorial entities, as well as a mechanism for delineating powers between federal, regional and local authorities, state policy towards indigenous peoples, and so on. The expert noted that a special section will be devoted to the Russian nation.

Member of the bill’s working group, ex-Minister for National Policy, Vladimir Zorin, told Kommersant, the experts’ proposals are still being reviewed, and the new title of the law is "one of the working options." The main goal is "to consolidate once again at the legislative level the ideas for a strategy of state policy," Zorin added.


Izvestia: Healthcare Ministry supports 70% tax on tobacco producers’ profits

The Russian Ministry of Healthcare supports the introduction of a "tax on health", which may run as high as 70% on tobacco companies’ profits, Izvestia wrote citing a letter by Deputy Healthcare Minister, Dmitry Kostennikov.

Vice President Corporate Affairs for Philip Morris International in Russia, Sergey Slipchenko, told the newspaper, "The proposed measure is unlikely to contribute to reducing the amount of people who smoke," and called the measure "a discriminatory approach to taxation of a legal industry."

A representative of Japan Tobacco (JTI) noted, "increasing the tax burden on companies in a particular industry can undermine the stability of tax revenues and alarm other investors interested in a stable and predictable tax system." Tobacco excises, JTI noted, provide 3.6% of the federal budget revenues.

Vadim Zhelnin, a tobacco market analyst called the move illogical, given the fact that it is possible to charge a fee for adverse health effects through excise. "It is easier not to come up with new mechanisms, but to regulate the fees within the excise tax. The issue here is how to maximize taxation of products, but at the same time preserve the legal market, "Zhelnin said.

According to Nielsen, last year’s top 5 players in the Russian cigarette market included Japan Tobacco Inc. with a share of 32% in physical terms, Philip Morris International (27%), British American Tabacco (23%), Donskoy Tabak (8%) and Imperial Tobacco (6%). Accordingly, the new tax would hit these companies the hardest. According to Spark, in 2015, the pre-tax profit of JTI in Russia (JTI Russia LLC) was 18.5 bln rubles ($317.68 mln), while PMI (Philip Morris Sales and Marketing) was almost 2 bln rubles ($34.34 mln) and British American Tobacco’s (JSC MUMT) profits amounted to 18.5 bln rubles ($317.68 mln), Donskoy Tabak - 500 mln rubles ($8.58 mln) and Imperial Tobacco (Imperial Tobacco Sales and Marketing) saw a 4 bln ruble ($68.69 mln) profit. Thus, the introduction of a 70% tax on profits on these companies could bring around 30 bln rubles ($515.15 mln) into the state coffers. Just as a comparison, last year the government earmarked 262 bln rubles ($4.5 bln) from the budget for its healthcare development program.


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