focus.scmp.com Wednesday, February 19, 2003 DAVID VICTOR and NADEJDA VICTOR

   Since the Iron Curtain came crashing down, American and Russian diplomats have been searching for a special relationship between their countries to replace Cold War animosity.

Security matters have not yielded much. On issues such as the expansion of Nato, stabilising Yugoslavia and the war in Chechnya, the two have sought each other's tolerance more than co-operation. Nor have the two nations developed much economic interaction, as a result of Russia's weak institutions and faltering economy. Thus, by default, "energy" has become the new special topic in Russian-American relations.

This enthusiasm is misplaced, however. A collapse of oil prices in the aftermath of an invasion of Iraq may soon lay bare the countries' divergent interests. Russia needs high oil prices to keep its economy afloat, whereas US policy would be largely unaffected by falling energy costs. Moreover, cheerleaders of a new Russian-American oil partnership fail to understand that there is not much the two can do to influence the global energy market or even investment in Russia's oil sector.

The focus on oil has also eclipsed another area in which US and Russian common interests could run deeper: nuclear power. Joint efforts to develop new technologies for generating nuclear power and managing nuclear waste could result in a huge payoff for both countries. These issues, which are the keys to keeping nuclear power viable, are formally on the Russian-American political agenda, but little has been done to tap the potential for co-operation. Given Russia's scientific talent and the urgent need to reinvigorate nuclear non-proliferation programmes, a relatively minor commitment of diplomatic and financial resources could deliver significant long-term benefits to the United States.

On the surface, energy co-operation seems a wise choice. Russia is rich in hydrocarbons and the US wants them. Oil and gas account for two-fifths of Russian exports. Last year, Russia reclaimed its status, last held in the late 1980s, as the world's top oil producer. Its oil output this year is expected to top eight million barrels per day and is on track to rise further. Russian oil firms also made their first shipments to US markets last year - some symbolically purchased as part of US efforts to augment its strategic petroleum reserve. In addition, four Russian oil companies are preparing a new, large port in Murmansk as part of a plan to supply more than 10 per cent of total US oil imports within a decade.

Meanwhile, the US remains the world's largest consumer and importer of oil. This year, it will import about 60 per cent of the oil it burns, and the US Energy Information Administration expects foreign dependence will rise to about 70 per cent by 2010, and continue inching upwards thereafter. Although the US economy is much less sensitive to fluctuations in oil prices than it was three decades ago, diversification and stability in world oil markets are a constant worry.

War jitters and political divisions cast a long shadow over the Persian Gulf, source of one-quarter of the world's oil. In Nigeria, the largest African oil exporter, sectarian violence periodically not only interrupts oil operations but also sent Miss World contestants packing last year. A scheme by Latin America's top producer, Venezuela, to pump up its share of world production helped trigger a collapse in world oil prices in the late 1990s and ushered in the leftist government of President Hugo Chavez. Last year, labour strikes aimed at unseating Mr Chavez shut Venezuela's ports and helped raise prices to more than US$30 (HK$234) a barrel. Next to these players, Russia is a paragon of stability.

The aftermath of a war in Iraq would probably provide a first test for the shallow new Russian-American partnership. Most attention on Russian interests in Iraq has focused on two issues: Iraq's lingering Soviet-era debt, variously measured at US$7 billion to US$12 billion, and the dominant position of Russian companies in controlling leases for several Iraqi oilfields. Both are red herrings. No company that has signed lease deals with Saddam Hussein's government could believe those rights are secure. Russia's top oil company, Lukoil, knew that when it met Iraqi opposition leaders in an attempt to hedge its bets for possible regime change. (Saddam's discovery of those contacts proved the point: he cancelled, then later reinstated, Lukoil's interests in the massive Western Kurna field.)

Russian officials have pressed the US to guarantee the existing contracts, but officials have wisely demurred. There would be no faster way to confirm Arab suspicions that regime change is merely a cover for taking control of Iraq's oil than by awarding the jewels before a new government is known and seated.

Of course, the impact of a war on world oil supply and price is hard to predict. A long war and a tortuous rebuilding process could deprive the market of Iraqi crude oil (about two million barrels a day, last year). Damage to nearby fields in Kuwait and Saudi Arabia could make oil even more scarce. And already tight inventories and continued troubles in Venezuela could deliver a "perfect storm" of soaring oil prices.

The most plausible scenario, however, is bad news for Russia: a brief war, quickly followed by increased Iraqi exports, along with a clear policy of releasing oil from America's reserves to deter speculators. A more lasting Russian-American energy agenda would focus on subjects beyond the current, fleeting common interest in oil. To find an area in which dialogue can truly make a difference, Russia and the US should look to the subject that occupied much of their effort in the 1990s, but that both sides neglected too quickly: nuclear power.

With the end of the Cold War, the two nations created a multi-billion-dollar programme to sequester Russia's prodigious quantities of fissile material and nuclear technology. The goal was to prevent these "loose nukes" from falling into the hands of terrorists or hostile states.

The Co-operative Threat Reduction programme also included funds to employ Russian scientists through joint research projects and academic exchanges.

Inevitably, it has failed to meet all its goals. In a country where central control has broken down and scientific salaries have evaporated, it is difficult to halt the departure of every nuclear resource. Nor is it surprising that US appropriators have failed to deliver the billions of dollars promised for the collective endeavour. Other priorities have constantly intervened, and Russia's uneven record in complying with arms control agreements has made appropriation of funds a perpetual congressional battle. Various good ideas for reinvigorating the programme have gone without funding and bureaucratic attention - even in the post-September 11 political environment, in which practically any idea for fighting terrorism can get money.

Russia has opened nuclear waste encapsulation and storage facilities near Krasnoyarsk, raising the possibility of creating an international storage site for nuclear waste. This topic has long been taboo, but it is an essential issue to raise if the global nuclear power industry is to move beyond the inefficiencies of small-scale nuclear waste management.

Russia should also be brought into worldwide efforts to design new nuclear reactors. The global nuclear research community, under US leadership, has outlined comprehensive and implementable plans for the next generation of fission reactors. The Russian nuclear programme is one of the world's leaders in handling the materials necessary for new reactor designs. Yet Russia is not currently a member of the US government-led Generation IV International Forum, one of the main vehicles for international co-operation on fission reactors and their fuel cycles. Top US priorities must include integrating Russia into that effort, endorsing Russia's relationships with other key nuclear innovators (such as Japan), and delivering on the promise made at last summer's G8 meeting of leaders of the world's biggest economies - to help Russia secure its nuclear materials.

For opponents of nuclear power, no plan will be acceptable. But the emerging recognition that global warming is a real threat demands that nations develop serious, environmentally friendly energy alternatives. Of all the major options available today, only nuclear power and hydroelectricity offer usable energy with essentially zero emissions of greenhouse gases.

Neither government should be naive about the sustainability of this endeavour. Russia is not an ideal partner because its borders have been a sieve for nuclear know-how and because its nuclear managers are suspected of abetting the outflow. Thus, plans for nuclear waste storage, for example, must ensure that they render the waste a minimal threat for proliferation. The US must also be more mindful of Russian sensitivity to co-operation on matters that, to date, have been military secrets.

Another difficult issue that both nations must confront is Russia's relationship with Iran. A perennial thorn in ties, Russia's nuclear co-operation with officials in Tehran owes much not just to Iranian money but to the complex relationship between the two countries over drilling and export routes for Caspian oil. This link to Iran cannot be wished away, as it is rooted in Russia's very geography. Any sustainable nuclear partnership between the US and Russia must develop a political strategy to handle this reality.

The world, including the US, needs the option of viable nuclear power. Yet Russia's talented scientists and nuclear resources sit idle, ready for action.

David Victor is director of the Programme on Energy and Sustainable Development at Stanford University and adjunct senior fellow at the Council on Foreign Relations. Nadejda Victor is research associate in the Department of Economics at Yale University and in the Programme on the Human Environment at Rockefeller University. This article is adapted from one in Foreign Affairs magazine.

www.vheadline.com Posted: Tuesday, February 18, 2003 By: Patrick J. O'Donoghue

President Chavez Frias has fulfilled another dream. The remains of Army General and President Cipriano Castro (1899-1902, 1902-1904, 1904-1908) are now in the National Pantheon, along with those of another of his heroes, General Guzman Blanco, whose remains he brought over from France.

Liberal Party opposition at the time had christened Castro “El Cabito” based on the satirical nickname of “Petit Caporal” that the French had bestowed on Luis Philip Napoleon’s attempt to emulate his famous uncle.

General Castro’s claim to fame lies in his victorious military campaign to take power, his humiliation of powerful “factor” bankers by marching them through Caracas, his oratory against the blockade of British and German frigates off Puerto Cabello and la Guaira, and the fight against provincial warlords.

In a cutting editorial, El Nacional makes comparisons between Castro and Chavez Frias, the first being their tongue and capacity to create enemies.

El Nacional says the irony is that the blockade, which started in December 2002 and ended on February 14 1903 ... 67 days to be exact, was by outside forces, whereas in 2003 the blockade was inside Venezuela itself.

The mainstream broadsheet admits that Venezuela’s debts had been contracted before Castro came to power (like Chavez Frias) but what Castro did was to shut out the Europeans and let the USA into Venezuela … for ever.

Incredible as it seems, Castro appointed US Ambassador to Caracas, Herbert Brown as Venezuela’s mediator or plenipotentiary to secure Theodore Roosevelt’s help in lifting the blockade, which the latter gleefully accepted confirming the Monroe Doctrine. Why should El Nacional be against that?

“El Cabito was polemic from day one in power … practically the whole country revolted against him and he was saved by internal conflict among the warlords.” The same has happened to Chavez Frias and the Coordinadora Democratica (CD), according to the editorial.

Defeated banker, Manuel Antonio Matos and his attempt to raise an army against Castro with foreign backing ended Venezuela’s last civil war.

Not so, say some historians. The last civil war was in the 1960s-70s, which El Nacional, the opposition and Chavez Frias conveniently ignore.

The newspaper also fails to point out that both personalities could be judged as bridges. Castro sealed Venezuela’s transformation out of the feudal age into the modern age, while Chavez Frias’ role as a bridge has still to be defined … he could be seen in the future as setting the stage to bring Venezuela into the global economy as a competitive force.

The return of Castro’s remains to the Capitolio must be seen as justice to someone, who was important to Venezuelan history. Ironically, it was Carlos Andres Perez, who brought his “paisano,” Castro’s remains from Puerto Rico to a mausoleum in Capacho (Tachira) in 1975.

• It completes part of Venezuela’s domestic jigsaw puzzle.

The more complex part of the jigsaw puzzle is trickier 1960s-70s civil war. It is tricky because the guerrilla war was against the very Venezuelan army that Chavez Frias believes is the vanguard of a truly Venezuelan Revolution.

It will take more than the Pantheon to solve that painful era in Venezuela’s history ... reconciliation is impossible without tackling and dealing with that traumatic period of Venezuela’s history.

www.alertnet.org 18 Feb 2003 19:42

By Patrick Markey

CARACAS, Venezuela, Feb 18 (Reuters) - British anti-terrorist police traveled to Caracas on Tuesday to piece together the life of a Venezuelan man who allegedly flew from the South American country to London's Gatwick airport with a live hand grenade in his luggage.

Three officers from the Metropolitan Police were scheduled to arrive in the Venezuelan capital as part of their investigation into Hasil Mohammed Rahaham-Alan, 37, who was arrested last week after stepping off a British Airways flight from Caracas, sources close to the investigation said.

Tight-lipped Venezuelan immigration authorities say Rahaham-Alan was carrying a false domestic identification card and they could not confirm his identity.

"It's the same name, but we are not sure we are talking about the same person. We're not sure if he is a Venezuelan or not," said Alfredo Gil Romero, director of the immigration control agency.

Reuters visited the two-story green-and-white home, where Rahaham-Alan told a London courtroom he had lived. Neighbors said that a family named Rahaham had lived for more than a decade in the house, perched along a sun-scorched hillside overlooking the eastern part of Caracas.

Interpol police on Friday visited the home, which had been unoccupied for nearly a month, local residents said.

"I was surprised to hear this," said one neighbor, who asked not to be named. "They are really decent, professional people. I used to call the mother 'grandma' and she would invite me in for tea and coffee."

The elderly mother and her four children were not believed to be native Venezuelans, but residents of this middle-class neighborhood said they didn't know where the family had come from. Two sons and a daughter lived outside Caracas, but the third son had not visited the home for about three years, they said.

TERRORIST CHARGES

Rahaham-Alan appeared in a London court on Monday where he was charged with "possession of an article for the purpose of committing a terrorist act" and "possession of an explosive substance with intent to endanger life or damage property".

He is also charged with carrying a dangerous article on a British-registered plane. He has been remanded in custody and will appear at the London's Old Bailey court on Feb. 24.

U.S. officials last year said they were concerned that extremist Islamic groups were receiving financial backing from Middle Eastern expatriate communities on Venezuela's Margarita Island, a popular Caribbean tourist haven.

The mainland shares a rugged, porous border with Colombia and has long been a conduit for drugs and counterfeit goods to and from other South American countries. Venezuelan government officials admit their troubled immigration controls need an urgent overhaul.

Rahaham-Alan, bearded with long dark hair, arrived at Gatwick last Thursday on a British Airways flight which officials said started in Bogota, Colombia and made stops in Caracas and Barbados before heading to London.

He was arrested after police allegedly discovered the grenade in his bags. Police, already on high alert due to threats of an attack, were forced to evacuate the airport's north terminal, delaying or canceling scores of flights.

British officials also want to determine how a hand grenade got through Caracas airport security. Sources said that the grenade was carried in a metal box that helped mask it from X-ray equipment.

sg.biz.yahoo.com Wednesday February 19, 1:45 AM By John Parry Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--High crude oil prices, not far off 29-month highs near $37 per barrel Tuesday, present a lurking threat to longer-dated bond prices; a danger that sovereign debt's robust safe-haven bid amid fears of war is serving to obscure.

"If we didn't have the global risk premium (associated with war and security threats) that is giving Treasurys a bid and if we were to look in isolation at higher oil prices, Treasurys would probably sell off because of the potential inflationary impact," said Paresh Upadhyaya, currency analyst, with Putnam Investments in Boston.

Longer maturities are particularly vulnerable to rising price pressures, although such pressures would have to be sustained in order to markedly erode the price of such bonds, fixed income strategists point out. Bond yields and prices move inversely.

In order to have a marked effect on prices in the economy as a whole, crude oil would have to remain in its current high ranges for the next six- to 12 months, says Ihab Salib, a global bond portfolio manager with Federated Investors in New York.

That would tend to rub off more negatively on European government bonds than on U.S. Treasury bonds, because European economies are more susceptible to hikes in global crude prices than the U.S.

Yet any disruptions to oil supply that may occur if an U.S.-led war against Iraq takes place should be short lived, allowing oil prices to descend to around $25 per barrel within the next few months, leaving longer bonds relatively unscathed, Salib expects.

Federal Reserve Chairman Alan Greenspan is among those who expect the surge in crude oil and gasoline prices to be transient. Last week, Greenspan said that colder-than-normal weather in the U.S. has pushed oil prices higher, along with geopolitical uncertainties in Iraq and an oil strike in Venezuela, but added that eventually, "the fundamentals are for much lower prices."

Ignoring The Inflation Threat

Nonetheless, some economists fret that capital market participants are too heavily betting one way - on a swift U.S.-led military action in Iraq that would soon deflate any price pressures in the oil market - and are not paying enough attention to the off chance of any war becoming drawn out and hugely expensive.

"Markets are not pricing in a wide variety of scenarios, and are ignoring inflation" as a threat, said Lara Rhame, senior economist with Brown Brothers Harriman in New York.

"Everyone is taking for granted that there will be a short-lived, decisive military action and after that...oil will come back down, the dollar will be up again, stocks will be up again and businesses will be reinvesting." But this is only one of several potential outcomes, Rhame emphasizes.

The dollar has been punished over the past few months in anticipation of a war, while U.S. stocks hit multi-month lows and crude oil surged last week.

For now, global bond market participants "are looking at higher energy prices as a negative tax, which will slow (economic) growth, and be positive for sovereigns in general," said Jack McIntyre, global fixed income analyst with Brandywine Asset Management in Wilmington, Del.

And even should crude oil prices remain high for a sustained period, if the pricing pressures they stoked acted principally to cap global economic growth, that lackluster economic scenario likely would depress bond yields, some bond strategists argue.

However, there is another scenario that could prove treacherous for longer dated government bonds; that of so-called "stagflation": lackluster economic growth, but with rising price pressures. The emergence of that troubling phenomenon could present a real threat to longer dated sovereigns, strategists warn.

"If there are higher oil prices for some time, that could undermine any global recovery," perhaps sending some major industrialized economies into recession "which would also be bad for global equity markets," said Upadhyaya of Putnam Investments.

If stocks weakened, that would tend to send more shifts into shorter-dated government bonds - a classic refuge for investors when equities slump. But longer-dated government bonds could fail to tap these flows, at the same time suffering from rising U.S. federal government budget deficits and spiraling price pressures.

"Longer dated Treasurys are looking like less of a safe haven than they did a year ago when we didn't have these massive budget deficits and higher oil prices hanging over our heads," said Rhame of Brown Brothers Harriman. Rhame expects longer dated Treasurys yields are set to rise and more acutely than those of shorter maturities, resulting in a so-called `steepening of the yield curve'.

Rising government deficits may also put some upward pressure on euro-zone government bond yields, as major economies including France, Germany and Italy struggle to keep their respective deficits within the 3.0% of gross domestic product limit stipulated by the Stability and Growth Pact. Inflation does not present an immediate additional threat to longer-dated European sovereigns, but longer-than-expected oil price hikes could change the picture.

-By John Parry; Dow Jones Newswires

john.parry@dowjones.com; 201-938-2096

new.stockwatch.com 2003-02-18 15:01 EST - News Release

In VA097, "Vannessa's Las Cristinas court cases advance", transmitted at 14:25e today, an error occurred in fifth paragraph. The phrase "start-up of the Mine occurred after July 15, 2001" should have read "no start-up of the Mine occurred after July 15, 2001". Full corrected copy follows: Vannessa's Las Cristinas court cases advance TSX: VVVOTC-BB: VNVNF Berlin: VVT - WKN 914781

VANCOUVER, Feb. 18 /PRNewswire-FirstCall/ - Vannessa Ventures Ltd. (VVV: TSX, OTC-BB: VNVNF, Berlin: VVT - WKN 914781) is pleased to announce that the court action to nullify the cancellation of the Minera Las Cristinas C.A. (MINCA) contract by Venezuela's state-owned Corporacion Venezolana de Guayana (CVG) is progressing. In addition, MINCA's court proceedings against CVG for contractual non-compliance have been admitted for hearing by the Supreme Court. The case will deal with CVG's actions as a shareholder of MINCA and its obstruction of MINCA's attempts at advancing the project.

MINCA, 95 % owned by Vannessa's wholly owned subsidiary in Venezuela, is the holder of a work contract to develop the Las Cristinas Project and has invested over US$170 million to advance the project to the feasibility stage with a proven gold reserve exceeding 11 million ounces.

In August 2001, CVG advised MINCA of its intent to cancel the contract and refused to follow the arbitration process as agreed to in the CVG/MINCA contract. In November 2001, CVG unilaterally cancelled the MINCA contract and, without any legal court order, engaged military personnel to take possession of the mine and of MINCA's assets.

MINCA filed an action in the Venezuelan Supreme Court asking the court to reverse the CVG cancellation of the Contract and to restore the contract effective to the cancellation date.

This legal action is now proceeding. Last week, CVG made its case for the unilateral cancellation of the contract by alleging MINCA's lack of reporting over a four-semester period and referring to the fact that no start-up of the Mine occurred after July 15, 2001.

MINCA filed its evidence, which included proof that the requested reports were in fact in the possession of CVG when it made its allegations that MINCA had not filed the reports.

MINCA also maintained that it was at no time to blame for lack of development. In 1997, a title dispute between Inversora Mael (a Crystallex subsidiary) and CVG caused mine construction to be suspended until a Supreme Court ruling in 1998 confirmed CVG's rights due to the fact that, among other reasons, Mael had no standing in court to bring forward a title challenge since it never held mining rights to the properties. With the price of gold dropping below US$300, CVG and MINCA agreed to a suspension of construction until July 15, 2002. Furthermore, the parties hired an international investment bank to help find a solution for the impasse; however the bank terminated its involvement citing a complete lack of co-operation by CVG. MINCA also provided written evidence that CVG prohibited its directors from attending MINCA's directors meetings to approve planned project developments and therefore willfully obstructed MINCA from proceeding with its development plans.

Vannessa has also formally notified the Venezuelan Government of its intent to enact international arbitration under the Venezuelan-Canadian Agreement for Promotion and Protection of Investments.

"MANFRED PESCHKE" Manfred Peschke, President VANNESSA VENTURES LTD.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release. Vannessa Ventures Ltd.

CONTACT: Vannessa Ventures Ltd., 1710-1040 West Georgia Street, Vancouver, B.C., Canada, V6E 4H1, Tel: 604-689-8927, Fax: 604-689-8907, E-mail: info@vannessa.com, Website: www.vannessa.com