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The Israeli-Lebanese armed conflict and a possibility of imposition of economic sanctions on Iran by the West made international oil prices soar in the first decade of August. The price rise was further fueled by the reduction in the US gas and oil stock, information of the falling oil production in Nigeria, because of terrorist actions, and the BPs decision to temporarily discontinue operations on its Alaska oil field. Finally, the oil prices reached their maximum value because of the danger of hurricanes in the Mexican Gulf.

However, starting from the second decade, the prices began to decline, as the UK intelligence had released breaking news of revealing a terrorist plot, while Israel and Lebanon ceased fire and Nigerian oil began to pour in through a pipeline earlier damaged by the rebels. In addition, the first hurricane at the US coastal line had proved to be much looser than expected.

In August 2006 vs. the prior month the oil prices slid by 1.0%, with the average price accounting for USD 71.1/barrel and that for Urals USD 68.2/barrel. Between January and August 2006 vs. the respective period of 2005 the average oil price was greater at 30.1%, while Urals was trade at 30.% more.

On October 20, 2006, NYMEX began trading with Russian Export Blend Crude oil (REBCO). The new price indicator for Russian oil provides for the physical delivery on FOB terms from Primorsk terminal located in the Baltic Sea. Deals are envisaged for 72 delivery months, beginning January 2007. The contract period for the future for the nearest delivery month expires within 3 days prior to th P the 15P day of the prior month. The minimal lot for a REBCO contract is 1 Thos. barrels, with the trades step accounting for 1 US cent/ barrel. The REBCO contracts are traded at CME GLOBEX from Monday through Friday between 02:00 Moscow times to 01;15 Moscow times of next day.

In the future, REBCO is supposed to replace Urals, whose price has been dependent on Brent quotations. By contrast, the price for REBCO is formed ndependently, on the basis of the market situation and independently of Brent. In the conditions of the constantly growing demand for fuel sources and high prices for them, the transition to REBCO should help Russian oil companies boost their profits and, accordingly, the RF Government collect more revenues to the budget.

In August 2006 vs. the prior months the prices for oil products were on decline. More specifically, the premium gas prices fell by 8.7%, diesel fuel 1.6%, black oil 3.5%. Between January and August 2006 vis--vis the respective period of 2005 the prices for oil products were greater 1.3 times on average (with the premium gas being at 32%, diesel fuel 24$, black oil 42% more expensive then).

August 2006 saw a continuous price rise for natural gas. In Europe, they grew by 1.5% vs. July, and by 11.1% in the US. Between January and August 2006 vs. the respective period of 2005 the European prices for natural gas rose by 40%, while in the US they fell by 3%.

In August 006, the world prices for the produces of Russias fuel and energy complex slid by 0.7% on average vis--vis the prior month, while they posted a 32% growth vs. the respective period of 2005.

By contrast, in August 2006 the prices or ferrous metals remained unchanged vs. the prior month and between January to August 2006 they proved to be lower at 2% vs. the respective period of the prior year.

Table Average World Prices in August of the Respective Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Oil(Brent), USD/barrel 21.04 18.25 12.5 20.2 29.4 25.7 27.2 29.9 42.8 61.9 71.Natural gas, USD/1 mn. 2.856 2.121 1.858 2.8 4.437 2.91 2.999 4.888 5.212 9.533 10.Petrol, USD/gallon 0.6299 0.5941 0.4128 0.6476 0.9021 0.776 0.834 0.935 1.152 1.811 2.Copper, USD/t. 2001.4 2481.7 1627.4 1646.6 1941.7 1499.4 1480.0 1731.0 2835.8 3800.0 Aluminum, USD/t 1480.1 1563.7 1345.4 1421.1 1546.4 1374.9 1292.0 1457.0 1694.3 1868.0 Nickel, USD/t. 7100.4 6737.3 4137.1 6430.8 8092.9 5554 6720.0 9365.0 13723 14894 Source: basing on the data of London Metal Exchange and International Oil Exchange (London) The main factors underlying the August price rise for non-ferrous metals became the growing tension in the Middle East and the terrorist threat in Europe. There was growth in the reserves of copper and particularly aluminum at London Metal Exchange in August, while the stock of nickel remained at a minimal for this year level. The price rise for nickel (up to a maximal value ever noted since 1994) was steered by a low level of the respective stock and an extremely intense demand for this particular metal, which was associated largely with steel industrys needs and investment demand.

In August 2006, aluminum prices dropped at 2.1% vs. the prior month, while copper at 0.3%. By contrast, nickel prices rose by 16%. Between January and August 2006 prices for non-ferrous metals were higher than in the respective period of the prior year (with copper prices nearly doubled, aluminum 1.4 times and nickel prices being- 1.3 times higher than in 2005).

Between January and August 2006 Russias foreign trade turnover computed by the balance-ofpayments methodology grew by 28.9%, up to USD 295.8 bn. During the first eight months of the year the nations export posted a 29.5% growth and accounted for USD 198 bn., while import- by 27.6% (USD 97.8 bn.). Thus, Russias positive balance of foreign trade accounted for USD 100.2 bn. vs.

76.2% reported over the respective period of 2005.

However, the growth rates of value volumes of Russian exports displayed a notable deceleration vis--vis the prior year. This can be explained by a slower pace price rise across main commodities and lower dynamics of the physical volume of export.

Table Indices of Prices and Physical Volumes of Export of Goods (as % to the Respective Period of the Prior Year).

Index of physical volume Price index 2005 January to August 2006 2005 January to August Total 104,7 103,8 126,9 125, Far Abroad 106,6 103,1 128,7 125,CIS 95,1 108,5 116,3 122,Source: the RF Ministry of Economic Development and Trade The value volume of export of fuel and energy commodities posted a 38.6% growth vs. the respective period of the prior year, with the rise in its physical volume at 1.4% and average prices- at 36.6%.

Export of crude oil in natural equivalent dropped at 0.3% vs. the respective period of 2005, while that of natural gas at 5%. Shipment of coal grew by 15.8%, gasoline 12.4%, diesel fuel 8.3%, black oil 6.3%.

Table Indices of Prices and Physical Volumes of Import of Goods (as % to the Respective Period of the Prior Year).

Index of physical volume Price index 2005 January to August 2006 2005 January to August Total 122,4 129,0 106,5 104, Far Abroad 131,2 135,8 104,8 103,CIS 93,8 102,4 113,9 108,Source: the RF Ministry of Economic Development and Trade The sector for chemicals reported a 15.3% rise in the value volume of its exported produce, while exportation of metals an metal goods grew by 12.5% and that of machinery, equipment and means of transportation 21.3%, including export to the Far-Abroad countries by 13.7% and to the CIS countries 30.6%. The proportion of this particular group in the total volume of export to Far Abroad accounted for 2.9% (vs. 3.3. reported between January and August 2005) and 16.9% - to the CIS countries (17.2).

If there was something stable against such a background that was the factors underlying a high rise in Russian imports, that is, the continuous appreciation of Ruble vis--vis USD and EURO and rise in revenues in the national economy. Both factors boosted the rise in the physical volume of export under fairly moderate price rise for imports. The increment ion value volume of imports from the CIS countries can be attributed largely to the price rise.

Import expanded across most commodity and goods assortment. It was importation of machinery, equipment and means of transportation, textiles and footwear, hide, pelts and the respective goods, and chemicals that manifested the most intense growth (and mainly from Far Abroad).

The share of the Far Abroad countries in the overall volume of goods turnover for the first eight months of the year grew from 84.8% up to 85.8%, while the share of the CIS countries shrank from 15.2 to 14.6%. The latter can be explained by stagnation of trade with Ukraine and a drastic fall in goods turnover with Georgia.

By contrast, the indicators of Russias trade with the members of the European-Asian UnionTF F, P TP which accounted for over 8% of the nations overall foreign trade turnover, appeared more optimistic.

During the first 8 months of the year the growth in goods turnover between Russia and the noted nations accounted or 29.2%, with Russias export to them growing at 36.8% and import from them at 16.5%.

The preparations for the establishment of the Customs union of the member states of the Eurasian Economic Community should be completed by January 1, 2007. A customs union forms a greater level of integration compared with the free trade regime. While the latter suggests a free circulation of goods, the customs union implies a uniform customs policy, territory and borders, and a single body in control of the border. It is most likely that the Customs Union should begin operating in July 2007, however, creation of a fully operational organization may require several years.

N. Volovik Comments on the draft Federal Law On 2007 Federal Budget as concerns expenditures on agriculture According to the government draft of 2007 federal budget the total expenditures on agriculture will exceed 88 billion rubles, i.e. will be 12% above the previous year indicators. This implies their growth in real terms since the inflation forecast ranges from 6.5 to 8%TF FP. At the same time the share of agriP T culture in the aggregate federal budget expenditures will decrease from 2.1% to 1.85% (in 2005 1.5%). Federal subsidies and subsidies allocated to regions in the form of inter-budget transfers demonstrate the highest growth rates 41% and 21%, respectively. The expansion of subsidies is largely due to the radically increased financing of the National Project Efficient agrifood sector of Russia in 2007. Besides, expenditures on the Federal service for veterinary and phyto-sanitarian control will be up 3 fold. One more noticeably enlarged item is expenditures on grain interventions in 2007 they are to increase more than 9 fold.

On the whole the structure of agricultural budget remains the same. The predominant part (2/3) of federal funds is allocated to regions in the form of inter-budget transfers. These funds are distributed between programs that have already become traditional: subsidizing of interest rate on credits, support to pedigree livestock breeding, elite seed breeding, production of flax and hemp.

The federal subsidizing of interest rate on credits is preserved but since the amount of these subsidies is cut more than twice, it most likely implies sustained subsidizing of medium-term credits issued in previous years. The financing of two special federal programs Preservation and restoration of agricultural lands soil fertility and agricultural landscapes as the Russias national property in 20062010 and Social rural development till 2010 is continued but it should be noted that both programs envisage co-financing of regional expenditures for these purposes and have actually no federal core. Out of 17 billion rubles of federal subsidies 2.6 billion rubles are not yet meant for any particular program of farm support. The size of this item is doubled but its configuration remains unclear until PT TP EAU was founded in 2000, as a joint initiative by Russia, Kazakhstan, Belarus, Kyrgyzstan and Tadjikistan. In a few years, they were joined by Uzbekistan.

PT TP Forecast of the Ministry for Economic Development and Trade, http://www.economy.gov.ru/wps/portal/!ut/p/_s.7_0_A/7_0_9D/.cmd/ad/.ar/sa.detailURI/.ps/X/.c/6_0_69/.ce/7_ 0_1L5/.p/5_0_IP/.d/0/_th/J_0_CH/_s.7_0_A/7_0_9DPC_7_0_1L5_pageNum=0&PC_7_0_1L5_documentType =monitoring&PC_7_0_1L5_documentId=1155284093797&PC_7_0_1L5_listMode=Archive#7_0_1Lrespective appropriations are adopted. Finally, as mentioned above, the funding of interventional grain purchases is increased drastically.

The principal virtue of 2007 budget is its continuity the federal government intends to meet its commitments under previous programs including programs for subsidizing interest on medium-term credits. This is precious as it is; moreover, it strengthens the trust in state policies of those large-scale agribusiness investors who have risked taking credits for 8-year term to carry out livestock projects in the framework of the National Project that so far guarantees partial repayment of interest within only two years.

Unfortunately, the budget inherited shortcomings of agricultural budgeting as well. Some of them are examined below.

1) According to the policy adopted in 2004, agricultural subsidies are increasingly shifted to the regional level (XPicture 1.T Structure of consolidated budget expenditures on agriculture, %X). This conT tradicts the world practice. In such federal states as the US and Germany the federal budget is in charge of 90% of subsidies to agriculture; in Canada this ratio is 50:50 but provincial budgets are responsible only for the implementation of regional development policies and not for supporting farm production. The distribution of budget liabilities between federal and regional authorities in federative Australia is not essential since the rate of support there is insignificant. At present the share of federal support to agriculture in Russia dropped to its historical bottom line (1998) of 25% (ibid). This has already entailed a certain shift of farm production to regions with budget surplus but the lowest agricultural potential implying that public resource utilization is not optimal. Besides, regionalization of support to agrifood sector provokes aggravation of overt and hidden trade wars between regions, entails disruption of the countrys common market space.

The draft 2007 budget does not avert these trends.

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