Sink or sell? Russia spat leaves France with warships to spare

For sale: two French-built helicopter carriers, tested by Russians. Buy now for only 1.2 billion euros($1.33 billion). Shipping extra.

Tensions between the West and Russia over Ukraine have blocked a deal in which Moscow was to buy the ships, leaving Paris trying to negotiate a face-saving compromise and work out CAwhat to do with two unwanted warships.

"There are three possibilities: deliver the boats to Russia, sell them to someone else or destroy them," said a source close to the matter.

It is an embarrassment that is not of French President Francois Hollande's making. The deal stems from his predecessor Nicolas Sarkozy's decision in 2011 to make the West's first major foreign arms sale to Russia since the fall of the Soviet Union.

But it will be difficult for Hollande politically and underlines the difficulty for France to reconcile its ambitions as a global arms supplier - a sector on which thousands of French jobs depend - with commitments to NATO allies.

It may also be very costly.

At present the delivery of the ships remains indefinitely suspended rather than formally canceled. But even Russian officials say now that they are not interested in taking the Mistral-class carriers.

Moreover France's NATO allies, notably the United States and Poland - with whom Paris is negotiating 6 billion euros of defense deals - would be outraged if France tried to get the deal back on track with the crisis in Ukraine far from resolved.

That leaves the Russians demanding not only a full refund but also the penalties that go for pulling the deal.

"That Russia won’t take them (the ships) - that's a fait accompli," Oleg Bochkaryov, deputy head of Russia's Military Industrial Commission, told daily Kommersant last week. "There is only one discussion going on now: the amount of money that should be returned to Russia."

SINK OR SELL?
The first carrier, the Vladivostok, had been due for delivery in 2014; the second, named Sebastopol after Crimea's crucial seaport, was supposed to be delivered by 2016.

Russia and French sources say Moscow wants 1.163 billion euros ($1.29 billion) which includes what it has already disbursed - about 800 million euros - plus compensation for costs incurred for the purchase of equipment and training of sailors.

France's special envoy Louis Gautier, who has been shuttling between the two capitals since end-March, has offered just 785 million euros, according to Russian media citing officials who also described the offer as "unacceptable."

Gautier has asked Russia to either contribute to the cost of dismantling them or allow France to sell the Mistrals to another country. Canada and Singapore have been mooted, as has Egypt which has just bought French fighter jets and naval frigates.

Yet senior defense ministry official Yury Yakubov, quoted by Interfax news agency, argued they could not be sold on because the carriers were built to specific Russian navy requirements and therefore it was a "matter of state security."

That may turn out to be just a bargaining position. But even if Russia relents, there would be a cost to France.

For one thing, it is already costing 5 million euros a month to maintain them at their current port on the Atlantic.

The Mistral is known as the Swiss army knife of the French navy for its versatility. But DCNS, the 65-percent state-owned manufacturer, nonetheless estimates any adaptation for another country would cost hundreds of millions of euros - and it would seek compensation.

An intriguing outside bet might involve China.

Amid a warming of Paris-Beijing ties under Hollande, the Dixmude - another Mistral-class vessel - attracted speculation when it docked in Shanghai earlier this month for a week.

But for now, analysts suggest the geopolitical context is just too dicey to contemplate a sale to China.

With growing tensions in the South China Sea, France is not seen willing to risk alienating Japan, with which it has just signed a defense cooperation deal, let alone suffer the displeasure that such a move would incur in Washington.

Said General Christian Quesnot, chief military adviser to Hollande's mentor, the late president Francois Mitterrand: "The cheapest thing would be to sink them."

(Additional reporting by Cyril Altmeyer and Gabriela Baczynska in Moscow; editing by Mark John/Jeremy Gaunt)

Missile maker says Russia did not shoot down Malaysian plane over Ukraine

The Russian company that makes the BUK air defense system that was used to shoot down a Malaysian airliner in east Ukraine said on Tuesday the plane was hit by a missile deployed by Ukraine and not widely used by Russia's military.

State-run Almaz-Antey said its own analysis of the wreckage of the Malaysia Airlines plane brought down on July 17 last year, killing 298 people, indicated it was hit by a BUK 9M38M1 surface-to-air missile armed with a 9H314M warhead.

Shrapnel holes in the plane were consistent with that kind of missile and warhead, it said.

Such missiles have not been produced in Russia since 1999 and the last ones were delivered to foreign customers, it said, adding that the Russian armed forces now mainly use a 9M317M warhead with the BUK system.

"Neither the company nor its enterprises could have supplied these rockets in the 21st century," Almaz-Antey's chief executive, Yan Novikov, told a news conference run by the Kremlin press service at which the company used 3D visuals and computer animation.

After a company presentation translated simultaneously into three languages, he said Ukraine's armed forces had still had nearly 1,000 such missiles in its arsenal in 2005, when it held talks with Almaz-Antey on prolonging their lifespan.

Criticizing sanctions imposed on Almaz-Antey by the European Union, he said: "The corporation was not involved in the Malaysian Boeing catastrophe. Correspondingly, the economic sanctions applied to the corporation for that are ... unjust."

When it imposed the sanctions on Almaz-Antey, the EU said the firm produced anti-aircraft weaponry which the Russian authorities have supplied to pro-Russian separatists fighting Kiev's forces in east Ukraine.

Moscow is trying to deflect blame for the shooting down of the airliner and denies sending arms and soldiers to support the rebels, though the West and Kiev say they have overwhelming proof of the latter.

Russian officials initially said flight MH17 was shot down by a Ukrainian fighter jet but that version was widely ridiculed abroad. They now say it was probably hit by a missile fired from the ground by Ukrainian forces.

Ukraine has denied its forces shot the plane down.

Dutch investigators who are leading an international investigation say their "leading scenario" is that it was hit by a Russian-made BUK.

(Editing by Timothy Heritage)

Iran nuclear talks went to the wire and beyond

(GNN) - When Russian Foreign Minister Sergei Lavrov announced on Wednesday that a framework nuclear deal had been reached between Iran and major world powers, the French delegation to the talks thought it was an April Fool's Day joke.

In the end, a deal was reached a day later. But after eight days of talking, with a Tuesday midnight deadline already history, it had gone to the wire and beyond.

Before the delegations paused to rest briefly as the sun came up over Lake Geneva on Thursday, U.S. Secretary of State John Kerry met repeatedly during the night with Iranian Foreign Minister Mohammad Javed Zarif, Laurent Fabius of France and Germany's Frank Walter Steinmeier.

Pressure from outside had been intense. The White House said Washington was prepared to walk away if necessary, while the Iranian delegation had to constantly consult with Tehran.

In an indication of how fraught the discussions had become, Fabius left the talks on Tuesday in the middle of the night, ostensibly to attend a cabinet meeting. But diplomats said the negotiations had become too complicated and it was "not for him to haggle over centrifuges".

The talks were held in Lausanne's lakeside Beau Rivage Palace hotel, where a cocktail can cost more than $70. Coco Chanel's dog is buried in the grounds and at times it looked as if hopes of a nuclear deal might be interred there too.

However fragile it might prove, the framework deal was eventually announced. The process that preceded it was long and hard and it is not over yet, with June 30 set for a final deal and much horsetrading expected before then.

Senior Iranian officials began thinking about the need to reopen negotiations with Washington in late 2012 after they began to see the crippling impact of Western sanctions imposed because of Tehran's nuclear ambitions.

Iranian officials close to the supreme leader, Ayatollah Ali Khamenei, had grown tired of former President Mahmoud Ahmadinejad's confrontational approach to Israel and the West, which had galvanized opposition to Iran.

A few months before Iran's June 2013 presidential election, in a secret meeting between Khamenei and a small group of top officials, the issue of who should succeed Ahmadinejad was discussed. They all agreed on Rouhani.

"Rouhani's mandate was to improve the economy, hit by the sanctions and Ahmadinejad's economic mismanagement," an Iranian official told Reuters.

AMERICAN OFFICIALS

After Rouhani was elected, Foreign Minister Zarif, who knew a number of American officials including Secretary of State John Kerry, approached them seeking to pave the way toward ending the nuclear standoff, the official said.

Khamenei was suspicious of the Americans and not optimistic about talking with them. But in the interests of the economy, he backed negotiations.

"Since the talks started, there have been ups and downs, good moments and bad moments. But generally, despite fiery public speeches, top Iranian officials, particularly the leader, backed the talks and the team," the Iranian official said.

Immediately after winning a vote of confidence in parliament, Rouhani met Kerry in September 2013, followed by the Iranian president's historic phone call with Barack Obama - the first such conversation between Iranian and U.S. presidents since ties were severed three decades ago.

After secret meetings between Iranian and U.S. officials, sometimes involving Omani intermediaries, the two sides agreed in September 2013 to relaunch the talks process that began in 2006 but stalled when it became clear that Ahmadinejad could not deliver a deal that Iran's hard-liners could accept.

Ahmadinejad's diatribes against the West had persuaded the European Union to join Washington in imposing sanctions on Iran, and the leadership in Tehran eventually opted for negotiations.

"It was clear when we began exploring talks with Iran that they were on their knees because of the sanctions," a U.S. official said. "It was time to talk."

In a year and a half of talks in Geneva, Vienna, Lausanne, New York and elsewhere, U.S.-Iranian relations underwent a subtle shift.

Meetings between senior U.S. and Iranian officials use to be big news. But now they meet so regularly that it is barely newsworthy, which diplomats say is proof of how much things have changed since Rouhani took office. U.S. and Iranian officials regularly chat outside the negotiating rooms at hotels.

But despite the increased cordiality between Iranian and U.S. officials, relations between the two countries are still not back to normal.

Zarif was summoned before parliament in January after images of him and Kerry strolling together along Lake Geneva provoked an outcry among hard-liners.

After that, Kerry was wary of allowing photographer snap pictures of him and Zarif during their strolls.

WHEN THE TROUBLES BEGAN

Although Rouhani and Zarif always wanted a deal, it was never clear that the leadership in Tehran, including Khamenei, shared their views.

The first sign that things were going wrong came last July, when Khamenei blindsided Zarif by announcing that Iran needed huge increases in nuclear centrifuge numbers.

There had earlier been indications that the Iranian delegation wanted to compromise to make a deal.

But after the leader publicly set clear red lines for his negotiators the possibility of a compromise vanished and a four-month extension was agreed to carry the negotiations to Nov. 24, which Western officials hoped would be enough time for Rouhani and Zarif to persuade hardliners in Tehran that making an agreement was their ticket to gradually ending sanctions.

But months of meetings between Iranian and American negotiators, including former Deputy Secretary of State Bill Burns, who began secret talks with Iran in 2013 to lay the groundwork for the current negotiations, and Under Secretary of State Wendy Sherman, who has led the U.S. delegations in Geneva and Vienna, failed find a compromise.

They also failed to break the deadlock in November, agreeing another extension until June 30, with the understanding that the parties should reach a political framework agreement by the end of March this year.

Western officials said the Obama administration and the Rouhani government both faced uphill battles to make their case to hardliners.

For Obama, there is perhaps an awareness that the only major "deliverable" he can achieve in his final two years in office is a deal with Iran.

And in Iran, many believe Kerry wants to help Obama secure his legacy. They also point to Kerry's Iranian-American son-in-law as proof that, as one Iranian woman put it, he is "on our side".

(Reuters)(Additional reporting by Stephanie Nebehay; Editing by Giles Elgood)

U.S.-Russian crew reaches space station for year-long stay

(GNN) - A Russian Soyuz rocket blasted off from the Baikonur Cosmodrome in Kazakhstan on Friday, sending a U.S.-Russia crew to the International Space Station for a year-long flight, a NASA Television broadcast showed.

The capsule holding NASA astronaut Scott Kelly, 51, and cosmonauts Mikhail Kornienko, 54, and Gennady Padalka, 56, slipped into a docking port on the station’s Poisk module at 9:33 p.m. EDT/0133 GMT. The trio blasted off about six hours earlier.Kelly and Kornienko are slated to make the first year-long stay on the orbital outpost, double the current mission durations. Padalka, who is making his fifth flight, will return to Earth in September after racking up 878 days in space, setting a new record for the total amount of time anyone has spent in space.

Four Soviet-era cosmonauts lived on the now-defunct Mir space station for a year or longer, but the missions, which concluded in 1999, did not have the sophisticated medical equipment that will be used during International Space Station investigations, NASA said.


Scientists are interested in seeing how the human body fares during longer stays in space, as the United States and other countries begin planning for multi-year missions to Mars.

In addition to more exposure to radiation, astronauts experience bone and muscle loss and changes in their cardiovascular, immune and other systems.

Kelly and Kornienko will participate in a battery of experiments before, during and after their flight to assess psychological and physiological changes from being in microgravity for a year.

A third participant is Kelly’s identical twin brother, Mark Kelly, a former NASA astronaut who will serve as a ground-based subject for genetic and other studies.

“The classic question is ‘How much of our health and our behavior is determined by our genes, and how much by our environment?’ – the nature versus nurture discussion,” Craig Kundrot, deputy chief scientist of NASA’s Human Research Program, said in a NASA interview.

“In this case, we’ve got two genetically identical individuals and we can monitor what kind of changes occur in Mark in an ordinary lifestyle and compare that to the changes that we see in Scott in flight,” he said.

While no definitive conclusions can be made from a study of a single set of twins, scientists hope the experiments may provide clues for follow-up investigations.

The station, a $100 billion project of 15 nations, is a research laboratory that flies about 260 miles (418 km) above Earth.

(Reuters)(Editing by Ken Wills)

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EU to resume Galileo satellite launch program

(GNN) - The European Union is set to send two navigation satellites into orbit on Friday aboard a Russian rocket, in its first launch since a botched deployment in August that cost several million euros to fix.

The Galileo project to set up an EU alternative to the U.S. Global Positioning System (GPS) is obliged to use the Russian Soyuz system until a development of Arianespace's European Ariane 5 rocket is ready around the end of the year, despite strained relations with Moscow over the conflict in Ukraine.

Fault for the last two satellites being set in the incorrect orbit after their launch from the European space center in French Guyana was placed on a defect in a Russian-built module.

An official at the European Commission, which oversees the program, said the EU executive was tendering for insurance cover for future satellites and had set up an insurance scheme for the launches.

Hitherto, satellites and launches have been uninsured to keep down costs on a project dogged by delays, money problems and questions over the need for a European alternative to GPS. China and Russia are also working on systems.

Friday's launch from Kourou is scheduled for 1746 EDT. If successful, it will bring to eight the number of Galileo satellites deployed out of a planned total of 30. The two launched in August have since been nudged into viable orbits and are fit for use, a spokesman for the European Space Agency said.

That cost several million euros and the Commission is expected to decide next month whether to make use of those two -- a decision that would require further spending to adapt equipment on the ground to cope with their new orbit routes.

Two further two-satellite launches are planned this year, making it possible to put the Galileo system into partial service next year. Full service is planned for 2020.

(Reuters)(Editing by Alastair Macdonald and Mark Potter)

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Russia threatens to aim nuclear missiles at Denmark ships if it joins NATO shield

(GNN) - Russia threatened to aim nuclear missiles at Danish warships if Denmark joins NATO's missile defense system, in comments Copenhagen called unacceptable and NATO said would not contribute to peace.

Denmark said in August it would contribute radar capacity on some of its warships to the missile shield, which the Western alliance says is designed to protect members from missile launches from countries like Iran.

Moscow opposes the system, arguing that it could reduce the effectiveness of its own nuclear arsenal, leading to a new Cold War-style arms race.

In an interview in the newspaper Jyllands-Posten, the Russian ambassador to Denmark, Mikhail Vanin, said he did not think Danes fully understood the consequences of joining the program.

"If that happens, Danish warships will be targets for Russian nuclear missiles," Vanin told the newspaper.

Asked to respond, NATO spokeswoman Oana Lungescu said Denmark was a staunch member of the alliance and NATO would defend all allies against any threat.

"We have made clear that NATO's ballistic missile defense is not directed at Russia or any country, but is meant to defend against missile threats. This decision was taken a long time ago, so we are surprised at the timing, tone and content of the statements made by Russia's ambassador to Denmark," she said.

"Such statements do not inspire confidence or contribute to predictability, peace or stability," she added.

Tensions between Moscow and the West have grown since the imposition of economic sanctions on Russia over a pro-Russian rebellion in eastern Ukraine. NATO has recorded increased activity by the Russian navy and air force in the Nordic region.

No missiles are to be placed on Danish soil under the NATO program, but they could be deployed some day in Greenland, a part of the kingdom, according to Jyllands-Posten.

"Denmark will become a part of the threat against Russia. It will be less peaceful, and relations with Russia will be damaged," Vanin said, adding that Russia has missiles which would be able to penetrate the future missile shield.

Denmark's foreign minister Martin Lidegaard said Vanin's comments were unacceptable.

"Russia knows very well that NATO's missile defense is not aimed at them," Lidegaard told Jyllands-Posten.

NATO's top military commander, U.S. Air Force General Philip Breedlove, told a Brussels conference on Sunday that the comments from the Russian ambassador were the "next step" in a campaign against countries that joined the shield.

"Romania came under great pressure when they became a part of the (missile shield). Poland is coming under great pressure and now anyone else who wants to join in to this defensive capability will come under this diplomatic and political pressure," Breedlove said.

(Reuters)(Reporting by Teis Jensen, additional reporting by Adrian Croft in Brussels; Editing by Peter Graff)

ChemChina set to close deal on Pirelli buyout: sources

(GNN) - China National Chemical Corp (ChemChina) and the shareholders of tire company Pirelli were putting the final touches to a deal that will trigger a 7 billion euro ($7.5 billion) buyout of one of the symbols of Italy's manufacturing industry, four sources close to the matter said on Sunday.

ChemChina and Pirelli's shareholders have been in negotiations to set up a new company to buy a holding called Camfin, which owns 26 percent of Pirelli and is currently 50 percent owned by Russia's Rosneft.

An announcement could come later on Sunday or on Monday, two of the sources said.

Under the deal, ChemChina would hold a majority stake in the new company, and become the biggest single shareholder in Pirelli - the world's fifth-largest tire maker. The Chinese group could have an up to 65 percent stake in the new vehicle, according to two of the sources.

Without identifying the possible buyer, Camfin said on Friday it was in talks with an international industrial group to sell its Pirelli stake at 15 euros per share, valuing the tire group at 7.1 billion euros excluding net debt of almost 1 billion euros at the end of 2014.

It said the stake would be transferred to a vehicle controlled by the new partner, after which a takeover offer for the rest the world's fifth-largest tire maker would ensue.

ChemChina was not immediately available for comment. A spokesman for Pirelli said he had no comment.

As details of the deal were leaked on Friday, shares in Milan-listed Pirelli, which started business 143 years ago producing rubber items, rose to a 25-year high and topped the 15 euro buyout price, prompting analysts to say shareholders may want to think twice before tendering their shares at that level.

Sources close to the matter said on Friday the deal with the Chinese group will mean Rosneft, which is facing international sanctions due to the Ukraine crisis and needs to cut debt, reduces its stake in Pirelli.

The agreement would give ChemChina access to technology used in making lucrative premium tires and could help China, already a global player in sectors such as telecoms and internet, develop its automotive industry.

Sources with knowledge of the matter said the deal on Pirelli would involve the company's less profitable truck tire business being spun off and possibly being folded in ChemChina's Aeolus unit.

In turn Pirelli, whose tires equip cars in Formula One motor racing, would have more bandwidth to compete against larger rivals such as Michelin and Continental which are looking for growth in Asia.

Under the new Chinese owners, Pirelli Chairman and CEO Marco Tronchetti Provera, who started working in the tire maker in 1986 after marrying a member of the Italian family that founded the firm, is set to remain in the driving seat for another five years, sources have said.

(Reuters)(Reporting by Paola Arosio, writing by Danilo Masoni and Silvia Aloisi; editing by Susan Thomas)

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