text
stringlengths 348
8.58k
| label
int64 0
49
|
|---|---|
Western oil companies frustrated by Moscow's foot-dragging on foreign investment laws presented a study Tuesday designed to convince officials that Russia will take the lion's share of rewards in oil deals.
The study, outlining the benefits from six flagship production-sharing contracts requiring $129 billion in expenditure, could be the evidence nationalist and conservative parliamentarians need to pass energy and tax laws in 1997 to get the projects off the ground.
Foreign oil firms have to date invested only a tiny fraction of that total, citing high taxes, a flawed production-sharing law and Moscow's inability to ratify a list of reserves open to output-sharing deals.
"No investments are going to happen until there's a firm legal base," said a top Western oil executive who declined to be identified, speaking after a conference where the study was presented.
The document, prepared by the Petroleum Advisory Forum, or PAF, and a group of Russian academics, said six major international projects requiring $102 billion in Western funding over 57 years would generate $591 billion in total benefits, with Russia getting 87 percent of the total.
The deals would create up to 550,000 jobs, raise real gross domestic product by $450 billion, boost state revenues by $257 billion and Russian private sector revenues by $258 billion.
The foreign side would reap $76 billion in benefits, including $40 billion in foreign investor profits.
"With the overwhelming majority of benefits accruing to Russia, these projects will make an important contribution towards Russia's future economic growth and to the stability of its emerging market economy," a study group statement said.
Russian officials have blocked passage of key energy laws, saying they want to prevent what they call a fire-sale of Russia's natural resources to the West and in effect hampering Western investment in Russia's oil sector.
"Under the current licensing regime regulating the use of subsoil resources and the current gross revenue-based tax system, large-scale investments in the Russian oil industry are not forthcoming," the statement said.
Deputy Fuel and Energy Minister Valery Garipov said the study showed the necessity of Western investment in the oil industry, but he said Russian companies would have to have at least a 50 percent stake in production-sharing deals.
"We don't need stop-gap loans -- we need long-term investments," he told the same conference.
"Domestic investments are not appearing," he said, adding that only Western-financed production-sharing contracts would reverse Russia's steep oil output decline. "There are Russian banks that bought oil companies, but where are their investments?"
The study said that for each dollar directly invested in the oil sector, an additional 90 cents in revenues would be generated in related domestic industries.
| 28 |
Russia's metals sectors, key suppliers to world markets, showed varying degrees of concern about President Boris Yeltsin's latest ailment on Thursday, but most said they were no longer hostage to Kremlin health scares.
Aluminium officials were the least worried and said the Russian leader's admission to hospital with pneumonia on Wednesday would not affect production or exports.
"It's business as usual," said Galina Stelmakova, deputy director for development and investment at AO Kontsern Alyuminiy, the producers' group.
"Yeltsin hasn't the slightest relationship to the aluminium sector. If anybody has anything to do with us, it's (Prime Minister Viktor) Chernomyrdin."
Russia supplies 15 percent of the world aluminium market.
London Metal Exchange aluminium prices -- which in the past have swung on Kremlin health dramas -- ignored Yeltsin's pneumonia and hit a seven-month high of $1,602.
London palladium prices rose on Russia's continuing failure to sign 1997 export contracts with Japan, the world's largest consumer of platinum group metals, including palladium.
But a senior precious metals official said Yeltsin's illness would have no effect on the contracts -- despite the fact that Russia's precious metals industries are tightly controlled by the highest government officials.
Alexander Kulichkov, a deputy director in charge of platinum and palladium exports at export agency Almazjuvelirexport, said contracts to supply Japan depended upon the Duma lower house of parliament passing a delayed federal budget and on the government in general, headed by Prime Minister Viktor Chernomyrdin.
Nickel and copper producer Norilsk Nickel which received major support when Yeltsin signed a decree in 1996 promising state aid -- was keeping an eye on the health crisis.
"Indirectly of course we are concerned because Yeltsin did sign a decree promising help," said spokesman Sergei Vetchinin.
Norilsk is the world's second largest nickel producer and also produces platinum and platinum group metals.
Russian non-ferrous metals enterprises have not yet released official 1996 output and export figures and forecasts for 1997.
| 28 |
A multinational group trying to build a $1.5 billion oil pipeline linking Kazakhstan and Russia held frantic, last-minute talks on Friday to try to resolve how much involvent Russia's pipeline firm will have in the deal.
The Caspian Pipeline Consortium, or CPC, which groups eight international oil companies and the states of Russia, Kazakhstan and Oman, hoped to sign off on a new restructuring deal on Friday afternoon after talks.
But Western oil executives and Russian energy officials, speaking hours before they hoped to sign, said it was far from clear what would happen because of a last-minute push by Russia's Transneft oil pipeline monopoly to take potentially the largest equity stake in the scheme.
"Are we going to sign? Well, I hope so, but I cannot say for sure," said a Western executive representing a CPC shareholder. "We're burning the midnight oil to work out the issues."
State-run Transneft's bid to be not just the operator but also a shareholder and strategic decision-maker in the group has made the Western shareholders very uneasy.
"Transneft could end up being the equity holder representing the Russian government," said one senior CPC source.
A breakthrough deal in April 1996 brought on board new equity holders but has yet to produce a share transfer. The companies involved are Chevron, which will own 15 percent of CPC, Russia's LUKoil with 12.5 percent, Mobil and Russia's Rosneft, 7.5 percent each, British Gas Plc and Italy's Agip SpA, two percent each, and Oryx Energy Company and Kazakhstan's Munaigaz 1.75 percent each.
The remaining 50 percent stake would be divided between Russia, 24 percent, Kazakhstan, 19 percent, and Oman, through the Oman Oil Company with seven percent. Transneft, with backing from Moscow, wants the other participants to agree to it taking the Russian government's 24 percent stake.
The proposed 1,580 km (990 mile) pipeline to link Kazakhstan's Tengiz oil field and Russia's Black Sea oil export outlet Novorossiisk would give Chevron and Mobil, partners in Tengiz, a much-needed dedicated export route for output that will peak at around 700,000 barrels per day (bpd) by 2010.
But if Transneft takes all or part of Russia's nearly one-quarter stake, it could use its leverage to raise transit tariffs or insist that some Russian oil flow through the link, which would cut into the economics of Chevron's and Mobil's $20 billion TengizChevroil (TCO) project and other Kazakh oil deals.
"The concern is Transneft's role in the management of the project. Conflict of interest is something very unpalatable to the Western side," a CPC source said.
Transneft spokesman Ravil Polyanin said the monopoly wanted the whole 24 percent stake and to be the operator of the pipeline, but that it might settle for a smaller equity share.
"Various states have used Russia's pipeline system in the past without contributions to Transneft," he said.
CPC executives are anxious to sign a deal, since the project is already years behind schedule and has stymied development of Caspian oil fields that require export routes before they can be economically tapped.
"There is an awful lot of pressure to sign," said one source.
But four senior Western CPC shareholders, including Mobil Oil Kazakstan Inc president Carl Burnett, told Reuters last month that if a deal was signed on Friday, it would probably not be for the crucial share transfer, the key step to getting the project off the ground.
The Caspian pipeline, to be built in phases across southern Russia but bypassing war-torn Chechnya, could eventually carry 1.4 million barrels per day, but other Kazakh projects will take up the extra capacity and leave little room for Russian oil.
| 28 |
Russia is eyeing its second bad grain harvest in a row and will need imports despite a prediction by Prime Minister Viktor Chernomyrdin that output will be enough to meet demand, industry sources said on Tuesday.
"The sheer volume Russia will produce is enough to meet demand, but the quality is not," said specialist Andrei Sizov of the independent consultancy SovEcon Ltd.
"So it is fully possible that Russia will be forced to go to Western markets."
Chernomyrdin, in a speech to the Federation Council, the upper parliament house, forecast 1996 grain output of 77-78 million tonnes, "significantly higher" than last year's harvest of 63.4 million tonnes.
"This will allow us to provide the population with bread and bread products until the new (1997) harvest, to prepare enough concentrated feed grains and to increase grain reserves," a copy of Chernomyrdin's speech read.
But grain sources have said private-sector buying would still take place. "We have a shortage of first-class wheat," Georgy Zelinsky, general director of the agricultural trade association Khleboproduktprogress, told an industry seminar.
Sizov said piecemeal Russian imports of grain and flour in grain equivalent from all sources would rise to 5.0-6.0 million tonnes over the 1996/1997 crop year, from 4.5 million in 1995/1996 crop year.
Anatoly Manellya, head of agricultural forecasting at the Centre for Economic Trends, a think-tank set up by the government, said he thought imports could be even higher.
Agriculture Minister Viktor Khlystun has said Russia may import up to 4.5 million tonnes of maize and soymeal plus 500,000 tonnes of food wheat from the United States, Canada and/or Australia.
Zelinsky said domestic feed maize was in short supply, but maize for human consumption was not.
But industry sources said Western markets should not expect sudden announcements of big purchases. Rather, Russia would buy piecemeal in small lots, they said.
Sizov said imports of Western grain could be possible because Ukrainian flour supplies would slip due to very poor harvest outlook there.
"Russia has become the world's largest flour importer," he said, referring to imports which increased to one million tonnes in the 1995/1996 crop year, a rise of 25-30 times year-on-year.
Industry sources said the most likely buyers would be the dozen or so Russian commercial banks authorised to use U.S. government commodities credits.
Sources said Inkombank had used GSM-102 credits to buy up to 60,000 tonnes of U.S. wheat through Tradigrain for Russia's Far East for delivery to Vladivostok last spring.
Russia has used nearly all its reserves from the 1995 harvest, the worst in three decades. It survived largely due to carryover stocks from the 1994 harvest. These stocks were 8.8 million tonnes in July 1995 but were nearly zero in July 1996.
Sizov said the Federal Food Corporation, which buys for strategic needs including the army, had bought only 330,000 tonnes of grain by the end of September out of a targeted 4.5 million. September is peak buying time.
| 28 |
Azerbaijan is proving more successful in attracting foreign oil investment dollars than big brother Russia, but the Caspian state must still deal with Moscow if it wants to become a major world energy player.
In the latest deal underscoring the shift, Azeri oil officials said Amoco Corp, Unocal Corp, Japan's Itochu Corp and Saudi Arabia's Delta Nimir would initial a $1.5 billion agreement with Azeri officials on December 14 to tap unexplored reserves in the Azeri sector of the Caspian.
The deal is the fourth multi-billion-dollar project Baku has won since the breakup of the Soviet Union in 1991 and takes place as a chill settles over Western oil companies struggling to push Russian-based deals through a legal maze.
"I think there's really a question of how much Russia really wants the investment," said one Western oil executive in Moscow. "With the Azeris, it's never really a question."
Douglas Hill, resident manager of Amoco unit Amoco Caspian Sea Petroleum Ltd in Baku, said the Azeri government had done much to make deals attractive to foreign investors.
"There's a strong realisation here that some assistance is needed and that oil is going to be the primary driver of the economy," he said.
Actual foreign oil investment in Russia has all but dried up as Moscow struggles to pass tax and resource laws backing investors' projects and is less than $1 billion out of a planned $60 billion. No deals are close to the production stage.
In contrast, Azerbaijan's flagship $8 billion Azerbaijan International Operating Company (AIOC) project grouping 13 international oil companies is scheduled to start pumping in the third quarter of next year.
Moscow is not indifferent to the change in focus to high-yielding Caspian reserves and has pushed to get Russian oil giant LUKoil involved in the projects -- partly, some analysts say, in exchange for not arguing over who owns Caspian oil.
Azerbaijan, Iran, Kazakhstan, Turkmenistan and Russia all border the sea. Russia says its resources should be shared equally but Azerbaijan follows a sectoral approach and is proceeding with deals in its area.
"Of course, Azerbaijan is now our competitor," said Nikolai Bolmasov, deputy head of the Russian Fuel and Energy Ministry's section for cooperation with the Commonwealth of Independent States.
He said Moscow was "analysing" Azerbaijan's role in landing foreign oil deals but declined to say if the ministry would produce policy directives on the issue.
Caspian oil projects are next door to the Middle East Gulf region, which contains nearly 70 percent of world oil reserves and produces one quarter of global oil supplies. They will make Azerbaijan and neighbouring Kazakhstan big competitors to Russia.
"Over the next three or four years, production will shift from Siberia to higher yielding Caspian and Sakhalin projects," Stephen O'Sullivan, associate director of oil and gas at MC Securities in London, said in a recent interview.
But the deals on Far Eastern Sakhalin island do not have Russian majors as shareholders, and analysts say LUKoil's participation in leading Azeri deals has kept Moscow quiet on the Caspian status issue.
LUKoil could yet join the latest Caspian group, which will tap the unexplored Dan-Ulduzu and Azhrafe reserves.
One hand Moscow has not forced is the question of how the region's oil will be transported to Western markets.
Russia is keen to earn crude oil transit tariffs and control supplies, but knows some new pipelines will probably go through Turkey due to worries over increased tanker traffic through the Bosphorus.
--Moscow Newsroom, +7095 941 8520
| 28 |
Russia's aluminium industry has roared back to life with strong 1996 output figures and forecasts of small growth, but analysts say no new investments which could fundamentally reshape the sector are on the horizon.
"The situation for the Russian aluminium industry is quite stable and healthy," said a London-based spokesman for Trans-World Commodities, which controls major stakes in key Russian smelters.
The Kontsern Alyuminiy producers' group put 1996 Russian primary aluminium output at 2.87 million tonnes, up from earlier estimates of 2.79 million and above 1995's 2.67 million.
It said output in Russia, one of the world's top producers with 15 percent of global output, would rise 1.5-2.0 percent in 1997, but it had not yet compiled export data.
Russia's total primary aluminium capacity -- some still idle after a two-year global output-cutting deal expired in spring 1996 -- is about 3.20 million tonnes.
Russia is one of the least transparent of world producers and sensitive markets are keen to know of plans to increase or improve production.
"There was a generally-held view in early 1996 that output would fall back because of alumina shortages," said Nigel Kieser, mining analyst at Paribas Capital Markets in London.
But he said Western trading houses became more active in Russia last year to smoothe out raw materials supply problems and that the 1996 output figure was strong but not surprising.
While output may inch up this year, big infrastructural changes are not yet on the horizon -- in spite of the fact that smelters plan strategic alliances with each other and Western commodities houses are major shareholders in some plants.
"I don't see any serious investments in modernisation in Russiam aluminium in 1997," said a senior Alusuisse-Lonza Holding AG source, citing fears over shareholder rights that scare deep-pocketed investors.
Russian smelters spent 1996 complaining about rail tariff and production costs and can still only dream of the integration and long-term energy contracts that Western smelters have.
While these two items are still major factors dividing the Russian industry into the profitable Siberian smelters and loss-making plants in western Russia, other concerns will come to the fore in 1997.
"Companies are going to focus on the raw materials question a lot -- on how to get alumina," said the Alusuisse source.
Seventy percent of the region's alumina, the raw material used to make aluminium, is in former Soviet countries like Kazakhstan, Ukraine and Tajikistan, and the old planned-economy Soviet-era links that once guaranteed steady supplies have disintegrated.
Russia has only two functioning alumina plants which meet less than one third of demand, and smelters are hungrily eyeing Kazakhstan's Pavloday and Ukraine's Nikolayevsky alumina plants.
One metals source said smelters were so desperate for alumina that they were extracting it from the mineral nepheline, in a costly and obscure procedure used almost nowhere else in the world, instead of from the more traditional bauxite.
Scarce raw materials are the Achilles heel of Russia's big southern Siberian smelters, which account for about 90 percent of Russian primary aluminium output and are fuelled by vast amounts of electricity generated by Siberia's mighty rivers.
The Bratsk, Irkutsk, Sayansk and Krasnoyarsk smelters are at least 4,000 km (2,500 miles) from the nearest port-based export outlet and functioning alumina sources -- vast distances which carry expensive rail tariffs.
Russia's largest alumina plant, Achinsky, is in the region, but it is bankrupt and barely producing at any of its capacity of 400,000 tonnes a year.
| 28 |
Russia, dramatically changing its approach to foreign investment in its huge oil sector, said on Monday that new domestic companies, not Western majors, would be given the upper hand in future billion-dollar energy deals.
Vladimir Tumarkin, chief spokesman for Rosneft, the state oil holding company which is being privatised and the state's agent in production-sharing deals, said the days of foreign oil firms winning majority stakes to tap Russian reserves were over.
"We have a new approach," Tumarkin said. "We do not wish to repeat the so-called mistakes of earlier deals, when majority stakes went to foreign companies and Russia was left out."
He told Reuters he was referring to three, high-profile deals with Western and Japanese oil investors off Russia's Far Eastern island of Sakhalin -- deals in which Russian equity and ownership play a relatively minor role.
As a test of the new approach to Western oil investors, he said Amoco Corp, Exxon and Texaco of the United States, Total SA of France and Norsk Hydro ASA of Norway -- all bidders in a recent tender to develop reserves in Timan-Pechora -- would be asked to form a consortium and to give at least a 50 percent stake to Russian companies.
The companies had bid, some individually, some together, to develop up to 200 million tonnes of crude oil in the Khoreiverskaya Basin in oil-rich northern Timan-Pechora.
"The philosophy behind investing in Russian oil has changed," Tumarkin said, adding that Rosneft would hold talks with the companies next week.
Foreign oil investors are already wondering about the extent to which Moscow truly wants outside help in developing reserves in Russia, the world's third largest crude oil producer.
Lots of competitive investment dollars have gone to energy-rich Azerbaijan and Kazakhstan, where deals have got off the ground faster and more smoothly.
But while Russia has said it wants to turn around its flagging oil sector, where output has declined by 46 percent since the mid-1980s, its newly-privatised oil companies may not be able to carry the banner.
"The question is, do the Russian companies have the financing for all this," said oil analyst James Bunch at Renaissance Capital in Moscow.
Some of Russia's vertically-integrated oil companies have the makings of future stars, with savvy management and reserves that put them in the world's big league. But many of them are weighed down by non-payments and corporate taxes that leave them little free cash to invest.
"I don't think the size of stakes (in production-sharing contracts) makes that much difference to Western companies -- what is important is the economics of the deal," said oil and gas analyst Stuart Amor of CS First Boston in London.
He said it was doubtful whether Russian companies could find the money needed in the near-term to work with foreign investors and that crude oil output levels were, as a result, unlikely to rise significantly.
U.S. energy companies have invested less than $1 billion of the $60 billion they have said they plan to commit to Russian oil deals, complaining of political and legal risk.
Prominent projects -- including the $40 billion international Timan Pechora Company deal, and Amoco's $50 billion plan with Russian oil group YUKOS to tap Priobsk reserves -- are beset by quibbles with the Russians over equity stakes, contributions, and asset valuations.
"They're obviously not going to like it," said one Western analyst of Russia's new approach. "But I don't know if it will drive them out."
| 28 |
Aluminium industry sources expressed doubt on Monday over whether producers association Kontsern Alyuminiy would be able to contain output to support sagging world prices.
"I don't believe they'll do it," said a Western trade source in Moscow.
A Moscow representative of the Krasnoyarsk smelter and two sources at the giant Bratsk plant said they had no information on plans to contain output.
"This is a very strategic question on which I have no information," said Bratsk-based Andrei Toropovsky of the plant's foreign economic relations department.
Kontsern Alyuminiy chief executive Igor Prokopov said Russian smelters had agreed to keep aluminium output at current levels and not to exploit at least 80,000-100,000 tonnes of idle annual capacity.
He and Vladimir Kalchenko, the group's first deputy chief executive, referred to weak world prices and unprofitable domestic smelters.
But the sources said Kontsern Alyuminiy had little leverage and was unlikely to be able to influence producers.
London Metal Exchange (LME) benchmark aluminium prices failed to react seriously and held little changed at $1,330 per tonne in early trade -- a sign that the market may have questions over what the Kontsern Alyuminiy plan means.
"The smelters tend to do what they want individually," said a European metals source. "I don't care what Kontsern Aluminiy says -- it doesn't affect my business."
Russia, with high electricity and freight costs and low domestic demand, is keen to see higher world metals prices. Aluminium is near 2-1/2 year lows of $1,305 and far below the $1,742 a tonne seen around this time last year.
A Russian industry source said profit margins on metal exported at average LME prices in the third quarter of this year were a negative 20 percent at Russia's Novokuznetsk smelter, negative 15 percent at Kandalaksha and negative 15-18 percent at plants in the Urals region.
Krasnoyarsk was breaking even, he said. Sayansk and Bratsk had profit margins of plus 10 percent. Irkutsk had 11 percent.
It costs Bratsk $1,127 to produce a tonne of aluminium, the source said. Freight charges to European outlets added $160 per tonne, leaving gross profits of about $110 per tonne, assuming LME prices of around $1,400.
"The Siberian smelters have a decent economic situation," said Ruslan Fedorovsky of Barclays Physical Trading Limited in London. "It's profitable for them to let the European smelters (with negative profit margins) die out."
A Canadian diplomat said last week in Moscow that Russian and Canadian government officials had met to discuss curbing Russian output, rekindling memories of the Memorandum of Understanding (MOU) between major producers Russia, Australia, Canada, the European Union, Norway and the United States.
The MOU, designed to cut output by 10 percent and draw down bloated stocks, began in March 1994 and expired this spring.
Adding to uncertainty was a statement by Oleg Deripaska, chief executive officer of Sayansk Aluminium, who said on Friday that he expected a decision on decreasing output.
But sources said impending Russian purchases of alumina, the raw material for aluminium, would be a better indicator of how much metal Russian smelters plan to produce next year.
"That will be the telling time," said one source, referring to buying that should take place by the end of the year.
Trade sources in direct contact with Russian smelters said they would keep an eye on Kontsern Alyuminy, but doubted it could influence the industry.
"They (Kontsern Alyuminiy) don't really represent smelters and do not have a lot of credibility," one Western source said.
--Moscow Newsroom +7095 941 8520
| 28 |
Russia, whose sudden introduction of export curbs each winter can wreak havoc in the world's heavy fuel oil market, is unsure about what to do this season, traders said on Tuesday.
Most traders expected an export duty of up to 80,000 roubles per tonne of mazut, as heavy fuel oil is known in Russian. But Moscow is keeping the industry guessing longer than usual on the timing and size of a possible tariff.
"My crystal ball is broken, so you'll have to ask somebody else," said a senior source at a major Western trading house.
Yevgeny Lukashov, adviser to the Federal Energy Commission and close to the government's debate on how to regulate mazut exports, said the cabinet might debate the issue on Tuesday.
But he had no idea what the outcome would be.
Moscow has in recent years raised mazut export tariffs or banned deliveries abroad outright, which has conditioned traders to expect a restriction each winter.
But some industry sources questioned why Russia -- which usually slaps the curbs on in November to ensure cheap heating fuel supplies for factories and power plants -- is already in December with no decision yet on the matter.
Sarah Anderson of Energy Security Analysis Inc in Washington said Russia, which must ship some mazut to domestic users along its waterways before they freeze, was defeating the purpose of bolstering supplies by waiting so long.
"If you don't have a curb in place by October, the purpose is defeated. They really have to start dealing with this in October, because January is too late."
Other sources said the uncertainty over tariffs reflected not careful planning by Moscow but haphazard and inefficient decision-making based on Soviet-era thinking.
"It's item number 999 on a list of a thousand things to do," said Matthew Sagers of PlanEcon in Washington. But he said any curbs would not hit export levels because Russia was oversupplied with mazut in winter.
Others say demand at home is exceptionally difficult to fathom, since there is no domestic market and enterprises using the material are usually verging on bankruptcy.
"They'll in theory use as much as they can and pay as little as they can," one trader said, referring to traditional wasteful use of resources at factories and heating plants.
The lack of transparency makes it nearly impossible for traders to estimate how much extra mazut Russia needs during the winter and, correspondingly, what kind of tariff Moscow might slap on to achieve the supply balance it needs at home.
"It ends up going straight to users, so who knows how big the market is," a Russian trader said.
Some industry sources said an apparent shift in policy on the part of Russia's domestic oil companies was adding to the murkiness of the situation this year.
A second, senior Russian trader said the old logic of producers seeking to export to free up storage tank space and get cash, even at a net loss, was disappearing.
"The logic now is that it really might be better not to produce at all," he said, citing low refinery runs as producers seek to export crude oil instead.
The trader was one of a handful who thought there would be no curbs. "My gut feeling is there won't be a tariff. It's senseless. It could absolutely stop the trade," he said.
Others said a tariff would only dent export volumes.
"Refineries are very short of crude oil these days," said a Russian source at a Swiss trader. "But they'll still try to push something out (on world markets)."
| 28 |
Russia's Fuel and Energy Ministry, sitting on the remains of the once-great power it wielded over the oil sector, is struggling to redefine itself in the new market economy, energy analysts said on Tuesday.
The body, known as Mintopenergo, could once command that oil wells be drilled, helped to restrict exports with quotas and ensured that billions of dollars in oil export cash from the world's third largest oil producer went into Kremlin coffers.
Today the power to produce, export and plot corporate strategies largely lies in the hands of Russia's newly privatised, vertically integrated oil firms -- leaving the ministry to redefine itself in the new market economy.
"You kind of have to use the word castrated -- it's not what it once was," said a European energy consultant in Moscow.
Under new minister Pyotr Rodionov, a gas transport specialist, Mintopenergo may have even less of a say in the daily business of oil firms, which increasingly go about their own business and cut their own deals with foreign investors.
Oil companies say the ministry, as the guardian of big state stakes in them, could become a lobby for their interests in the Kremlin and less the long-arm of politicians seeking oil profits to top up the federal budget.
"Undoubtedly its regulatory influence has waned," said Alexei Gorshkov, spokesman for YUKOS, Russia's second largest oil company in terms of reserves. "We don't see it (their former influence) and, frankly, don't want to see it.
"But the ministry does explain our point of view on taxes to the government, and for that we are grateful."
Known as the Ministry of the Oil and Gas Industries in the Soviet era, Mintopenergo lost responsibility for what is today Gazprom, the natural gas monopoly, when it was renamed in 1991.
During Mintopenergo's existence, it has seen Russia's state-run oil production associations transformed into privatised companies, some of them with multi-billion dollar arrangements with Western oil majors.
Mintopenergo's brief includes coal and electricity. But many of its oil specialists have fled the ministry's Stalin-era building for lucrative jobs at investment banks and oil firms.
Even former minister Yuri Shafranik left in August to head the board of the Tyumen Oil Company, whose headquarters are in his Siberian power base in the oil-rich Tyumen region.
"The ministry is simply not going to be as important as it once was," said Matthew Sagers of PlanEcon in Washington in a recent interview. "It's going to be left with a policy-making, advisory, overseer role -- and that's a good thing."
Mintopenergo has a new challenger to the remnants of its power base in the form of the Federal Energy Commission, or FEK.
The brainchild of presidential chief-of-staff Anatoly Chubais, FEK wants to inject a free-market flavour into energy tariff and transport issues, although it is unclear how much leeway it will have. It is seeking to award access to crowded pipeline routes by tender, thus restricting the power of oil pipeline monopoly Transneft in non-operational issues.
Rodionov has said he plans policy changes -- but he has not revealed what he has in mind and has worried some industry players with talk about freezing domestic crude oil prices.
An aide to Rodionov said the ministry was foresaking its broad-brush "industry-wide approach" to energy in favour of concentrating on what he said were individual matters important to the Russian economy, like tax breaks for oil companies.
But one Western oil source said he was not so interested in what Rodionov planned, because the ministry had lost its power.
"Power has been devolved by default out to the oil companies and the ministry recognises this, which is why it puts its people on company boards," said Stephen O'Sullivan, associate oil and gas director at MC Securities in London.
| 28 |
Russia is quietly importing some Western grain to offset its second meagre harvest in a row, but traders said on Wednesday that the country was too broke to be a big presence on world grain markets this year.
A senior Russian grains source who declined to be identified said unnamed Russian organisations had quietly bought several 12,000-tonne cargoes of U.S. No. 2 corn (maize) at the end of last year, importing the grain through the Baltic port of Riga.
But other Moscow sources -- eager to preserve secrecy in a market scarce on hard information and anxious about loose talk -- talked down the prospects for imports.
"There's enough grain on the (domestic) market," said Andrei Ambartsumyan, a vice-president at big traders Exportkhleb. "Quality is a different issue. But today I don't see any significant import orders."
Wildly varying estimates of how much Russia will import after its 69.0 million tonne harvest last year, one of the worst in three decades, have kept Western markets guessing about their chances of selling to the world's former biggest grain buyer.
The Soviet government imported tens of millions of tonnes of grain in the 1970s, staging a "great grain robbery" that markets have had trouble forgetting. In 1972 Moscow emptied the U.S. grain larder by buying heavily from all the major grain exporters simultaneously.
While Russia has said markets should forget the past and the Kremlin is no longer a buyer, private companies are combing Western and Central Asian markets for supplies.
"Russia will import this year because otherwise it doesn't get the quality it needs," said Vladimir Totsky, vice-president of Russia's Grain Union, referring to the fact that much Russian wheat from the 1996 crop is unfit for human consumption.
Anatoly Manellya of the Centre for Economic Trends, a government-sponsored think-tank, put Russia's total grain imports over 1997 from all sources at 5.0-6.0 million tonnes, repeating a forecast made earlier by farm expert Andrei Sizov.
Russia's 1996 harvest saw maize output slip to 1.5 million tonnes, down more than a third on 1995 levels.
But there is no consensus on Russia's overall import plans.
"I don't think they'll go back to buying large quantities of grain," said Tom Wiley, a European Union agriculture adviser, adding that imports of ready-made food were the trend.
One prominent Russian trader estimated Russia's total maize imports over the 1996/1997 crop marketing year at only 120,000 tonnes due to falling livestock numbers.
But Agriculture Minister Viktor Khklystun said in September 1996 that Russia would import 4.0-4.5 million tonnes of maize and soymeal to supplement the 1996 harvest, with maize purchases three times higher than soymeal purchases.
State Customs Committee figures show Russia imported a robust 114,000 tonnes of wheat in December, including 30,000 tonnes from the United States. Maize figures were not available.
Analysts said Russian farmers were worried less by plummeting production levels and more by the fact that domestic customers lacked purchasing power to buy their grain.
Russia's costly and inefficient farm sector, an economic basket-case, accounted for one quarter of gross domestic product in the Soviet era and wasted up to 20 percent of grain output.
Farmers, unable to adjust rapidly to market economy ways, have seen grain output nearly halved from peak levels, and food imports now comprise up to half of the Russian market.
One U.S grains source forecast fewer winterkill losses this year and said a protective blanket of snow had kept winter crops snug and tight. But the source said warm weather and floods in parts of the Northern Caucasus grain-belt could hit output.
Analysts said prospects for higher grain output this year were muted, with the area sown to winter crops last autumn down 10 percent on 1995's level.
"The signs aren't very good," Manellya said.
--Moscow Newsroom, +7095 941 8520
| 28 |
Crude oil output in Russia, the world's third-largest oil producer, is finally ending a decade of dramatic decline, but it is still a long way from switching back into top gear.
"We could see 1997 output stabilise at 1996's level," said Vitaly Kamenev of the Economy Ministry's fuel department. "But we won't see any real pick-up until at least 1998."
Russian oil output slipped two percent year-on-year to 146 million tonnes in the first half of 1996, after falling three percent in the first half of 1994, according to the State Statistics Committee. Most of the decline came from companies producing over 10 million tonnes a year.
"It is the ministry's opinion that output will fall two or three percent next year," said a Fuel and Energy Ministry source who declined to be named, saying that the matter was sensitive.
That would still be one of the lowest declines Russia's beleaguered oil industry has seen in recent years.
It would also be a sign that the era of steep plunges is finally drawing to a close.
Russia's 1995 output of 305 million tonnes, or 6.2 million barrels per day, is stabilising at just over half of 1987's peak of 570 million tonnes (11.4 million bpd).
The numbers matter because they indicate the pace at which Russia, once the world's largest oil producer, may regain that place as its economy and domestic oil prices grow.
But it is still early.
"There are a lot of expectations that the barrier will be broken next year, but it won't -- output will be flat," said Tamara Okhundova, energy analyst at the Centre for Economic Trends, a research institute set up by the government.
Moscow is for now committed to subsidising domestic oil prices to help flagging industrial enterprises, and export levels cannot rise significantly until new pipelines are built -- two key factors that do not inspire higher production levels.
"Production next year is going to be pretty flat, and if anything, slightly lower," said energy analyst Jeremy Hudson of Salomon Brothers in London.
He said that if parliament soon approved a list of reserves open to production-sharing, an initial, positive impact on output could be felt by the end of 1997.
Russia's joint ventures, which account for less than five percent of production, are showing the biggest increases in output, with their production up 18 percent in the first half 1996 to seven million tonnes.
When the big-ticket joint ventures and production-sharing deals begin producing in several years, total output could soar.
A bull-run in world prices and Moscow's scrapped export duties have inspired Russian producers to put even more oil into already over-strapped export pipelines.
But a tax clampdown on high foreign-exchange earners and a lack of commitment by new shareholders in Russian oil companies to reinvest in production are both sucking up cash.
Julian Leigh, Russia analyst at the Centre for Global Energy Studies in London, said higher export dollars were not necessarily finding their way back into production.
He said domestic commercial banks, some of which are major stockholders in big Russian oil companies, preferred to pump cash into markets with better returns, like equity.
Rehabilitating wells is one of the fastest and cheapest ways to boost output, but most of the easy, less expensive workovers have been completed and average well production rates have not been as high as expected.
Russia has 144,000 oil wells, of which nearly 40,000, or 28 percent, are idle. Hudson said average workover rates -- the cost of bringing these back on stream -- could rise to $100,000 per well from $25,000.
| 28 |
Russia's untapped gold reserves are unlikely to become the El Dorado of the East soon despite Moscow's promises to liberalise the tightly-controlled sector, precious metals sources said on Wednesday.
Russia's Central Bank said earlier this week it was gearing up to create a domestic gold market via measures that would make it worthwhile for Russian commercial banks to finance mining.
But industry sources said the rules would do little to reform the world's fifth-largest gold producer with the world's third-largest reserves.
"It will take quite a while for commercial banks to take much of that market," said analyst Tony Warwick-Ching of CRU International in London.
The Central Bank's new rules would allow banks to trade gold domestically in a limited way through special precious metal accounts and to make and secure limited, gold-backed loans.
"Well, if after two and a half years, the central bank has come up with accounting procedures for gold transactions, then that is very good," said Yuri Kotlyar, acting chairman of the State Committee for Precious Metals and Stones (Komdragmet), whose functions are being reorganised.
"But this has nothing to do with creating an actual market, and that is what we need."
Russia's gold mines, even those run by foreign joint ventures, are required to sell their output to the state at fixed prices and are usually paid many months later.
The government, in a budget crisis and facing a tax revenue shortfall, has even less money this year to finance output and 1996 production will not better 1995's poor 125-132 tonnes.
Commercial banks financed only about five tonnes of output last year. Moscow has promised but done little to let banks with special licences take gold abroad to secure financing.
Analysts said Moscow feared losing control of its gold industry, which would be harder to track than other key sectors.
"The history of the (Russian) industry is partly driven by politics, not economics," said analyst Andy Smith of Union Bank of Switzerland in London.
Others said a tug-of-war for control was scaring investors.
The Central Bank, which shares responsibility for gold reserves with the Finance Ministry, wants more control over more gold reserves to support the rouble in the future.
But Interfax news agency quoted Deputy Finance Minister German Kuznetsov as saying the ministry, not the Central Bank, should have first crack at buying output and the state, not the private sector, should finance most mining.
Total, unspecified volume of Russian gold mined over January-September was nine-percent below year-ago levels, the State Statistics Committee said. Mining season ends in October as freezing weather emerges in Siberia and Russia's Far East.
And Russia will literally have to dig deep to tap its reserves. More than three quarters of Russian gold is in below-ground ore deposits.
More than half of all foreign-backed gold projects in the former Soviet Union are in Russia.
But none of the big ones, including the giant Sukhoi Log, the world's largest unmined reserve with a possible 1,800 tonnes, are at the production stage because of tax and royalty quibbles with the government.
-- Moscow Newsroom, +7095 941 8520
| 28 |
Russia's oil sector has staged its first real comeback by nearly closing the door on a decade of dizzying output declines, but analysts said on Monday that the troubled industry was not yet in the clear.
"The larger declines are over; is that a turnaround? Yes," said Dan Lubash, managing director of Emerging Markets Europe at Merrill Lynch, commenting on 1996 oil production figures.
The State Statistics Committee said Russia's 1996 crude oil output fell two percent on 1995 levels to 293 million tonnes (around 5.86 million barrels per day).
That is Russia's lowest crude oil output rate in nearly three decades.
But the decline is the smallest since Russia -- still the world's third-largest oil producer -- discovered its huge West Siberian reserves and pushed oil output to a peak 570 million tonnes (11.4 million bpd) in 1987.
The story has been a downhill one ever since, and double-digit percentage output declines throughout the late 1980s and early 1990s have left Russia's 1996 output at a meagre 51 percent of 1987's record level.
But the picture, as the 1996 data shows, is getting prettier.
"The fall is finally coming to an end," said Stephen O'Sullivan, associate director of oil and gas at MC Securities in London. "It's not just a flash in the pan like LUKoil -- it's clearly more broad-based."
Analysts say the recovery showed its first real signs in the second quarter of 1996, possibly as Russian producers began to cash in on a world oil price rally and jammed export outlets.
But not all analysts were as sanguine about 1996's results.
"The fact that it almost levelled out this year is significant," said a U.S. oil executive involved in the Petroleum Advisory Forum, a Moscow lobby of foreign oil majors.
"But I don't really think it means a whole lot, because there's a problem with domestic demand and with export capacity. It doesn't make sense for producers to produce as much as they can right now."
Russia's oil firms have limited export options and other domestic industries are recovering more slowly.
Russian gross domestic product fell by six percent in 1996 and industrial output shrank in every sector of the economy to plunge five percent overall, official figures showed.
Declining domestic demand spurred Russian exports outside the Commonwealth of Independent States to rise by five percent in the first 11 months of 1996 to 92.8 million tonnes.
But analysts say Russia's increasingly hungry tax-man has eaten up a large portion of the extra export earnings, leaving Russia's newly-privatised companies with little to reinvest.
Still, the export boom has spurred Russia's 13 or so vertically-integrated oil companies' appetite for growth, and both Lubash and O'Sullivan said domestic crude oil demand might pick up slightly next year.
"Any arrest in decline must be heartening and what we must be looking to see is some growth," said Martin Cocker, a partner in Ernst & Young's World Energy Group unit in Moscow.
But Russia's oil companies, most heading into their third or fourth years as restructured, privatised companies, will have problems in breaking completely free of Russia's economic woes.
"It's all a function of when domestic industry turns around," said the U.S. executive. "Producers and refiners both have an incentive to export and will for quite some time."
| 28 |
A big diamond deal between Russia and De Beers has been caught up in political manoeuverings in Moscow. Bickering ministries and a shake-up in the leadership of the Russian diamond industry are conspiring to delay a crucial agreement.
Senior officials on both sides declined on Tuesday to predict when the government would sign the long-delayed deal, whose absence has kept world gem markets on edge.
Russian officials said Moscow and De Beers could head into 1997 with no formal contract signed.
Vladimir Piskunov, head of the Industry Ministry's new precious metals and stones section, said the government had been poring over a draft deal for at least a month since it said it was about ready to sign it and said unspecified pricing issues needed more scrutiny.
"Yes, I will admit that this (a final signing) could drag out into 1997," Piskunov said after a news conference.
De Beers representatives in Moscow declined to comment, with one saying, "As we've told you, when we have something to tell you, we'll tell you."
A spokesman for Almazy Rossii-Sakha, or ARS, De Beers' partner in the deal and Russia's diamond producer and sole legal exporter, said big shake-ups over 1996 in Russia's diamond industry were behind the delay.
"Do you want to know my opinion -- it's that there are some battles going on," said ARS spokesman Valentin Logunov.
De Beers controls about three quarters of the world diamond market and Russia accounts for about 25 percent of all the gems De Beers sells, so delays to the deal have worried gem watchers.
ARS produces nearly all of Russia's diamonds and had sales of $1.38 billion last year.
Piskunov said Moscow was committed to working with De Beers and that leaving the cartel was out of the question -- but he admitted negotiations had dragged on for over a year because of power struggles in Moscow.
"Some have said that we don't need this agreement, but time is playing against us," he said. "There are strict rules on this market and you have to play by them."
Asked if Russia could leave the cartel, he said, "No, no."
Piskunov said the Finance Ministry was struggling with the Industry Ministry for influence over diamond production, while federal budget drafters were arguing with the diamond-rich regions over their cut from taxes paid on exported gems.
De Beers has seen Russia's diamond sector go through turmoil this year, when President Boris Yeltsin disbanded one of its former negotiating partners, the State Committee for Precious Metals and Stones, and sacked its head, Yevgeny Bychkov.
Now Piskunov's department is wrangling with Goskhran, the Finance Ministry arm that will store and export precious metals and stones. Adding to the muddle is a formal investigation by Russia's tax police into ARS finances.
But Piskunov said the probe and Bychkov were not the fundamental reasons for the delay -- raising questions over just what Moscow objects to in the February memorandum.
"There are other processes involved," Piskunov said. "It's a battle of opposing sides. Russia's diamond industry has always been in the hands of several people."
He cast a cloud over an agreement De Beers said on Monday it had signed with Russia's Northern Mining-Geological Company Terra to set up a diamond exploration joint venture.
"We principally insist on the position that foreigners should not mine diamonds in Russia," he said, adding that Russian law prohibited the publication or sale of geological information on diamond deposits in the northern Arkhangelsk region.
| 28 |
Russian Finance Minister Alexander Livshits warned financially-troubled Norilsk Nickel on Friday that it must pay overdue taxes, but analysts said the firm would not be liquidated or that its would assets would be frozen.
"Norilsk really is a big debtor, both to the federal and regional budgets," said Konstantin Chernyshev, equities analyst at Moscow brokerage Rinaco Plus and a Norilsk watcher. "Livshits's words are an attempt to put pressure on the company."
The official Itar-Tass news agency quoted Livshits as telling parliamentary deputies that RAO Norilsky Nikel 0#NKEL.RUO had to pay its tax arrears and that bankruptcy procedures applied to the metals group.
"If it was an unsolicited statement and a bolt out of the blue, then it obviously means something," said Christopher Granville, chief economist at United City Bank in Moscow.
"But if it was a response to a deputy's question that was essentially loaded, then it was the only answer he could have given."
Russian tax and cabinet authorities, under pressure from the International Monetary Fund to boost tax revenues as a condition for receiving payments of a $10 billion, three-year loan to Moscow, have been striking fear into the hearts of some of Russia's most prominent industrial firms by saying they must pay up or face liquidation.
"They could freeze metal, but it's not a long-term solution to the problem and wouldn't put money in the budget," Chernyshev said. "I don't think they would do that."
Entire social infrastructures in the icy Far North where Norilsk is based depend on the company, and Moscow has said it has no finances to resettle hundreds of thousands of people -- an expenditure which could far outstrip Norilsk's debts.
Norilsk officials declined to comment.
Analysts said the government, while anxious about Norilsk's debts, is highly unlikely to bring the nickel, copper, cobalt, platinum and platinum group metals producer to its knees or take measures that could significantly affect output.
But it also wants Norilsk, the world's second-largest nickel producer, to clean up its act.
"The procedure of bankruptcy will be applied," Tass quoted Livshits as telling Duma deputies about Norilsk.
It indirectly quoted him as saying Norilsk should first pay salary arrears, which in the past have led to worker strikes.
"It is unlikely that Norilsk will pay these debts in the near-term -- the company will remain a debtor in the near future," Chernyshev said.
He estimated the company's regional debts at least one trillion roubles and said 30 percent of the giant Krasnoyarsk regional budget was fuelled by Norilsk money.
Norilsk's new majority shareholder, Russian commerical bank Uneximbank, has said it is reorganising metal exports through Interrosimpex in order to boost revenues.
But the changes have yet to improve significantly Norilsk's situation.
"Uneximbank has inherited a mountain and whether or not they climb out and over it remains to be seen," said one metals source.
Norilsk said in September that it total debts, including unpaid salaries to workers, were 13 trillion roubles. The company said last month that it had worked out a tax payment schedule with authorities, after regional tax officials threatened to seize some nickel and copper assets.
--Moscow Newsroom, +7095 941 8520
| 28 |
President Boris Yeltsin's surgery on Tuesday might be a heart stopper for some volatile commodities and currency markets, but recent history proves Russian oil and gas exports are unfazed by Kremlin dramas.
Traders have seen tanks fire at Russia's White House, cloak-and-dagger power struggles and war in oil-rich Chechnya -- and each time, they say, Russian supplies of oil and natural gas to Europe and the Mediterranean have held steady.
Russia is the world's third-largest crude oil producer and single biggest natural gas producer; its energy heats and powers much of Europe and is a multi-billion dollar cash cow for Russia no matter who sits in the Kremlin hot seat.
This time, with Yeltsin under the knife this morning for a gruelling, hours-long heart bypass, should be no different.
"Politics don't affect us," said trader Vladimir Solovyov of Nafta-Moskva, one of Russia's leading oil exporters.
"We are more interested in things like government decrees saying 'export tariff introduced' or 'export tariff scrapped'.
Yeltsin's surgery began against domestic and international worries that if the operation fails, Russia could plunge into political uncertainty that could hit oil and gas exports.
With about one third of Russia's 6.2 million barrels per day output exported outside the former Soviet Union, and with Russian natural gas keeping one third of Europe warm, it is easy to see why traders worry about supply.
But when Russian oil exports do fluctuate, it is on less dramatic events, like storms at the Black Sea export outlet of Novorossiisk, one-off government supply programmes to former Soviet allies and which oil company is flavour of the month with export officials.
Gas exports can fluctuate on occasional explosions in Russia's gas pipeline system, the largest in the world.
Analysts said that with domestic demand flat while the Russian economy recovers, exports will be stable near-term.
Industry sources said there is no danger of conservative officials playing with the taps while Yeltsin was incapacitated, but they said some risk-averse European buyers could insist on contract terms less beneficial to Russian exporters.
"Our partners could get worried and demand terms not as attractive to us," said a trade financer at International Economic Cooperation, or MES, another leading oil exporter.
Others said money, not politics, motivated exports -- and with domestic oil prices below world levels, it is not hard to make money exporting the stuff.
"We like good prices on world markets," Nafta-Moskva's Solovyov said.
Political tensions in other major oil exporting countries often cause benchmark London and New York oil prices to leap over worries about supply disruptions.
Nervous International Petroleum Exchange traders swung spot prices in London when Yeltsin sacked maverick security tsar General Alexander Lebed last month.
But Moscow oil traders and analysts said that everyone should just calm down.
"This stuff (oil) is scheduled for export months in advance and it's technically very difficult to fiddle with the taps," said energy analyst Peter Houlder of CentreInvest consultancy.
Even the conservatives who covet Yeltsin's Kremlin seat remember the good old Soviet oil-boom days, when exports -- not disruptions to them -- were the key to power and wealth and enticed the Soviet Union to crank up output and become the world's largest oil producer.
| 28 |
Russia's new grain traders, looking for opportunities to make money and feed their vast country, said they were struggling to flourish in an arena now free of the state but lacking basic market structures too.
Preliminary data from the State Statistics Committee on Friday showed this year's gross grain harvest was 74.6 million tonnes, just eight percent up on 1995's disastrous 30-year low.
That could still leave supplies tight and, with no local equivalent of the Chicago Board of Trade or Canadian Wheat Board, traders will again be left to sift through bewildering market rumours and to pound the steppes in search of grain.
It is a Wild East bazaar, where producers prefer cash on delivery and where Soviet collective farming has left a deep suspicion of anything that looks like financial sophistication. But it is also, traders say, a place with golden opportunities.
"The arbitrage opportunities are excellent," said independent agriculture analyst Andrei Sizov of SovEcon Ltd consultancy, referring to trade in agricultural commodities from Russia and the former Soviet republics Ukraine and Kazakhstan.
He said Western commodities houses were actively arbitraging everything from sunflower oil in Russia's grain-belt North Caucasus to Ukrainian wheat and Uzbek cotton.
But other senior industry sources were at odds over how to trade in the post-Soviet market, where the state is no longer a major presence but where the new rules of the game are opaque.
Moscow shocked world markets in the 1970s by purchasing tens of millions of tonnes of foreign grain.
But the hard-up Russian government is keeping out of the market and last year relied on private traders to make up for Russia's worst grain harvest in three decades.
Arkady Zlochevsky, president of OGO, one of Russia's largest private commodities houses, said the domestic grain market was tough this year because few domestic traders had ready cash.
"The arbitrage situation is not as good this year because deliveries, especially from Ukraine, are unreliable, and because nobody has any money," he said.
Yet other sources said buyers were rushing to fill contracts left over from the last crop marketing year, when poor harvests across the ex-Soviet Union made supplies short.
"It used to be a seller's market only -- now buyers are on an equal footing," said a trader at a Western commodities house.
Russian farmers are already demanding prices above world levels and are selling standard, third-class bread-making wheat for 0.97 to 1.00 million roubles per tonne (about $177-$183 at current exchange rates). Delivery from central regions to Moscow or other big cities adds another 200,000 roubles per tonne.
Alexander Yukish, president of Russia's Grain Union industry group, said Ukrainian supplies were cheaper at 850,000 roubles a tonne, but said a 20 percent Russian value added tax and freight costs could quickly make up the difference.
Kazakh wheat before delivery to Russia across thousands of kilometres (miles) cost about one million roubles a tonne.
No one knows what percentage of Russian grain is traded domestically, in spite of the fact that the new private sector has in large part helped the government avoid major imports by selling domestic supplies to far-flung regions in Siberia.
The Russian Exchange, formerly known as the Russian Commodities and Raw Materials Exchange, has a puny turnover in grain contracts and registered no deals last month.
Farmers, burned by the late-paying state in the past, think only of roubles in hand, and not of hedging output with futures.
"For Western commodities houses, this is still a risky market," said Vasily Chinkaryov, deputy director at Eximkhleb, adding one could never be sure of receiving contracted supplies.
There are hundreds of so-called grain trading outfits across Russia, buying small lots here and there and wreaking havoc on the market by sometimes failing to pay producers.
Market sophistication is low, and even some top Russian traders do not see what "arbitrage" -- which in Russian denotes an arbitration court, not playing with price differences on commodities in different markets -- has to do with making money.
"What does our judicial process have to do with trading grain?" asked one senior Russian trader in all seriousness.
Still, Russian grain is finding channels through which to move, often abroad.
Russia registered a total of 1.2 million tonnes of wheat and wheat-rye exports since the beginning of the year, with September exports nearly doubling to 62,500 tonnes, according to State Customs Committee figures quoted by Interfax news agency.
--Moscow Newsroom, +7095 941 8520 ($1 = 5,453 roubles)
| 28 |
Russia's Rosneft oil firm won a new lease of life on Monday after a Moscow court ruled it could keep its crown-jewel asset, a key Siberian oil producer coveted by a major rival.
An arbitration court said prize producer AO Purneftegaz would stay at Rosneft, ending a high-stakes tussle between Rosneft and the big SIDANKO oil company for control over the enterprise.
"The decision is key to Rosneft's survival," said Dan Lubash, managing director of Emerging Markets Europe at Merrill Lynch in London.
Rosneft, the state oil holding company which is slowly being privatised, lost most of its assets in recent years when President Boris Yeltsin carved up the once government-owned oil industry into vertically-integrated, privatised companies.
Monday's ruling could help keep Rosneft -- once Russia's number-one producer but now near the bottom of the list -- alive by letting it keep a company sitting on big untapped reserves.
"Purneftegaz is not just a promising producer now -- it has a lot of promising reserves," said Rosneft press director Vladimir Tumarkin. "We consider today's decision an act of legal justice in Russia and a victory for Rosneft."
Attractive Purneftegaz, a Western Siberian enterprise that pumped over eight million tonnes of crude in 1995, has long been the object of a corporate wrangle between Rosneft and SIDANKO.
Under Yeltsin's sweeping oil industry restructuring, a 1994 government resolution awarded Purneftegaz to SIDANKO (the Siberian-Far Eastern Oil Company) -- but a 1995 executive order shifted ownership back to Rosneft.
Vladimir Vetluzhky, an arbitration court member, told Reuters that the body had ruled against SIDANKO's lawsuit to have the 1995 decision reversed.
Purneftegaz's output accounted for about two-thirds of Rosneft's production of 13 million tonnes last year.
"Purneftegaz is much more important to Rosneft than it is to SIDANKO," said Stephen O'Sullivan, associate director of oil and gas at MC Securities in London.
Spokesmen at SIDANKO, one of Russia's top five oil majors in terms of output, were not available for comment.
SIDANKO, which energy analysts said wields little control over its key subsidiary, producer Chernogorneft, badly wanted Purneftegaz and its exports to pay off debts and taxes.
"Purneftegaz is one of Russia's most promising oil firms," said petroleum economist Rustem Shagiyev of the government's Academy of Economics. "The ruling is very positive for Rosneft."
But other analysts said Rosneft may need more to prosper in Russia's newly-competitive oil industry.
"The decision means Rosneft is still in business as a vertically-integrated oil company -- but it will need more than just one big producer to compete," said oil analyst Steve Allen of CentreInvest consultancy in Moscow.
Rosneft's other major asset is Sakhalinmorneftegaz, partner to four giant foreign energy projects in Russia's Far East.
O'Sullivan said the tug-of-war for Purneftegaz may yet continue and that SIDANKO could appeal against Monday's court ruling -- but Tumarkin said the corporate tussle had come to an end.
Purneftegaz shares barely reacted to the decision, nudging down to $2.28 on the Russian Trading System at 1445 GMT from Friday's close of $2.30.
"If the decision had been different, it would have been a major blow to Rosneft," Lubash said.
| 28 |
Russian oil company officials said on Friday that Moscow would not slap a duty on heavy fuel oil exports this winter, leaving traders to breathe a sigh of relief but still wary of secretive government manoeuvres.
The prospect of no restrictions on exports of mazut, as Russian heavy fuel oil is known, soothed traders who had been worried about short supplies of Russian material, which keep much of European and Mediterranean markets warm.
But while traders said they were now almost one hundred percent certain there would be no export duty, they cautioned that anything could happen in the Byzantine world of Russia.
"I am convinced that there will be no duty -- but I also know how all sorts of unexpected nightmares can happen in Russia," said a source at a European buyer in Moscow.
State oil holding company Rosneft's chief spokesman Vladimir Tumarkin told Reuters that a Fuel and Energy Ministry plan for a duty had fallen flat on its face with senior cabinet officials.
"They (the government) have decided not to introduce any restrictions," he said.
A second official at Rosneft, which ministry employees said was handling the mazut issue, also said there would be no duty.
"It is safe to say there will be no duty. It's too late. We had all expected one, but it has not come," Gennady Grigoryev, deputy head of Rosneft's financial-commercial directorate, said.
The Rosneft officials said Fuel and Energy Minister Pyotr Rodionov -- who had reiterated publicly as recently as last month that there would be a duty -- had failed to excite Kremlin officials with the idea.
"Rodionov was insisting on his position, but there are many corridors of power in Russia and he just did not score enough points with government officials to get them to agree to this," one of the Rosneft officials said.
One trader likened Rodionov's comments to "a soldier's talk designed to pump people up and reflect his interests".
"It's really possible it's true (that there will be no export duty)," said a senior trader at a European company.
"But it comes a little too late to make me happy. I'm not thinking about mazut until May or so."
Russian heavy fuel oil exports tail off sharply in the colder winter season from November to around May, as waterways and export outlets freeze and consumption increases at home.
The mazut export issue was a hot item of debate in government halls, with Rodionov's camp arguing for a tariff to bolster domestic supplies, and those against the proposal saying Russia needed fewer restrictions and more of a market economy.
Traders are conditioned to expect a Russian heavy fuel oil export restriction.
Moscow raised the export tariff on mazut to 16 Ecus per tonne from six Ecus during December 1995 to March 1996 to curb deliveries abroad. It banned mazut exports outright from December 1994 to April 1995.
"Russia has grown up," said one of the traders, adding that the decision not to levy a tariff was a triumph for Russia's new market-minded leaders over the old generation.
"I think there were a lot of people in the government who realised that such tariffs are just not advantageous."
-- Moscow Newsroom +7095 941 8520
| 28 |
Russian parliamentarians, in a stinging blow to foreign oil investors, on Thursday said they would ask lawmakers to reject a bill outlining oil reserves open to production-sharing agreements.
The bill, a list of about 250 oil fields holding 38 percent of proven Russian oil reserves, is a key step towards unlocking billions of dollars in planned and proposed investments in Russian oil, including a huge project by Amoco Corp.
But members of the audit chamber of parliament told a news conference they would ask Duma (lower chamber) deputies to reject the law early next month.
The call for rejection, likely to be accepted, is a slap in the face for Prime Minister Viktor Chernomyrdin, whom foreign oil investors have considered their guardian angel in Russia and who has been instrumental in getting energy deals off the ground.
It is also the latest sign that Moscow, in a quiet change of policy, is getting tough with potential Western oil investors and seeking ways to give its own oil companies, which hold licences to most of the fields, a chance to get on their feet and compete with Western majors.
"It's quite a major setback," said a senior European energy consultant who asked not to be named. "There's a real feeling in Russia of "why should we give up any of this -- it's ours'."
Duma Deputy Yuri Boldyrev, who is deputy chairman of the audit chamber, said the chamber had rejected the reserves list because government officials had not presented financial analyses proving that the fields would earn Russia more money faster if developed on a production-sharing basis.
Production-sharing contracts bring Western oil firms into risky countries by allowing them to finance and develop oil production through the sale of some output on world markets to cover costs and generate returns. The rest of the oil goes to the host country, which also get royalties and profit taxes.
Under the scheme, ordinary tax regimes are not applicable, giving the investments an acceptable return.
Boldyrev said foreign investors would not be worried by the chamber's rejection and said Moscow should slash the number of reserves open to output-sharing to 10 or 15 a year.
But senior oil executives are likely to be annoyed.
"We are of course worried about anything that slows the process down," said Dan Westbrook, senior vice-president and resident manager of Amoco Eurasia Petroleum Company in Moscow.
While officials recommended that the field Amoco is eyeing, Priobsk, be included eventually in the production-sharing list, they said two prize, giant fields -- Samotlor and Krasnoleninskoye -- would not be tendered to foreign investors.
Amoco and Russian oil firm YUKOS have a preliminary $50 billion production-sharing deal to tap Priobsk, one of Russia's largest oil fields, in western Siberia's Tyumen region.
But negotiations have slowed, partly because parliament has not yet approved the reserves list.
More bureaucratic delays appear to be on the horizon, blocking some $50-$70 billion in planned foreign investments in Russian oil and retarding potential projects.
"We need a host of laws clarifying on what grounds a specific field should be included in the list," said parliamentary auditor Mikhail Beskhmelnitsyn.
Boldyrev, complaining that Russia's black gold goes into a black hole when oil firms underpay taxes to state coffers, said the chamber also rejected the reserves list because output-sharing contracts might award too many tax breaks to companies.
Russia, the world's third largest producer of crude oil, last year passed a production-sharing law but only after revising it to meet demands by domestic lobbyists worried about the country's resources being exploited too cheaply by foreigners.
| 28 |
Western oil firms frustrated by Moscow's foot-dragging on foreign investment laws presented a study on Tuesday designed to convince conservative officials that Russia will take the lion's share of rewards in oil deals.
The study, outlining the benefits from six flagship production-sharing contracts requiring $129 billion in expenditure, could be the evidence nationalist and conservative parliamentarians need to pass energy and tax laws in 1997 to get the projects off the ground.
Foreign oil firms have to date invested only a tiny fraction of that total, citing high taxes, a flawed production-sharing law and Moscow's inability to ratify a list of reserves open to output-sharing deals.
"No investments are going to happen until there's a firm legal base," said a top Western oil executive who declined to be named, speaking after a conference where the study was presented.
The document, prepared by the Petroleum Advisory Forum, or PAF, and a group of Russian academics, said six major international projects requiring $102 billion in Western funding over 57 years would generate $591 billion in total benefits, with Russia getting 87 percent of the total.
The deals would at peak create 550,000 jobs, raise real gross domestic product by $450 billion, boost state revenues by $257 billion and Russian private sector revenues by $258 billion.
The foreign side would reap $76 billion in benefits, including $40 billion in foreign investor profits.
"With the overwhelming majority of benefits accruing to Russia, these projects will make an important contribution towards Russia's future economic growth and to the stability of its emerging market economy," a study group statement said.
Conservative Russian officials have blocked passage of key energy laws, saying they want to prevent what they call a fire-sale of Russia's natural resources to the West and in effect hampering Western investment in Russia's oil sector.
"Under the current licensing regime regulating the use of subsoil resources and the current gross revenue-based tax system, large-scale investments in the Russian oil industry are not forthcoming," the statement said.
Deputy Fuel and Energy Minister Valery Garipov said the study showed the necessity of Western investment in the oil industry, but he said Russian firms would have to have at least a 50 percent stake in production-sharing deals.
"We don't need stop-gap loans -- we need long-term investments," he told the same conference.
"Domestic investments are not appearing," he said, adding that only Western-financed production-sharing contracts would reverse Russia's steep oil output decline. "There are Russian banks that bought oil companies, but where are their investments?"
The study said that for each dollar directly invested in the oil sector, an additional $0.90 in revenues would be generated in related domestic industries.
Referring to the study, PAF director Ed Verona said, "It's a tool to show that this (foreign investment) produces benefits."
Alexei Mikhailov, a parliamentarian and supporter of Western oil firms, said the six Western-sponsored projects -- Sakhalin I and II, Priobskoye, West Salym, Timan-Pechora and Yuzhnoye Khylchuyu -- could eventually account for two percent of GDP.
Mikhailov said he hoped parliamentarians would pass the revised reserves list and Western-friendly amendments to the production-sharing law in the first half of 1997.
"It is not enough just to provide financing and funds," said Dan Westbrook, senior vice-president of Amoco Eurasia Petroleum Company, the partner in Priobskoye. "The point is, the projects must be economical for anyone (Western or Russian) to do the work."
| 28 |
Russia said on Wednesday it would restructure natural gas monopoly Gazprom's operations, but Western analysts and even a junior company official said the move would leave the world's largest gas company intact.
"What Gazprom has suggested for itself is not a restructuring but a commercialisation of their services in Russia," said Jonathan Stern, vice-president of Gas Strategies in London and an expert on Russian gas.
Asked if Russia would reshape one of its most powerful companies in the formal sense of the word, Stern said: "No. But it is corporatisation in the Western sense."
Economy Minister Yevgeny Yasin told a news conference the goverment would restructure Gazprom's home operations and possibly split its domestic output and transport arms.
He said the changes at Gazprom -- whose American Depositary Receipts (ADRs) keep investors drooling -- would in no way affect foreign shareholders.
"Domestic restructuring, yes. But we will not weaken Gazprom as an international corporation," he said.
Carving up Gazprom, whose gas accounts for 60 percent of Europe's gas imports, could deregulate the firm along the lines of British Gas Plc if carried out Western style.
"There's more smoke than fire here," said Stephen O'Sullivan, associate oil and gas director at MC Securities in London. "I don't think there's any serious restructuring here.
"Third-party access is not enshrined in Russia," he said, referring to the fact that Gazprom controls 94 percent of Russia's gas production and most of its transmission but has hesitated to allow other companies sell its output.
Lira Rozenova, an economic adviser to Gazprom chairman Rem Vyakhirev, said any changes would keep the company whole.
"An Economy Ministry programme to 2000 assumes that restructuring and state regulation in the gas industry will be carried out while preserving in the medium-term the organisational and production unity of RAO Gazprom," she said.
Gazprom accounts for a quarter of world gas output and its 1996 production rose one percent to 575 billion cubic metres (20.31 trillion cu ft). It raised $429 million last year with ADRs and plans a Eurobond issue this year.
"ADR investors should be more worried about other things," O'Sullivan said, citing questions over whether Gazprom will ever liberalise trade in its very illiquid shares in Russia.
Stern said Yasin's remarks were essentially about accounting changes rather than structural ones.
"Transport units would pay the producers' units costs," he said, adding that the plan aimed to improve Gazprom finances. "The Russians don't mean what we mean by restructuring."
A senior British energy consultant said Yasin's remarks were "kite-flying by the government".
Gazprom was once an entire ministry run by Prime Minister Viktor Chernomyrdin. Analysts said the firm would owe $7-$8 billion in annual taxes to the government if it could collect 50 trillion roubles in domestic debts.
Gazprom still has friends in high places and plans to sell even more gas to Europe from vast untapped Arctic reserves. But it has come under pressure to contribute more to the federal budget.
But Moscow may lack the will to alter one of Russia's most profitable and powerful firms substantially.
"Periodically, some radical economists in Russia have suggested truly restructuring Gazprom," Stern said. "But they have always failed. The political risk of destroying the Gazprom structure is too great."
($1 = 5,612 roubles)
| 28 |
Russian and foreign oil companies signed a $2 billion deal on Friday to build a pipeline bringing oil from energy-rich Kazakhstan to Western markets, but frantic last-minute negotiations left questions unresolved.
In a delayed signing ceremony that saw Russia's leading oil officials huddling for secret consultations, the Caspian Pipeline Consortium inked documents splitting itself into two for tax reasons.
Russia said its oil pipeline monopoly Transneft might still take a stake. The role of Transneft has been a contentious issue among CPC members and a key negotiating point.
But the signing raised questions over how much closer CPC is to resolving differences and getting its pipeline project off the ground.
"We are extremely satisfied with the commercial structure that has been accomplished and we believe it offers a realistic approach to such an important project," said Chevron senior Vice-President Jeet Bindra.
"We are anxious now to move it to the next stage and hope that a share acquisition will be accomplished by February 1997 and that construction will begin next year."
A raft of officials, including LUKoil President Vagit Alekperov, Kazakh Oil and Gas Minister Nurlan Balgimbayev, former Fuel and Energy Minister Yuri Shafranik, Deputy Fuel and Energy Minister Anatoly Shatalov, attended the signing.
Chevron spokesman Edward Chow said the two entities -- CPC Russia and CPC Kazakhstan -- would have an identical management structure.
But Russian Deputy Prime Minister Valery Serov said it had not yet been decided whether Transneft would acquire the Russian government's 24 percent stake in the consortium.
Chevron will own 15 percent in the CPC, Russia's LUKoil 12.5 percent, Mobil and Russia's Rosneft 7.5 percent each, British Gas Plc and Italy's Agip SpA two percent each, and Oryx Energy Company and Kazakhstan's Munaigaz 1.75 percent each.
The remaining 50 percent is divided between Russia (24 percent), Kazakhstan (19 percent) and Oman (seven percent).
Transneft Chief Executive Officer Valery Chernayev told Reuters that the firm wanted Russia's entire 24 percent stake -- a demand that could delay the project even further.
CPC, set up in 1992, is seeking to build a 1,580 km (990 mile) pipeline linking Kazakhstan's Tengiz oil field and Russia's Black Sea oil expot outlet Novorossiisk.
Chevron and Mobil, with a $20 billion oil project in Tengiz, are the main future customers of the CPC pipeline.
Officials signed the deal in a Moscow hotel conference area, but only after breaking out of negotiations repeatedly to run to corners of the room and consult.
"This concludes the first phase of the project," Serov said. "Now a follow-up step, which will be no easier than what we accomplished today, must be made -- project implementation."
CPC nominated Transneft as operator, but CPC sources said they had a stringent list of conditions Transneft had to agree to and fulfill if it wanted the role.
Serov said Western firms bidding to construct the link would have to do so jointly with Russian or Kazakh partners and said the latter would be given preference as equipment suppliers.
"From our point of view, Transneft has been designated as an operator," Chevron's Bindra told Reuters, adding that the group must still negotiate an operating agreement.
"For three years, we failed to find a common language," Balgimbayev said, adding that he was pleased with the deal.
The pipeline will initially move 28 million tonnes a year (560,000 barrels per day) of Kazakh and possibly Russian crude and will have a peak capacity of 67 million tonnes a year (1.34 million bpd).
| 28 |
Russia's Finance Ministry said on Thursday that Moscow was ready to cooperate with De Beers on a deal which a deputy minister said was vital to support the diamond market.
"The Russian Federation is further ready to cooperate with the De Beers company in the matter of continued support of the stability of the world diamond market," it said in a statement.
However, the ministry said it had received no official word from the South African group on its announcement on Wednesday that it had given the Russian government until the end of the year to sign a new trade agreement to export Russian rough gems.
The statement said the ministry, which plays a key role in the trade agreement, was studying what it termed De Beers' unilateral cessation of an agreement to sell Russian gems through De Beers' Central Selling Organisation.
De Beers had said not that it was unilaterally halting the agreement, but that if a formal deal were not reached by 1997, it would cancel its interim arrangement with Russia.
De Beers said it had made its announcement on Wednesday because its patience had worn thin over government delays in replying to the long-delayed deal.
First Deputy Economy Minister Vladimir Panskov said an agreement with De Beers was necessary.
"If this agreement is not signed, we will simply destroy the world diamond market. Neither the De Beers company nor Russia will be able to work normally without such an agreement," Interfax news agency quoted Panskov as saying.
De Beers controls about three quarters of the world diamond market and Russia accounts for about 25 percent of all rough gems De Beers sells.
A five-year deal expired in December 1995 and was replaced by a memorandum signed in February 1996.
Panskov said that in the course of work on the agreement, differences of opinion between Russian diamond producer Almazy Rossii-Sakha (ARS), domestic gem processing plants and De Beers had become clear.
"But I think that in any circumstances we cannot set off on the road of mutual ultimatums."
A senior official with ARS said the Russian government had been dragging its feet on the deal with De Beers but he thought a deal would come in 1997.
Interfax quoted Lev Safonov, first vice president of the company, as saying that if an interim agreement were broken off before a new deal was in place, the two sides would conduct trade under "other conditions".
| 28 |
Russia's Gazprom natural gas monopoly plans to double exports to Europe by 2010, mostly via its ambitious $40 billion Yamal pipeline project, but energy analysts said the timing could be wrong.
"There's a market problem (with oversupply in Europe), and the cost of developing the Yamal field will be too high," said a senior European energy specialist familiar with the project.
"Europe is at saturation level for the next 10 years or so, so Gazprom is 5-10 years too early."
The Yamal-Europe project envisions building a gas pipeline network across 4,107 km (2,550 miles) from Russia's vast Arctic Yamal peninsula reserves to Germany via Belarus and Poland.
Gazprom wants to take advantage of rising European demand.
To help raise capital for Yamal, RAO Gazprom is offering American Depositary Shares as part of a plan to sell a total nine percent stake abroad.
"Europe can hardly wait for this project," said Alexander Litvinov, Gazprom's chief public relations specialist.
A company statement said: "The company faces significant requirements for capital expenditures."
The Yamal system, to be built in stages and linking with existing pipelines in some places, would have an initial capacity of 83 billion cubic metres (bcm) per year, including around 52 bcm to Western Europe.
Gazprom said the Yamal-Europe pipeline would boost Russia's export capacity to 124 billion bcm by 1997 and 154 bcm by 1999. Sales outside the former Soviet Union were 117.4 bcm in 1995.
The company wants annual exports to rise by 50 bcm by 2010.
Gazprom has won big Western credits to build European parts of the Yamal link into Poland's grid and Belarus, but it has not won financing for the main part of the system or to boost output at Yamal itself, which it hopes to begin doing by 2000.
Pierre Bauquis, special adviser to the president of French company Total SA, told an energy conference in the Kazakh capital Almaty last week that Russia had huge gas reserves but big financial constraints.
"Yamal is not needed before 2010," he said.
He said netbacks (a key indicator of profitability) on Yamal gas to Germany today were negative, "so Yamal is not obvious from an economic standpoint."
Gazprom sees Yamal as the goose that will lay the golden egg, since the area has recoverable reserves of 10,400 bcm, or 20 percent of Russia's total proven reserves.
But Yamal gas, some under permafrost, is in a remote area and is quite expensive to recover.
Some analysts say it may be cheaper to tap and transport Algerian and Norwegian gas to European markets than to extract Yamal gas in the volumes and time-frame Gazprom plans.
Russian gas already accounts for 60 percent of Europe's total gas imports. Russia has more than one-third of world gas reserves and 26 percent of output, and is the world's single largest producer, with output of 556 bcm last year.
Gazprom accounts for 94 percent of Russian gas output and transports nearly all of it. The firm wants output to rise to 820 bcm a year by 2010.
Russia exports only 20 percent of its output, and declining industrial consumption at home has left Russia with an oversupply. Europe is also flush with supplies, though demand is set to rise.
"The fact that Gazprom does not have its own financing for Yamal and that it has not been able to find domestic or foreign financing (for the main part of the project) speaks quite negatively about its economics," said the European source.
| 28 |
Russia's oil industry earned higher export revenues from booming world prices in 1996 but has started 1997 increasingly worried about the slow pace of recovery in demand at home, energy analysts said on Wednesday.
Domestic producers, taking advantage of international oil prices which soared about 30 percent in 1996 to their highest in six years, jammed crude oil export outlets last year.
But analysts said that while companies would continue to try to sell as much as possible abroad, higher demand at home -- Russian oil's main future customer -- was not yet in sight.
Eugene Khartukov of Moscow's independent World Energy Analysis and Forecasting Group and the International Centre for Petroleum Business Studies said 1997 could show either a recovery in output or yet another slide.
"It's possible we will see stabilisation and possibly even some growth but it all depends on what the government does with taxes and the production-sharing law," he said.
Russian crude oil output in 1997 could rise to 6.3 million barrels per day (bpd) from the 1996 estimate of 6.1 million bpd and would probably not dip below that level, he added.
That could mean a significant turnaround for the world's third-largest oil producer, which has seen output nearly halved since its 1987 Soviet-era peak of 11.5 million bpd and is still struggling to slow the pace of decline.
The Fuel and Energy Ministry, which has not finished compiling 1996 results, said in December that crude oil and gas condensate output over January-November 1996 had slipped two percent to 275.9 million tonnes.
Exports of about one third of Russia's output jumped 4.7 percent year-on-year over the same period to 92.8 million tonnes, it said.
But producers used the extra cash to pay off debts and wage arrears, not to rehabilitate wells or drill new ones.
Deputy Fuel and Energy Minister Garipov said in December that Russia conducted no exploration for new oilfields last year for the first time since World War Two -- an unsettling sign since most of Russia's "easy" oil has already been produced.
"We believe that the general trend is stabilisation but that it will differ from company to company," said Maxim Shashenkov, a Russia analyst at Merrill Lynch in London.
"But further growth is constrained by limits in domestic demand and export capacities," he said, adding that higher export earnings had not underwritten the giant cost of structural transformation needed in the Russian industry.
Khartukov said bottlenecks in export outlets and flat demand from industrial consumers meant the Russian market was in fact oversupplied with crude oil and oil products for most of 1996.
"To increase output which can't be disposed of on the domestic market or be exported due to bottlenecks is crazy," he said, adding that oil companies could have technically produced an additional 70,000 to 100,000 bpd in 1996 but elected not to.
Russian wholesale producer prices for crude oil are a mere 50-55 percent of world levels and reach only 70-75 percent after tariffs and transport costs are tacked on.
Khartukov said crude oil exports would at least equal 1996's 2.5 million bpd this year and possibly hit 2.7 million and refinery throughput would be flat at around 3.4 million bpd.
But he also said Moscow's political and economic uncertainties could wreak havoc in the industry, adding: "It's a big crazy mixture of unpredictable things."
- Moscow Newsroom, +7095 941 8520
| 28 |
Russia's grain crop is proving to be one of its lowest in three decades, prompting trade sources on Monday to speculate that the government could return to world markets for imports to feed the military and remote areas.
The nearly complete 1996 harvest, bucking a trend of increased grain output across the world, weighs in at a gross 74.6 million tonnes, with little high-quality bread wheat and virtually no stocks from last year's disastrous output, which was the worst for more than 30 years.
"The figure is, I think, slightly lower than we expected," said a Western agriculture source, commenting on preliminary data published by the State Statistics Committee on Friday.
"It means additional imports."
The cash-strapped Russian state insisted last year it had long ago left world markets for good.
But Anatoly Manellya, head of agriculture forecasting at the Centre for Economic Trends, a think-tank set up by the Russian government, said the Federal Food Corporation, the state agency responsible for reserves to feed the armed forces and remote towns, might soon be in the international market.
"The Federal Food Corporation is probably going to try to do some deals," he said, adding only that it was in preliminary negotiations.
The agency has bought a mere 450,000 tonnes of domestic grain out of the 4.5 million tonnes it plans to buy this year.
"As far as I know, the government is talking about possible imports for us, but I cannot tell you anything more since we merely fulfil government orders and they have not yet told us anything," said Corporation deputy director Yuri Lysenko.
Russia's harvest last year was officially 63.4 million tonnes and record-high world grain prices kept traders from importing any significant quantities from beyond the former Soviet Union and Eastern Europe.
This year prices are lower after bumper world harvests, with benchmark Chicago contracts at $3.75 per bushel after a long spell above $5 and a spike to $7.50 in March.
But Russian farmers, mindful of recent high prices, have declined to sell to state reserves -- making government officials jittery over how to feed the soldiers and isolated Arctic cities that cannot depend on the private sector.
"It seems like more and more contracts are being talked, especially in the (Russian) Far East," said the Western source, who forecast Russia's total grain imports over the 1996/97 crop marketing year from all sources at five million tonnes.
Andrei Sizov of the private agricultural consultancy SovEcon Ltd recently put the total at six to seven million tonnes.
Allowing for the eight or nine percent that is lost after cleaning, Russia's 1996 net harvest will probably weigh in at a lean 68 to 69 million tonnes -- not much above last year.
Manellya said he had told the cabinet last week that net output would be 69.8 million tonnes.
"This is better than last year, but is still one of the three worst harvests in the last three decades," he said.
-- Moscow Newsroom +7095 941 8520
| 28 |
Russian cocoa importers hope business will be sweeter this year, but increasing competition from Western chocolate bars and a lack of precise data on buying patterns have clouded the market, trade sources said on Monday.
"The general tendency is one of growth -- we'll be buying more cocoa this year," said Yuri Granilin, supplies director at the large Babayevsky confectionery plant in Moscow. He declined to give figures.
Domestic producers are competing against a flood of Western ready-made chocolates, with the latter in an upward trend as domestic firms struggle to find recipes for success in a market economy.
The State Statistics Committee said imports of cocoa from outside the Commonwealth of Independent States edged higher to 47,700 tonnes in the first eleven months of 1996 from 47,000 tonnes over the same 1995 period.
The International Cocoa Organisation puts Russian grindings over 1995/96 flat at 75,000 tonnes for the third marketing year in a row.
One Nestle source said Russia's ready-made chocolate products market would grow 15-20 percent this year but that overall growth in cocoa imports was unlikely.
Alexander Pavlov, head of the Agriculture Ministry's food industry department, said Russia's 1996 imports of cocoa and cocoa derivatives slipped eight percent year-on-year.
"I don't think we'll see much growth this year," he said, putting imports of cocoa beans, liquor, powder, butter, grated chocolate and semi-fabricated whole cocoa bars at 130,000 tonnes, including about 75,000 tonnes of beans.
But he cautioned that figures were difficult to pin down, since some imports do not show up in the official statistics and producers had stocks left over from 1995.
Pavlov estimated that imported ready-made chocolate products comprise 10-15 percent of the domestic market for such goods.
Companies like Nestle SA, Switzerland's Andre et Cie, Cargill Inc of the United States and E.D. & F. Man International Inc are suppliers to Russian confectionery plants, which now buy direct instead of going through the Soviet-era agencies that bought about 100,000 tonnes of beans a year.
"The Russian market is quite different from the U.S. and European ones," said a senior source at a major Western confectionery. "It's a question of taste," the source said, adding that three times as many Russians prefer dark chocolates to those who prefer milk chocolates.
Individual chocolate bars are a relative novelty in Russia and are having to work hard to compete with the traditional large, block chocolates, wafers and biscuits Russians love.
One source guessed the size of the bar market at 100,000 tonnes a year, but cautioned this was a rough estimate.
The market for chocolate-covered wafers and biscuits could be three times higher, while the market for small chocolate candies was possibly four times greater, the source said.
Bars, packaged for on-the-go consumption, are a relative novelty to Russians, who traditionally treat chocolate as a treat to be consumed at home or on special occasions.
"Russians are into plain chocolate; these fillings, nuts and souffles the Europeans love aren't our tradition," Pavlov said.
Moscow grocery stores are filled with imported and domestic chocolates, but the abundance does not extend to the rest of this vast country to the same extent.
Trade sources said the Russian market was in such a state of change that Western confectioners were keener to launch new brands rather than increase an existing brand's market share.
"Everything is changing really quickly," said one source.
--Moscow Newsroom, +7095 941 8520
| 28 |
Russia is eyeing its second consecutive bad grain harvest and will need imports despite a prediction by Prime Minister Viktor Chernomyrdin that output will be enough to meet demand, industry sources said Tuesday.
"The sheer volume Russia will produce is enough to meet demand, but the quality is not," said specialist Andrei Sizov of the independent consultancy SovEcon Ltd. "So it is fully possible that Russia will be forced to go to Western markets."
Chernomyrdin, in a speech to the Federation Council, the upper parliament house, forecast 1996 grain output of 77-78 million metric tons, "significantly higher" than last year's harvest of 63.4 million tons.
"This will allow us to provide the population with bread and bread products until the new (1997) harvest, to prepare enough concentrated feed grains and to increase grain reserves," a copy of Chernomyrdin's speech read.
But grain sources have said private-sector buying would still take place. "We have a shortage of first-class wheat," Georgy Zelinsky, general director of the agricultural trade association Khleboproduktprogress, told an industry seminar.
Sizov said piecemeal Russian imports of grain and flour in grain equivalent from all sources would rise to 5.0-6.0 million tons over the 1996/1997 crop year, from 4.5 million in 1995/1996 crop year.
Anatoly Manellya, head of agricultural forecasting at the Centre for Economic Trends, a think-tank set up by the government, said he thought imports could be even higher.
Agriculture Minister Viktor Khlystun has said Russia may import up to 4.5 million tons of corn and soymeal, plus 500,000 tons of wheat from the United States, Canada and/or Australia.
Zelinsky said domestic feed corn was in short supply, but corn for human consumption was not.
But industry sources said Western markets should not expect sudden announcements of big purchases. Rather, Russia would buy piecemeal in small lots, they said.
Sizov said imports of Western grain could be possible because Ukrainian flour supplies would slip due to very poor harvest outlook there.
"Russia has become the world's largest flour importer," he said, referring to imports which increased to one million tons in the 1995/1996 crop year, a rise of 25-30 times from the previous year.
Industry sources said the most likely buyers would be the dozen or so Russian commercial banks authorised to use U.S. government commodities credits.
Russia has used nearly all its reserves from the 1995 harvest, the worst in three decades. It survived largely due to carryover stocks from the 1994 harvest.
| 28 |
Russia's state oil holding firm Rosneft said on Friday it would protest against a local decision to award Exxon Corp the right to tap Arctic oilfields, signalling Moscow's tougher line towards Western energy companies.
Rosneft spokesman Vladimir Tumarkin said Exxon, which regional officials declared the winner of a tender to develop the Central Khoreiverskaya oilfields in the northern Timan-Pechora area, would be given too many privileges.
"Exxon's bid violates the terms of the tender in that it would give Exxon the exclusive right to these resources as well as the right to tell the Russian side under what terms it should work," he told Reuters.
The protest is the most concrete evidence to date that Moscow, in a significant change of policy, is serious about giving its own oil companies a greater role in developing Russian oilfields.
The legal basis upon which Rosneft -- which bid jointly with a subsidiary and Amoco Corp in the tender -- would protest was not immediately clear.
Exxon officials could not be reached for comment.
"What are you talking about; how can they protest this?" said Anatoly Kazakov, deputy head of the Arkhangelsk oblast regional administration and a member of the region's Nenets autonomous district tender committee that on Thursday declared Exxon the winner.
"Everything was done absolutely normally."
Under the tender, Exxon would have a 50 percent stake and conduct negotiations to bring Rosneft, Russian oil firm KomiTEK and exploration body Arkhangelskgeoldobycha in to split the remaining 50 percent in a production-sharing contract.
Rosneft is the state's agent in all production-sharing contracts and has the right to dispose of the state's share of output from such deals.
Tumarkin said that under the original terms of the Central-Khoreiverskaya tender, no foreign firm had the right to tell the Russian side how to work.
"Exxon did not conduct negotiations with us when it bid and its proposal gives it an exclusive right to the reserves," he said.
The quarrel over who will develop the fields, which contain about 160 million tonnes of oil and require about $1.5 billion to develop, underscores the ambivalence Russia feels about attracting foreign oil investment.
One the one hand, it desperately needs the money. On the other hand, it is loath to repeat the kind of contracts signed to develop reserves off the Far Eastern island of Sakhalin, contracts in which foreign firms hold nearly 100 percent stakes.
"Fifty-fifty -- what's the problem?" said Kazakov."As a Russian, I agree we should support our companies. But if our companies don't have the money or financing, we have to do something else."
The squabble is the first test of how much more difficult Russia could make it for Western oil companies seeking to tap big reserves.
Tumarkin said Rosneft had wanted Exxon to form a consortium with at least some of the other bidders, including the informal Rosneft/Amoco alliance, Texaco Inc, Total SA of France and Norsk Hydro ASA.
But the idea had received little support, he said.
--Moscow Newsroom, +7095 941 8520
| 28 |
Russia is trying to shift financing of its tarnished gold sector to commercial banks while keeping control of exports, putting it on a collision course with the banks who say sales abroad are what interest them.
Moscow bullion officials view recent Central Bank decisions outlining new procedures for working with gold as a cautious, experimental step toward opening one of the country's most closed industries, the banks say.
"Administrative measures in Russia always mean something," said Dmitry Smirnov, head of precious metals operations at Vneshtorgbank, commenting on whether recent changes detailing accounting procedures for working with gold were Soviet-style bureaucratic paper-shuffling or more significant.
But he said: "Honestly, I wouldn't expect a sharp rise in output any time soon."
Russian bullion officials say they want to open up the domestic market, since the federal budget can no longer finance gold output or keep the state's strategic reserves well-stocked.
Canadian industry sources say Russia has the world's third-largest untapped gold reserves but is only the world's fifth-largest producer, a fact that reflects the difficulty it is having in channeling funds to mines.
Output in 1995 fell to about 130 tonnes and will slip in 1996 and 1997. About 130 banks have the right to trade in gold domestically but only five to eight can export gold abroad.
Banks financed only five tonnes of output last year.
Western bullion bankers say bank-financed output makes Russia a potential loose cannon on world markets, since it could quickly send output soaring.
Gold, which struck three-year lows earlier this week but has picked up slightly since, hovered around $368 an ounce on Thursday on the London Metal Exchange.
Domestic banks, some of which bought government gold-backed certificates in 1991 which they cashed in for metal, may already have significant stockpiles of gold which they are unable to export due to strict quota and licensing rules.
Boris Yeltsin's press service said on Thursday the president had decreed that Russia would not issue certificates backed by about 30 tonnes of gold as planned last year.
"I know that there are a lot of banks with a lot of gold that they are just waiting to sell abroad," said Dmitry Parmeshin, head of Inkombank's precious metals sales section.
"We all want to take this stuff out if the (domestic) market becomes liberalised enough."
Bankers declined to put a figure on the number of tonnes of gold held in Russian commercial banks, but one said the figure could be at least in the dozens.
The Central Bank in October introduced new accounting procedures for banks seeking to work on the domestic gold market. But the institution still largely controls exports through quotas and licences.
Interfax news agency quoted Central Bank precious metals director Sergei Kyshtymov as saying the rules would soon be simplified further.
"This can be viewed as the first step toward a more open gold market in Russia," said Sergei Brazhenko, deputy head of precious metals department at Rossiisky Kredit, one of the few banks with a licence to export gold abroad.
"The task is to hook up our output with world market demand, given that our domestic consumption is low."
Bullion bankers said domestic consumers bought 15 tonnes of gold last year, mostly as jewellery -- but they said trade restrictions hid the fact that consumer demand was higher.
"Once things become truly liberalised, the domestic market could really explode," Parmeshin said.
| 28 |
Russia's aluminium industry, in private hands and learning market-savvy moves in ways its former state owners never could, still holds surprise cards but may no longer terrorise world markets with sudden, secret exports.
Metals analysts said on Friday that Russia, which accounts for about 15 percent of world output, would not cut production or exports in 1997 even in the face of rising costs at home, low margins and weak world prices.
Instead, smelters -- now mostly in private hands after years of turbulent shareholder battles -- would do all they could to turn profits.
"What has happened over the last year in particular is that ownership has settled down so that you can be fairly sure of the conduits of the smelters' metal," said a senior London metals trader who declined to be identified.
"They will continue to sell the metal, come what may."
Russia, fresh off a two-year global output cutting agreement that expired this spring, seized the opportunity to restart some idled capacity and increase exports.
The increases laid to rest market talk that Russia wanted to craft a new output cutting deal to boost low London Metal Exchange prices. But analysts still wonder how much Russian aluminium could flood onto sensitive markets.
Asked if Russia had learned anything from the March 1994 memorandum of understanding that reduced global output 10 percent to draw down bloated stocks, the senior London source said, "It has not learned. I don't think they care."
Igor Prokopov, director of Kontsern Alyuminiy, the producers' group uniting Russia's aluminium industry, said 1996 primary aluminium output would rise 1.5 percent from 1995 to 2.79 million tonnes.
Production could rise another 1.5 to 2.0 percent in 1997.
The group put Russian 1996 primary aluminium exports at 2.37 million tonnes, against what it said were 2.11 million in 1995.
"Some noise has appeared in the West that Russia has cranked things up, which is not really true," Prokopov said.
But two base metals analysts said the figures seemed on the low side and Russian smelters had undoubtedly increased output.
But they have done so while consolidating sales operations to try to make more money on exports, which has introduced more transparency into deliveries abroad.
Shareholders, many of them Western commodities power houses, were having a greater hand in that transparency, since they were increasingly buying direct from smelters.
Pechiney of France, Glencore AG of Switzerland and London-based powerhouse Trans-World Metals and its units already have major stakes in Russian smelters.
Analysts said the Bratsk smelter, the world's largest, with annual capacity of about 850,000 tonnes, had major plans to modernise with the help of a top European industrial firm.
LME three-month aluminium futures are around $1,550 a tonne, clawing back from October's 2-1/2 year low of $1,305 but below a $2,195 in January 1995, the last major peak.
Prices had been even lower before Russia and five other countries -- the United States, Canada, Australia, Norway and the European Union -- signed the 1994 accord. The five said Russia was to blame because it had flooded markets with metal.
Those exports were largely orchestrated by the state, which needed cash to fill its coffers.
Now smelters say they are reining in trade and marketing operations to be closer to markets in a way that Soviet-style ministries in Moscow were not.
"Integration could have a positive affect," Prokopov said, citing expense rationalisation and consolidated balances.
Russia is an aluminium powerhouse because its Siberian smelters, which account for 90 percent of output, have endless, cheap hydroelectricity generated by rivers.
| 28 |
Russia, hoping to boost industrial output, announced plans on Monday for lower electricity and rail transport prices, cheering energy-hungry aluminium plants but worrying Western economists.
President Boris Yeltsin's press service said Yeltsin had signed a decree at the weekend cutting wholesale electricity charges for industrial and residential customers from November 1 by an average 10 percent from their August 1 levels.
The decree also promised to rein in runaway rail transport charges, saying tariffs for transport by rail on electric locomotives would be set by the new electricity pricing rules.
Yeltsin's decree also promised to create a wholesale natural gas market by next year.
By bringing order to unruly pricing structures, the decree also aims to improve tax collection.
Privatised aluminium smelters in Russia, one of the world's largest producers, said the new rules would help them save them money as electricity and transport are two of the major costs in producing and exporting the non-ferrous metal.
But Yeltsin's decree aroused doubt from Western economists, who called it little more than a short-term way of plugging the budget deficit and unsustainable in the long run.
"Of course this makes us happy," said a representative in Moscow of the big Krasnoyarsk aluminium smelter.
But he declined to say how it would affect output.
"It's not sustainable in the long term," said a top Western economist. "Over the short term, it will reduce production costs, but it does nothing to solve nonpayments."
Boris Arlyuk, managing director of St Petersburg-based Alumconsult, said that Russia's average industrial electricity prices were already much higher than world charges.
But Russian smelters rarely pay full price, thus helping to fuel a massive non-payments cycle in which aluminium plants -- a major consumer of electricity -- owe regional utilities for supplies, who in turn owe the state unpaid taxes.
Yeltsin's decree is partly designed to break this cycle.
The decree also said gas and electricity producers would be liable for excise and profits tax on proceeds from collecting debts for their supplies, as long as these proceeds did not fall below the actual cost of producing and transmitting supplies.
That means it could become easier for utilities to collect money from aluminium producers and other industrial customers.
Arlyuk said domestic electricity tariffs vary greatly, with the Kandalaksha aluminium smelter in the European part of Russia charged the rouble equivalent of $25 per megawatt hour, and using 17 megawatt hours to produce each tonne.
But rates at the giant Bratsk smelter in Siberia were the equivalent of $6 per megawatt hour -- the same, Arlyuk said, as in big aluminium producing countries like Canada and Norway.
Bratsk, using 17.7 megawatt hours per tonne of produced aluminium, spent only $106 per tonne on electricity compared to about $425 per tonne for Kandalaksha.
Dmitry Kryukov, a utilities analyst at Renaissance Capital, said that partly privatised national power company Unified Energy System (RAO Yedinaya Energeticheskaya Sistema) would see lower revenues.
But he said its cash flow could improve since it would be taxed only when paid for deliveries, and not before.
Still, Anatoly Gamanov, head of tariffs at the aluminium producers' group Kontsern Alyuminiy, said he doubted regional utilities would be happy to receive less for their supplies.
"This is not the first time we've seen something like this, and some regional utilities may put up a fight."
UES owns 29 power plants and holds 49 percent stakes in most of the privatised "energo" regional utilities.
Electricity and rail tariffs have risen faster than the overall producers price index, prompting Kremlin officials to seek ways to give industrial producers a break.
| 28 |
The head of war-torn Chechnya's oil company said on Thursday that Russia's rebellious region would guarantee the safety of a major oil pipeline across its land but demanded a cut in foreign deals that will use the link.
Khozhakhmed Yarikhanov, president of the Southern Oil Company, which is based in the devastated capital Grozny, told a news conference that an $8 billion multinational consortium that will use the link to export oil in 1997 should not worry because the pipeline was safe and sound.
"We guarantee the link's safety," he said. "But remember that with pipelines all over the world, things sometimes happen -- sabotage, technical errors, human errors."
He said Chechnya should get a cut from transit fees via the so-called northern link, which can carry 17 million tonnes of oil a year.
"The Chechen part is approximately in the same condition as the rest of the link," he said, referring to the stretch running through Grozny and linking the Azeri capital Baku to Russia's Black Sea oil export outlet of Novorossiisk.
The 13 international oil companies in the Azerbaijan International Operating Company plan to reverse the flow of the pipeline to ship up to 100,000 barrels per day (bpd) of early oil from their Caspian offshore projects near Baku from August 1997.
The consortium is led by an alliance of British Petroleum Plc and Norway's Statoil.
Protracted bloodshed and instability in the 21-month Chechen conflict have given the consortium the jitters ever since Moscow sent troops into Grozny in December 1994 in a bloody bid to rein in the breakaway region.
The oil firms, worried that exports from their big ticket investments could fall prey to a separatist war, have access to a second export route via the former Soviet republic of Georgia.
Underscoring the fragility of the region for oil investors, six foreigners working with the International Committee of the Red Cross were shot dead at a Chechen hospital on Wednesday and six ethnic Russians were killed on Thursday.
Yarikhanov, who said he had faced a cool reception at Russia's Transneft oil pipeline monopoly, which owns and operates the pipeline, and at the Fuel and Energy Ministry, said Moscow was not doing enough to resurrect the region's once-glorious oil sector.
While he said the pipeline was no worse for the war, Chechnya's production and refining facilities had been laid waste.
At least eight trillion roubles ($1.44 billion) were needed to bring the facilities back on line. Yarikhanov said financing could come from a Chechen cut in the transport fees that the Azeri oil consortium will pay to ship oil via Chechnya.
"We want our share of profits from the transport of oil across our country," he said, adding the Azeri group would pay $16.57 per tonne to send oil from its Caspian Sea platforms near Baku to Novorossiisk.
The Azeri oil consortium also includes Azeri state firm SOCAR, Amoco Corp, Pennzoil Co, Unocal Corp, Exxon Corp, Ramco Energy Plc, Russia's LUKoil, Turkish TRAO, McDermott International Inc, Itochu Corp and Saudi Arabia's Delta Nimir.
The Southern Oil Company, also called the Chechen Oil Company, had hoped to stabilise output at three to four million tonnes a year before the breakaway region descended into bloodshed.
Chechnya accounted for one-third of Soviet oil production in the 1970s, or around 22 million tonnes a year, before Moscow began tapping its massive Siberian reserves.
Refining capacity in the south Caucasian region is 20-22 million tonnes a year, but operations have ceased.
($1=5549 Rouble)
| 28 |
Russia's demand for feed grains will outstrip any output increases its agriculture sector manages in coming years, which could turn the country into a big importer, industry officials said on Friday.
Russia, which has just completed its second poor harvest in two years, the third worst in 30 years, is heading into the next crop cycle with few signs that its dismal track-record will soon recover.
"For now, consumption is still low enough to offset the decline in output, but demand is still going to rise faster than production," said Alexander Yukish, president of the Grain Union, which groups leading private traders.
Russian farmers have to struggle to get their hands on whatever seeds, tractors and fertilisers they can scrape together.
The agriculture sector, one of the most inefficient and least-reformed in Russia, has not adopted the pro-market changes reshaping some other domestic industries.
"Russia will need at least 120 million tonnes of grain when livestock levels and consumption return to the levels we had in 1990," said Yukish. But he said Russian grains output, which has nearly halved in recent years, would not stage a comeback for at least another five or 10 years.
"There is just not enough feed grain in Russia -- we've got to produce more soymeal and maize," Alexander Vasyutin, deputy head of the Agriculture Ministry's crops growing section, said.
Russia has been slaughtering livestock because it does not have enough grain to feed it. Bread is a staple in Russia but people are eating less and product quality is patchy.
Russia's just-completed 1996 gross harvest was 74.6 million tonnes, according to preliminary official figures -- just eight percent above 1995's disastrous net 63.4 million tonnes, the worst since about 1965.
About eight percent of the 1996 total will be lost after cleaning -- putting net output at about 68.6 million tonnes.
Some analysts say up to 20 percent of Russia's harvest was lost in the Soviet era due to inefficient, obsolete combines, and that losses now, with even less money for adequate equipment, may still be severe.
"Next year, we'll see the same harvest we had this year, maybe a little more, maybe a little less," Yukish said. "But to expect sharp increases in output next year is not realistic."
Industry officials said that with the domestic economy showing signs of turning around and a growing middle-class hungry for meat, Russia must act fast if it is to satisfy demand in the future.
Already the signs do not point to big increases next year.
Vasyutin said farmers, afraid of unseasonably warm, dry weather that has lasted into November across Russia's grain belt, had sown 1.2 million fewer hectares, or around 14.5 million hectares, to winter grains for harvesting in 1997.
"Crops are in a satisfactory condition, but moisture levels are not adequate," he said, adding government officials had targeted a 1997 harvest of at least 70 million tonnes."
Winter wheat accounts for about 15 percent of Russian wheat output and can crucially tip the balance.
"Russians want to eat meat -- but this desire has to be preceeded by very serious structural changes in agriculture," Yukish said. "Russia will be a big feed grains importer for quite a while -- of that I am quite sure."
-- Moscow Newsroom, +7095 941 8520
| 28 |
The world's biggest aluminium smelter, Russia's Bratsk plant, opposes any output-cutting schemes and wants to boost production and to compete better on world markets, a senior company official said on Thursday.
"Bratsk is an inveterate supporter of market-economy principles and not of schemes that violate such principles or of anti-monopoly laws," said Yuri Shlaifshtein, a Bratsk board member based in London who conducts corporate strategy and watches London Metal Exchange prices.
"Each company should choose the strategy best suiting it."
AOOT Bratsky Aluminievy Zavod (BrAZ), based in southern Siberia close to plentiful hydroelectric power, has already increased output of A7 higher-grade material to 69 percent of total production from 30 percent.
Shlaifshtein declined to provide production figures but said competitiveness abroad and at home were essential to Bratsk's long-term strategy.
An independent metals source who asked not to be named said Bratsk produced 62,800 tonnes of primary aluminium in October after 61,500 tonnes in September and 64,500 tonnes in August.
Bratsk's costs, already some of the lowest among Russian aluminium producers, are an average $1,250 per tonne of aluminium produced and transported to Rotterdam via St Petersburg, said Boris Arlyuk of the Alumconsult consultancy.
"Their production is pretty profitable," he said.
But Shlaifshtein said Bratsk was seeking to streamline costs even further and that a new, tough attitude to debtors by Russian tax officials could put flagging competitors in the European part of Russia out of business.
"Each factory should improve its economic situation and cost factors in order to be competitive on the market," he said.
Bratsk does not like to talk about a recently-ended global output-cutting deal which required Russian producers to cut back production to boost sagging world prices.
World prices are again flagging --- but Shlaifshtein said that this time, cutting output was not an option.
"The volume of output at the plant should change only on the basis of one's own strategic interests, of the overall economic situation and of the market situtaion," Shlaifshtein said.
He said it made economic sense for the plant to use its capacity, but gave no further details.
Bratsk, Russia's flagship aluminium smelter, wants to top its Soviet-era record output of 857,000 tonnes a year after 772,500 tonnes in 1995.
Its total capacity is at least 820,000 tonnes and possibly one million tonnes, according to Western industry sources.
Bratsk had already closed a unit for technological and environmental reasons by the time Russia, Canada, Australia, Norway, the United States and the European Union signed a two-year global output-cutting memorandum of understanding in March 1994. The deal expired this spring.
Bratsk produces most of its metal under tolling arrangements with London-based shareholder Trans-World Group, which has at least a 50 percent stake in the plant. --Moscow Newsroom, +7095 941 8520
| 28 |
Russia's Norilsk Nickel metals group, a key supplier to world markets, said on Tuesday it was struggling with a shaky financial future despite keeping output steady at its top plant.
"We are undoubtedly in a state of financial crisis," said Viktor Feldman, deputy economics director at the Norilsk group.
Feldman singled out the high cost of maintaining social services in the inhospitable Far North of Russia where many of its leading plants are based. "Our biggest woe is supporting the social sphere, a sphere which, I might add, the government should be supporting," he said.
A senior official at the Norilsk combine, the flagship plant of the RAO Norilsk Nickel group, said the facility's output had gone according to plan, with 1996 nickel production at 100,000 tonnes and forecast flat in 1997.
Norilsk is the world's second largest producer of refined nickel, a principal component in stainless steel, and also accounts for about 45 percent of world platinum and palladium production, according to metals analysts.
But First Deputy Prime Minister Vladimir Potanin was quoted by Interfax news agency on Tuesday as saying the plant might have to issue stock to pay off what the agency said was its 1.7 trillion rouble ($300 million) in debts or face bankruptcy.
Potanin is the former head of Uneximbank, the big Russian commercial bank that controls a 38 percent state-owned stake in Norilsk from a 1995 government shares-for-loans auction.
"We are constantly improving Norilsk's financial situation," said Alexei Parshikov, director of Interrosimpex, the powerful Russian group that now handles nearly all of Norilsk's exports and is trying to streamline trading operations to boost profits.
"I wouldn't use the word crisis to describe us, because crisis is when production stops, and that is not happening. We are producing according to plan."
Norilsk officials have for the first time in years declined to provide immediate total group production results for 1996 and 1997 forecasts.
Uneximbank press relations director Yuri Oleinikov said the group had slightly overfulfilled its plan to boost nickel output by three percent and copper output by six percent in 1996, but gave no absolute figures.
The group's 1995 nickel output was 180,100 tonnes, while its refined copper output was 338,700 tonnes.
About one third of Norilsk's profits go to supporting social services in the expensive and vastly remote Far North, where four of the group's six key enterprises, including the flagship combine, are based.
"We want 1997 to be the year we stabilise, and we are doing a lot to make sure that this happens," Feldman said. "But my position does not permit me to say this actually will happen."
Potanin said Norilsk, if it did not agree to a share issue to raise capital, would be put in the hands of a special tax commission which could institute liquidation proceedings.
Oleinikov said he did not think a share issue would solve Norilsk's cash problems and called on the government to understand the logistics of producing metal in a frozen, inhospitable section of the globe.
"Our sector should have a strong state role because it is a core industry -- it supports people and, through its exports, the federal budget," Feldman said. "Production will undoubtedly continue normally -- we take a lot of measures to ensure that.
Norilsk ordinary shares had fallen 8.95 percent to $6.00 at 4.26 p.m.(1226 GMT) on the Russian Trading System.
"The state should understand that to demand too much is to cut into production," Oleinikov said. "They will not want to kill the goose that lays the golden egg."
--Moscow Newsroom, +7095 941 8520 ($1 = 5,597 roubles)
| 28 |
Russia's oil industry earned higher export revenues from booming world prices in 1996 but has started 1997 increasingly worried about the slow pace of recovery in demand at home, energy analysts said on Wednesday.
Domestic producers, taking advantage of international oil prices which soared about 30 percent in 1996 to their highest in six years, jammed crude oil export outlets last year.
But analysts said that while companies would continue to try to sell as much as possible abroad, higher demand at home -- Russian oil's main future customer -- was not yet in sight.
Eugene Khartukov of Moscow's independent World Energy Analysis and Forecasting Group and the International Centre for Petroleum Business Studies said 1997 could show either a recovery in output or yet another slide.
"It's possible we will see stabilisation and possibly even some growth but it all depends on what the government does with taxes and the production-sharing law," he said.
Russian crude oil output in 1997 could rise to 6.3 million barrels per day (bpd) from the 1996 estimate of 6.1 million bpd and would probably not dip below that level, he added.
That could mean a significant turnaround for the world's third-largest oil producer, which has seen output nearly halved since its 1987 Soviet-era peak of 11.5 million bpd and is still struggling to slow the pace of decline.
The Fuel and Energy Ministry, which has not finished compiling 1996 results, said in December that crude oil and gas condensate output over January-November 1996 had slipped two percent to 275.9 million tonnes.
Exports of about one third of Russia's output jumped 4.7 percent year-on-year over the same period to 92.8 million tonnes, it said.
But producers used the extra cash to pay off debts and wage arrears, not to rehabilitate wells or drill new ones.
Deputy Fuel and Energy Minister Garipov said in December that Russia conducted no exploration for new oilfields last year for the first time since World War Two.
"We believe that the general trend is stabilisation but that it will differ from company to company," said Maxim Shashenkov, a Russia analyst at Merrill Lynch in London.
"But further growth is constrained by limits in domestic demand and export capacities," he said, adding that higher export earnings had not underwritten the giant cost of structural transformation needed in the Russian industry.
Russian wholesale producer prices for crude oil are a mere 50-55 percent of world levels and reach only 70-75 percent after tariffs and transport costs are tacked on.
Khartukov said crude oil exports would at least equal 1996's 2.5 million bpd this year and possibly hit 2.7 million and refinery throughput would be flat at around 3.4 million bpd.
But he also said Moscow's political and economic uncertainties could wreak havoc in the industry, adding: "It's a big crazy mixture of unpredictable things."
| 28 |
Russia is finding the return of competitive Iraqi oil to world markets a bitter pill to swallow, but may use the occasion to revamp further its own marketing strategies to compete better, energy analysts said on Wednesday.
Russian Urals sour crude is similar in quality and composition to Iraq's Kirkuk blend and was Iraq's main competitor in the Mediterranean before Gulf War sanctions shut Baghdad out of the market.
"If I was a Russian and had a lot of crude to sell, I'd think about pricing competitively," said Sarah Anderson of Energy Security Analysis Inc in Washington.
"When you talk to Med refiners, they say they have a long history of buying Iraqi crude."
Sour Urals differentials in the Mediterranean -- pressured this week by the first Iraqi exports in six years -- have already begun to tumble.
"In an environment where Russian oil producers were really only making profits on the (world) price rise since July, Russian gains could be effectively wiped with the appearance of Iraqi oil," said Gavin Rankin, research head at Troika-Dialog.
Three Russian oil companies have signed contracts with Iraq to buy 1.3 million tonnes of Iraqi oil and are awaiting U.N. approval.
All three firms -- Zarubezhneft, NK LUKoil and Nafta-Moskva -- declined to discuss how they would market the Iraqi barrels.
Some analysts saw more than Russia's Soviet-era political associations with Baghdad and higher world prices behind the Russians' interest in signing the contracts.
"One of the reasons the Russians were keen to get involved was to get some transparent pricing for their own oil," said analyst James Bunch of Renaissance Capital.
Urals, a medium-gravity sour oil with a 1.4 percent sulphur content, comprises the bulk of Russia's exports into the Mediterranean.
Analysts said the renewed competition as Baghdad seeks to recapture customers it lost to Russia and other producing countries could spur changes in the way Russia sells oil abroad.
"Their marketing strategies have changed in recent years -- it's no longer a free-for-all," said Peter Houlder, managing director of CentreInvest Group consultancy in Moscow.
"Increasingly companies are setting up their own marketing divisions in a bid to cut out the middle man and make more money" - a trend he said Iraqi competition could fuel further.
Stephen O'Sullivan, associate oil and gas director at MC Securities in London, said producers might seek to move more oil out of the Baltics than out of Russia's Black Sea outlet of Novorossiisk to avoid price pressures from Iraqi supplies.
Russia exports about one third of its 6.2 million barrels per day output, with a third of the total leaving Novorossiisk, mostly for Mediterranean markets.
One analyst said Russian oil companies' marketing outfits abroad had already become "surprisingly sophisticated".
"They are very aggressive -- but I don't think they're making Shell nervous that they have these great trading operations."
Under the U.N. deal Iraq can export $2 billion of its oil over six months to pay for food and medicine after six years of crippling international sanctions following its invasion of Kuwait.
The strictly-monitored scheme allows Baghdad to export only from the Turkish Mediterranean port of Ceyhan and Mina al-Bakr through U.N.-approved contracts.
| 28 |
Russia's former fuel and energy minister, Yuri Shafranik, tried but failed to create a mega oil corporation by merging four privatised companies, energy sources familiar with the ill-fated proposal said on Thursday.
They said Shafranik's proposal, first aired this summer, to merge the Tyumen Oil Company (Tyumenskaya Neftyanaya Kompaniya), ONAKO (the Orenburg Oil Company, or Orenburgskaya Neftyanaya Kompaniya) ORNB.RTS, the Eastern Oil Company (Vostochnaya Nefytanaya Kompniya) and Slavneft, found no government support.
Sources said Shafranik, in search of a consolation prize, was now trying to create a financial-industrial group uniting some of the firms he wanted to merge and second-tier players.
Had Shafranik succeeded with his merger plans, he would have created Russia's largest oil producer, a super company whose units collectively produced over 89 million tonnes in 1995 -- far above current leader LUKoil, which produced over 57 million tonnes last year.
"Shafranik had this idea and was excited about it for a while, but then it ran into big problems with government acceptance," said one source who asked not be named.
The company, had it been created, would have accounted for nearly one third of Russia's total 1995 oil output of around 305 million tonnes. Russia is the world's third largest oil producer.
The sources said the proposed financial industrial group would consist of the Tyumen Oil Company, SIBUR (the Siberian- Urals Oil and Gas Chemicals Company, or Sibirsko-Uralskaya Neftegazokhimicheskaya Kompaniya), the Eastern Oil Company, Slavneft (a joint venture between Russia's Megionneftegaz MFGS.RTS and Belarus) and the Eastern-Siberian Oil and Gas Company (Vostochno-Sibirskaya Neftegazovaya Kompaniya).
SIBUR and Eastern-Siberian are two independents that do not have crude oil production units.
Sergei Verin, secretary to the board of directors of the Tyumen Oil Company, where Shafranik is chairman of the board, said only that the proposed financial-industrial group would undertake "joint projects".
Shafranik had hinted at a news conference in July, when he was still energy minister, that four companies would merge, but refused to say which ones.
"This is a big secret, and I'm not going to name the oil companies," he said. "Somebody will be against it, very against it, because this will be a powerful competitor."
Fuel and Energy Ministry spokesmen declined to comment on the failed proposal, and earlier prohibited a correspondent from raising the issue with the new minister, Pyotr Rodionov, as one condition of receiving an interview.
"Why don't you ask Shafranik?" Rodionov said on Thursday after a cabinet meeting, when asked about the failed merger.
Verin said only that a merger was not now being discussed and that the Tyumen Oil Company was the motor behind the financial-industrial group talks.
"Our goal is to undertake joint projects that a single company itself could not take on alone," Verin said, adding that all sides were in active negotiations on a development strategy.
Shafranik left the Fuel and Energy Ministry in August for the Tyumen Oil Company. It is based in Siberia's oil-rich Tyumen region, where Shafranik was administration head before taking his ministry post in 1993.
Shafranik saw Russia's state-run, monolithic oil industry transformed into 13 privatised companies, most of them vertically integrated, while he was minister and watched many ministry specialists quit for lucrative jobs at the new firms.
The sources did not say who in the government had rejected Shafranik's proposal. The shake-up of the oil industry was masterminded by Prime Minister Viktor Chernomyrdin and President Boris Yeltsin.
| 28 |
Russia is trying to make things tougher for exporters of non-ferrous scrap metals, but impending tighter regulations will not keep Russian supplies from finding Western markets, industry sources said on Wednesday.
"There was a big once-and-for-all surge in scrap exports in the early stages of the break-up of the Soviet Union, but that's now over," said copper specialist Kevin Norrish of CRU International in London.
"The domestic market is tighter than it used to be, so there is a lot less going to Western Europe."
But he could not see proposed licensing of exporters hitting sales abroad, and other sources said Russia would still find European markets more attractive than the domestic one.
Moscow wants to license the export of scrap ferrous and non-ferrous metals to help provide steady supplies to domestic metals enterprises for processing and then export.
Russian news agencies said on Wednesday a decree on licensing could be signed by the end of this month.
The Industry Ministry in September sought to limit scrap exports to two million tonnes a year, but compromised by agreeing to a plan to license exporters.
"Maybe this scrap will be processed in Russia and then exported -- but the fact is that this material costs more abroad than it does in Russia," said a senior source at Tsvetmetexport, the former state metals export agency, who declined to be named.
Other industry sources said domestic metals firms were short of funds and that barter operations -- the means by which they would buy scrap -- were increasingly unattractive.
Nearly one third of Russian copper is produced from scrap, and officials are seeking ways to ensure steady supplies.
"There's no market for people to supply scrap to domestic enterprises and for them to then export it and get paid," said Sergei Bagrov, a non-ferrous export specialist at Promstalsyryo.
"Licensing will increase export of metal through all channels."
He said enterprises had already found ways to find the raw materials they needed.
Russian scrap copper exports were 54,000 tonnes in the first half of 1996, and Interfax news agency, which reported the data in September, said this was up 70 percent on total 1995 exports.
Western traders have said scrap availability on Western markets is often spotty and even unofficial estimates on scrap non-ferrous exports are hard to come by.
But two trends appear certain.
The exodus of large amounts of scrap copper, aluminium, nickel, steel, lead and iron that took place after the 1991 collapse of the Soviet Union is over, and Russia's scrap metal trade is consolidating as bigger, richer domestic and foreign players move in.
In the immediate post-Soviet years much of the scrap was smuggled from military bases and trade was so brisk that Russian industry sources described the Baltics as the world's largest non-ferrous metals exporters -- even though the three countries produce virtually no metals.
The Russian press is no longer full of tales of smugglers riding the train to the Baltics with copper cable in backpacks.
But the market is still one of the wildest and least transparent in Russia and dealers said licensing may not help.
"Russia is no longer just bleeding metal," Bagrov said. "(But) I would not say the market has become civilised."
Official export statistics, most of which do not include the scrap trade, were unreliable, he added.
| 28 |
Russia's second-generation, billion-dollar foreign oil projects are finding out that close ties to top government figures, delicate talks with new partners and careful handling of oil-rich, ambitious regions are vital.
Western oil companies eyeing Arctic reserves need close Kremlin relationships and savvy negotiating skills more than ever, now that Moscow has a cooler, tougher attitude toward Western participation in oil production-sharing deals.
Support from President Boris Yeltsin, who oversaw the transformation of the oil sector into privatised companies and who underwent heart surgery on Tuesday, is crucial.
So is a willingness to get out the pencils and redo budgets after talks with increasingly demanding Russian partners.
The factors -- some old, some new -- will decide whether deals stay on the drawing board or get off the ground.
In one of Russia's most prominent projects, Amoco Corp of the United States and Russian oil giant YUKOS are in tortuous talks that, analysts said, revolve around how to accomodate YUKOS shareholder Bank Menatep.
"Any time you add a new player to the game, you need to re-establish what the ground rules are," said Dan Westbrook, senior vice-president and resident manager of Amoco Eurasia Petroleum Company, in a recent telephone interview.
Leading commercial bank Menatep owns a 33 percent stake in YUKOS, Russia's second largest oil producer, and controls a further 45 percent stake formally owned by the government.
The two companies plan to spend $50 billion or so to tap the huge Priobsk oil field, which could hold 610 million recoverable tonnes, in Siberia's Tyumen region.
Russia's first-generation foreign oil deals, all off the Russian Far Eastern island of Sakhalin, took forever to hammer out but largely gave Western partners the leading equity stakes they demanded as insurance for the political risk of investing.
Now, years later, Moscow officials say quietly that Russia should have at least equal status, if not the upper hand.
That makes Kremlin and Fuel and Energy Ministry patronage as important as ever to getting deals to the production stage.
Succesful implementation of projects is still heavily dependent on people at the top, like Yeltsin -- thus showing the enduring power of personalities to moving oil deals forward in Russia, in spite of Moscow's moves to make laws, not people, the framework for investments.
The Timan-Pechora Company, or TPC, which groups Texaco, Amoco, Exxon, Norsk Hydro AS Russia's Rosneft and an exploration outfit in a $40 billion project in the Timan-Pechora basin, saw negotiations temporarily halt over the unexpected death of a key Russian negotiating partner.
TPC President Tom Hazen said he was confident talks to tap up to 360 million tonnes of oil would continue with a special Russian delegation after the Fuel and Energy Ministry selects a replacement for deceased delegation leader Vadim Dvurechensky, who was also a deputy Fuel and Energy minister.
"We are hopeful to continue our negotiations with the special delegation," Hazen said.
"There are very few remaining outstanding issues. I certainly wouldn't draw any conclusions that there have been a lack of negotiations or a termination of discussions."
Both Westbrook and Hazen declined to say when their projects could be finalised.
Western oil companies have a new worry -- the growing demands by oil-rich regions for a bigger cut in deals.
Interfax news agency earlier this week quoted the chairman of the State Duma lower parliament house's Committee on Natural Resources as saying that the Nenets regional Duma had recommended the government break off talks with TPC over regional tax issues.
-- Moscow Newsroom, +7095 941 8520
| 28 |
Russia's Western oil joint ventures are finding it increasingly difficult to export their output in the amounts needed to stay profitable as Moscow seeks to give domestic producers more pipeline space.
Joint ventures (JVs) produce only a trickle of Russia's crude oil -- but they need to export most, if not all, of their output to make money on their investments.
But Russian energy officials, who once courted Western oil majors and independents with promises of tax breaks and priority access to crowded pipelines, are rethinking the terms on which they want foreign oil firms to work in Russia.
"The pipelines are fairly close to capacity, so any increase (in exports) will be at somebody's expense, and that will be the JVs," said Julian Leigh of the Centre for Global Energy Studies in London in a recent interview.
Russia's tightening of access to its export pipelines is a barometer of how willing Moscow will be in coming years to let big-ticket foreign investors with planned, multi-billion dollar production-sharing contracts export the volumes they need.
Most of those projects will require new pipelines -- but in the initial stages, they will probably use existing pipelines.
"It's becoming more and more difficult," said Igor Ishkayev, Moscow-based representative for the Tatex joint venture, whose foreign partner is Global Natural Resources of the United States' unit Texneft Inc.
"The big companies, like LUKoil, can send out as much as they want. Nobody cares about a little joint venture."
About six joint ventures out of the 40 or so producing in Russia and exporting have the right to export 100 percent of their output until September 1997. Others enjoy tax breaks.
Most ventures in theory have priority access.
But in practice, they are often elbowed aside from month to month depending on world oil prices, the amount domestic producers want to export and government export programmes.
When asked about priority access for the ventures, a Transneft official dealing with exports, who declined to be identified, said:
"We don't distinguish between oil produced by our companies and oil produced by joint ventures."
Transneft, the state oil pipeline monopoly, works with so-called designated coordinators -- Russia's large producers, who are often interested in increasing their own exports -- to allocate pipeline space.
"Access to Transneft pipelines is based on personal relationships with the Transneft people," said analyst Zarko Stefanovski of T Hoare & Co in London in a recent interview.
"Russian producers are going to increase the pressure to be given more pipeline capacity -- this will certainly be a problem in the future."
Joint ventures accounted for 4.8 percent of total Russian output last year, or around 250,000 barrels per day (bpd), according to State Statistics Committee figures, up from four percent in 1994. But they account for about 10 percent of Russia's 2.0 million bpd exports.
"Priority access will hardly be continued next year, which will affect the operations of this joint venture very negatively," said Alexander Khrustalov, marketing specialist at KomiArcticOil, whose Western partner is British Gas Plc and which exports about 90 percent of its 25,000 bpd output.
Customs officials, who now make policy as well as implementing it, said in September that some prominent ventures could be liable for millions of dollars in taxes and fines for so-called "excess" exports outside their exemptions.
"The issue is not necessarily the length of the tax exemption, it's the intent behind it," said one top Western oil executive who asked not to be named.
| 28 |
Russia is flirting with danger in considering a freeze on domestic energy prices, a move which could prolong the oil sector's recovery and in turn slow economic reforms, energy analysts said on Wednesday.
Fuel and Energy Minister Pyotr Rodionov has called for lower oil, gas and electricity prices to help domestic industry.
Prime Minister Viktor Chernomyrdin, taking up the baton, said on Tuesday that President Boris Yeltsin could soon sign a decree lowering energy prices and freezing others, but made clear he was talking about gas and electricity.
Energy analysts said talk of frozen prices was ominous for the Russian oil industry -- the country's biggest export earner and the motor of the domestic economy -- just as the now privatised sector shows signs of recovering from a long slump.
"We could see a return to the situation we saw over the past 10 years, when low reinvestment rates led to the decline of the oil industry to its present state," said Vadim Voronin, an energy specialist at the World Bank's Moscow mission.
Price freezes would also annoy the International Monetary Fund, which wants domestic oil prices to match world levels and made industrial restructuring a condition of its $10 billion, three-year loan to Moscow.
"(A price freeze) would slow down some of the reforms and progress we've made, especially in liberalising oil prices," said James Bunch, oil analyst at Renaissance Capital.
Rodionov's predecessor, Yuri Shafranik, had said domestic oil prices should be capped at 75 percent of world levels -- their current level.
Domestic natural gas prices are still a fraction of their real market cost, while electricity is also heavily subsidised.
Artificially low prices inhibit adequate cash-flows, which in turn lowers money available for oil companies to invest, maintain existing wells and drill new ones.
Subsidised prices and low reinvestment were the key factor behind the collapse of the Russian oil industry that began in 1984 and has lasted to this day.
Energy waste in the Soviet era was rife, and Russia's new profit-oriented oil companies have little desire to return to the days of heavily subsidised fuel. In Soviet times, a glass of carbonated water cost more than a litre of gasoline.
With oil production 47 percent below Russia's peak 1987 level of 569.5 million tonnes (11.48 million barrels per day) and two-thirds of output staying in Russia, a price freeze would leave oil companies short of cash just as they need it most.
Russia is the world's third biggest oil producer after Saudi Arabia and the United States, and Moscow wants cheap oil to fuel domestic factories.
Industrial output, already half 1992 levels, fell five percent in January-July after a three percent decline in the first seven months of 1995.
The fact that oil is cheap means the export market is more attractive than the domestic one, but producers are unable to sell more abroad because pipeline capacities are stretched.
The government has promised tax breaks for oil companies, but instead is moving to squeeze them for more cash and force them to deliver more supplies to domestic enterprises.
Peter Houlder, managing director of CentreInvest consultancy in Moscow, said artificially low domestic energy prices would be "extremely damaging". "Companies are making their profit on the small amount of oil they export -- domestic sales now at best break even," he said.
| 28 |
Russian diamond giant Almazy- Rossii Sakha (ARS) said on Wednesday officials were battling for control over Russia's lucrative gem sector but a forthcoming deal with De Beers was in sight.
ARS president Vyacheslav Shtyrov told a news conference that a long-delayed trade agreement with the South African gem giant could be signed by December.
But he said Russian Prime Minister Viktor Chernomyrdin, who could have a chance to sign the deal as soon as this week, would put it off until next month because of a government probe of ARS's finances -- a probe Shtyrov says may be part of manoevres among government officials for influence over the group.
The investigation and struggle for control over ARS come as the diamond company seeks more scope to export independently of De Beers. ARS supplies a quarter of De Beers output, nearly all Russia's diamonds and is Russia's sole authorised exporter.
Shtyrov said that under the trade agreement with De Beers, based on a memorandum initialled in February, ARS would have the right to export $180 million of gems a year independent of De Beers, or 5.8 percent of ARS's $1.38 billion in sales last year.
That could yield a rich trove of influence and power for whichever government ministries succeed in gaining the upper hand in controlling those sales.
ARS, which gave London investment bank NatWest Markets a mandate in July to raise $500 million in capital, wants to increase exploration and mining operations -- giving officials more incentive to grapple for control of the state-owned firm.
"We're very seriously worried about the recent accusations, which come at, and I say this in quotation marks, at an appropriate moment," said Mikhail Nikolayev, president of the vast Sakha-Yakutia region in Siberia where ARS is based.
He told the news conference he was referring to the impending De Beers deal and to ARS's plan to raise funds abroad.
The probe, which follows charges from tax officials and the prosecutor-general's office that surfaced last week, revolve around alleged unpaid taxes and breaches of hard currency regulations for which fines could total $379 million.
Nikolayev said ARS had no tax arrears to the federal budget, and that Finance Ministry investigations into ARS finances turned up so-called insufficiencies but no major problems.
"They (the charges) are extremely debatable," said Shtyrov, adding that government questions over how to value raw gems supplied to ARS when the company was set up in 1991 were questions for accountants, not for lawyers.
He said ARS would defend itself in Russia's courts if it had to and restore its reputation with partners.
"If the result of all of this is that we lose our investment projects, then we will consider that Russia has lost -- and we will just eat bread and butter," he said.
Shtyrov, who is also vice-president of Sakha-Yakutia, said industry officials were struggling for influence over ARS.
Shtyrov said Yevgeny Bychkov, former head of the recently disbanded State Committee for Precious Metals and Stones, or Komdragmet, was still an influential figure in the industry.
Komdragment was broken up by presidential decree in August and the Finance Ministry has assumed its functions.
Shtyrov said Russia's diamond sector would see stability, in spite of plans by some officials to give domestic cutters and polishers a greater cut of gem output.
"There are always rumours of a major shake-up and reorganisation of the Russian diamond industry, but they are not founded," he said.
| 28 |
Russia's diamonds could face a rocky future with tax officials seeking a bigger cut from rough gem exports, but industry sources said on Wednesday they hoped a deal with South Africa's De Beers would proceed.
In the latest shock to hit the Russian diamond sector and relations with De Beers Consolidated Mines Ltd, the prosecutor general's office on Tuesday accused Almazy Rossii-Sakha (ARS), Russia's largest diamond producer, of financial irregularities.
"Maybe it will affect the (De Beers) agreement and maybe it won't -- my personal opinion is that it won't and an agreement will soon be signed," said Pavel Kovylin, first deputy director of ARS's Central Selling Organisation, which handles exports.
The export body has the same name as De Beers's own London-based Central Selling Organisation.
Diamonds could provide a windfall for the Russian tax authorities. ARS is the world's second largest diamond producer and its sales of uncut gems rose six percent in 1995 to $1.38 billion.
ARS, which mines nearly all of Russia's diamonds and is its sole official exporter, reached a preliminary agreement with De Beers' to export rough gems under a memorandum in February.
But the text of the agreement, undergoing review in various ministries, is awaiting government approval.
"The final agreement must correspond to the memorandum, since it was signed by the government and we are obliged to fulfil it," Kovylin said.
The prosecutor general's press service, which told Russian news agencies on Tuesday of the investigation, said it was investigating ARS' finances but stressed no formal criminal charges had been filed.
"At this point, there are no indictments," said press spokesman Natalya Vishnikova, declining to comment on whether formal charges would be pressed. "We are investigating and the matter has been passed to the Federal Tax Inspectorate."
The investigations revolve around alleged unpaid taxes and breaches of hard currency regulations for which fines could total $379 million, according to Russian news agencies. The probe has generated further uncertainty over the relationship between Russia and De Beers.
"There's a whole lot of political infighting going on between Moscow and Yakutia," said analyst Roger Chaplin at T Hoare & Co in London, referring to the main diamond-producing region in Siberia where ARS is based.
"It could possibly affect the agreement with De Beers -- but then again, it could be somebody in Moscow trying to throw a spanner into the works."
The diamond world, recovering from the decision of Australian producer Argyle to say goodbye to De Beers, is impatiently waiting for Russia to finalise its relationship with the South African cartel.
Russia has been accused in the past of leaking hundreds of millions of dollars' worth of diamonds on to world markets outside its previous deal with De Beers. The new deal, once approved by Moscow officials, could give De Beers greater control of Russian output.
But it may not give greater comfort to Russia's increasingly ambitious mineral-rich regions -- especially to Yakutia, which wants a greater cut from exports of rough gems.
Russia-De Beers relations were first hit by uncertainty when Russia's Komdragmet, the precious metals and gems agency which participated in talks, was shut down by presidential decree in August.
Under the February memorandum, which replaced an expired five-year deal, De Beers would take about 85 percent of Russian rough diamonds. That is less than 95 percent under the previous deal, leaving Russia more for its own nascent cutting and polishing industry.
| 28 |
Russia's diamond industry, bogged down by structural chaos and unauthorised exports, cast a shadow over world gem markets on Wednesday by saying that prospects for a trade deal with De Beers by 1997 looked grim.
But a senior spokesman for Russia's diamond company Almazy Rossii-Sakha, or ARS, which is De Beers' negotiating partner and Russia's near-monopoly producer, said Moscow would eventually negotiate a deal and quitting the cartel was not an option.
De Beers, frustrated over Moscow's lack of response on a new trade deal and irritated by gem exports outside an interim scheme, gave Russia until the end of 1996 to sign a trade deal and said it would otherwise terminate the interim arrangement.
ARS spokesman Valentin Logunov, asked if the government would meet the deadline, said, "You should ask the government, especially the finance minister. This is his question --- and it's hard to say whether he'll find time."
Russia is a key player in the world diamond trade, supplying De Beers with about 20 percent of its total rough gem sales. De Beers accounts for 75 percent of global rough diamond sales.
But the two sides have gone through 1996 with no formal trade agreement and have functioned via a February memorandum which De Beers said Russia had violated with secret gem exports.
"We have been extremely patient and have respected Russia's current interests," Raymond Clark, general director of De Beers' Moscow representation, told a news conference.
"Moreover we would have probably continued (with the interim deal) had the contract been respected," he said, citing what he called "major leakages" of Russian gems onto world markets.
He declined to say how large the leaks were, adding, "We only know that the total of the leaks is substantial."
Logunov slammed the assertion, which is widely supported by international diamond traders.
"Let De Beers figure it out themselves -- if they can't say concretely where they're from, how do they know it's happening?
"Of course this alarming and of course we want an agreement signed. Therefore, De Beers should not push worried colleagues into a corner."
He said the Sakha republic -- where ARS is based and which has its own draft trade deal with De Beers -- had been buying up to one-fourth of ARS output, last year valued at $1.38 billion, over the past couple of years.
Clark said he did not know where the leaks were coming from but said De Beers was frustrated with the government's lack of response to a draft trade agreement presented in October.
"From that date, we have been continually knocking on their door to get some kind of response," he said. "We have had not one official statement made from the government."
Finance Minister Alexander Livshits told Russian news agencies on Tuesday that Moscow wanted to rework the agreement before signing it.
Logunov said it was ARS's task to guide the October draft deal through the government.
"We are doing this, maybe not as actively as we should -- but not because we are not interested in the agreement, but because of the situation on the territory where several processes are taking place."
He was referring to presidential elections set for December 24 in Sakha, which is also known as Yakutia.
"There are a lot of opponents to the company that have the right to sell diamonds, and this of course doesn't make things easier for De Beers," Logunov said.
But he said: "These two companies cannot part -- otherwise, it's chaos. There would be no rules to the game."
| 28 |
Russia's state oil pipeline firm Transneft on Tuesday cast a shadow of doubt over the go-ahead for a proposed new pipeline across Russia when it said it had demanded a stronger role in the strategic deal.
Transneft spokesman Ravil Polyanin said the monopoly, which owns and operates Russia's vast, existing oil pipeline network, was not content to play the role of daily operator and wanted an equity stake in the important project.
"We want to be a shareholder," he said. "But the oil firms have not valued our technical expertise highly enough."
Companies holding a 50 percent stake in the Caspian Pipeline Consortium (CPC) that will build the proposed link are Chevron, Russian LUKoil, Mobil Corp , Rosneft, Oman Oil Company, British Gas Plc, Agip SpA of Italy, Kazakh Munaigaz and Oryx Energy Company.
Kazakhstan, Oman and Russia hold the remaining 50 percent.
A CPC official, speaking after a meeting last week in Moscow to try to push a long-delayed restructuring agreement ahead, said the deal would be signed next month.
But the consortium has not made any formal announcements on what was achieved and shareholders declined to give details.
The CPC consortium, in one of the former Soviet Union's most ambitious and important energy projects, wants to build a $1.5 billion pipeline from Kazakhstan's vast Tengiz oilfield through war-torn Chechnya to Russia's Black Sea port of Novorossiisk.
But a cloak of secrecy around last week's meeting raised questions over whether the group had overcome hurdles that have dogged it in the past, including prickly issues of Transneft's participation and of corporate and international financing.
"The transition committee successfully completed negotiations on restructuring and the final agreement will be signed in Moscow on December 6," said the CPC official, who added that he was not allowed to provide any details.
But several shareholders said the deadline was optimistic and stumbling blocks remained. "The subject is extremely sensitive and I cannot say one single word about CPC," said a Western oil executive whose company is a CPC shareholder.
A second similar Western source said: "I'm reluctant to say the deal is going to be signed on x or y date."
Polyanin said it was premature to say all outstanding problems had been resolved, adding that Transneft would seek to persuade consortium members to reallocate equity stakes.
He said Transneft was lobbying Deputy Fuel and Energy Minister Anatoly Shatalov to push CPC to give Transneft a share.
Transneft has a big strategic card to play, since it will operate the pipeline and help set and collect transit fees that will fill its coffers. If the fees are too high, it will throw a wrench into the economics of the deal for the Western partners.
CPC's main customers are Chevron and Mobil. Desperate to ship more oil out of their Tengiz project, they are already sending crude to Western markets via unconventional routes through Azerbaijan, Georgia and Finland on trains and barges.
CPC sources said Transneft's role and Russian taxes were the main issues preventing a final agreement for the pipeline which should eventually carry up to 70 million tonnes of oil a year (1.4 million barrels per day).
They also said it was a barometer of the extent to which Caspian onshore and offshore oil and pipeline projects will be able to get off the ground, and of Russia's willingness to see oil-rich former Soviet republics develop their own energy deals.
| 28 |
Russia's aluminium sector will consolidate more in 1997 as domestic smelters, perplexed by limp world prices, seek to rationalise costs, a top aluminium official said on Friday.
Igor Prokopov, director of Kontsern Alyuminiy, the producers' group uniting Russia's aluminium industry, said in an interview that domestic smelters were worried about low metals prices, and he blamed what he said was speculation.
"We have been concerned by the sharp fall in prices, which is why we set up the statistical body with other major producing nations to exchange information," he said.
"But our conclusion is that the market situation is not a catastrophe. We are not going to stop output and will continue next year with at least our 1996 volumes."
He said Russian primary aluminium output this year would be 2.79 million tonnes, a 1.5 percent increase on 1995's level, and 1997 production could rise by 1.5 to 2.0 percent.
The group sees Russia's 1996 primary aluminium exports at 2.37 million tonnes compared with 2.11 million in 1995. Prokopov declined to forecast 1997 exports.
Kontsern Alyuminiy said exports of primary aluminium, alloys and semi-fabricated items over January-October had already risen seven percent from year-ago levels.
The State Customs Committee puts the rise at 16 percent.
Prokopov said he was confused by low London Metal Exchange prices and said he saw no basis for weak prices in view of supply and demand patterns.
"I can't prove there's speculation going on, but I look at the charts and these are what the facts lead me to think."
"Some noise has appeared in the West that Russia has cranked things up, which is not really true. There's no reason for the fall in prices," he said, citing lower world stocks.
But he said Russia's survival as an aluminium power was not in question, since the Siberian smelters, accounting for 90 percent of output, had captive, plentiful sources of hydroelectricity, a main cost in production.
Depressed prices would be the motor for Russian smelters to consolidate operations as they completed their transition from state-run enterprises to market-nimble corporations.
"The Russian aluminium industry should be consolidated and act as a large transnational company like Alcoa or Pechiney," Prokopov said. "We won't be like Gazprom," he said, referring to the natural gas monopoly. "But there will be three or four teams that will act on world markets."
The process has already started. Siberian Aluminium, a so-called financial industrial group, includes Bratsk -- the world's biggest smelter -- and Sayansk, Trans-World Group, Zalogbank, and Kazakhstan's Pavlodar alumina plant.
The Krasnoyarsk smelter is in a group with the Achinsk alumina plant and wants to bring Ukraine's Nikolayevskiy alumina plant on board.
"Integration could have a positive affect," Prokopov said. "It will lead to expense rationalisation, lower costs and consolidated balances. Smelters are in a satisfactory state, but we want better -- we want more resources to modernise them."
-- Moscow Newsroom, +7095 941 8520
| 28 |
Hong Kong's leader-in-waiting Tung Chee-hwa on Friday invited the territory's top official, Anson Chan, to meet him amid intense speculation over whether she might stay in her post after China takes over next year.
The two would meet over breakfast at Tung's villa on Hong Kong Island on Saturday morning, a government spokesman said. He did not say what they planned to discuss.
Chan, 56, is chief secretary and second-in-command to Governor Chris Patten, whom the 59-year-old Tung will succeed after the change of flag at midnight next June 30, bringing down the curtain on over 150 years of British colonial rule.
An opinion poll this month ranked Chan as the most popular political figure in Hong Kong with 73 percent of people saying they support her, well ahead of Tung himself, who scored a 65 percent approval rating.
Tung was selected by a China-controlled committee on December 11 to be Hong Kong's post colonial chief executive, the first Chinese leader in the territory's history.
With only 186 days left until the handover, Tung is moving quickly to assemble a cabinet and to hammer out his relationship with a provisional legislature that China created last week.
He has called an informal lunch meeting of the 60 legislature members next Monday, likely to discuss the scope of the body's lawmaking activities and possible candidates for speaker of the assembly, although no agenda has yet been set.
Chan was once touted as a possible candidate for the job that has fallen to Tung, but she bowed out from the race and declined to become an official candidate despite her popularity.
Many officials -- in Hong Kong, in Britain and in China -- respect Chan's administrative talent and consider the Tung-Chan ticket as a "dream team" scenario likely to promote Hong Kong's smooth transition to Chinese rule.
She has said she would like to see as many as possible of her policy secretaries -- equivalent to government ministers -- stay on, for the sake of stability in the civil service.
However, in the first sign of cracks in the upper echelon of the administration, one top official, Michael Leung, head of the Independent Commission Against Corruption, announced this week he would quit before the mid-1997 handover.
Local media speculated on Friday that Leung's move could be the first in an exodus of top officials unwilling to serve an administration under Beijing's thumb after Britain pulls out.
China has promised that Hong Kong can be a quasi-autonomous territory and keep its capitalist system for another 50 years, but many in the territory fear repressive communist-style rule.
On Friday, Hong Kong's Bar Association, which groups the territory's lawayers, said it had sent a 38-page report to China urging Beijing's communist rulers not to scrap Hong Kong's Bill of Rights.
China has signalled it will roll back the human rights law and a string of other laws and trappings of democracy after it resumes sovereignty.
| 37 |
Just months ago, shipping magnate Tung Chee-hwa was a retiring man who avoided the limelight, kept his political views secret, and seemed to steer an even keel between his loyalties to China and Britain.
But in a short time, he has emerged as the hot favourite to become Hong Kong's first post-colonial leader and evolved into a tough-talking conservative, loudly singing China's tune on key political issues, under the bright spotlight of the media.
The 59-year-old tycoon with hallmark spiky grey hair has been swapping his pinstripe suits for jeans and sportswear to traipse around local communities to show he not only walks among kings but also has the common touch.
Tung, 59, saw his fortunes almost dashed in the 1980s when the family company met ill winds, but Beijing helped bail him out with a syndicated loan, and now he is poised to be their man in Hong Kong.
On Wednesday, China's carefully screened Selection Committee will choose the chief executive to run Hong Kong after Britain hands its last important colony back to Beijing in mid-1997.
Tung is streets ahead of his rivals, having run away with 206 of the 400 votes in the first round of balloting.
Behind him are retired chief judge Yang Ti Liang, who scored 82, and businessman Peter Woo, who clocked up 54.
A poll last week for the first time made Tung the public's favourite -- 47 percent support versus Yang's 29 -- although the masses are excluded from voting for their future leader.
There is hardly a voice that does not pronounce Tung the predetermined winner. A pointed handshake from President Jiang Zemin in Beijing last January anointed Tung, most people think.
Since he declared his candidacy two months ago Tung has said he would legalise the Communist party, condemned the Democratic Party -- Hong Kong's largest -- for being anti-China, and warned foreign countries not to use Hong Kong to subvert China.
He also said anybody advocating independence for Taiwan or Tibet could not stay.
He has accused colonial Governor Chris Patten of trying to split Hong Kong, called for pro-China patriotism in the schools, and unveiled administrative polices stressing executive-led rule and a slower route to democracy.
Last week Tung rounded on those who use the term "pro-China" as a dirty word. "We have to turn pro-China into a very positive definition. It is a good thing to love our country," he said.
"I find him more colonial than the colonial government," complained Democratic Party legislator Tsang Kin-shing.
Tung has vowed to give free rein to Hong Kong's capitalist economy and business development. But he has also promised to boost the role of provident funds, guarantee welfare for the poor, and make cheap housing available.
While some fret over his conservatism, most who know him both at home and abroad hail Tung's good character. He has a reputation for modesty, wisdom and caution.
"He is a man, in my view, of great integrity, a strong individual, independent-minded, surely and sincerely promoting the welfare of the people of Hong Kong," said U.S. Assistant Secretary of State Winston Lord, a friend of Tung's.
But Lord noted he had failed to sway Tung to reject China's plan to scrap Hong Kong's elected Legislative Council with a provisional legislature next July 1. Britain has condemned the plan as a "black day for democracy" in the territory.
Tung has been a senior member of a Preparatory Committee of pro-Beijing Hong Kong notables and mainland China officials crafting the power structures to replace British colonial rule.
He was lauded as an impartial and honest counsellor by Patten when Tung left Patten's advisory cabinet in June.
He resigned in October as head of his firm, Orient Overseas (International) Ltd, to make his leadership bid.
Tung took the helm of Orient after his father died in 1979. He has publicly acknowledged China had helped bail out the firm 11 years ago by backing a US$120 million fund led by tycoon Henry Fok, a kingmaker in today's leadership contest.
Tung is believed to be liked in Britain and by many business leaders who hope he will form a "dream team" with incumbent Chief Secretary Anson Chan -- Hong Kong's top civil servant.
Born in Shanghai in 1937, Tung was educated at Liverpool University in Britain.
| 37 |
A shipping tycoon whose company was bailed out by Beijing when it was sinking years ago is poised to govern Hong Kong when China takes over next year, after a thumping victory in the first round of the ballot.
Tung Chee-hwa swept up 206 of the votes cast on Friday by an exclusive club of 400 Hong Kong's rich and influential, who were selected for the purpose under Beijing's close supervision.
The runner-up, former chief judge Ti Liang Yang scored 82. A third candidate, businessman Peter Woo, came in with 54. The trio were the only candidates to get the minimum 50 votes required to go through to the deciding round on December 11.
If an election were held by universal suffrage, however, Yang would get 35.7 percent and Tung 33.5 percent, an opinion poll by a local university showed after the vote.
Tung, 59, recently revealed for the first time that China had helped salvage his family shipping empire 11 years ago by backing a US$120 million syndicated fund led by pro-Beijing tycoon Henry Fok, a kingmaker in today's leadership contest.
"I know there were mainland funds in it. I'm sure. To Mr Fok and those who have helped me...I am very grateful," Tung said.
Fok went to pains after Friday's vote to assure reporters for half an hour that the rescue package was above board and had not entailed any political deal on the future of Hong Kong.
"I don't think he is returning favours to China by running for the Chief Executive," Fok said.
"Commercial relations are strictly what we have with those what you call Chinese-funded banks. We deposit our money there or we borrow money from them -- it is strictly normal commercial relations," Fok said.
Tung has long been viewed as Beijing's favoured candidate to become Hong Kong's Chief Executive when Britain hands its last Asian colony back to China at midnight next June 30.
Foreign Minister Qian Qichen gave fresh assurances on Friday that the winner had not been preordained by Chinese leaders.
Many in Hong Kong are convinced that a demonstrative personal handshake that Tung received from President Jiang Zemin in January was a deliberate cue.
Tung has tried to shake off the impression that despite the existence of other candidates it is really a one-horse race.
"I dont think it is a foregone conclusion. It's three weeks away to December 11...and I will have to be working very hard to make sure that I win on that day," he told Reuters Television after the first round vote.
"The process of nomination today was done in a very transparent manner," he said.
Some analysts, noting that Tung had scored more than 50 percent, wondered if a second round was worth the bother and suggested that Yang and Woo might as well bow out.
"For, if the ultimate purpose of running is to win, then there is little point in them carrying on," said political commentator C.K. Lau.
Tung, a striking figure with spiky grey hair and a boxer's stance, is noted for his cautious style and modesty.
He and his rivals will be interviewed by the committee members at the end of the month on their policies and attitudes.
So far he has emphasised the importance of the economy and business, and has taken a conservative view on ticklish issues such as human rights and democracy, advocating "consensus rather than confrontation" in dealings with China's communist rulers.
Speculation has abounded in Hong Kong that some of its business titans may have been secret card carrying members of the Chinese Communist Party for years. But Tung's name has until now not figured among these rumours.
| 37 |
Signals from Hong Kong's likely future leader that the Chinese Communist Party might become legal in the territory in 1997 raised concerns in the pro-democracy camp on Wednesday about the party's future power.
Concern was stirred up after the man tipped as the favourite to become Hong Kong's chief executive, shipping tycoon Tung Chee-hwa, said on Tuesday he would accept the Communist Party's legalisation after the British colony reverts to China.
London is handing Hong Kong back at midnight next June 30, and Tung is the frontrunner to lead it after he received 51 percent of the votes in the first round of a ballot last week by the 400-member selection committee organised by China.
Although China is ruled by the Communist Party, Beijing has promised Hong Kong wide-ranging autonomy, leaving its capitalist system intact for 50 years under a policy of "Hong Kong people running Hong Kong" and "one country, two systems".
"The most important thing is, what will be the role of the Communist Party in Hong Kong after the handover, because whether it's legal or not it is here," legislator Emily Lau told Reuters.
Many people in Hong Kong have speculated that the future Chief Executive will be stage-managed by a Communist overlord from Beijing. China has publicly denied this is the plan.
Tung said on Tuesday in response to a reporter's question that he would accept the party's legalisation if asked to do so.
"That's totally unnecessary. It's already there," said Martin Lee, leader of the Democratic Party, Hong Kong's largest.
The democracy camp is worried about what power, if any, the Communist Party might wield over Hong Kong, which is supposed to be administratively separate from the rest of China.
"Let's be realistic. China is dominated by the Communist Party and the Communist party already has an office here in the form of the Xinhua News Agency headed by Zhou Nan," independent lawmaker Christine Loh told Reuters.
"In the future after 1997 there is no reason to continue to pretend the Communist Party is not here," Loh said.
"But the problem is the Communist party isn't just an ordinary political party. In China it dominates the political and governmental institutions. So what we want to know is that its presence here would not represent interference," she said.
A Hong Kong security authority spokesman said the Communist Party is not legally registered in Hong Kong and, therefore, does not exist in the eyes of the law.
Hong Kong's colonial authorities outlawed all political parties. Since 1990, however, they have been allowed to register under the societies ordinance. As a result, parties such as Lee's Democrats are registered as societies.
But, "The Communist Party is not registered under the societies ordinance and we've received no application from them for registration," chief government spokesman Kerry McGlynn told Reuters. He declined to comment further.
A government source said the government never talks about the issue in detail. "When a politician raised the issue last year, the government's spokespersons just looked down and mumbled into their beards."
"In terms of legalising it, I'm not aware that the Communist Party is actually illegal, but we know it's not legally constituted by being registered," Loh said.
In the past, the party was involved in violent conflicts with the colonial government, especially the Hong Kong riots of 1967 inspired by China's radical-left Cultural Revolution.
| 37 |
The 11-year sentence handed down on Wednesday to Chinese dissident Wang Dan has awakened fears that critics of the Chinese administration in Hong Kong after the 1997 handover could face a similar fate.
Britain hands Hong Kong back to China in 243 days' time after more than 150 years of colonial rule.
The sentence imposed on Wang sparked a flurry of debate in Hong Kong on Thursday over the shape of future laws on subversion in the territory.
Hong Kong has for more than a century been a sanctuary for Chinese dissenters. Some 80 mainland dissidents who fled the communist mainland live in exile in the colony.
The territory also has a large home-grown anti-communist democracy movement, which Beijing officials have often branded as subversive because its adherents backed the 1989 student-led pro-democracy protests in Beijing's Tiananmen Square.
Hong Kong's future constitution, the Basic Law promulgated by China, requires laws to be passed after the handover to ban anti-constitutional activities, including subversion.
There has been intense speculation in Hong Kong over what actions the law will ban and whether or not it should be legislated by a provisional body that China plans to appoint upon the handover, or a new legislature expected to be elected in 1998.
So will Hong Kong "dissidents" face the same fate as Wang?
Members of the pro-Beijing political camp said no. "I would certainly dispute any suggestion that could be the case," Eric Li, a legislator and a member of the China-picked Preparatory Committee working out transitional arrangements, told reporters.
"We have our own judicial system and courts, and it will be up to the Hong Kong people to decide what that law is going to be like in the future," Li said.
But Martin Lee, head of Hong Kong's Democratic Party, said he believed Hong Kong dissidents would go to jail.
"If we have a similar law in Hong Kong passed under article 23 of the Basic Law, then the Hong Kong people's freedoms will likewise be curtailed," Lee said. "If we then do something which we do today lawfully, then we are liable to be put into prison, no matter how fair the judge is."
The four leading candidates jockeying to run Hong Kong after 1997 have all refrained from commenting on Wang's sentence.
But one, former chief judge Ti Liang Yang, said he hoped it would be the post-1997 elected legislature which tackles the subversion law and not the provisional body that China plans to install after scrapping the current elected legislature.
"When the time comes for the legislature to legislate under article 23 of the Basic Law they will take into consideration the conditions of Hong Kong, the laws of Hong Kong," Yang said.
| 37 |
Hong Kong's top policeman said on Monday he was confident the territory's police could handle any disturbances after the July 1 handover to China without the help of China's People's Liberation Army.
Police Commissioner Eddie Hui, unveiling crime figures for 1996, told reporters that offences had fallen by 14 percent in the year, reaching a 15-year low and making Hong Kong one of the world's safest cities.
Hui was confident of tackling any crime problem, including mass disturbances, despite an exodus of senior officers, mainly expatriates, from the Royal Hong Kong Police Force.
China resumes sovereignty over Hong Kong on July 1 this year after a century and a half of British colonial rule. Many in Hong Kong have raised fears of a breakdown in law and order, including when the handover takes place at midnight on June 30.
Officers taking early retirement packages privately voice anxiety that Hong Kong's police will become tarnished by China-style corruption after the handover.
Pro-democracy politicians have warned that China could impose repressive laws and use its PLA garrison troops, whose colleagues crushed pro-democracy demonstrations in Beijing's Tiananmen Square in 1989, to keep order and put down protests.
Asked by Reuters if the police might call in the PLA to help deal with disturbances after the handover, Hui said: "I hope not. I can't foresee any situation which I cannot handle, which would require the assistance of the People's Liberation Army."
He said the exodus of officers from the service had not dented the force's ability to deal with mass disturbances in this freewheeling city of 6.3 million people.
"The senior officers who are leaving have little to do with crowd control," he said, adding that the force had sent many officers abroad for training in recent years and was prepared to deal with any outbreak of unrest.
"The overall manpower situation is very sound," he said.
Police Deputy Commissioner for Operations, Peter Wong, dismissed suggestions that the police were being pushed by China to get tough with political demonstrators, after a year of confrontations involving pro-democracy groups hostile to China.
"We're under no pressure from anybody in dealing with demonstrations," Wong said, adding that the Hong Kong police respected the population's right to demonstrate peacefully.
The enforcement of Hong Kong laws would remain solely the prerogative of the Hong Kong Police, he said.
Hui said 155 expatriates had asked to retire in the run-up to the handover, representing just five percent of the total of 3,000 senior officers on the force.
Asked to give reasons for the police's success in whittling down crime, Hui said he had sent more police out on the beat.
"We have moved a lot of our officers to the front line, to the streets, to make our presence more visible," he said.
He said Beijing's crackdown on crime last year had contributed to a more peaceful Hong Kong, where crime often has mainland links.
He said cooperation with Chinese police would be stepped up after the handover when Hong Kong's Interpol office, now a sub-group of Britain, would become a sub-group of China.
The force is to drop the word "royal" from its name and abandon the British insignia on July 1.
But it will continue to work in both English and Chinese and will retain exclusive responsibility to maintain law and order and police the Hong Kong side of the border with China, he said.
| 37 |
Shipping magnate Tung Chee-hwa saw his fortunes almost dashed on the rocks in the 1980s when the family company met ill winds, but Beijing bailed him out and now he is poised to become Hong Kong's next leader.
Next month, China's carefully screened Selection Committee will choose a Chief Executive to run Hong Kong after Britain hands its last important colony back to Beijing in mid-1997.
Tung appears streets ahead of his rivals, having run away with 206 of the 400 votes in the first round of balloting on Friday.
Behind him were retired Chief Justice Yang Ti Liang, who scored 82 votes, and businessman Peter Woo, who clocked up 54.
In the public's eyes, Yang is slightly more popular than Tung, according to recent opinion polls.
Tung has been a senior member of a Preparatory Committee of pro-Beijing Hong Kong notables and mainland China officials, charged with crafting the power structures which will replace British colonial rule.
Tung was lauded as an impartial and honest counsellor by Governor Chris Patten when he stepped down in June this year from Patten's advisory cabinet, the Executive Council.
The shipping tycoon resigned in October as head of his family firm, Orient Overseas (International) Ltd, to make his leadership bid.
Tung's early campaigning consisted of clearing the decks of speculation that might lead to challenges on his integrity, such as how China had once saved his family from bankruptcy.
Tung took the helm of the business after his father died in 1979. He has publicly acknowledged that China had helped bail out the firm 11 years ago by backing a US$120 million investment fund for the firm, led by tycoon Henry Fok, a kingmaker in today's leadership contest. The family later bought back most of the company's shares and restored its control of the firm.
"In 1985 and '86 we went through a very difficult time when the shipping business was in serious recession. Henry Fok led a syndicate of investment in our company," Tung said.
"I know there were mainland funds in it. I'm sure. To Mr Fok and those who have helped me...I am very grateful."
Tung was spotted as a possible favourite of China when President Jiang Zemin singled him out for a personal handshake at a meeting in Beijing this year.
But Tung is believed to be acceptable also to Britain and to expatriate business leaders who hope he will form a "dream team" with incumbent Chief Secretary Anson Chan -- Hong Kong's top civil servant -- if China allows her to stay on after the flag change at midnight next June 30.
Tung has links with the powerful in key capitals -- Beijing, Taipei, London and Washington -- whose influence will be important for Hong Kong's evolution after 1997.
Born in Shanghai in 1937, Tung was educated at Liverpool University in Britain.
The 59-year-old tycoon who has previously dodged the limelight, is said to lead a disciplined life. He was known for arriving at his office at dawn to perform tai chi exercises on the roof before starting work.
Despite a reputation for modesty, wisdom and caution, and strong ties to China, Tung's local power base may ultimately stir some unease in Beijing. "It is hard to see Beijing favouring someone with a local power base, who really means to run the show," said legislator and lawyer Margaret Ng.
Tung has made a point of tapping various views, including those of pro-democracy parties and trade unions.
But he has also made increasingly strident pro-China policy utterances. He accused Patten of splitting Hong Kong's 6.3 million people through a speech that assailed China's plan to replace the elected legislature with an appointed assembly.
He has urged people to forget China's bloody army crackdown on the 1989 democracy movement in Beijing and to leave it to historians to judge the event.
| 37 |
Chinese dissident Wang Xizhe's flight to the United States via Hong Kong may be the last great escape of its kind, as China is sure to try to shut down the route next year, activists and analysts said on Wednesday.
Since Beijing sent tanks into Tiananmen Square in 1989 to put down a student-led protest movement, hundreds of Chinese dissidents have fled through Hong Kong in a secretive operation codenamed Yellowbird, activists said.
Wang, now in the United States, has not appeared in public yet, and it has not been confirmed that it was Yellowbird that helped him flee from the south China province of Guangdong last Friday.
But the underground escape route is bound to be sealed off when Hong Kong becomes a part of China next July 1, ending a century and a half of British colonial rule.
"China will have sovereignty here and technically it could prevent even a dissident who was given asylum by a foreign consulate here from actually leaving the territory," Robin Munro, director of Human Rights Watch Asia, told Reuters.
"So I expect that it's virtually going to come to an end as of July next year."
China on Tuesday loudly signalled its stance on future dissident tangles with Hong Kong. It branded Wang's escape an illegal frontier crossing and demanded that he and his abettors be punished for breaking the law.
"The judicial authorities are currently pursuing the legal responsibilities of Wang Xizhe and the plotters," foreign ministry spokesman Shen Guofang said in Beijing.
Very few in Hong Kong have any illusions that the territory will continue to be a conduit for dissidents to get out, or as a centre of pro-democracy anti-communist activism after 1997.
"Hong Kong will be subject to more pressure from the central government. Therefore it will be more difficult for dissidents to use Hong Kong as an escape route," said Peter Lee, a professor at the Chinese University of Hong Kong.
And those who help Chinese dissidents may have a tough time. "I think they will be liable to some kind of harassment and otherwise legal punishment," Lee said.
Lee Wing-tat, a legislator and key figure in the Hong Kong Alliance in Support of Patriotic Democratic Movements in China, an organisation that supports fleeing dissidents, said his group was likely to face trouble from China next year.
"A Chinese official made a statement a few months ago. He said if people participated in helping political dissidents escape from China, China will do something... My guess is some kind of punishment," Lee Wing-tat said.
But his group was pressing on with help for dissidents who are now exiled in Hong Kong and seeking asylum in the West.
"We will give them assistance, for example we will arrange some places for them to live, contact the Hong Kong government and foreign consulates, and arrange money for their family."
China's communist rulers have made clear they will not allow Hong Kong to become a centre of subversion.
China's Hong Kong policy boss Lu Ping said this year Beijing would not tolerate anti-constitutional preaching in Hong Kong.
Munro sees a bleak future for the Chinese dissidents in exile here after the handover and says they should all get out.
The three foremost candidates for Hong Kong's post-colonial leadership, who are now campaigning for support, made clear on Tuesday they would not upset Beijing by defending dissidents.
"There will be laws in Hong Kong and it is up to the chief executive to implement and obey the law... Whatever one does, it must be in the interests of of Hong Kong people," said shipping tycoon Tung Chee-hwa, considered China's favourite candidate.
| 37 |
A Chinese plan for 6,000 People's Liberation Army (PLA) troops to march into Hong Kong the very minute Britain hands the colony back to China in 1997 would send the world a bad signal, diplomats said on Thursday.
The Financial Times of London reported that China had told Britain it intends to march 6,000 troops across the border into Hong Kong when Beijing takes over at midnight next June 30.
Bill Dickson, a spokesman for the Foreign Office mission in Hong Kong, told Reuters that China had announced no such plan to the British side in ongoing handover negotiations.
"Although we've been discussing the transfer of defence responsibilities with the Chinese and are of course discussing arrangements for the handover ceremony itself, the Chinese have not told us of their plans for moving defence forces into Hong Kong after midnight on the first of July," Dickson said.
"This is a matter which is entirely for them, but if reports such as that in the Financial Times are true, then the question arises whether this sort of display of military force conveys the right message to the rest of the world," he said.
In Beijing, China said it would station troops in Hong Kong after it regained sovereignty next year, but the number would depend on defence requirements.
"The central government will send an appropriate number of troops into Hong Kong" after the transfer of power next year, Foreign Ministry spokesman Cui Tiankai said.
"The actual number will be based on the defence needs of Hong Kong," Cui told reporters, without saying when the troops would be moved into the territory.
Diplomats in Hong Kong, who asked not to be identified, said the plan outlined in the newspaper report seemed very credible given China's hardline stance on many handover-related issues.
"We have made it absolutely clear to the Chinese that it would be far better, if they want to send the right signal, if they would build up their armed forces in Hong Kong in a gradual way, over a period of time," one British source said.
"Of course we got no response," the source said.
"This would be exactly the kind of thing to send a shiver down Hong Kong's spine, and would raise questions about China's commitment to a smooth transition," a Western diplomat said.
Hong Kong is switching back to the Chinese flag after a century and a half as a colony on China's southern doorstep.
The approaching handover has been frought with jitters. Many of the territory's 6.3 million people fear a crackdown against human rights, democracy and press freedom, as well as possible trouble with the PLA soldiers, after the transfer.
For most people in Hong Kong, the PLA conjures up images of the bloody military crackdown that was unleashed, with heavy loss of life, against the student-led pro-democracy movement in Beijing's Tiananmen Square in June 1989.
Britain and China have been sparring lately in handover negotiations over whether or not a PLA advance party in Hong Kong can carry weapons before the handover.
Also disputed is whether PLA garrison soldiers should be put on trial in Hong Kong courts if they commit crimes in the territory.
Under a proposed law drawn up unilaterally by China, the PLA troops would be tried in military courts on the mainland, not civilian courts in Hong Kong.
| 37 |
China launched the contest to pick Hong Kong's future leader on Friday, hailing the event as the birth of "real democracy" in the British-ruled territory which is set to revert to Beijing's control next year.
But pro-democracy protesters disagreed -- they stormed into the building where Hong Kong's rich and mighty had gathered to vote, and, waving imitation black coffins, they denounced the exercise as the death of freedom.
Only 400 of Hong Kong's 6.3 million people are participating in the voting, having joined a special Selection Committee set up under China's close supervision.
Shipping tycoon Tung Chee-hwa and his principal rival, former Chief Justice Ti Liang Yang both scored more than the minimum of 50 votes required to reach the next leg of the contest to select the first post-colonial Chief Executive.
Tung took a commanding lead with 206 votes. Also through to round two is businessman Peter Woo, but five contenders including former appeals court judge Simon Li fell out of the race.
The run-off will be on December 11.
The gathering of the Selection Committee, inaugurated by China's Foreign Minister Qian Qichen, who was visiting the territory for the first time, was marred by scuffles when pro-democracy activists clashed with police.
A dozen demonstrators scrambled into the plush Hong Kong Convention Centre in an unsuccessful bid to disrupt the historic meeting. Police chased protesters up six floors of escalators before they were rounded up and detained.
Outside, a police officer received a bloody nose and three more demonstrators were carted away in scuffles between about 40 activists and 100 police.
In his inauguration speech Qian declared the selection process as the dawn of genuine democracy in Hong Kong.
"For Hong Kong's people to elect their own chief executive, that is something unprecedented in Hong Kong's history," he said.
"For some 150 years Britain has appointed 20 or so Hong Kong governors, and when were the views of Hong Kong people ever consulted?" Qian asked the assembled caucus.
"The establishment of the Hong Kong Special Administrative Region (SAR) is the start of real democracy in Hong Kong, and not the end of democracy in Hong Kong," he said.
Hong Kong reverts to China at midnight next June 30.
Tung, 59, Yang, 67, and Woo, 50, are now the only hopefuls left in the race, and Qian was at pains to stress that despite claims by critics that the winner had been chosen in advance by China's communist rulers, the result was not preordained.
The democracy activists brandished posters of jailed Chinese dissidents Wang Dan and Wei Jingsheng and banners condemning China's plan to replace Hong Kong's elected legislature.
"Free Wang Dan, release Wei Jingsheng, oppose the provisional legislature", they shouted through loudhailers.
The democracy lobby brands the leadership race undemocratic and has campaigned against the provisional legislature.
"The provisional legislature is a great step backwards for democracy," one protest banner said on Friday.
British Foreign Secretary Malcolm Rifkind warned China on Thursday its plans for a provisional legislature risked creating "confusion and uncertainty" in Hong Kong.
"China would have to explain to Hong Kong and the world why they had chosen to replace a body for which more than a million Hong Kong people voted by one chosen by a handpicked electorate of only 400," he told a parliamentary debate in London.
| 37 |
The leader of Hong Kong's biggest pro-Beijing party said on Thursday the China-appointed interim legislature Beijing plans to set up next month would not clash with existing institutions before the handover.
Tsang Yok-sing, leader of the Democratic Alliance for the Betterment of Hong Kong (DAB), said the possibility that the provisional legislature would meet on the communist-ruled mainland rather than in Hong Kong has not been ruled out.
Britain is handing Hong Kong, its last major colony, back to China as an autonomous Special Administrative Region in 236 days' time, ending a century and a half of colonial rule.
Hong Kong's political establishment, and the governments of Britain and China, are polarised over China's plan to dissolve the elected Legislative Council (Legco) on July 1 and replace it with a provisional body until elections in 1998.
The plan is China's response to an enlargement of the democratic franchise by Governor Chris Patten, which Beijing has said violated the handover agreements.
In an interview with Reuters, Tsang said Hong Kong's constitutional arrangements did not prevent the provisional legislature from becoming Hong Kong's legislative body on July 1, after the sovereignty transfer.
"That is the date from which onwards, the provisional body is supposed to be involved in legislative work," Tsang said.
"Before that date, although the body is there, the Preparatory Committee and also some Chinese officials in charge of Hong Kong affairs have made it very clear that this provisional body will not be a legislature of Hong Kong."
The China-controlled Preparatory Committee has elected a 400-member body that will select both the territory's first post-colonial leader, the chief executive, and the provisional legislature. Both selections will be announced next month.
Critics portray the provisional legislature as a rubber-stamp body appointed by China that will enact repressive laws and eliminate many basic freedoms.
But Tsang told Reuters the committee process to establish the provisional body was just as much an election as the electoral arrangements for Legco, some of whose members are only indirectly elected.
Tsang, whose DAB fared badly against the popular Democratic Party in the September 1995 Legco elections, insisted that China had not breached the 1984 Sino-British treaty on the handover.
"China is abiding by the Joint Declaration. China is not going to set up a parallel legislature in Hong Kong before the actual handover," Tsang said.
"The place where the provisional body will work before July 1 next year has not been thoroughly discussed," he said.
"If people believe it would be inappropriate for the provisional body to meet in Hong Kong before July 1, 1997, then it can meet somewhere outside the territory," he said.
The leader of the Democratic Party, Martin Lee, said the provisional body would be illegal and that if the government did not take it to court, then he would do it himself.
"It's the last ditch battle for Hong Kong," Lee said. "We should fight against it with all our might."
Lee, who plans to lobby Britain next week to take firmer action, said the provisional legislature would roll back civil liberties and have dissidents jailed as they are in China.
China's crackdown, highlighted by the 11-year jail sentence handed to student leader Wang Dan last week, was a sign of what Hong Kong would be like after 1997, Lee said.
"Today Wang Dan, tomorrow you and me," he said.
| 37 |
As U.S. President Bill Clinton jumped into Asian foreign policy issues with a new enthusiasm on Wednesday, security experts meeting in Hong Kong called on all countries involved to ensure no conflict flared up over Taiwan.
Experts said U.S. policy on China and Asia was maturing, and they called for the status quo in Taiwan to continue in the interests of wider Asia-Pacific security and prosperity.
"Next to Korea, the Taiwan Strait is the second major potential security flashpoint in the region," David Shambaugh of the George Washington University in the United States said.
"This is not a back-burner issue. It can quickly ignite and get on to the front burner... It is an issue we have to keep our eye on," he said, adding that any flareup over Taiwan would severely damage the region's bustling commerce.
Shambaugh was talking at a discussion panel of security experts at the World Economic Forum's Europe/East Asia meeting.
He said Taiwan President Lee Teng-hui and other Taiwan leaders should restrain themselves and that the time would be riper for dialogue with Beijing after China holds a watershed Communist Party congress next year.
At the same time, China should renounce the use of force and coercive diplomacy towards Taiwan and respect Taiwan's autonomy within a "one-China" formula. China should not expect Taipei "to negotiate with a gun to its head", Shambaugh said.
China-Taiwan relations have been tense over the past two years as pro-independence sentiment grew in Taiwan and Beijing launched a drive for the reintegration of its lost territories.
Taiwan, historically part of China, has been separated from the mainland for most of the past century, first by 50 years of Japanese occupation, then when China's nationalist government lost a civil war to the communists in 1949 and fled to Taipei.
China regards Taiwan as a rebel province and has threatened to use force if the island seeks formal independence.
In March this year, as Taiwan went to the polls, a major crisis blew up when China launched missile tests and briefly blockaded Taiwan to deter Taipei from declaring independence.
"We should maintain the status quo," Yuan Ming, a strategic studies expert from Beijing University, said on Wednesday.
The view was echoed by Masashi Nishihara from Japan's National Defence Academy, who said Taiwan should not provoke China by seeking a United Nations seat.
Another expert, Gerald Segal of the International Institute for Strategic Studies in London, said the United States successfully defended the strategic balance and at the same time managed to stop short of a conflict when it sent two aircraft carriers into seas near Taiwan as a warning to China during the March crisis.
But he warned that the arms race in the region, where many governments were newly democratic but politically very fragile, threatened stability.
Visiting Australia on Wednesday, Clinton said the United States was more determined than ever to be involved in Asia, to help provide stability, that China should not be isolated and that engaging Beijing was a "big priority".
At the same time Secretary of State Warren Christopher was in Beijing shoring up relations. Clinton is to meet Chinese President Jiang Zemin at next week's summit of the Asia-Pacific Economic Cooperation forum in the Philippines.
Shambaugh said the flurry of high-level contacts now and in the near future between Beijing and Washington was important for building the Sino-U.S. relationship.
But he said Chinese officials would remain suspicious that the United States had a "subversion agenda" for China and that the policy of engagement was actually an attempt at containment.
| 37 |
Shipping magnate Tung Chee-hwa was to fly to Beijing on Tuesday to be anointed by China's communist leadership as Hong Kong's first Chinese leader when Britain pulls out in mid-1997.
Tung was to head for the Chinese capital in the afternoon after addressing Hong Kong's business community in his first major speech since he was selected as the territory's future chief executive last Wednesday.
In Beijing, he will have his first face-to-face meeting with China's President Jiang Zemin and Premier Li Peng since formally launching his bid for Hong Kong's leadership mantle two months ago.
It was Jiang who signalled in January this year that Tung was Beijing's favourite for the job when he singled out the tycoon for a warm, personal handshake at a reception in Beijing.
Britain is returning its last major colony to its former and future masters in Beijing at midnight next June 30, after a century and a half of colonial rule that turned it into one of Asia's economic marvels with a population of 6.3 million people.
One of Tung's first tasks in the twilight of British rule will be to cobble together an advisory cabinet called the Executive Council and to decide which senior mandarins to keep.
He has said he will start this task after his China visit, reinforcing speculation in Hong Kong that China will call the shots from behind the scenes on the make-up of the future government of the Hong Kong Special Administrative Region.
"If he waits before deciding on his team, there will be lingering doubts as to whether he was acting on instructions received from Beijing," the South China Morning Post said in its main editorial on Tuesday.
On Monday, the colonial government said it would set limits on how much it would help Tung to form a government-in-waiting before the transfer of sovereignty.
Constitutional Affairs Secretary Nicholas Ng told the Legislative Council that the government ruled out a mass exodus of senior officials to the government-in-waiting because it would undermine the stability and efficiency of the present administration.
The colonial administration is supposed to cooperate with the incoming government under the handover agreement.
But the transition has been fraught with disputes over issues ranging from human rights and democracy to infrastructure projects, darkening prospects for serious cooperation.
Many senior civil servants, including Chief Secretary Anson Chan, who is Governor Chris Patten's deputy, and Financial Secretary Donald Tsang, stayed away from a business dinner party attended by Tung on Monday night, though they had been invited.
Officials said Chan and Tsang had scheduling conflicts but political analysts said it might have been a sign that the administration's top two civil servants would not keep their jobs.
The 400-member, Beijing-controlled Selection Committee that selected Tung last week is now preparing for the next milestone in the march to Chinese rule -- the selection on Saturday of a 60-member, pro-China "provisional legislature" with which China plans to replace the existing, elected legislature on July 1.
Patten again condemned the new legislature in an interview with the French newspaper Liberation on Monday, saying he would never cooperate with it.
"This echo chamber has no place in the political or administrative life of Hong Kong," he said.
| 37 |
China and Britain moved closer on Friday to removing some obstacles to Hong Kong's smooth transfer to Chinese sovereignty next year, but fresh controversies raised new potential hurdles.
Agreements took shape on issues of handover ceremonies and budgets but quarrels brewed over China's moves to appoint new political leaders for Hong Kong.
Hong Kong government radio quoted diplomats saying London and Beijing were closing in on an agreement on a ceremony to mark Hong Kong's handover to China next June 30/July 1 and that the deal might be announced next month.
The sources signalled progress in informal talks and that a basic accord could be forged before foreign ministers of the two nations meet at the United Nations General Assembly in New York next month, the government-run radio said.
Differences over handover ceremonies have posed a stumbling block in negotiations on the sovereignty transfer, especially the question of what role Governor Chris Patten will play.
At the same time concrete progress was announced in talks on Hong Kong's next budget, which will straddle the handover date.
British and Chinese negotiators agreed on ways to allocate resources for the 1997/98 budget, Chinese senior official Chen Zuo'er told reporters after the latest talks.
Chen announced agreement on spending guidelines, maximum spending limits and procedures for dealing with new requests for money from the budget. Hong Kong Treasury Secretary K.C. Kwong was upbeat about the breakthrough.
"We have in the past few days had very positive pragmatic discussions on the preparation of the 1997-98 Budget," he said.
"We have for all practical purposes completed the preparatory stage of the resource allocation exercise," he said.
"Our next step will be to consider the bids for new resources from branches and departments."
But prospects of a smooth handover on the political front appear less bright. A Beijing official was quoted as saying a list of names of people being nominated by the public to sit on a caucus that will pick the first post-colonial legislature and governor, the chief executive, would not be made public.
The official was quoted by the South China Morning Post as saying some nominees might not want their names to be publicised and that only the nominees would have the right to see the list.
"This whole fiasco is too much. The whole thing is such a sham," pro-democracy legislator Emily Lau told Reuters.
"Perhaps they feel some important people will be embarrassed if they are not picked. The whole process lacks transparency and accountability and credibility."
The Wen Wei Po newspaper, flagship of Beijing's propaganda machine in Hong Kong, attacked Britain on Friday for trying to amend Hong Kong's laws in order to preserve London's influence after 1997.
The salvo came just a day after the paper criticised Britain's chief handover negotiator, Hugh Davies, accusing him of touting Britain's own favourite for post-1997 leader.
Davies' office dismissed the claim as ludicrous but Chinese spokesman Zhang Junsheng told reporters: "The British side should not meddle, and has no right to poke its nose in. This is entirely a matter for China."
| 37 |
Thumbing its nose at Britain, China brought Hong Kong's elected legislature a step closer to oblivion on Saturday when it founded a new lawmaking body to take over next July when it takes back the colony.
The birth of the Provisional Legislative Council in the frontier city of Shenzhen brought Hong Kong to a crucial turning point in its journey towards Chinese rule at midnight next June 30 and opened the way for a possible clash in the world court.
The body, stuffed with pro-China politicians and tycoons, was attacked by Britain, Washington and local protesters. London challenged China to let the International Court of Justice in The Hague rule on its legality.
The legislative body is a big crease in Sino-British relations that could cause instability in the territory in the run-up to the handover, now less than 200 days away.
The speaker of Hong Kong's Legislative Council and 32 other incumbent lawmakers were among the 60 members chosen by a 400-member China-controlled Selection Committee.
Congratulating the 60, Chinese Foreign Minister Qian Qichen declared the contest had been "just, fair, open and based on democratic principles" and had the approval of a wide spectrum of Hong Kong society.
Dominic Chan, recently expelled from the Democratic Party, Hong Kong's largest, also grabbed a seat. The Democratic Party has boycotted the selection as anti-democratic.
The winners included pro-China politicians such as Tsang Yok-sing, Elsie Tu and Peggy Lam, who were routed in 1995 Legco elections when more than a million people went to the polls and voted resoundingly for pro-democracy forces.
Pro-democracy groups staged noisy protests in Hong Kong declaring the Shenzhen meeting a "fake election" and a "black day for democracy". They launched 50 helium-filled balloons into China with a protest banner attached.
"Today we will have two legislatures...This is a constitutional crisis," said the Democratic Party's Andrew Cheng, a current legislator.
Beijing's communist rulers are bent on imposing themselves firmly on Hong Kong and on ending 150 years of national shame over the forced cession of the territory to Britain in 19th century wars over the opium trade.
Governor Chris Patten, who has introduced elements of democracy in this territory of 6.3 million people over the past four years, denounced the Shenzhen vote as a "bizarre farce".
"The reality is that over a million people in Hong Kong voted for the present Legislative Council. And up over the border now, 400 people -- 400 -- are voting for a so-called provisional legislature," Patten said on Saturday.
Dorothy Liu Yiu-chu, a Hong Kong member of China's parliament -- the National People's Congress -- and the Selection Committee, dissented and stayed away from the vote.
"I am sick. This is the official reason from the point of view of the Selection Committee. But I know, and I don't mind letting the world know, the real reason is that I don't agree to the establishment of the provisional legislature," she said.
Earlier this month she took part in the committee's first task, selecting shipping magnate Tung Chee-hwa as Patten's successor.
Tung dismissed Britain's suggestion of world court arbitration on Saturday, saying: "We cannot have a legal vacuum in 1997. This is a great day for Hong Kong."
China's official spokesman in Hong Kong, Zhang Junsheng, said Britain's challenge would not undermine the provisional legislature's authority.
"Establishing the provisional legislature is an internal affair of China. If Britain demands international arbitration it is absurd and ignorant," Zhang told the Mad Dog Daily.
The U.S. Consul-General in Hong Kong, Richard Boucher, called the legislature vote "a backward step".
"We think it's a bad idea and a mistake," Boucher said. "I don't think we would describe it as an open and fair election which is an essential part of Hong Kong's future stability and future business environment."
Democratic Party leader Martin Lee has vowed to seek a court injunction against the provisional body if it meets in Hong Kong before July 1.
"If this sham legislature is lawful, why not appoint it and have it meet in Hong Kong, where the Supreme Court can decide on its legality," Lee said on Friday.
| 37 |
Two hundred days before its historic handover to China, Hong Kong has adopted a charismatic shipping tycoon as helmsman to lead it into the 21st century.
But the British colony of 6.3 million people is waiting to see if chief executive-designate Tung Chee-hwa can form a "dream team" with the territory's most popular public figure, "iron lady" Anson Chan, head of the present colonial Civil Service.
The former tycoon, who resigned from his shipping empire to become Hong Kong's first post-colonial leader, takes over from British Governor Chris Patten at midnight next June 30, when a century and a half of colonial rule comes to an end.
"If Tung can keep Anson in her job, we will have a dream team leadership that both Britain and the Hong Kong community will be happy with," a senior official said.
Tung, 59, selected by a Beijing-vetted electoral college to run the future Hong Kong Special Administrative Region of China, named Chan on Thursday as favourite to be his deputy, saying he wanted her to stay on as head of the 180,000-member civil service.
"I have said I hope she can remain at her post. She, too, has indicated she is willing to do so. I hope she can be my chief secretary," Tung said in the Chinese city of Shenzhen.
"I would like to see a smooth transition. I hope most of the senior officials can remain in office," he said.
Chan, 56, has signalled her interest in working for Tung but restated her fervent belief in libertarian values.
She praised Tung for urging Hong Kong to forget political squabbles and "find common ground to build Hong Kong together".
But she cautioned that the freedoms and plurality of views that made Hong Kong one of the world's economic marvels must be preserved, and said pragmatism and flexibility were vital to it.
"Its very success has been founded on tolerance of different viewpoints," she told the college gathering. "I believe that the law was made for man, not man for the law, that government is the servant of the people, not their master."
Of a similar age, Tung and Chan have much in common and have always described their relationship as friendly.
Both their families moved from Shanghai to Hong Kong as the Communists overran China, defeating the Nationalists in a long civil war that ended in 1949.
The contest for Hong Kong's handover leadership has been dominated by the Shanghai connection. The two candidates who lost to Tung -- former Chief Justice Yang Ti Liang and entrepreneur Peter Woo -- were also Shanghai-born.
Chan herself had earlier been touted as a leadership candidate, having emerged in the polls this year as Hong Kong's most popular political personality with more than 60 percent of public support. But she decided not to run against Tung.
The Shanghainese form one the greatest networks within Hong Kong. Tens of thousands of Shanghai people fled the Communist regime and relocated their businesses in Hong Kong after 1949.
The current leadership in China is also heavily dominated by the so-called "Shanghai faction" led by President Jiang Zemin, who has been actively promoting officials from his home area.
Tung, a conservative who was once bailed out by Chinese funds and who opposes conflict with Beijing, has evolved from a publicity-shy figure into a charismatic leader-in-waiting who can charm and quip his way through news conferences.
He shifts comfortably from one language to another -- English, Cantonese and Mandarin.
Chan is profoundly respected by civil servants for her no-nonsense, efficient administrative style, which has earned her a reputation for toughness -- tempered by a huge smile, kind heart and balanced political outlook.
"The question is whether it is too balanced. Beijing may reject her for defending democracy too much," the official said.
| 37 |
Britain and China are deadlocked on core issues central to a smooth handover of Hong Kong to Beijing in 1997, ranging from citizenship rights to subversion and troop deployments, officials said on Tuesday.
"With only 210 days to go under the British flag, time is running out fast to sort out these problems," a British official said on the eve of Sino-British talks starting on Wednesday.
"China has to decide whether it wants things to go smoothly next year or not."
British and Chinese chief negotiators meet on Wednesday for three days of talks under the Sino-British Joint Liaison Group (JLG) forum, haggling over handover details.
There have already been signs over the past week that handover talks have soured, blocking progress on major details of the flag change, set for midnight June 30 next year.
Chinese and British experts who met on Monday failed to agree on a formula for China to send an advance party of troops into Hong Kong before the handover, and last week a big quarrel flared over a liberal anti-subversion law proposed by Britain.
"We haven't made as much progress as I would have liked to have seen but we have agreed that this is an important subject," British representative Alan Paul said after the talks on troops.
"We must continue our efforts and we must meet more often on this subject," Paul said. A source close to the talks said China had yielded ground by abandoning a demand that the advance party bear arms, which Britain has publicly opposed, and that the argument was now over troop numbers.
JLG working-level negotiators were due to meet again on Tuesday to discuss citizenship and right of abode issues.
A British official said Britain was especially worried by the fact that China had come to no agreement on the terms whereby Hong Kong citizens with a domicile abroad can qualify for permanent residence in the territory after 1997.
Chinese officials have previously proposed that citizens must be back in Hong Kong on the day of the handover or lose their right of abode in the territory, which is to become an autonomous Special Administrative Region (SAR) of China.
British officials have warned that unless this problem is solved, there could be a chaotic mad rush by overseas Hong Kong people to the territory on the eve of the handover.
The main negotiations on Wednesday open against a backdrop of tension heightened by a liberal anti-subversion law that the colonial government will put to the legislature on Wednesday.
The legislation aims to set legal standards that would exclude China-style jailings of dissidents.
Britain has said China has blocked efforts to discuss the bill although handover documents require a law to be legislated on the offences of subversion, secession, sedition and treason.
Chinese officials said enactment of the law was not for the colonial government to carry out now, but for the SAR, after 1997, and they accused Governor Chris Patten of lying when he said China had blocked discussions on it.
The Legislative Council plans to launch a new motion of censure on Wednesday opposing its own abolition and China's appointment of a provisional legislature next July 1.
On Thursday, more political drama related to the handover is likely when a legislative inquiry panel summons senior officials to testify under oath about the sudden retirement of Hong Kong's immigration chief Laurence Leung last July.
Finance Secretary Donald Tsang and Leung's successor Regina Yip are both to testify. Leung's early retirement has fuelled a welter of questions among politicians about why he was permitted to depart so abruptly.
| 37 |
Shipping boss Tung Chee-hwa emerged as the most vocally pro-China contender for Hong Kong's leadership on Friday as a Beijing-controlled body wrapped up a three-day quiz of three men vying to rule Hong Kong after 1997.
The Selection Committee of 400 rich or influential Hong Kong people, who were picked under China's close supervision, will now ponder. But many believe Tung is the preordained winner.
The committee meets again on December 11 to make its choice.
Tung shot off a volley of comments and answers to committee members underlining his loyalty to China, attacked the politics of British Governor Chris Patten, and even threw in a snub about the inauspicious qualities of Patten's official residence.
Hong Kong reverts to Chinese rule at the stroke of midnight next June 30 after more than 150 years as a British colony.
Beijing is turning the territory of 6.3 million people into a Special Administrative Region of communist China, pledging no change to its thriving capitalist system for 50 years.
The committee's choice of a chief executive to succeed Patten was obvious, the pro-business Economic Journal said on Friday. "We get the feeling that winner and loser in the chief executive contest is already decided," it said.
Tung Chee-hwa's answers were all "politically correct", showing a "cautious nature" that suited the taste of Beijing and many Hong Kong people, the journal said.
In his remarks, Tung jumped to China's defence and attacked an attempt by Britain this week to introduce a pre-emptive soft subversion law before the 1997 handover aimed at ensuring no China-style jailings of dissidents take place after 1997.
"It is up to the future government to draw up its own law on these matters," Tung said. "The Special Administrative Region government will have to review these issues after the handover."
Tung, 59, who quit as head of the Orient Overseas shipping empire to bid for Hong Kong's leadership, has been tipped as China's favoured son since Chinese President Jiang Zemin singled him out for a handshake in Beijing in January.
In the three days of committee interrogation, much of which was broadcast live, Tung's rivals -- former chief judge Ti Liang Yang and entrepreneur Peter Woo -- also gave voice to patriotism but were glaringly less pro-China in their utterances.
Yang made clear he would not always bend with Beijing's wind or whim, but would follow the letter of Hong Kong law.
"I'm for Yang because he's for justice," said a Hong Kong Chinese resident listening to the sessions on the radio.
"He's a fair man. He's not a merchant," he said, summing up a widely held view of the contest.
Tung said Hong Kong might have to make sacrifices if China fell victim to political or diplomatic sanctions.
He stressed Chinese cultural values and patriotic education and the need for less red tape, speedier land development approvals, a sell-off of low-price public housing to tenants, and setting an example of Chinese reunification for Taiwan to follow later.
"I found it abominable...I found him more colonial than the colonial government," said legislator Tsang Kin-shing.
Tsang, whose Democratic Party is boycotting the leadership contest, said Tung's rivals were no better. "They are all foul grass growing from a foul jar," he said, using a colloquial Chinese insult.
Tung also said he would not like to move into the governor's traditional residence next year. "I have heard the Government House is crowded and the fung shui is not good."
Many Hong Kong Chinese cling to fung shui, "wind and water", a mixture of science and superstition that people use to chart their lives, birthdays, weddings, business and burials.
| 37 |
Canadian envoys on Tuesday dismissed reports that thousands of Hong Kong people in Canada may be forced to flock home en masse ahead of Hong Kong's 1997 handover to China in order to protect their residence rights.
Canada's commissioner in Hong Kong, Garrett Lambert, and the country's ambasador to China, Howard Balloch, said they believed China would soon decide on the issue, which has been a stumbling block in Sino-British talks on the territory.
But Lambert said Hong Kong people who had emigrated from the British colony might have to live in Hong Kong as Canadians in future and lose their local voting rights after it becomes a Special Administrative Region (SAR) of China on July 1, 1997.
Lambert told reporters he had been informed by China's envoy in Hong Kong, Zhou Nan, that progress was being made by Chinese and British negotiators on the problem of right of abode.
The question is one of the major unresolved issues facing the Sino-British Joint Liaison Group (JLG), which meets this Wednesday.
"This is a good file. It's one on which progress is being made. Mr Zhou said he expected that we would have a decision announced in the JLG soon -- my guess is probably in early January," Lambert said.
"It now seems fairly obvious that you do not have to be physically present in Hong Kong to protect your interests if you are already a permanent resident of Hong Kong before the transition," he said.
However, Lambert said questions remained about political and working rights of Hong Kong emigrants who return to live in the territory after 1997.
Of all Western nations, Canada has one of the largest immigration relationships with Hong Kong.
Apart from some 500,000 Hong Kong people who have emigrated to Canada in recent years, some 30,000 Canadian citizens live in Hong Kong, many of them originally Hong Kong citizens.
Press reports in Hong Kong have quoted British officials warning of a chaotic mass return of Hong Kong emigrants if China insists on them being in Hong Kong in person on the July 1 handover day in order to keep their residence rights.
Chinese officials have said in the past that this would be their bottom line, but the JLG has reached no agreement on it.
Canada has delayed a decision on granting visa-free entry to holders of a new Hong Kong passport to be issued after the handover, pending guarantees from China on the repatriation of Chinese who enter Canada illegally.
Replying to a reporter on Tuesday, Lambert denied Canada had any grounds to believe the SAR passport had been compromised from a security viewpoint.
Balloch declined to confirm or deny that significant numbers of Chinese illegal immigrants had entered Canada using Hong Kong documents that were illegally issued or obtained.
The envoys also denied local press reports that Canada had received a comprehensive list of Chinese dissidents living in exile in Hong Kong, and that it planned to grant them refuge after 1997. They said some individual dissidents had come forward but declined to comment further.
| 37 |
Britain's Prince Andrew has arrived in Hong Kong to inspect his troops in one of the last royal visits to the territory before its return to Chinese rule in the middle of next year.
During the three-day visit the Duke of York will watch jungle training and border patrols by soldiers of the 1st battalion of the Staffordshire regiment, of which he is Colonel-In-Chief.
Prince Andrew made a low-key entry to Hong Kong on Monday night and was entertained at Government House by Governor Chris Patten and his wife Lavender, officials said.
"It was a quiet supper," said one official. "This is a low-key visit. He will spend most of his time with the One Staffords," an official said. "It's quite likely his last visit here before China takes over."
The prince, who fought in the 1982 Falklands War, will visit Hong Kong battle positions from World War Two, when the colony was occupied for four years by Japanese troops.
He will visit Hong Kong's military base on Stonecutters Island, the scene this year of many a tearful military farewell as the British steadily withdraw their armed forces ahead of 1997.
The garrison will be scaled down from almost 3,000 now to about 1,500 six weeks before the handover. All remaining troops are then to be pulled out by the time Britain hands over to China at midnight on June 30.
Andrew was to attend a cermony at which the colours of the Dragon Company of the Hong Kong Military Service Corps will be handed over to the Staffordshires, who will adopt the dragons as their nickname, a military officer said.
The dragons corps of Chinese servicemen, Britain's only Hong Kong Chinese army unit, lowered its ensign for the last time at a disbandment ceremony last Saturday.
The Staffordshires are one of two battalions that will be stationed in Hong Kong in the final months of British rule.
From July 1, China's People's Liberation Army will take over the garrison with a force of up to 10,000 troops, matching the British at their former peak of troop strength.
Andrew is expected on Wednesday to visit construction sites related to the territory's mammoth new airport now being built at Chek Lap Kok on the outlying Lantau Island, officials said.
He will see the huge Tsing Ma suspension bridge linking Lantau and the mainland part of Hong Kong with an expressway and railway corridor to the airport, they said.
Hong Kong is the last outpost in Asia of the formerly globe-girdling British Empire. The handover next year weighs heavily on the hearts of British patriots, colonials and fans of the royals who sadly regard the event as the sunset of British power and prestige.
Andrew's visit is likely to be one of the last by a member of the royal family before Queen Elizabeth's realm loses the bustling capitalist enclave of 6.3 million people to China.
Princess Anne is expected to visit for a ceremonial opening next month of Britain's Consulate-General building, which will be London's official mission in Hong Kong after the handover.
Although not official yet, it is an open secret that Britain wants heir-to-the-throne Prince Charles to preside over the last farewell on handover night and to sail away with Patten on the royal yacht Brittania after the furling of the Union Jack.
| 37 |
Hong Kong's post-1997 leadership campaign has begun in earnest with all the top candidates for the job as the territory's chief executive stating their positions on key issues in recent days.
The latest was Sir Ti Liang Yang, who on Monday made several policy statements including support for China's controversial plan to scrap the British colony's elected legislature.
With Britain's withdrawal and Hong Kong's reversion to Chinese rule 245 days away, would-be contenders to succeed Governor Chris Patten as the territory's top executive have sharpened their policy positions and revved up their campaigns.
"I think we have a real race in the sense that there is no chosen candidate in this contest," political expert Michael DeGolyer said on Tuesday.
DeGolyer, who heads a study on transition issues at a Hong Kong university, dismissed speculation that China had decided the outcome in advance and said rival Beijing factions were backing different Hong Kong personalities in the race.
"It's pretty clear they are backing different candidates in this contest," DeGolyer told a Hong Kong radio talk show.
The four main contenders among 31 nominees are Yang, shipping magnate Tung Chee-hwa, businessman Peter Woo and ex-appeals court judge Simon Li.
Yang, who resigned as the territory's chief justice last month to vie for the chief executive slot, broke with government policy when he ended his silence on China's plans for the legislature, describing them as legal and necessary.
China plans to dissolve Hong Kong's elected Legislative Council (Legco) -- reversing Patten's democratic reforms -- and install an appointed "provisional legislature". Britain and Hong Kong's democratic camp hotly oppose the plan.
"In my view the provisional legislature has a legal basis and there is a necessity to establish it," Yang told reporters.
He said without it, there was a risk of a legal vacuum arising during the transition to Chinese rule.
But Yang rejected the idea of the new assembly operating in tandem with Legco in the run-up to the handover.
He also said the enactment of new laws on subversion and treason, to reflect the change of sovereignty, should be left to a future permanent legislature to handle.
Despite the campaign atmosphere, the territory's new leader will not be democratically elected but chosen by the secretive, Beijing-appointed Selection Committee, a panel of 400 people from Hong Kong that will make the choice next month.
The Beijing-controlled Hong Kong daily Ta Kung Pao on Tuesday called the process "a democratic election with Hong Kong characteristics", a play on China's label for its own political system, "socialism with Chinese characteristics".
Yang also said he was shedding his British knighthood and the corresponding title "Sir".
Over the past week all four front-runners have made clear they would not challenge China's tough line on key political issues such as the legislature, democracy, human rights and freedom of expression in Hong Kong.
| 37 |
Hong Kong shipping tycoon Tung Chee-hwa was rated by a poll on Thursday as the best man to deal with China as a Beijing-controlled committee grilled candidates vying to run the territory when Britain pulls out in 215 days.
Britain hands its colony back to Chinese sovereignty at the stroke of midnight next June 30, and the 400-strong Selection Committee is in the midst of a three-day vetting of Tung and two rivals bidding to succeed colonial Governor Chris Patten.
The winner will be announced on December 11.
The opinion poll, conducted among 967 people by the Chinese University of Hong Kong on Monday and Tuesday, showed Tung to be the favourite and indicated 73 percent of the respondents also believe Tung is the candidate who can communicate best with the Chinese government in Beijing.
Only 7.2 percent thought his rival, former chief judge Ti Liang Yang could commmunicate well with Beijing, while another candidate, businessman Peter Woo, scored only two percent.
Yang, however, was seen as being more impartial and as the man most ready to voice his opinion to China, the poll showed.
Asked who was most likely to speak out against Beijing, 31 percent said Yang, 20 percent Tung and 4.8 percent Woo.
After the first day's questioning of the candidates by the committee on Wednesday, Tung emerged as a better communicator than he has appeared on previous occasions, analysts said.
He produced a clearly focused vision for Hong Kong with the main thrust on putting business and economic interests first.
During the quizzing by committee members representing Hong Kong's business community, Tung blasted the Democratic Party, Hong Kong's largest, urging it to drop its anti-China stance and to play a positive role in the transition for the sake of Hong Kong's 6.3 million people.
"At present they are objecting to anything Chinese," Tung said. "This is not good in the long term or for the interests of Hong Kong," he said. "They should not think in this way."
The Democrats are boycotting the Selection Committee, condemning its mission to pick Hong Kong's post-colonial leader as undemocratic and its activity to assemble a new provisional body to supplant the present elected legislature as a violation of handover pledges made by China.
Tung, delivering his policy platform in a speech to the body, outlined a new era in which he would pack his advisory cabinet with specialists and include legislators -- now excluded from the equivalent colonial body.
He also said he would like to retain all the senior local officials of the civil service in sign that he might keep on the present and highly regarded Chief Secretary Anson Chan.
Among his policy initiatives, Tung listed the revival of manufacturing industries, especially with a high-tech focus.
In recent years manufacturing has shifted out of Hong Kong to cheaper locations in mainland China, and Hong Kong has become a service-based economy.
Tung also said he wanted to boost the role of provident funds and social security. He said he would press for faster approval of construction plans, the sale of public housing to tenants at affordable prices, the release of more government land for housing, and a reduction of red tape.
He said he had a sense of mission to work for Hong Kong's good. "My father C.Y. Tung had always taught me to do meaningful things and to be proud of being a Chinese," he said. "It is this sense of mission that drives me."
| 37 |
The United States' top diplomat on Asia drew flak from leaders of Hong Kong's pro-democracy camp on Wednesday as he met key officials and politicians on the colony's 1997 return to China.
The U.S. Assistant Secretary of State Winston Lord had separate meetings with local political parties and with China's top official in the British colony, Zhou Nan.
Lord was also set to meet colonial Governor Chris Patten and his deputy, Anson Chan, as well as the man tipped as Hong Kong's first post-colonial leader, shipping magnate Tung Chee-hwa.
Pro-democracy parties criticised Lord for planning to see only one of the three candidates in the China-controlled contest to select a post-colonial successor to Patten -- tycoon Tung.
"He has adopted the conventional wisdom that Tung will be chief executive and that the other two have no chance," said legislator Emily Lau of the pro-democracy group, Frontier.
Lau said she was not invited to meet Lord. The democracy camp has accused China of preordaining Tung as winner of the contest, which will culminate on December 11, and some critics say Lord's meeting with him is helping to pick the victor.
"What's the point in seeing the others when there's only one who will become the chief executive-designate of Hong Kong," one U.S. diplomat admitted to a reporter on Wednesday.
Lau said U.S. politicians no longer followed up remarks supporting human rights and democracy with action, and that they were now interested only in making money out of China.
"If they cared about human rights and democracy they should have cancelled Secretary of State Warren Christopher's recent visit to China, to send Beijing a strong signal," Lau said.
But Christopher went there -- just one week after China had jailed leading dissident Wang Dan, she said. The U.S. has said it hopes to see Hong Kong keep its freedoms after 1997, but has stopped short of condemning Chinese plans to crimp democracy.
Legislator Yeung Sum, vice-chairman of the Democratic Party, Hong Kong's largest, said his party had told Lord of its worries about the future of press freedom, the elected legislature and the undemocratic nature of the post-1997 leadership contest.
His party had told Lord that a Chinese plan to dissolve the elected Legislative Council next July 1 and install a new provisional legislature was illegal, Yeung told reporters.
"It's a step back as far as democracy is concerned," Yeung said, branding the provisional legislature move a breach of the Sino-British treaty covering the sovereignty transfer.
Lord said Washington would continue to take a keen interest in Hong Kong after the change of flag at midnight next June 30.
"I'm here essentially for two reasons. One, to underline the United States' strong interest in a smooth reversion of Hong Kong to Chinese rule, and secondly I'm here to listen, and I'm listening to a wide spectrum of views," Lord told reporters.
Lord was to hold a news conference on Thursday.
On Wednesday, he heard not only the views of the democrats but also politicians who oppose some of Britain's latest moves.
Before meeting Lord, the chairman of the Liberal Party, Allen Lee, said he would stress his opposition to the colonial government's decision last week to put forward a liberal new anti-subversion law without China's agreement.
"Mr Patten, knowing that the chief executive will be selected next week, gazetted last Friday a bill, without the agreement not only from the chief executive-designate, but also from the Chinese government," Lee said.
"I think this is totally irresponsible. He is playing politics, and he doesn't deserve to be the governor of Hong Kong," he said.
| 37 |
With China's takeover of Hong Kong rapidly looming, the British colony faces a swirl of politics and diplomatic jousting in the week ahead, the last before China names the territory's first post-colonial governor.
British and Chinese negotiators, often sparring over the details of the sovereignty transfer, will meet on Wednesday for three days in their latest bargaining round.
Chinese sources said China is likely to lash out during the Joint Liaison Group session at a British attempt to foist a soft subversion law on the territory before the mid-1997 handover.
Last Tuesday Britain announced a draft bill that would make crimes such as subversion and sedition a crime only if they entailed violence, making clear mere dissident-style criticism of the authorities was not a crime.
China has denounced the move. "This will only cause disruption and instability in Hong Kong," China's spokesman in Hong Kong Zhang Junsheng said on Friday. Some members of the pro-China lobby predicted the law would be replaced by a more Chinese-style legislation after the handover on July 1.
The territory is also preparing for a visit by U.S. Assistant Secretary of State Winston Lord on Wednesday.
Lord, who is also heading for China amid signs of a thaw in Sino-U.S. ties, plans to meet Governor Chris Patten and his deputy Anson Chan, as well as China's hardline envoy in the territory, Zhou Nan, and shipping tycoon Tung Chee-hwa, the favourite in the contest to be the first post-colonial leader.
Critics said Lord's meeting with Tung would be an undiplomatic signal from the United States tantamount to Washington picking the winner in the contest.
Fresh attacks on China are also expected on Wednesday from democrats in Hong Kong's elected legislature, which is set to be dissolved upon the handover and replaced with a new provisional body assembled under China's supervision.
Last week a Selection Committee of 400 rich or influential Hong Kong people, formed under China's careful control, quizzed Tung and two rivals over their policies and attitude to China.
Tung, 59, emerged as the most vocally pro-China contender, loosing off a volley of remarks that stressed loyalty and patriotism to China, attacked Patten's politics and threw in a snub on the inauspicious quality of the governor's residence.
The tycoon also suggested the Democratic Party, the territory's largest, should stop confronting China if it wanted to participate in post-handover political establishment, which drew an attack from Patten.
"You can't, nobody can, freeze out of the political debate in Hong Kong, out of the dialogue about Hong Kong's future, those who represent majority opinion in Hong Kong," Patten told Hong Kong's government-funded radio on Saturday during his visit to Japan.
The 400-member Committee will meet again on December 11 to vote for the new chief executive. Most people now consider Tung's rivals Ti Liang Yang, a former chief judge, and businessman Peter Woo, rank outsiders.
Many Hong Kong people were unimpressed by last week's performances, not least the territory's pro-democracy camp.
"Only empty promises and brief outlines were provided in their platforms," said legislator Fred Li of the Democratic Party.
He decried the fact Hong Kong's voters were not involved in choosing among the three contenders. "All they need is the blessing of these 400 people," Li said.
| 37 |
Hong Kong, wary about upsetting its future Beijing masters when dissenters use it as an escape route, kept silent on Monday about Chinese dissident Wang Xizhe following reports he had fled to the British colony.
Human rights activists in Hong Kong said Wang, 46, fled here from his home in China's neighbouring Guangdong province over the weekend, just days after the communist authorities in Beijing bundled a colleague into a labour camp.
He was expected to leave Hong Kong soon, they said, possibly by Monday night, and probably for the United States.
The U.S. Consulate declined to confirm or deny that Wang had asked for asylum. "We don't comment on asylum cases," consulate spokesman Patrick Corcoran said.
Wang would be the second Chinese dissident known to have fled to the United States via Hong Kong this year. Liu Gang fled last May after months of police harassment following a six-year prison stint for helping to lead the 1989 student protest movement.
"According to our information Wang is safe at the moment," Robin Munro, Director of Human Rights Watch Asia, told Reuters.
"I think it's likely he'll probably be going on somewhere else fairly soon," Munro said.
Munro said he was unable to say where Wang was heading, but other human rights sources in Hong Kong said he was seeking refuge in the United States.
Washington has been generous in granting asylum to Beijing's political critics since a military crackdown against the student-led democracy movement in Tiananmen Square in June 1989.
Scores, perhaps hundreds, of Chinese dissenters have fled to the West since then through Hong Kong, local activists say.
"I assume he was about to be arrested by the Chinese authorities. I can't think what else would have prompted such a rapid departure," Munro said, attributing Wang's move to the three-year sentence passed on dissident Liu Xiaobo last week.
Wang and Liu sparked reprisals against remaining dissidents last month when they wrote a letter demanding the impeachment of President Jiang Zemin for violating the constitution by placing the army under Communist Party, rather than state, control.
Human rights sources said it was unlikely Wang would speak publicly in Hong Kong but that he would explain himself when he reached his destination.
As Hong Kong prepares to revert to Chinese sovereignty next July 1, issues of human rights, and especially help for mainland dissidents, have become acutely sensitive.
"The Hong Kong government asks such people to keep quiet while they are here as the price for facilitating their smooth exit from the territory," one human rights source said. "And the Americans go along with that quiet, too," he said.
Munro saw the latest developments in China as a blow.
"It's extremely discouraging and quite deplorable the way the (Chinese) government has intensified its crackdown on the few remaining dissidents in China in recent weeks," said Munro.
He said the dissident movement in China had effectively been crushed, with all prominent dissidents either in jail or forced into exile.
"The saddest thing about it is that Wang appears to have concluded there's no way he could continue to struggle for change from within the country," Munro said.
Wang's activism dates from 1974 when he co-authored an attack in Guangdong on the radical 1966-76 Cultural Revolution.
He took part in the 1979 Democracy Wall movement in Beijing and produced his own dissident newsletters. He was twice imprisoned and spent some 17 years in jail and labour camps.
He was released on parole in 1993, and before he fled he had been under constant police surveillance.
| 37 |
A former top judge who is vying to lead Hong Kong after China takes over next year has said the territory needs a neutral and impartial leader rather than a well-connected tycoon, and one who is tolerant towards dissent.
"I'm for tolerance," Yang Ti Liang, one of three candidates trying to become Hong Kong's first chief executive after Britain hands the colony back to China at midnight next June 30, told Reuters in an interview.
The 67-year-old Shanghai-born former chief justice, who shed his British knighthood a month ago, came through this month's first round of voting by a 400-strong China-backed Selection Committee with 82 of the votes.
He was well behind frontrunner Tung Chee-hwa, a shipping tycoon with strong China links who scored 206 votes, but ahead of another entrepreneur, Peter Woo, who scraped through with 54.
Tung has often been depicted as Beijing's favourite in the race. But Yang, who has emerged as the people's favourite in some recent opinion polls, and once with a lead of as many as 10 percentage points, is battling on, even though there will be no public vote for the top post.
"Of course the votes indicated that certainly the Selection Committee favours Tung much more than they favour me. It's an uphill battle. It's not easy. But I think there's still hope," Yang said.
Over the coming week candidates will be quizzed by committee members on their policies ahead of their final vote on December 11.
Asked if the committee was likely to heed his popularity with the public, Yang said: "I think to a certain extent it will. I don't think they will follow the poll to the letter. If there's a vast difference shown between candidates in the polls, the committee will have to take note."
Yang's campaign headquarters is a modest, cramped office rented in a hotel, in marked contrast the plush executive suites occupied by Tung. The "campaign" is a crusade to lobby business and interest groups, not the general public.
Yang described his greatest strength in comparison with Tung as his long experience as a fair, unbiased arbiter.
"I have no business connections or political connections ... having been a judge for the past 30 years. I am somebody above politics, above connections, neutral, impartial, as opposed to somebody who is very much in business and whose contact with the Chinese government is very good," he said.
"I think anybody who has a huge network with other people does give rise to the problem as to whether, if eventually selected, he might not be perceived to be influenced by these connections when making a decision."
Yang said Hong Kong's future leader would not face a test of courage in standing up to Beijing's communist rulers to resist pressure for a crackdown on anti-communist dissenters and pro-democracy activists.
"It's not a question of being brave or not brave. It's a question of looking at the letter of the law and seeing what it allows," he said. "I want to be on the side of tolerance."
He said he hoped a law on sedition, treason and subversion required by Beijing would not be enacted by the controversial interim legislature that China plans to install at the handover, but by a new long-term legislature to be elected in 1998.
Yang also said he believed the Chinese Communist Party, which has long operated underground and behind the scenes in Hong Kong, should register as a party under local law if it planned to be active in the territory after 1997.
| 37 |
China is poised to take a major step in reversing democratic reform in Hong Kong by creating a new legislature to replace the territory's elected body when Beijing resumes control of the British colony next year.
The die will be cast on Saturday when 400 Hong Kong people, carefully screened by China, meet over the border in the city of Shenzhen to appoint 60 legislators who will make Hong Kong's laws from July 1.
The "provisional legislature" will be installed after China disbands the elected Legislative Council (Legco) in a move to roll back political reforms introduced by Beijing's nemesis, departing colonial governor Chris Patten, since 1992.
The body that will choose the new parliamentarians is the Selection Committee, which also elected Tung Chee-hwa, a 59-year-old shipping tycoon with strong pro-Beijing loyalties, to succeed Patten as chief executive of the territory of 6.3 million people.
China resumes control of Hong Kong at midnight on June 30 next year, ending more than 150 years of British rule.
The Hong Kong public, who voted resoundingly for pro-democracy groups in Legco elections last year, have had no vote in the two selection processes organised by China and no say in the decision to remove the elected legislature.
The Sino-British quarrel over the provisional legislature set Tung and Patten on a collision course this week.
"A quarter of those who are lining up for jobs in this institution were beaten in regular elections ... It will be a blot on the first months of Chinese rule," Patten told a newspaper. "This echo chamber has no place in the political or administrative life of Hong Kong ... We will have nothing to do with it any form."
Tung responded in a speech to the business community by saying Britain must "face the reality" of the new legislature. He warned that if its legitimacy was challenged further he would get China's parliament to legislate on its legality.
Hong Kong's biggest pro-democracy group, the Democratic Party, is boycotting the selection process, which it brands as a plot to snuff out democracy and enact repressive laws.
"You won't find five of them who can be called democrats by any stretch of the imagination," Democratic Party leader Martin Lee told Reuters, commenting on the candidates.
The Democratic Party has expelled a rebel member, Dominic Chan, because he broke ranks to run for the new assembly.
The party is organising two days of protests against the provisional legislature, and China has beefed up security on the border in case demonstrators try to cross into Shenzhen, local media quoted Chinese sources as saying.
The Selection Committee will choose the 60 members of the provisional legislature from a list of 130 candidates.
Pro-Beijing parties fielding candidates denied critics' allegations this week that they had negotiated the result of the voting in advance in under-the-table horse-trading.
"There is definitely no carve-up of seats," said Liberal Party leader Allen Lee.
Each Selection Commitee member will vote by endorsing up to 60 names from among the candidates. The top 60 candidates -- those listed the most times -- will be appointed to the provisional legislature.
Among the candidates are 34 incumbent legislators, raising the prospect that Legco could be crippled well before Chinese rule, because the two legislatures' schedules could clash.
A poll by Hong Kong University indicated on Thursday that one-third of the public support the concept of the new legislature and one-quarter trust the Chinese government.
| 37 |
On the eve of an historic gathering of the elite assembled by China to pick Hong Kong's future leader, the smart money was on Tung Chee-hwa.
Most observers viewed it as a foregone conclusion that the shipping tycoon would emerge the winner after the 400-strong Selection Committee of Hong Kong business titans and pro-China politicians meets on Wednesday to choose the territory's post-colonial chief executive.
Blessed by a personal public handshake from Chinese President Jiang Zemin last January, Tung ran off with 206 votes in the first round of voting last month by the committee, which was chosen under Beijing's close supervision.
Sovereignty over the territory of 6.3 million people, one of Asia's economic wonders and Britain's last major colony, reverts to China at midnight next June 30 -- 203 days from now.
A poll by Hong Kong's Lingnan College showed on Tuesday that 56 percent believed the winner has probably been picked in advance. Only 18 percent believe there will be a real contest.
"I don't think there was ever any doubt that it would be Mr Tung. I've been calling this selection committee the Tung Chee-hwa selection committee," said Martin Lee, head of the Democratic Party, the largest in Hong Kong's legislature.
Lee, whose party is boycotting the selection process, said Tung could not be counted on to preserve Hong Kong's freedoms, human rights and its current moves towards greater democracy.
"The people of Hong Kong cannot trust him to protect our rights, not because he is a bad man, he is a nice guy, but I cannot see how he is in a position to say no to Beijing on any important issue," Lee said.
Some Hong Kong newspapers were already putting the finishing touches on Tuesday to a slew of Tung-the-victor profiles for publication on Wednesday, an industry source said.
If he wins on Wednesday, Tung will be greeted soon by a no-confidence debate presented by lawmaker Emily Lau, one of China's loudest critics.
Colonial Governor Chris Patten has promised his support for the chief executive-designate, whoever it turns out to be, in the twilight months of British rule.
Tung has not responded to the pledge but has said he will engage Hong Kong's respected civil service in dialogue on how best to run the territory and ensure a smooth transition.
"Nobody wants the present administration to be turned into a lame duck," Tung said on Monday.
Two rival candidates -- former Chief Justice Ti Liang Yang and entrepreneur Peter Woo -- are both ranked as outsiders.
An opinion poll by Hong Kong University last week gave Tung 46.7 percent, Yang 28.8 percent and Woo 5.2 percent public backing.
But Tung only began to gain public support in the past month, after Patten's chief civil servant Anson Chan declared she would not run for the job. Tung has never matched the 60 percent-plus popularity ratings which Chan enjoyed.
Assuming he wins, the 59-year-old tycoon will spend the next six months assembling a cabinet of advisers to guide policy after Hong Kong becomes an autonomous Special Administrative Region of China. His team is expected to be highly pro-business, but he has also promised a role for grassoots bodies.
He will also lay the groundwork for a provisional legislature, soon to be picked by the same Selection Committee, to take over from the present elected Legco next July 1.
The leader-in-waiting will face many challenges before and after the handover, with Britain and China locked in disputes on issues ranging from passports, nationality and troop deployments to an anti-subversion law and the disbanding of Legco.
| 37 |
Hong Kong's chief executive designate Tung Chee-hwa, fresh from an overwhelming leadership victory, launched a charm offensive on Thursday aimed at winning public confidence in a smooth transition to China.
At a meeting in this Chinese frontier city, the 59-year-old Shanghai-born former shipping magnate was also endorsed as Hong Kong's future leader by the 150-member China-controlled Preparatory Committee, which is crafting the territory's future political institutions.
A beaming, animated Tung appeared at a Shenzhen news conference, vowing to make himself regularly available to the press, and promising to aim for friendly cooperative relations with Hong Kong's Democratic Party and the outgoing colonial administration.
"Have you eaten?" was his first remark as he entered a gathering of 100 Hong Kong journalists. He fielded his questions skillfully, shifting effortlessly between three languages -- Mandarin, Cantonese and English.
Tung quipped and charmed with great self-confidence and a charismatic style that would be the envy of many Chinese leaders in Beijing, not known for their skillful handling of the media.
He declared he would go on the offensive to persuade Hong Kong's 6.3 million people to trust a controversial 60-member provisional legislature which China plans to install in place of the present elected Legislative Council (Legco) when Britain hands back the colony to Beijing next July 1.
"I think you'll find the provisional legislature will have good credibility," the businessman turned politician said.
"The acceptability of the provisional legislature is gaining ground every day. I'm confident we'll find 60 people with credibility among the people of Hong Kong."
Thursday's Preparatory Committee meeting in the boomtown of Shenzhen was working on a package of procedures for selecting the legislature on December 21, the next milestone in Hong Kong's march to Chinese rule.
Hong Kong's Democratic Party has condemned the move as an attempt to snuff out the territory's embryonic democracy and vowed to challenge the legislature's legality in the courts, forcing China to consider locating the body on the mainland rather than in Hong Kong.
But Tung said he would also like to charm the Democrats by sitting down with them and "peacefully" discussing the transition problems.
Tung said he hoped to cooperate with departing governor Chris Patten and the British colonial administration. He recognised there were many difficulties but said: "Let's do what is best for Hong Kong."
He also said that Hong Kong would continue its gradual shift towards greater democracy but only at the slower pace laid down in the territory's post-1997 constitution, the Basic Law.
"We will of course move forward on the course of democracy in accordance with the Basic Law," he said. "The process has already begun. It's quite clearly defined in the Basic Law."
Tung said he had no news yet on who he planned to bring into his kitchen cabinet, the Executive Council, or whether Hong Kong's current chief civil servant Anson Chan would stay on.
"I hope she will stay, I hope she will be my deputy," he said, repeating his desire for a through-train civil service and smooth transition.
Tung also said he would go to Beijing for investiture as the Chief Executive-designate of Hong Kong but no date had been set.
| 37 |
British Governor Chris Patten challenged business on Thursday to defend the rule of law that had made Hong Kong a success, and to destroy fallacies that may harm the territory in the run-up to China's mid-1997 takeover.
"The rule of law is not an optional extra. It is what makes Hong Kong different, it is what makes Hong Kong successful," Patten told the Hong Kong General Chamber of Commerce in a speech.
"Without it, a lot of you would not be here," he said.
Britain hands back Hong Kong to China in 264 days from now, ending a century and a half of colonial rule over an outpost that has become one of Asia's economic pearls.
China has promised Hong Kong substantial autonomy and the preservation of its capitalist system under a "one country, two systems" formula.
Patten and chamber chairman James Tien glossed over an image projected in local newspapers lately that the governor and the business community were at loggerheads over 1997-related issues.
Several times this year Patten chastised businessmen who pandered to Beijing's communist rulers to beg favours and thus invited China to encroach upon Hong Kong's autonomy.
Tien stressed at Thursday's gathering that the key business body backed the government on key policies. Patten thanked them, drawing applause, and said his critics were in a minority.
Tien said the chamber supported the pegging of Hong Kong's currency to the U.S. dollar, the rule of law, the independence of judges and the civil service, and the commitment to good government.
But he did not mention Britain's demand for Hong Kong's fully elected legislature to continue after the 1997 handover, a major plank of Patten's policy, or China's plans to scrap this legislature and replace it with an appointed "provisional" body.
Asked by one businessman if there were any conditions under which Patten would cooperate with the "provisional legislature", the governor flatly replied "No".
Patten stressed the value of a political opposition. He cited a poll in which three-quarters of executives questioned said opposition to government posed no threat to a territory's prospects and that Hong Kong's opposition was in fact too weak.
"I'm very grateful to the chamber for everything they've been doing to redress the balance," he said, drawing guffaws of laughter for his ironic reference to barbs that he has received from some local business leaders in recent months.
Patten exhorted business to speak out for Hong Kong's autonomy, opposition to corruption, and for basic freedoms. He also asked it to help destroy four big fallacies that he said harmed Hong Kong's prospects and image.
These were the notions that Hong Kong's economy needed stimulative intervention, that it was over-regulated and was losing its competitive edge, that welfare spending was too high, and that the rule of law was irrelevant to economic success.
"You can give Hong Kong a lead in defending the rule of law, open and accountable government... by helping to nail the fallacies I have described. When you speak up for Hong Kong, it makes a difference," Patten said.
The fact that over half the companies listed on the Hong Kong bourse had domiciles in places such as Bermuda or the Cayman Islands, he said, showed the value the business community attached to the rule of law.
In recent years many firms have hedged their 1997 risks by shifting their legal domiciles to overseas jurisdictions.
| 37 |
Britain entered new talks with China on Hong Kong's future on Wednesday, admitting it could give no consular protection to Hong Kong people holding special British passports after the Chinese flag is hoisted in 1997.
Senior diplomats met to argue over handover details against a backdrop of disputes over a subversion law drafted by Britain and Chinese troop deployments in the British colony.
The agenda for the three-day meeting of the Joint Liaison Group (JLG) was confidential and it was not clear what, if any, agreements would be produced from the latest bargaining round.
But British chief negotiator Hugh Davies said a great effort was needed to surmount a raft of problems before the capitalist territory of 6.3 million people is handed over in 209 days.
"The subjects that we all know about...are questions such as continuity of law in Hong Kong, questions to do with right of abode, questions to to do with the international network of agreements that Hong Kong already has and which will be agreed to continue beyond 1997," Davies said.
His Chinese counterpart Zhao Jihua served notice that China, infuriated by the colonial government's liberal anti-subversion law last week, would not brook any more major unilateral changes in Hong Kong's legal set-up by Britain before 1997.
"During the period of the final days, we do not wish to see new troubles or new obstacles, because the remaining issues are more than enough to deal with," Zhao said.
"But we are still very confident, so long as the two sides sincerely cooperate with each other...we will solve all issues which are related to the transfer of Hong Kong in a timely and successful manner," Zhao said.
Hong Kong is to become an autonomous region of China at midnight next June 30, ending over 150 years of British colonial rule, under a treaty in which Beijing has vowed to let it keep its freewheeling capitalist system for 50 years.
In the latest of many twists in the transition, Britain's Senior Trade Commissioner, Francis Cornish, said on Tuesday London could not give consular protection to the more than 135,000 Hong Kong people holding special British passports.
Britain in 1990 granted 50,000 heads of households in Hong Kong the right to a full British passport in a concession to widespread demands for passports for all residents following Beijing's 1989 crackdown on pro-democracy demonstrators.
Cornish said China regarded these people as holders of dual citizenship and would not recognise British consular protection for them on Chinese soil.
"The Chinese have made it very clear that they regard holders of British Nationality Selection Scheme passports, when in Hong Kong and when in China, as Chinese citizens," he said.
British officials have also warned there could be a stampede home in June by Hong Kong people with domiciles abroad if China insists on them being present in person on handover day in order to keep their Hong Kong right of abode.
Britain's liberal bill on subversion, designed to exclude China-style jailings of dissidents, goes to the Hong Kong legislature later on Wednesday, and its fate is unpredictable.
China condemned the move last week and said such a law was the sole prerogative of the post-handover government to enact.
Earlier this week, British experts said they had failed to reach agreement with China in the JLG on Beijing's demand to send an advance party of People's Liberation Army (PLA) troops to Hong Kong before the handover.
The quarrel appears to be over the size of the unit, diplomats say.
Hong Kong people have bitter memories of the PLA's bloody crackdown on pro-democracy students in Beijing in 1989.
| 37 |
Britain risked China's wrath on Tuesday by proposing new laws on subversion in Hong Kong, laying down legal markers intended to head off Chinese-style jailings of dissidents after Beijing takes over the colony in 1997.
The colonial government unveiled draft amendments to Hong Kong's criminal law, ordered by Governor Chris Patten's cabinet, to cover crimes of subversion and secession. The bill will go to the Legislative Council next Wednesday.
Britain's move, after months of fruitless exchanges with China on the issue, was an effort to set down legal standards for China to follow after Beijing takes control of the territory at midnight next June 30, British officials said.
But the move was promptly attacked by Chinese officials. A spokesman for China's de facto embassy, the Xinhua News Agency office, was quoted by a local Beijing-controlled news agency as saying Britain had "violated promises on the transition" and London "must bear all the consequences of its actions".
Under a post-1997 Hong Kong constitution promulgated by China, the Basic Law, the territory must add laws against secession and subversion to the statute book after the handover.
Until now China has indicated it will have the law enacted by a new legislature it planned to install after the sovereignty transfer, sparking fears in Hong Kong that it will bring in draconian communist-style laws clamping down on dissent.
Mainland China has always eyed Hong Kong as a potential base of subversion, ever since revolutionaries used it as one of their bases against the imperial Manchu dynasty in the last century.
A Legislative Council motion in January urged the Hong Kong government to introduce pre-emptive laws on the issue to protect the civil rights of Hong Kong's 6.3 million people.
Fears were aggravated by remarks made by senior Chinese officials this year including Foreign Minister Qian Qichen and Beijing's Hong Kong policy chief Lu Ping, who set clear limits on post-1997 freedom of expression in the territory.
Britain's draft bill proposes adding the crimes of secession and subversion to the existing criminal law and clarifies the definition of seditious activity. It removes references to the present sovereign Queen Elizabeth, and refers only to Britain.
"It would not be desirable to leave a legislative gap in this important and sensitive area," an official said.
"It is quite clear that it is the view of the community that we should seek to have legislation on these concepts in place before July 1, 1997," said Secretary for Security Peter Lai.
The changes take a form that makes them easily adaptable by the future government of the Hong Kong Special Administrative Region (SAR) that China will install, an official said, adding that all that would have to be changed in the law after 1997 would be the name of the sovereign state from Britain to China.
Under the amended law, sedition would carry a maximum jail term of two years, subversion and secession 10 years, and treason life imprisonment. In China these crimes can earn a death sentence. In Hong Kong the death penalty is non-existent.
The draft law makes clear the offences are related to the use of force to attempt to overthrow the government, and not to non-violent criticism of the regime or of the political system as in China, officials said.
"What the British seem to be doing is to set down legal standards that would give space to non-violent critics and dissenters -- a law that wouldn't put people like Wei Jingsheng or Wang Dan in jail," a source close to the government said.
Wei, the father of the Chinese democracy movement, and former student leader Wang Dan, were both given lengthy jail terms in China this year for subversion.
Both dissidents had criticised the government orally and in their writings and had called for democratic change in China, but neither man had resorted to violence.
| 37 |
The Hong Kong government was in a flap on Thursday after a bombshell admission that Britain could not protect Hong Kong holders of British passports after China takes over the colony next July.
Governor Chris Patten called an urgent meeting of the Legislative Council for later on Thursday to make a statement on the controversy, which arose after a British envoy said London could provide no consular protection for the passport holders.
Patten's spokesman said the issue had sparked "considerable public interest and a good deal of misunderstanding" as well as demands by legislators to meet him.
Patten would answer their questions at the extraordinary sitting of Legco on Thursday evening.
The uproar is the latest jolt in Hong Kong's often bumpy transition back to Chinese rule 208 days from now, when 150 years of colonial rule will end and the territory will become an autonomous region of China.
Britain's Senior Trade Commissioner, Francis Cornish, said on Tuesday that London could not protect the more than 135,000 Hong Kong people granted full British passports with right of abode in Britain under a special selection scheme in 1990.
In a concession to widespread demands for full British citizenship after Beijing's 1989 Tiananmen Square crackdown, London offered passports to 50,000 Hong Kong households, a privileged fraction of Hong Kong's 6.3 million people.
Cornish said China regarded these people as holders of dual citizenship and would not recognise British consular protection for them on Chinese soil, on the mainland or in Hong Kong.
Cornish's remarks were denounced by local politicians as a sell-out. In the corridors of the Hong Kong government even the most senior officials were privately criticising Britain for what they saw as a concession to China, one source said.
On Wednesday, London and the Hong Kong government rushed to assure affected passport holders that anyone claiming sole British nationality would receive consular protection until it was proven they held dual citizenship.
But a British statement made clear Britain could not give full consular protection for people holding dual Chinese nationality once Hong Kong becomes part of China again.
British officials said the passports issued to these people were indistinguishable from any other full British passport, but many in Hong Kong are concerned that Britain may have learned that China had obtained the names of the passport hodlers.
"The only way to know for sure if one of these passports was issued under the special scheme would be if you had the names," a senior government source said.
The transition to Chinese rule has been dogged by disputes since the 1989 Beijing crackdown. China reacted furiously to the special passport scheme, and again when Patten introduced reforms expanding democracy in 1992.
China was infuriated last week when Britain unveiled a liberal anti-subversion bill that would set legal markers against China-style jailings of dissidents in Hong Kong.
British and Chinese senior negotiators are in the midst of a three-day bargaining session on handover details and have signalled they expect to announce accords on several issues on Friday, although the agenda has so far remained confidential.
Hong Kong is supposed to be autonomous and keep its capitalist system intact for another 50 years, but a human rights group said on Wednesday China's crackdown on dissent bode badly for the territory and its autonomy prospects were slim.
"The rule of law and human rights picture is bleak," said Human Rights Monitor director Law Yuk-kai on the launch of an annual human rights report.
| 37 |
Hong Kong has arrived at the brink of history, set to name its first Chinese leader after a century and a half of British colonial rule.
At a gathering to be held under the red flag of communist-ruled China, Hong Kong's rich and mighty will meet on Wednesday to pick the first post-colonial leader -- and the smart money is on shipping tycoon Tung Chee-hwa.
The vote by a 400-member Chinese-controlled Selection Committee, slammed by critics as a travesty of democracy, was viewed by most in Hong Kong as a foregone conclusion.
A survey by Hong Kong University showed 82.2 percent expected Tung to win, while 43.4 percent of respondents would back him if they had the chance to vote. His nearest rival, Ti Liang Yang, would get 27.9 percent of popular support.
Sovereignty over the territory of 6.3 million people, one of Asia's economic wonders and Britain's last major colony, reverts to China at midnight next June 30 -- 203 days from now.
The winner of Wednesday's vote by the committee will become the chief executive-designate of the Special Administrative Region of China, as Hong Kong will be called from next July 1.
On the eve of the vote a small band of pro-democracy protesters camped overnight outside the conference centre.
Some politicians and diplomats fretted about China-style repression. "The people of Hong Kong cannot trust him (Tung) to protect our rights...I cannot see how he is in a position to say no to Beijing on any important issue," said legislator Martin Lee.
"Unless there is a complete change in the attitude of these candidates the outlook for human rights in Hong Kong is very bad," said Paul Harris, head of Hong Kong Human Rights Monitor.
But the markets, a barometer of Hong Kong's fortunes, trumpeted bullish optimism. Hong Kong stocks rebounded from recent losses to end 198 points up, the index of China-linked H-shares soared to nine-month highs in the largest one-day gain in history, and forecasters predicted a 1997 property boom.
Publicly espousing "consensus" rather than confrontation with China, and collective duties over individual rights, and blessed by a public handshake from President Jiang Zemin in January, 59-year-old Shanghai-born Tung grabbed 206 votes in the first round of voting last month by the committee.
He only needs 201 to win the clincher on Wednesday. Some Hong Kong newspapers were already putting the finishing touches on Tuesday to a slew of Tung-the-victor profiles for Wednesday.
If he wins, he will be greeted by a no-confidence debate presented by lawmaker Emily Lau, one of China's loudest critics, in Hong Kong's Legislative Council (Legco).
Governor Chris Patten has vowed support for the future leader, whoever he is, in the twilight of British rule.
But Tung has not responded to the plege. He has said he will consult Hong Kong's respected civil service on how best to run the territory and ensure a smooth transition.
"Nobody wants the present administration to be turned into a lame duck," Tung said on Monday.
If he wins, Tung will spend the next six months assembling a cabinet of advisers to guide policy. His team is expected to be highly pro-business.
He will also lay the groundwork for a provisional legislature, soon to be picked by the same Selection Committee, to take over from the present elected Legco next July 1.
| 37 |
He once sailed his shipping empire through rough waters, steered an even course between China and Britain for years, but navigating Hong Kong into Chinese rule in 1997 will be the challenge of his lifetime.
Shipping magnate Tung Chee-hwa, chosen as Hong Kong's first Chinese leader on Wednesday after more than 150 years of British colonial rule, will take the helm on July 1.
"He will be charting the course for Hong Kong as it enters a new era. And he will be at the helm of what is at once an economic powerhouse and a dynamic, sophisticated metropolis," Governor Chris Patten, Britain's last colonial chief, said in a statement congratulating Tung on his victory.
It is a mission that has no precedent.
The territory that Tung governs will be the first British colony to have matured into a world trading economy and then handed back to a communist-ruled motherland.
China has promised the territory of 6.3 million people a great degree of autonomy and at least 50 more years of untrammeled capitalism but vowed to curb the pace of democratic reform.
The 59-year-old tycoon saw his fortunes almost dashed in the 1980s when the family firm met ill winds, but Beijing helped bail him out with a syndicated loan, and his firm regained its strength.
In his new role, Tung will have to tack between pro-democracy politicians who branded his triumph the death of democracy, the departing colonial British with their sense of lost empire, and a proud Beijing Communist leadership keen to set the stamp "This is China" on the map of Hong Kong forever.
The vocal pro-democracy lobby plans to challenge his authority with a no-confidence vote in the current legislature.
"What Hong Kong needs most is a champion for Hong Kong people as we face the unprecedented challenges of the handover -- not a spokesman for China," said Democratic Party leader Martin Lee.
Some analysts predicted Hong Kong's own version of China's "red princelings" -- sons and daughters of senior Communist Party officials -- would move to centre stage from now.
Members of families closely tied to the Beijing government since the 1950s are favourites for the 60 seats in the new legislature or roles in Tung's inner advisory cabinet.
The new elite will look to people such as legislator Leung Chun-ying, a policeman's son who has emerged as Beijing's trusted lieutenant in the transition process.
The princelings also include figures such as Timothy Fok, eldest son of Beijing's most trusted man in Hong Kong, tycoon Henry Fok, a kingmaker in the contest that Tung won.
Tung must now swiftly lay down a gameplan for the next six months with Beijing, political analysts said.
He must also work closely with the politicians and business titans likely to be brought into the post-1997 provisional legislature and advisory cabinet known as the Executive Council.
"He will start out with a unity of support behind him at least from the more moderate and pro-China in Hong Kong," said political analyst Michael DeGolyer of the Baptist University.
"I think he's going to have to move rather rapidly to talk to the people in Beijing. He is going to have to move rather rapidly to meet with Provisional Legco (Legislative Council) members," DeGolyer said.
Tung's first bite at his realm will come on Thursday when the China-controlled Hong Kong Preparatory Committee crafting 1997 power structures meets over the border in Shenzhen city.
Very soon, Tung will also have to talk to Hong Kong's popular top civil servant, Chief Secretary Anson Chan.
Tung has said he would like to keep Chan as chief secretary but her past defence of Patten's democratic reforms may have dented her credibility and spoiled her chances of staying on.
Tung is keen not to rock the boat and has said he aims to keep as much of the civil service intact as possible. "Nobody wants the present administration to be turned into a lame duck," Tung said before the vote.
| 37 |
Just months ago, shipping magnate Tung Chee-hwa was a retiring man who avoided the limelight, kept his political views secret, and seemed to strike a balance between his loyalties to China and Britain.
But he has emerged as Hong Kong's first post-colonial leader and evolved into a conservative, Chinese patriot, loudly singing China's tune on key political issues under the bright spotlight of the media.
A 400-member Selection Committee controlled by China on Wednesday picked Tung as chief executive to govern Hong Kong when it becomes an autonomous region of China in mid-1997.
On the campaign trail, the 59-year-old tycoon with hallmark spiky grey hair had been swapping his pinstripe suits for jeans and sportswear to traipse around local communities to show he not only walks among kings but also has the common touch.
Tung saw his fortunes almost dashed in the 1980s when the family firm met ill winds, but Beijing helped bail him out with a syndicated loan. Now he is their man in Hong Kong.
Tung grabbed a resounding 320 of the committee's 400 votes.
Eve-of-vote polls also showed Tung to be the public's favourite -- 47 percent support versus his nearest rival Yang Ti Liang's 29 percent. The masses, however, had no vote.
Many saw Tung's victory as preordained. A pointed handshake from President Jiang Zemin in Beijing last January anointed him, most people think.
During his campaign, Tung said he would legalise the Communist Party. He condemned the Democratic Party -- Hong Kong's largest -- for being anti-China, and warned foreign countries not to use Hong Kong to subvert China.
He also said anybody advocating independence for Taiwan or Tibet could not stay in Hong Kong.
He has accused colonial Governor Chris Patten of trying to split Hong Kong, called for pro-China patriotism in schools, and unveiled administrative policies stressing executive-led rule and a slower route to democracy.
Tung rounded on those who use the term "pro-China" as a dirty word.
"We have to turn pro-China into a very positive definition. It is a good thing to love our country," he said.
Complained Democratic Party legislator Tsang Kin-shing: "I find him more colonial than the colonial government."
Tung has vowed to give free rein to Hong Kong's capitalist economy and business development. But he has also promised not to ignore the need for social welfare.
While some fret over his conservatism, most who know him both at home and abroad hail Tung's good character. He has a reputation for modesty, wisdom and caution.
"He is a man, in my view, of great integrity, a strong individual, independent-minded, surely and sincerely promoting the welfare of the people of Hong Kong," said U.S. Assistant Secretary of State Winston Lord, a friend of Tung's.
But Lord noted he had failed to sway Tung to reject China's plan to scrap Hong Kong's elected Legislative Council with a provisional legislature next July 1. Britain has condemned the plan as a "black day for democracy" in the territory.
Tung has been a senior member of the Preparatory Committee of pro-Beijing, Hong Kong notables and mainland China officials crafting the power structures to replace British colonial rule.
He was lauded as an impartial and honest counsellor by Patten when he left the governor's advisory cabinet in June.
He resigned in October as head of his company, Orient Overseas (International) Ltd, to make his leadership bid.
Tung took the helm of Orient after his father died in 1979. He has publicly acknowledged that China helped bail out the company 11 years ago by backing a US$120 million fund led by tycoon Henry Fok, a kingmaker in the leadership contest.
Born in Shanghai in 1937, Tung was educated at Liverpool University in Britain.
| 37 |
In an exercise dubbed by China as a "democratic election with Hong Kong characteristics", this bustling territory goes to the polls on Friday. But only 400 citizens out of 6.3 million people in the colony will be voting.
A 400-member Selection Committee formed under Beijing's tight rein will be inaugurated in Hong Kong with a month-long mission to elect the first post-colonial leader and the 60 members of a replacement legislature.
The committee, to be anointed by Chinese Foreign Minister Qian Qichen on his first official trip to the colony, will set the tone of the government to rule Hong Kong after Britain hands its Asian pearl back to China at midnight next June 30.
Hong Kong, one of Asia's economic wonders, is to become a Special Administrative Region of communist-ruled China. Beijing has pledged to maintain the territory's thriving capitalist system intact for 50 more years under the terms of China's "one country two systems" reunification policy.
Pro-democracy legislators attacked the leadership candidates in a debate on Wednesday for failing to address issues of human rights and democracy and called for a real general election.
Trade unionist Lee Cheuk-yan told Hong Kong's existing legislature that a leading contender, shipping tycoon Tung Chee-hwa, was dangerous.
"Mr Tung is the most conservative among them, and he is the most dangerous as he calls on Hong Kong people to be willing to be obedient citizens," Lee said.
But a motion critical of the leadership selection was defeated by the pro-Beijing camp. Several democrats were absent on a lobbying mission to London.
"Democratisation is not like instant noodles... It took hundreds of years for Western countries to develop their present democratic systems," pro-Beijing legislator Ip Kwok-him said.
The sovereignty transition has been frought with disputes between China and Britain, between colonial governor Chris Patten and Chinese envoys, and between Hong Kong's burgeoning democracy movement and a pro-Beijing political camp.
They have sparred over the future of Hong Kong's human rights, democracy and basic freedoms, over whether or not the commercial "level playing field" will continue, and over the survival of Hong Kong's autonomy and the rule of law.
But now, 229 days before the sun finally sets on Britain's empire in Asia, attention is shifting to who will be running the show for China after Patten sails away.
In the first round of the process on Friday, the Selection Committee members will propose candidates for the chief executive who will step into Patten's shoes next year.
To enter the final run-off for the job, a candidate must be nominated by at least 50 members of the committee on Friday. The committee meets again on December 11 to pick the winner.
The leading candidates are all acceptable to China, sources close to the committee say.
In the forefront of the leadership battle are Tung and former chief judge Ti Liang Yang. An opinion poll gave Yang a 10 percentage point lead over Tung in public popularity this week.
Businessman Peter Woo and former appeals judge Simon Li came a remote third and fourth, and four other little known candidates scored less than one percent in the public's ratings.
However, it is not the public who vote, but the committee, and inside that body the real lobbying campaign is unfolding.
"We have a process which is laid down and I think it's clear the polls don't determine the winner," said Woo.
The committee was formed in Beijing two weeks ago and is dominated by pro-Beijing political and business groups.
| 37 |
Hong Kong legislators plan court action and a lobbying mission to Britain in a "last-ditch battle" to save the territory's elected legislature from China's axe, pro-democracy leader Martin Lee said on Tuesday.
Britain hands the century-and-a-half-old colony back to China in 238 days, and Beijing is moving full steam ahead with a plan to appoint a new provisional legislature to replace the Legislative Council (Legco) that was fully elected in 1995.
A Chinese-controlled Selection Committee is to name the 60 members of the body at a meeting in Hong Kong next month.
The committee, formed in Beijing last weekend, is opposite to last year's election results in Hong Kong. It gives all the clout to pro-China factions and sidelines democracy groups who won a landslide 70 percent of last year's poll.
Lee, a lawyer and leader of the colony's largest political party, the Democratic Party, told Reuters the government had a duty to stop Beijing's provisional legislature from happening.
"Primarily it should be the responsibility of our attorney general to take them to the courts. But if the government will not act, then I'll certainly take them to the courts," he said.
"It's the last-ditch battle for Hong Kong," Lee said. "We should not look at it as a fait accompli. We should fight against it with all our might."
Britain has condemned China's plan and challenged Beijing to prove its legality under the Joint Declaration and Basic Law -- the documents which cover Hong Kong's sovereignty transfer.
Lee is flying to London on Friday to lobby Prime Minister John Major, opposition Labour Party leader Tony Blair and other British officials and members of parliament ahead of a November 14 House of Commons debate on Hong Kong's future.
"I want them to say the setting up of this legislature will amount to a most blatant breach of the Joint Declaration. So far the British government has refused to say that," Lee said.
He plans a similar mission to Australia and New Zealand later this month.
Another group of Hong Kong legislators led by independent Emily Lau is also flying to London to lobby. Colonial Governor Chris Patten, the ruling Conservatives' ex-chairman, also plans to be in London to press Hong Kong's case before the debate.
Reliable sources said Lee has already drawn up a raft of lawsuits to sue members of the provisional body and institutions if the new assembly is set up in breach of laws and treaties.
But Lee declined to reveal details. "I don't think I should reveal my hand. A lot will depend on what they do," he said.
Opponents of the Chinese plan point to findings by Legco's legal adviser, Jonathan Daw, who counselled in July that the provisional body would be illegal on several counts. Hong Kong's Bar Association has also highlighted illegalities.
Only one legislature is allowed to operate in Hong Kong, and no other body is allowed to pass bills under Hong Kong's constitutional set-up, Daw noted in written counsel. Any enactment of laws by a parallel body before the handover would amount to "usurpation" and would be unlawful, he said.
Lee said China's crackdown on dissidents, including the recent 11-year jailing of student leader Wang Dan for subversion, was another reason for Hong Kong's 6.3 million people to worry.
"It augurs very badly because what has happened to Wang Dan today can well happen to us tomorrow," Lee said.
"Unfortunately, Hong Kong will also have laws against subversion after 1997, because the Basic Law says so," he said.
"The provisional legislature, which is going to be a rubber stamp for Beijing appointed by Beijing, will certainly pass a law something like the law under which Wang Dan was convicted."
| 37 |
The skyscrapers are decked with fairy lights. Red-cloaked Santas pat children on the head. Christmas carols ring out. It is Christmas in Britain's last major colony, but will it ever be like this again?
The most spectacular Christmas light displays in the world are strung from Hong Kong's skyscrapers, featuring giant illuminated Santas and reindeer covering entire facades, beaming a rainbow of colours along the famed Hong Kong harbour skyline.
Hong Kong -- shopping paradise of the world -- is awash with Christmas. Its glass and marble malls brim with exorbitant festive displays, its shops push the fanciest, most expensive brand names in the world, specially repackaged for the season.
But after Britain pulls out and Communist-ruled china takes over next July, what then?
Will Christmas turkey, Christmas pudding and Christmas cake be allowed to grace the yuletide dinner table? Even if it does, will it taste the same?
Will revellers pull Christmas crackers and drink themselves silly in merriment as many do today?
Will China allow bourgeois extravagance and Western customs? Will charities run their "Operation Santa Claus" fundraising drive for the disadvantaged and underprivileged? Will Christians be free to worship at Midnight Mass?
If China lives up to its promises, the answer to all these questions is a resounding "yes".
China has promised to allow Hong Kong to retain its freewheeling capitalist system for a further 50 years, as a quasi-autonomous part of the motherland under a "one country two systems" policy. This means freedom of religion will stay. And the hybrid cocktail of customs and traditions, too.
However, many of Hong Kong 6.3 million people worried that pro-democracy protests such as a Christmas Eve vigil and the mass dispatch of Christmas cards to mainland dissidents by human rights groups on Tuesday might not be allowed again.
It is also doubtful if Queen Elizabeth's Christmas broadcast will ever again be on Hong Kong public radio and television."
Christmas is still going to be a holiday next year in Hong Kong, as is the other main Christian festival, Easter.
Only the Queen's official birthday and World War Two victory holidays are to be removed after China takes over.
And, in this overwhelmingly ethnic Chinese territory, there are more non-Chinese than ever, despite the gradual departure of expatriate colonial civil servants and company executives.
There are 37,000 Americans, 33,000 British and 30,000 Canadians, enough to keep a few Christmas parties going. The largest foreign group, 140,000 Filipinos, mostly brought in as servants, are also a strong Christian community.
Nevertheless, there are misgivings how much will remain the same in Hong Kong. And there's a whiff of melancholy and pre-nostalgia among expatriates this festive season.
It's almost like a "last supper", their minds tilted towards midnight next June 30, 1997, the moment when the British flag will be furled away here forever.
Hong Kong Governor Chris Patten's annual "Christmas Song Choice", which will be aired on local radio, reflects the mood.
His selection starts with Louis Armstrong singing "Basin Street Blues", followed by "As Time Goes By" by Jimmy Durante.
Patten gathered his family and friends on Wednesday night, Christmas night, for a traditional dinner of roast turkey.
All assembled were aware it could be the last Christmas dinner in the regal Government House overlooking the harbour.
Patten's successor Tung Chee-hwa, who will be Hong Kong's first Chinese leader, has indicated he doesn't want to live in the mansion that symbolises Hong Kong's one and a half centuries of British colonial rule and 150-plus years of China's national shame. He says the residence is cramped and inauspicious.
So no more Christmas there, at least.
Hong Kong's final year as a British colony has seen the balance of power tilt into China's orbit, even before the change of flag arrives. Chinese influence waxed and Britain's waned.
However, just as Christmas has become a commercial success in Japan, the festival will inevitably live on -- Chinese-style.
Hong Kong Chinese vie with each other to lavish expensive presents on their children.
Even over the border in mainland China, Christmas shopping sprees are catching on. There, Santa Claus has taken to riding a rickshaw, instead of a sleigh.
| 37 |
More than 100 politicians, including half of today's lawmakers, have sought seats on a controversial Beijing-controlled legislature in a move that may cripple Hong Kong's parliament in the twilight of British rule.
Before a registration deadline on Monday, 112 people had applied to join the "provisional legislature", among them 33 members of the present elected Legislative Council (Legco).
Hong Kong reverts to China at midnight next June 30, and Beijing is pressing ahead -- despite British objections -- on setting up a provisional interim legislature to replace the elected Legco at the handover.
The provisional legislature will be selected on December 21.
The territory of 6.3 million people now faces a bizarre prospect of having two legislatures for the final six months of British rule -- one elected, legal and active, and a shadow "selected" chamber vulnerable to courtroom battles.
The number of seats on Legco and the new body is the same -- 60. An official of the China-controlled committee supervising the three-week registration process said 217 people had requested application forms, so there could be more contenders at the last minute.
Among 33 incumbent lawmakers who have applied are Legco speaker Andrew Wong, whose bid startled the political community last weekend and sparked fears that Legco could disintegrate.
"Cracks which have already emerged within the Legislative Council over the bid by some members for a seat on the provisional legislature will widen in the next six months," said political commentator Chris Yeung.
"When you have two bodies from which laws emanate at the same time, there's going to be some confusion and dispute," said analyst Michael DeGolyer of Hong Kong's Baptist University.
Those wanting a seat in the new chamber also include 11 ex-lawmakers and 22 former election contestants defeated in 1995 elections in which pro-democracy groups led by the Democratic Party fared strongly.
The 1995 losers applying for a seat include prominent pro-Beijing politicians such as Tsang Yok-sing, Peggy Lam and Elsie Tu.
Applicants also include 47 newcomers to legislative contests, many of whom are members of the hand-picked 150-member Preparatory Committee crafting the post-1997 Hong Kong power structures on behalf of China's communist rulers.
Other newcomers are members of the 400-strong Selection Committee. This is the China-backed panel that will chose the first post-colonial leader on Wednesday, with the winner forecast to be conservative-minded shipping tycoon Tung Chee-hwa. The committee will also be responsible for selecting the provisional legislative body on December 21.
An opinion poll published on Monday by the independent daily Ming Pao showed Hong Kong people split over the legitimacy of the provisional legislature.
The poll showed 32 percent supporting the body, 30 percent against, and 38 percent voicing no opinion. A sample of 983 respondents were surveyed by telephone for the poll.
The Democratic Party, the largest in the Legco with 19 seats, are absent from all China-controlled transition bodies.
They have boycotted the selection process, branding the provisional legislature as undemocratic and illegal, and have vowed to challenge its legitimacy in the courts.
The threat has forced Beijing's representatives in Hong Kong to consider locating the interim legislature in mainland China in the transitional period.
Britain has condemned China's plan as reprehensible and unnecessary and has ruled out all cooperation with the body.
| 37 |
Chinese communities across the globe will soon have their very own high-society magazine, rivalling the standards of glamour publications such as Cosmopolitan and Vanity Fair.
Imagine a world-class magazine which combines the flair and colour visuals of the U.S. Architectural Digest and the New York Times magazine. None of it is in English but in Chinese. "The Chinese" will hit the newsstands on November 1.
With editorial operations based in Hong Kong, the magazine is owned by Thailand-based M. China International and Manager Media Group, which publish Asia Inc. monthly and the daily Asia Times in English.
The group's chairman, Sondhi Limthongul, a Thai with third generation Chinese ancestry, is extending his reach to rich ethnic Chinese readers and to the regional magazine sector.
The publication, with a launch circulation target of 56,000 copies, comes at a time of ballooning interest, fuelled by the sudden growth of China itself, in the diaspora of overseas Chinese communities, from Southeast Asia to New York and Los Angeles, to London, Paris and Amsterdam.
A rash of books has been published lately on this powerful diaspora of Chinese, many of whom descend from merchants who migrated from China centuries ago and who, together with more recent migrants, form a "bamboo network" of almost 60 million people.
"A lot of Chinese today are at the cutting edge of many industries and want a magazine to rediscover ourselves, to tell our own story in our own words, in our own pictures," editorial director Liu Heung Shing said.
Hong Kong-born Liu, a Pulitzer prize-winning former wire service photographer acclaimed for his photo coverage of China, Russia, India, is the magazine's driving force.
"I think many people like me feel ashamed when they pick up a Chinese magazine, because it's never quite there," said Liu.
"There's nothing really to buy. Just political magazines for dissidents. When you read them it's frustrating. The news is always sandwiched in between lots of half-truths," he said.
The publication targets a niche of well-heeled Chinese professionals or company owners, aged 28 to 50, mainly overseas educated, with an annual personal income of at least US$120,000 or a household income of at least $150,000.
"Ethnic Chinese will form the most powerful network of entrepreneurs in the world in the next decade. Fifty-four million ethnic Chinese worldwide, with assets of more than one trillion (dollars) are the most successful entrepreneurs in the world," writes John Naisbitt, author of a recent book, Megatrends Asia.
Features on the rich and famous personalities such as high-flying socialite David Tang, actress Gong Li, publisher and entrepreneur Jimmy Lai, as well as up-and-coming Chinese like Shanghai catwalk model Yao Shuyi, will be the magazine's staple diet.
It will be illustrated by bold colour visuals and advertisements for the flashy, expensive brand names for which Chinese around the world have a passion.
The Chinese diaspora forms powerful business networks, bonded by a unique sense of being Chinese even if not citizens of a Chinese state.
Hundreds of of thousands of ethnic Chinese have returned to East Asia from other parts of the world in recent years to take advantage of the unique economic boom powering the region.
The magazine intends to be apolitical. "The aim is to rediscover ourselves, without any political context," said Liu.
But it will spotlight and probe Chinese personalities in politics, be they in China, Taiwan, Hong Kong or in the diaspora overseas. "There is a Chinese sense and sensibility which has nothing to do with politics -- how they view the notion of the people called 'the Chinese'," said Liu.
"We want personalities rather than polemics. Be it Singapore's leader Lee Kuan Yew or an American Chinese running for governor in a U.S. state."
The English title is The Chinese. The Chinese title is the character "Zhong" which means "centre", the first character of "Zhong Guo" or "Middle Kingdom", one of China's names. The word derives from an ancient pictogram of an arrow piercing a target.
By using the simple word "zhong" for Chinese, the publishers avoid political connotations that would associate Chinese people with a specific territory.
Can the idea make money? Is there really a niche for such a publication in the cut-throat international magazines market?
"It's a competitive environment, but advertisers have now come to the idea that there is this group of people who are high income earners, clearly part of this fast-emerging economic community in Taiwan, Singapore, Malaysia and elsewhere.
"If you look at Vogue, Esquire or others, these are giants with a strong appeal to advertisers. But Chinese language publishing is still a virgin market," Liu said.
| 37 |
Chief Executive candidate Tung Chee-hwa, rated by a poll as the best man to deal with China after Britain leaves Hong Kong next year, said a proposed subversion law faces review by the post-colonial government.
"The Basic Law (Hong Kong's post-handover constitution) clearly states that it is up to the future government to draw up its own law on these matters," Tung told about 100 members of the 400-strong Selection Committee that will choose Hong Kong's future leader.
"The Special Administrative Region government will have to review these issues after the handover."
Britain hands its colony back to Beijing at midnight next June 30. The China-controlled Selection Committee is in the midst of a three-day vetting of Tung and two rivals who are bidding to succeed colonial Governor Chris Patten.
The winner will be announced on December 11.
On Tuesday, Britain began the process of bringing in a law on subversion, laying down legal markers defining the concepts of treason, sedition, subversion and secession in a bid to head off Chinese-style jailings of dissidents after the handover.
China has condemned the move but stopped short of saying whether the law would be scrapped when it takes over the territory.
Tung, a billionaire shipping tycoon, also told the committee that Hong Kong should stand by China if Beijing is under sanction by foreign powers.
"If sanction is for political reasons then we have to consider Hong Kong's position. Maybe Hong Kong has to make some sacrifices," he said.
An opinion poll released on Thursday showed Tung to be the favourite among the 967 respondents and indicated 73 percent of them also believed Tung was the candidate best able to communicate with the Chinese government.
The poll, conducted by the Chinese University of Hong Kong, showed that only 7.2 percent thought former chief justice Ti Liang Yang could commmunicate well with Beijing while businessman Peter Woo scored only two percent.
But Yang was seen as being the most impartial of the three and the one most ready to voice his opinion to China.
Asked who was most likely to speak out against Beijing, 31 percent said Yang, 20 percent Tung and 4.8 percent Woo.
After the first day of questioning by the committee on Wednesday, Tung emerged as a better communicator than he had during previous occasions, analysts said.
They said he produced a clearly focused vision for Hong Kong, with the main thrust on putting business and economic interests first.
During the quizzing by committee members representing Hong Kong's business community, Tung blasted the Democratic Party, Hong Kong's largest, urging it to drop its anti-China stance and to play a positive role in the transition for the sake of Hong Kong's 6.3 million people.
"At present they are objecting to anything Chinese," Tung said. "This is not good in the long term or for the interests of Hong Kong."
The Democrats are boycotting the Selection Committee, condemning its mission to pick the post-colonial leader as undemocratic and its task of assembling a new provisional body to supplant the elected legislature as a violation of handover pledges made by China.
| 37 |
Hong Kong's Governor Chris Patten on Friday denounced a legislature that Beijing plans to impose on the territory as a "rubber stamp" and said Britain and China should fight it out in the World Court.
"The International Court of Justice will, I'm sure, be able to sort things out, and we'd be very happy to put our arguments to them," Patten told Reuters in an interview.
His remarks, on the eve of a gathering in China to create the legislature, coincided with a toughly worded statement in London by Foreign Minister Malcolm Rifkind, who urged China to reconsider its plan or face international pressure.
"Clearly this weekend is going to be a very disagreeable one," Patten said of Saturday's gathering of 400 of Hong Kong's elite who will meet over the border in the Chinese city of Shenzhen.
They will elect 60 new legislators to take over lawmaking next July 1.
On that day, Hong Kong reverts to Chinese sovereignty, after a century and a half under the British flag, with a treaty pledge from Beijing that it can stay a distinct entity with its laissez faire capitalist system intact for a further 50 years.
The transition has been bumpy since China decided to disband the elected Legislative Council and appoint a new interim body without a mass vote, rolling back the expansion of democracy ushered in by Patten over the past four years.
Democrats in Hong Kong have said they will mount legal challenges if the interim body meets in the territory before July 1.
Calling China's plan a "sad and bad decision to go ahead with the establishment of a rubber stamp legislative body", Patten said it was designed to reduce democrats involved in lawmaking and would have serious legal repercussions.
He said that if China insisted the body was in line with Sino-British handover accords, "let them join Britain in making a joint submission to the World Court, the International Court of Justice, so that we can actually get a ruling from the ICJ."
But Patten also said he would go ahead with efforts to help Hong Kong's future leader, shipping tycoon Tung Chee-hwa, to prepare his administration. Tung was picked this month by the same 400-strong Selection Committee choosing the legislature.
Patten said he would meet his successor on Monday to explore a framework for pre-handover cooperation.
"We will cooperate in helping him establish an office, in helping him prepare for July 1, 1997. We will do everything to cooperate within the Joint Declaration and the Basic Law. But there is absolutely no requirement whatsoever for a provisional legislature before July 1," he said.
He said China might be able to "trash an institution" but it could not "stamp out the spirit of democracy" in Hong Kong.
| 37 |
Britain has suggested going to the World Court over China's plan to disband Hong Kong's elected legislature when Beijing takes back the territory next July.
The spectre of the two countries slugging it out in the International Court of Justice in the Hague raised the drama of Hong Kong's transition to Chinese rule to a new level after many months of bitter wrangling on handover arrangements.
British Foreign Secretary Malcolm Rifkind and Hong Kong Governor Chris Patten denounced China's plans on Friday and proposed letting the World Court rule on the dispute.
After more than 150 years of British rule, the capitalist territory of 6.3 million people falls back under the Chinese flag at midnight next June 30, with promises from Beijing's communist leadership that almost nothing will change.
At that moment, a Beijing-appointed legislature will take over from the elected Legislative Council (Legco), reversing democratic reforms introduced by Patten over the past four years.
"There is no justification for China to replace a legislature elected openly and fairly by more than one million Hong Kong people," Rifkind said in London.
"China should be prepared to trust Hong Kong people with the measure of democracy we have introduced."
He summoned Chinese ambassador Jiang Enzhu, the man tipped to be China's envoy in Hong Kong next July, to underline Britain's concern.
Separately, Patten said in a statement and in an interview with Reuters that the body planned by China would be a "rubber stamp" chamber that would simply echo Beijing.
The threat of World Court action came on the eve of a vote by 400 wealthy and influential Hong Kong people picked under China's supervision to elect the provisional legislature.
Pro-democracy groups staged scattered protests in Hong Kong and jeered committee members as they left for the Chinese frontier city of Shenzhen where Saturday's meeting takes place.
"The International Court of Justice will, I'm sure, be able to sort things out, and we'd be very happy to put our arguments to them," Patten told Reuters.
"Clearly this weekend is going to be a very disagreeable one," Patten said, adding that China might "trash an institution" but it could not "stamp out the spirit of democracy" in Hong Kong.
Protesters mounted small-scale demonstrations outside China's diplomatic mission in the colony and at the Hung Hom railway station where members of the Selection Committee were boarding trains for Shenzhen.
"It is totally unacceptable," said lawmaker Emily Lau, who joined in the protests. "There is no legal and constitutional basis for that body, and also the Chinese government is using that body to kick out people who they do not like."
Patten said that despite Britain's views on the legislature, he would meet Hong Kong's post-colonial leader-designate, 59-year-old shipping magnate Tung Chee-hwa, to explore ways to cooperate on building the post-handover administration.
The quarrel over the legislature set Tung and Patten on a collision course this week. Tung lashed back in a speech to the business community, saying Britain must "face the reality" and warned that if the legislature were challenged he would get China's parliament to pass a resolution making it legal.
Hong Kong's biggest pro-democracy group, the Democratic Party, is boycotting Saturday's selection process, which it brands as a plot to snuff out democracy and enact repressive laws.
"You won't find five of them who can be called democrats by any stretch of the imagination," Democratic Party leader Martin Lee told Reuters, commenting on the candidates.
| 37 |
Hong Kong democracy activists staged a noisy protest on Monday after 134 politicians applied to join a Beijing-controlled assembly to replace the colony's elected legislature in mid-1997.
The rush to join the provisional legislature may cripple the colonial legislature in the twilight of British rule, political analysts said.
As a registration deadline expired on Monday, organisers said 134 people had applied, among them at least 33 members of the present elected Legislative Council (Legco).
Hong Kong reverts to China at midnight next June 30, and Beijing is steaming ahead -- in the face of British objections -- with a plan to replace the elected Legco on handover day with a provisional assembly, to be selected on December 21.
The territory of 6.3 million people now face the prospect of two legislatures during the final six months of British rule -- one elected, legal and active, and one a "selected", shadow chamber preparing post-1997 laws.
The number of seats on Legco and the new body is the same -- 60. Among 33 incumbent lawmakers who have applied are Legco speaker Andrew Wong, whose bid startled the political community last weekend and sparked fears that Legco could disintegrate.
Banner-waving pro-democracy activists on Monday caused chaos in the lobby of the building where registration took place, burning documents and scuffling with security men. "Phoney election", "dictatorship in disguise", protesters shouted.
"Cracks which have already emerged within the Legislative Council over the bid by some members for a seat on the provisional legislature will widen in the next six months," said political commentator Chris Yeung.
"When you have two bodies from which laws emanate at the same time, there's going to be some confusion and dispute," said analyst Michael DeGolyer of Hong Kong's Baptist University.
Seat seekers for the new chamber include at least 11 former lawmakers and 22 former election contestants defeated in 1995 elections won by pro-democracy groups.
Those who lost 1995 elections include prominent pro-Beijing politicians such as Tsang Yok-sing, Peggy Lam and Elsie Tu.
Applicants include at least 47 newcomers to legislative contests, many of whom are members of the hand-picked 150-member Preparatory Committee crafting the post-1997 Hong Kong power structures on behalf of China's communist rulers.
Other newcomers are members of the 400-strong Selection Committee. This is the China-backed panel that will chose the first post-colonial leader on Wednesday, with the winner forecast to be conservative-minded shipping tycoon Tung Chee-hwa. The committee will also be responsible for selecting the provisional legislative body on December 21.
Poll results issued on Monday by the independent daily Ming Pao showed Hong Kong people split over the body's legitimacy.
The poll showed 32 percent supporting it, 30 percent against, and 38 percent voicing no opinion.
Britain has condemned China's plan as reprehensible and unnecessary and has ruled out all cooperation with the body.
The Democratic Party, the largest in the Legco with 19 seats, is absent from all China-controlled transition bodies.
It has boycotted the selection process, branding the provisional legislature as undemocratic and illegal, and has vowed to challenge its legitimacy in court.
The threat has forced Beijing to consider locating the new legislature in mainland China until the handover.
| 37 |
The contest for power in Hong Kong heated up at the weekend as the pro-China lobby cast a top judge into the race as the candidate to lead the territory after sovereignty reverts from Britain to China in 1997.
Controversial Chief Justice Sir Ti Liang Yang re-emerged as a rival to existing favourites after influential pro-Beijing publisher Xu Shimin said he would nominate him and that the judge was keen to take up the challenge.
Hong Kong, the last significant outpost of the British empire, reverts to China on July 1, ending a century and a half of colonial rule.
China is setting up a 400-member panel called the Selection Committee, which will nominate the first post-colonial governor, to be known as the Chief Executive, and appoint a provisional legislature to replace the present elected Legislative Council.
Nominations in the month-long process to create the committee close in two weeks' time, and almost 20,000 nomination forms have been requested and issued.
China has ruled out a universal democratic vote by Hong Kong's people to pick their post-handover political leaders.
The committee is expected to pick the chief executive around November.
Yang's return to the contest comes as a surprise after he faded from the picture last year in a row about his remarks on human rights.
Lawyers and pro-democracy politicians attacked him last November after he said the Bill of Rights, which was introduced in Hong Kong by the colonial administration and which China plans to dilute next year, had sown chaos in the judiciary.
The 67-year-old China-born lawyer left his home to study law in London after the Communists took power. He later settled in Hong Kong, where he has worked for 30 years in the judiciary.
A poll last week showed the public's hot favourite for post-colonial leader is Anson Chan, the colony's Chief Secretary and deputy to British-appointed Governor Chris Patten. She scored a stunning 60.1 percent of respondents' support.
Runner-up in the poll was shipping magnate Tung Chee-hwa with 10.4 percent, and the leader of the biggest political party, the Democratic Party's Martin Lee, came third with 10 percent.
But China has kept Lee and his Democrats out of the handover stakes and he has scant chance of being nominated.
Chan is also unlikely to be accepted by the committee because she is closely identified with Britain. Last week a top Chinese official attacked Britain's chief diplomat in Hong Kong for touting London's favoured candidate -- presumed to be Chan.
The poll showed Yang would come into the picture if neither Chan nor Lee were candidates. In that case Yang would get 9.8 percent, but Tung would rise to 21.6 percent.
However, the Selection Commitee is what will count, not public opinion, and China has insisted the nomination list remain secret, arousing suspicions of foul play.
Xu said Yang was happy to be proposed by him and that the judge's independence was a strong factor.
"A judge has no business connections, and there are many against Mr Tung because of his business background," Xu said.
Tsang Yok-sing, a senior member of the panel overseeing the entire handover process for China, said Yang was "unbiased and neutral".
Political analyst Chris Yeung said the latest move showed Beijing seemed undecided who it wanted in charge in Hong Kong.
"Sir Ti Liang, a judge not known for his business links, might not be the perfect choice, but he might yet win out as a compromise figure," Yeung wrote in the South China Morning Post.
The chief justice was out of town on Sunday and unavailable to comment.
| 37 |
Britain and China clashed over the future of Hong Kong on Wednesday as the colonial power took steps to bring in a pre-emptive new law on subversion ahead of the capitalist territory's 1997 return to communist-ruled China.
The quarrel was ignited when the government on Tuesday laid down legal markers defining the concepts of treason, sedition, subversion and secession in a bid to head off Chinese-style jailings of dissidents after Beijing takes over the colony.
The draft bill would jail only people who plot the violent overthrow of government, not non-violent critics and dissidents.
Chinese officials in Hong Kong immediately attacked the move and pro-China politicians said the law would probably be erased and replaced after China resumes sovereignty at midnight next June 30, when a century and a half of colonial rule expires.
A senior negotiator on the Hong Kong handover, Chen Zuo'er, told reporters Britain should not have acted unilaterally, but declined to say if China would repeal the bill if it became law.
A spokesman for China's de facto embassy in the territory attacked the move more sharply. "Britain violated its promise that all major issues must be decided through negotiations with China in the latter stage of transition," the spokesman said.
"Britain will have to take responsibility for all the consequences of amending this law," the spokesman said.
British officials said they were confident the bill could get through the Legislative Council (Legco) next Wednesday. But some pro-China politicians and analysts were sceptical.
"The move itself is bound to be futile. Even if the bill is passed by the present Legco, I don't think there is any chance that it can survive the handover," said Tsang Yok-sing, leader of the biggest pro-Beijing political party in the territory.
"This decision will not be useful because the Chinese side will eventually roll back all the reforms undertaken by the Hong Kong government before July 1997," said analyst Sunny Lo at the Chinese University of Hong Kong.
"The Hong Kong government is trying to commit suicide by putting this legislation through Legco," Lo said.
He said China would want a broader definition of subversion that would include subversion in non-violent forms.
Beijing had previously said it opposed any major changes to Hong Kong's criminal law before the change of flag.
Governor Chris Patten, often vilified by Chinese officials, said the government had taken the step only after 17 months of efforts to clinch agreement with China had failed.
He challenged China to say exactly what it objected to in the proposed new bill.
"We've tried to establish in a very reasonable way what these crimes should actually mean," Patten told Hong Kong radio during a visit to Japan. "On this particular issue we really have been negotiating...with a brick wall," he said.
"There's been no response, no give at all," he said, adding that the only alternative to the bill would have been to break the government's word to Legco and the community that it would take action on the issue and ensure Hong Kong's "decent way of life" would not be "swept away" next July.
Independent pro-democracy legislator Emily Lau said she hoped China would not repeal the law, adding that if it did, "that will definitely cause instability in Hong Kong, and it will be a very high price for both China and Hong Kong to pay."
Treason and sedition are already on Hong Kong's law books.
The last time somebody was prosecuted for sedition was in 1953, and for treason in 1946. But These offences have since largely fallen.
Subversion and secession however are new concepts in the law required by China in Hong Kong's post-1997 constitution, known as the Basic Law.
| 37 |
After a week of nervousness over its future freedoms, Hong Kong watched on Friday for the outcome of a Beijing gathering that will set the tone for the post-colonial government that takes over in 1997.
The Preparatory Committee of pro-China figures from Hong Kong and mainland Chinese officials was meeting in Beijing for two days to elect a 400-member caucus that will pick Hong Kong's first post-colonial leader and parliament.
The exercise will quicken the pace of the British colony's transition to Chinese rule in 242 days' time.
In the latest step in Britain's pull-out, Gurkha soldiers who were the backbone of the colonial garrison were set to bid a ceremonial farewell to one of their Hong Kong bases on Friday night.
Hong Kong was jarred this week by fears of a crackdown by China after the handover in view of the jailing in Beijing of prominent dissident Wang Dan.
The colony was also unnerved by remarks this month by Chinese Foreign Minister Qian Qichen, chairman of the Beijing meeting, that freedom of expression in Hong Kong would be limited after the sovereignty transfer at midnight next June 30.
On Thursday, a further jolt came when China barred entry to two Hong Kong politicians who wanted to petition the Beijing meeting against some of China's Hong Kong policies.
On Friday two more Hong Kong activists were expelled from Beijing.
On the eve of the Beijing meeting, a pro-China lobby group published a survey showing that most Hong Kong businessmen expected press freedom, the political system and human rights to deteriorate after the handover.
Some 72 percent expected less press freedom, 64 percent expected the political system to suffer, and 63 percent saw a deterioration in human rights, the survey by the Better Hong Kong Foundation showed.
A leading candidate to become the future leader of Hong Kong, former Chief Justice Ti Liang Yang, sought to allay fears this week that the territory would be forced to accept tough, Chinese-style laws on sedition after 1997.
"If you simply chant a few lines which do not incite any illegal acts, or which you don't expect to cause others to act radically, it should not be a problem," Yang said on Thursday.
But Yang and three other leading contenders for the top job were attacked by Hong Kong's leading democracy group for failing to condemn Wang Dan's 11-year jail sentence, saying they were ignoring local people's anger.
"They are not just angry about the fate of Wang Dan, what they are most worried about is whether Article 23 of the Basic Law will become a tool to curb their freedom of speech after the handover," said Szeto Wah, deputy head of the Democratic Party.
The Selection Committee make-up is expected to be announced on Saturday. The body will meet in Hong Kong next month to select the Chief Executive who will succeed colonial Governor Chris Patten next July.
| 37 |
Shipping magnate Tung Chee-hwa saw his fortunes almost dashed on the rocks in the 1980s when the family company met ill winds, but his luck rebounded and now he could be Hong Kong's next leader.
Next month China's carefully screened Selection Committee will choose a chief executive to run Hong Kong after Britain hands the colony back in mid-1997.
Tung topped a recent popularity poll with 30.2 percent. His nearest rivals were former Chief Justice Ti Liang Yang with 27.5 percent, businessman Peter Woo with 8.7 percent and former High Court judge Simon Li with 3.3 percent.
Tung has been a senior member of a preparatory committee of pro-Beijing Hong Kong notables and mainland China officials crafting the power structures to replace British colonial rule.
He was lauded as an impartial and honest counsellor by Governor Chris Patten when Tung stepped down in June this year from Patten's advisory cabinet, the Executive Council.
He resigned in October as head of his family firm, Orient Overseas (International) Ltd, to make his leadership bid.
Tung's early campaigning consisted of clearing the decks of speculation that might lead to challenges on his integrity, such as how China had once saved his family from bankruptcy.
Tung took the helm of the business after his father died in 1979. He recently revealed China had helped bail out the firm 11 years ago by backing a US$120 million fund led by tycoon Henry Fok, a kingmaker in today's leadership contest. The family later bought back most of the shares and restored their majority.
"In 1985 and '86 we went through a very difficult time when the shipping business was in serious recession. Henry Fok led a syndicate of investment in our company," Tung said.
"I know there were mainland funds in it. I'm sure. To Mr Fok and those who have helped me...I am very grateful."
Tung was spotted as a possible favourite of China when President Jiang Zemin singled him out for a personal handshake at a meeting in Beijing this year.
Tung is believed to be acceptable also to Britain and to expatriate business leaders who hope he will form a "dream team" with incumbent Chief Secretary Anson Chan -- Hong Kong's top civil servant -- if China allows her to stay on after the flag change on July 1 next year.
Tung has links with the powerful in key capitals -- Beijing, Taipei, London and Washington -- whose influence will be important for Hong Kong's evolution after 1997.
Born in Shanghai in 1937, Tung was educated at Liverpool University in Britain.
The 59-year-old magnate has a patriarchal look, with grey bristly hair, bright eyes and hand-on-heart gestures.
The tycoon, who previously dodged the limelight, is said to lead a disciplined life, arriving at his office at dawn to perform t'ai chi exercises on the roof before starting work.
Despite a reputation for modesty, wisdom and caution, and his strong ties to China, Tung's local power base may ultimately stir some unease in Beijing.
"It is hard to see Beijing favouring someone with a local power base, who really means to run the show," said legislator and lawyer Margaret Ng.
Tung has made a point of tapping various views, including those of pro-democracy parties and trade unions.
"I have met with people of different social classes, organisations and political views. I have gained a deeper understanding of Hong Kong's future challenges," Tung said.
But he has also made increasingly strident pro-China policy utterances. He accused Patten of splitting Hong Kong's 6.3 million people through a speech that assailed China's plan to replace the elected legislature with an appointed assembly.
He has urged people to forget China's bloody army crackdown on the 1989 democracy movement in Beijing and to leave it to historians to judge the event.
| 37 |
The head of Hong Kong's main pro-democracy group said on Tuesday that the man likely to be the first post-colonial leader after British rule is a pro-China yes-man, and described preparations for the sovereignty change as a disaster.
Martin Lee, head of the Democratic Party, the largest in Hong Kong's legislature, told Reuters in an interview that shipping tycoon Tung Chee-hwa was indebted to Beijing for a company bail-out years ago and was unlikely to defend democracy.
"The Hong Kong people want and need a defender of the Hong Kong system. What we are getting, it seems, is somebody who is going to be a spokesman of China. That is very unfortunate.
"The people of Hong Kong cannot trust him to protect our rights, not because he is a bad man, he is a nice guy, but I cannot see how he is in a position to say no to Beijing on any important issue," he said.
Tung, 59, is the favourite to win when a 400-member selection committee meets on Wednesday to pick the chief executive of the special administrative region (SAR), as Hong Kong will be called after China takes over next July 1.
Britain is handing the colony back to Beijing under a treaty called the Joint Declaration, which promises to keep Hong Kong's freewheeling capitalist system intact for a further 50 years.
Lee said there was never any doubt Tung would win, echoing a widely held view that the future leader was picked in Beijing.
The lawyer and legislator said Tung owed China a big debt for a Chinese-sponsored financial bailout of his family firm, the Oriental Overseas group, in the 1980s.
"How can he say no to Beijing? Beijing will say 'wait a minute, who bailed you out in the early 1980s and who put you in this position?" Lee said.
But his party would try to work with Tung if he won. "We are quite prepared to cooperate with the chief executive irrespective of the personality involved...we cannot carry on as a political party without dialogue with the chief executive."
Lee denied accusations by Tung that the Democratic Party was anti-China. "That's clearly wrong. We have always supported the return of sovereignty over Hong Kong by the British to the Chinese government on July 1.
"We only criticise China whenever we believe the Joint Declaration has been broken by China...in these circumstances we have a duty to object and to oppose.
"It is far too simplistic and wrong for Mr Tung to say we are anti-China. We are not. China is our country. I have yet to see him side with Hong Kong on any key issue, like the provisional legislature," Lee said.
Britain and the Hong Kong democrats have criticised China's plan to scrap the elected Legislative Council and install a provisional legislature next July as an attempt to kill off democracy.
"It's going to be the most disastrous thing. Once you allow China to set up an effectively appointed legislature when under the Joint Declaration we were promised an elected legislature, you are actually accepting that China can break the Joint Declaration at will. So what other provision is safe?" Lee said.
He said Beijing had made clear the new legislature would pass repressive laws to control the freedom of the press and the freedom of assembly. "There can be little doubt that the rule of law as we know it will not be there any more. Freedoms can no longer be protected."
Lee said 134 candidates nominated for the provisional legislature this week would all take orders from Beijing.
"You would not find even five of them who could be called democrats, by any stretch of the imagination."
| 37 |
Subsets and Splits