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    N61 - September 13 2007 Published every two weeks / International Edition

    P. 1-4 Politics & GovernmentKREMLINc Viktor Zubkov : thePetersburg hard core takes overFOCUSc Yuri Chayka, a publicprosecutor on a tight-rope

    DIPLOMACYc The new Russian priorities in Asia

    ALERTc Mikhail Margelov to headthe Council of Europeparliamentary assembly?

    INTERVIEWc Alain Blum (EHESS)

    P. 4-6 Business & NetworksENERGYc Europe : a new challengevisible for Gazprom

    ALERTc Lukoil and Gazprom soon in Somalia ?

    FOCUSc Nuclear : the first stepstoward reform

    BEHIND THE SCENEc Shtokman : Gazprom waits hand and foot on Yuri Kovalchuks friends

    P. 7-8 Regions & CIS

    FOCUSc Why Kamchatka is againbecoming strategicCAUCASUSc Ingushetia, the weak link

    The serious business in anticipation of the succession of Vladimir Putin to the Kremlin has justbegun in Moscow. September 12, the head of government, Mikhail Fradkov, submitted his resig-nation to the Russian president, who accepted it after having given a strong (and apparently sin-cere) homage. A few minutes later, the president of the state Duma, Boris Gryzlov, declared thatthe Kremlin had retained the candidature of the head of the Federal financial monitoring agency(Rosfinmonitoring), Viktor Zubkov, 65, to succeed Mikhail Fradkov. An announcement whichwas all the more surprising since the entire corps of Moscow observers took it for granted that incase of such a reshuffle, Sergey Ivanov would be the next Prime minister.

    Viktor Zubkov is not an unknown quantity for the readers of Russia Intelligence. In our editionof last March 2, we revealed his rise in Russian power circles. As a matter of fact, the future Primeminister (his candidature will be confirmed by the parliament September 14) is a part of the Pu-tinist first circle. Born in 1941 in the Urals, he is a 1965 graduate of the Institute of agriculture inLeningrad. His rise began truly beginning in 1985 : he then found himself assigned responsibilitywithin the Communist party. Viktor Zubkov in 1991 is the first secretary of the executive commit-tee for the district of Priozersky of the Leningrad region. This is the time when became acquaintedwith Vladimir Putin and Boris Gryzlov. According to information gathered by Russia Intelligence,Viktor Zubkov would have facilitated the transfer of plots of land for construction by the well-knowndacha cooperative Ozero. Located in Solovyovka on the banks of lake Komsolmoskoe, the latterincluded, it should be recalled, among its founding members Vladimir Putin (a the time in chargeof external relations for the Saint Petersburg municipality), Vladimir Yakunin (head of the RZhD,the Russian railways), Vladimir Smirnov, (TENEX read also articles page 2 and 6), NikolayShamalov and Viktor Myachin, joint shareholders of the Rossia bank of Yuri Kovalchuk. FromJanuary 1992 to November 1993, Viktor Zubkov presented himself for the post of governor of theLeningrad region, but he collected only 8.5% of the votes (Boris Gryzlov was then his campaign man-ager). Vice minister of finance from 2001 to 2004, he assumed the leadership in 2004 of Rosfinmon-itoring, the financial investigation squad, which he headed until his surprise nomination. ViktorZubkov is therefore, as can be seen, a trusted associate of Vladimir Putin. He is in addition the fa-ther-in-law of the Defence minister, Anatoly Serdyukov, whose surprise nomination last Februaryalso follows the same pattern. Viktor Zubkov is also very close to Viktor Ivanov, the presidentialassistant who has a controlling hand on nominations and who we had previously indicated hadstrengthened his position in the Kremlin (Russia Intelligence n49 of February 16 2007).

    The main question is certainly to know if the promotion of Viktor Zubkov makes of latter thelong awaited successor to Vladimir Putin. His profile and also his age lead most Moscow sourcesfor Russia Intelligence to doubt this scenario. Viktor Zubkov could remain Prime minister afterMarch 2008, reproducing the trajectory of Mikhail Fradkov, who also came out of nowhere andwas installed before the presidential vote of 2004. The other question concerns the reason thatled Vladimir Putin to delay, or even to abandon, the Sergey Ivanov option. The first vice Prime min-ister, very much in view in the media at the side of the president since the beginning of summer,seemed well on the way. A veteran, like Vladimir Putin, of the KGB external intelligence services,he shares with him the same weltanschauung. But we also know that Sergey Ivanov arouses con-siderable fears within the numerous Kremlin clans, whom he is not obligated to and to whom hehad given no guarantees for after 2008 (Igor Sechin who Sergey Ivanov, rightly or wrongly, sus-pects of having set a trap for him in the media during the Sychev affair, which involved this ter-ribly mutilated draftee in a Ural barrack in late 2005 felt particularly targeted according to in-formation we have gathered.

    The elevation of Viktor Zubkov also leaves open the scenario, long considered as emerging fromscience fiction but which could be unwise to exclude in view of the essentially Byzantine nature ofthe Russian political game : a faked departure for Vladimir Putin. The latter could leave the Krem-lin in March 2008, as the constitution obligesto better return on the scene in place of a ViktorZubkov who would have then fulfilled his ultimate mission in the service of his friend. d

    Viktor Zubkov : the Petersburg hard core takes over

    cKREMLIN

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    RUSSIA INTELLIGENCE Poli t ics & Government

    FOCUS

    Yuri Chayka, a public prosecutor on a tight-ropecAugust 27 may seem in retrospect as the finest hour for Rus-

    sias General prosecutor. In announcing to Vladimir Putin inthe Kremlin that the investigation of the murder of journalistAnna Politkovskaya was concluded and that the godfather ofthe Tambov group - Saint Petersburgs principal mafia organi-sation had been locked up, Yuri Chayka thought he had esta-blished himself as the hero against all the dangers of this post-vacation season, (Russia Intelligence n60 of August 30 2007).But the cards changed completely in the space of a few days.

    The Politkovskaya case : an accusation that evaporates.It was with obvious satisfaction that Yuri Chaika had told of theinterrogation of ten suspects in the Politkovskaya case. Amongthose was found an FSB lieutenant-colonel, Pavel Ryaguzov, twoagents of the Interior ministry research service, Dmitry Lebe-dev and Oleg Alimov, as well as an anti-gang squad member, Ser-gey Khadzhikurbanov, which seemed to indicate that the inves-tigation had been thorough. Yuri Chayka had also established alink between the assassination of Anna Politkovskaya and theone of Paul Khlebnikoff, the editor in chief of the Russian edi-tion of Forbes shot to death in 2004, and the former vice presi-dent of the Russian central bank, Andrey Kozlov (Russia Intel-ligence n41 of October 13 2006). The latter point was all themore surprising since the Kozlov case had been said to have beensolved in the spring and the presumed killers jailed.

    Yuri Chayka in any case thought he had two winners. The sol-ving of the Politkovskaya case, a few days from the first anni-versary of the death of the Novaya gazeta journalist, was madeto order to bolster the image of the Russian president in theWest. It was also meant, for the public prosecutor, to underlinethe efficiency of his services on the eve of the creation of a Com-mittee for investigation, a quasi-autonomous structure of theProsecutors office whose presidency Vladimir Putin had assi-gned to Alexandre Bastyrkin, one of his former university class-mates (Russia Intelligence n58 of June 28 2007).

    But by August 28, it seemed that Yuri Chayka had proclai-med victory prematurely. It was learned first of all that a firstdetainee had been cleared by the investigators and released.Lawyers for Sergey Khadzhiburbanov had themselves let it beknown that their client had a solid alibi since he had been indetention on October 7 2006. The actions Pavel Ryaguzov wascharged with dated back to 2004 and had no connection withthe murder of Anna Politkovskaya. In the end, this case smacksso much of amateurism that one is left to wonder whether YuriChayka wasnt manipulated and sent into oblivion.

    The strange Barsukov affair. Virtually unnoticed in theWest, the arrest of Vladimir Barkusov (alias Kumarin) is howe-ver even as politically sensitive as the Politkovskaya case. Theone presented as the godfather of the Tambov group was arres-ted on August 22 by units of the Interior ministry and Prosecu-tors office who had come from Moscow without the outposts inSaint Petersburg getting any advance warning of the operation.An apparently useful precaution since, according to Yuri Chayka,many well-placed persons had tried to derail the investigators.Vladimir Barsukov was wanted; among other reasons, for mo-ney laundering, extortion of funds, attempted murder and mur-der. He is notably accused of the attack in the spring of 2005

    against Sergey Vasilev, a businessman who unofficially control-led the oil terminal for the northern capital, an assets soughtby Barsukov.

    This case must be followed with the utmost attention be-cause it is likely to spill over against the core of the Putin net-works in Saint Petersburg. Several close associates of the pre-

    sident had at one time or another businessdealings with Barsukov. First of all, Vladi-mir Smirnov, the boss of TENEX, the statefirm specialised in uranium enrichment(read page 6). In the mid-1990s Barsukovcontolled, with Smirnov, the private secu-rity agency Rif Security, which was nota-bly charged with the surveillances of theOzero cooperative dachas. As a reminder,this very exclusive village hosted Smirnovhimself, Andrey Fursenko, the Science

    minister, Vladimir Yakunin, the boss of the railways, and a cer-tain Vladimir Putin. Smirnov and Barsukov, would find them-selves a few years later at the Saint Petersburg Hydrocarboncompany (PTK) : Smirnov was the president of the administra-tive council, while Barsukov occupied from 1998 to 2000 thepost of assistant director general.

    Vladimir Barsukov also controlled a number of affiliates ofSurgutneftegaz, including Kirishinefteorgsintez, specialisedin refined products. And, readers of Russia Intelligence knowsince operation Baikal and the purchase of Yuganskneftegaz,of the importance and influence of the networks linked to Sur-gutneftegaz (n6 of February 11 2005 and n43 of November 102006). We need mention only Yuri Kovalchuk, the head of theRossia bank, and Alexey Mordashov of Severstal.

    Finally, Vladimir Barsukov testified in 2004 before Germaninvestigators in the case of SPAG, a firm based in Hessen thatinvested in property in Saint Petersburg and which the Germanauthorities suspected of money laundering for the Tambov group.Barsukov was the co-manager of one of the SPAG affiliates, Zna-menskaya whose director was none other than Vladimir Smir-nov. Markus Rese, at the time boss of SPAG, declared in 2001to the weekly Newsweek that Vladimir Putin had been a consul-tant to his group, a function that according to him was unpaidand essentially honorary.

    The main question that arises is to know if those who reques-ted the arrest of Barsukov want him to talk or remain silent. Inthe first instance, he should not leave the VIP cell of the famousKresty prison in Saint Petersburg where he was taken after hisarrest. Perhaps Barsukov will never be heard from again, buthis presence behind bars by itself constitutes a sword of Damo-clese over the head of persons numerous and influential aswe have seen who had been in contact with him. The secondpossibility leads to the recollection of the fate of another note-worthy figure of the Petersburg mob, Roman Tsepov (RussiaIntelligence n33 of May 18 2006. Close to certain Putin circles(in particular that of General Viktor Zolotov, the boss of theFederal protection service) and knowledgable (too) about theunderside of the Yukos affair, he was mysteriously poisoned inthe autumn of 2004. d

    Vladimir Barsukov

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    RUSSIA INTELLIGENCE Poli t ics & Government

    DIPLOMACY

    The new Russian priorities in Asiac

    In the decade of the collapse of the Soviet union, Russianpolicy toward Asia rested essentially on strategic partner-ships with India and the Peoples Republic of China. Vla-dimir Putins recent tour of the region on the occasion of the15th APEC summit in Sidney illustrated the new geographicpriorities of the Kremlin and confirmed the dominance of eco-nomic factors in Russian diplomacy.

    The first stopover of the Russian president, Indonesia isone of the new strong points of the Kremlin policy in southeastAsia. It was well known that for several months Moscow andJakarta were discussing the details of new arms contracts.During the recent Moscow air show, Rosoboronexport andthe Indian Defence minister had signed an accord on delivery,between 2008 and 2010, of 6 new Sukhoi fighter-bombers (3Su-30SKM and 3 Su-30 MK2, for an amount evaluated at 335million dollars). Another, more ambitious, accord was comple-ted in Jakarta September 6. Russia and will in fact deliver toIndonesia ten Mi-17 and Mi-35 transport and attack helicop-ters, twenty BMP-3F armoured troop carriers, as well as twoKilo class conventional submarines. This transaction will befinanced by a credit of a billion dollars from the Russian go-vernment, an arrangement that illustrates Moscows new fi-nancial flexibility, which had already been inaugurated du-ring the summer of 2005 in the framework of a contract withJordan. According to certain information, Indonesia wouldalso be interested by the Kornet anti-tank systems from KBPTula, unspecified anti-air arms, and also in civilian aircraft(the Sukhoi SuperJet-100 and the Be-200 and Be-103 amphi-bious aircraft.

    The successes of Russian industrialists in Indonesia werenot limited to the armaments and aerospace sectors. Lukoiland the national company Petramina signed a cooperation ac-cord concerning several off-shore deposits. Rusal and Antamalso signed an accord on the construction by 2001, of a com-plex of a capacity of 5 Mt/yr that will be supplied by bauxitedeposits from Munggu Pasir and Pantas. Oleg Deripaskasgroup represented in Jakarta by the former Finance minis-ter Alexandr Livshits will hold 51% of a joint venture thatwill soon be created. Lastly, Altimo telecoms subsidiary ofAlfa-Group is said to be prepared to buy, for 2 billion dol-lars, the share of ST Telemedia (Singapore) in the Indone-sian mobile telephone operator Indosat. We should also pointout that the president of Alpha-Bank, Pyotr Aven, accompa-nied Vladimir Putin on his Asian travels, as well as Sergey Ki-rienko (Rosatom), Vagit Alekperov (Lukoil), Vladimir Ev-tushenkov (AFK Systema), Vladimir Dmitriev(VneshEkonomBank), Leonid Reyman, the Communicationsminister, Sergey Stepashin, the president of the Court of ac-counts, and also the chief representative of Vladimir Putin inthe Far-east federal district, the Tatar Kamil Iskhakov.

    The Australian phase for Vladimir Putin was also as fruit-ful. True, the discussions with George Bush led only to an in-vitation to a fishing date in Siberia, with no progress seen onthe thorny problem of the WTO or the anti-missile defence.But Vladimir Putin obtained from his APEC partners that theorganisations summit planned for 2012 take place in Russia.On the economic front, the major event was incontestably the

    signing of an intergovernmental nuclear accord. Australia,which holds 40% of world uranium reserves, will export a partto Russia. The amounts will be the subject of new discussionsbetween Rosatom/AtomEnergoProm and the Australian autho-rities. The intergovernmental accord of September 7 in anycase will facilitate the negotiations underway between TE-NEX and BHP Billiton concerning a participation in the de-velopment of the giant Olympic Dum reserves. It especiallyconstitutes a major assurance of the long-term supplies of theRussian nuclear industry in uranium, while the cooperationwith Kazakh and Ukrainian source is full of uncertainties. (UIn39 of August 30 2007 and CACI n15 of August 30 2007).

    Virtually unnoticed in the West, the visit of Vladimir Putinin the United Arab Emirates was nevertheless more than asimple courtesy visit. In inauguring in Abu-Dhabi an exposi-tion on Arab, Persian and Turkish military trophies in theKremlin museum, the Russian president hoped to symboli-cally recall the role and the historic influence of Russia in theMiddle East. If we can believe certain elements filtering inMoscow, the main theme of the discussion between VladimirPutin and Cheikh Khalifa ben Zayed al-Nahyane was Iran.The Emirates sought notably to obtain the mediation of Mos-cow on the coastal limit dispute involving the Abu-Musa andTunb islands annexed by Tehran in 1971. Moscow again madeAbu-Dhabi aware of the possible risks of an American mili-tary intervention in Iran and would like to see it play a roleas moderator with Washington. It should be noted in passingthat the issue of the Bushehr nuclear power station remainssubject of differing evaluations in Tehran and Moscow. Thesecretary of the Iranian security council, Ali Larijani, decla-red September 6 that a good accord has been found withRussia and that the calendar of deliveries of fuel has beenadopted. An announcement quickly denied by Sergey Novo-kov, the Rosatom spokesman. d

    3 A Russian to head the Council of Europeparliamentary assembly ?

    Mikhail Margelov, the president of the Federation councilForeign relations commission, confirmed on October 10, that hewould present his candidacy for the presidency of the Council ofEurope Parliamentary assembly in the name of the Europeandemocrats group (EDG).

    Born in 1964 in Pskov, Mikhail Margelov is an Arab expertgraduated from the Institute of African and Asian countries of theUniversity of Moscow. He taught Arabic at the KGB school ofadvanced studies at the end of the 1980s before assuming theleadership of the Arab editorial team at the ITAR-TASS newsagency. Charged with relations with the foreign press on thecampaign staff of Vladimir Putin in 2000, he was appointed to theSenate a few months later.

    His grandfather a general decorated with the title of hero ofthe USSR was one of the founders of the Soviet airborne troops.His father, Vitaly Vasilevich made his career in the externalintelligence service and was the aide to Yevgeny Primakov at theSVR in the early 1990s. d

    A L E R T

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    RUSSIA INTELLIGENCE Poli t ics & Government

    DEMOGRAPHYAlain Blum : Demographic policies are at theheart of Vladimir Putins public communication

    c

    An interview with Alain Blum, director of the Studies centre of the Russian world, the Caucasus and Central Europe (School ofadvanced social science studies and the CNRS national scientific research centre)and director of research at the National institute of demographic studies (INED) Author specifically of Birth, living and dying

    in Russia, Paris, Payot, 2004, and Bureaucratic anarchy statis-tics and power under Stalin, La Dcouverte, 2003, (with Mar-tine Mespoulet).

    The demographic situation was recently described byVladimir Putin as one of the principal threats to natio-nal security for Russia. What are the profound causes?

    The demographic situation and the demographic policiesfollowed in Russia today, are the object of very extensive me-dia attention, fostered by the entourage of Vladimir Putin. Thisis part of the general rhetoric concerning the promotion of thegreatness and power of Russia, which translates here in termsof population, as well as the argument that an increase in birthswould be the direct expression of a hope and rediscoveredconfidence.

    The reform of the 1990s have been put forward as the cau-ses of this demographic situation, inasmuch as the decline inpopulation as well as the decline in fertility date back about tothe collapse of the USSR. The growth rate turned negative inthe early 1990s. Certain political or media figures had even ac-cused Boris Yeltsin of being responsible for genocide of the Rus-sian population and nationalist and conservative speechesadopted this accusing tone. But, when we examine closely thedemographic trends, we can see that the reality is completelydifferent. The most preoccupying, the extremely high level ofmortality, (the male life expectancy at birth, the most preoccu-pying, reached 58.9 years in 2005, compared to 76.8 in Francethe same year. Russian men live on average close to 20 yearsless than French men!) is linked to a gradual, quasi-linear, de-gradation, that began in at the start of the 1970s decade. No-thing to do with the Yeltsin reforms. The cyclical, and very tem-porary, effect of the war on alcoholism in 1986 gave the impressionof a counter-action of these reforms. If the latter existed at all,it was very limited compared to the long-term trends.

    The causes are complex, and closely linked to the lack ofadaptation of the health-care system to the new health condi-tions, alcoholism which remains very preoccupying, importantviolent mortality, affecting in particular young men closely lin-ked to alcoholism. In terms of fertility, there was certainly theeffect of uncertainty about the future, leading many couplesto delay the arrival of children. But that situation was only par-tially linked to the reforms. The current fertility rate corres-ponds to European levels, and, whats more, it has sufferedfrom the delay of the age of the first birth, which had been ex-tremely precocious in Russia. Young women delayed their first

    child, while the oldest had already brought a child into theworld. In general in Russia, we are passing, slowly, from themodel of very precocious first coupling first marriage first birth, to a more European model where a succession ofco-habitations precedes a couple giving birth to a child, andwhere, a couple waits to be integrated into the working worldbefore giving birth to children. In effect, for several years, thiseffect led to an apparent decline in the birth rate higher thanit was in reality.

    What are the most realistic projections concerningthe evolution of the Russian population for the mediumand long-term?

    Its impossible to furnish numbers since evolution is diffi-cult to forecast, especially migratory terms. A realistic projec-tion supposes, however, that mortality will begin to declineand that fertility will rise slightly (strongly for a while, andthen return to an average level) and that immigration flowswill develop, whatever policy is put in place. On this basis, wecan probably foresee a population of 135 million inhabitantsby a timeframe of 2015, a relatively high variant, rather thanthe 145 million imagined by Medvedev. Reaching such levelswould presuppose very important migratory flows, which arenot to be excluded but which remain unrealistic (while Med-vedev counts only on a strong increase in births).

    Demography is one of the national projects to thesame extent as housing or education under the res-ponsibility of vice Prime minister Dmitry Medvedev. Whatpublic policies have been put in effect by the govern-ment? Can they have a real impact, in your view?

    Policies in demographic matters are at the heart of Vladi-mir Putins public communication. Two national projects, oneon demography, the other on health, are developing. The firstmade considerable noise and consists primarily of a premiumof 8500 euros (250 000 rubles)for the second birth, a conside-rable sum when compared with the average salary. This pay-ment is placed in a pension fund, then available after a fewyears to finance housing or studies for the child. It representsa short-sighted policy, very much in line with certain Sovietpolicies : the impact will be rapid, without a doubt, since cou-ples will anticipate the birth of their 2d child. But the effectwill probably be temporary and will mark more the momentwhen couples have their 2d child. As a result, we risk havingviolent upheavals in the age pyramid, a difficult managementfor child care, education, follow-up health care. The age ofmaternity will again decline, which is hardly desirable. Fer-tility will probably rise slightly in the end but much less thanit will seem in the years to come. At a high price, in terms ofpublic child management. On the other hand, the health sys-tem is significantly below what it should be, even if we canhope that mortality will decline considerably in the years tocome, given the incredibly high level of today. The govern-ment, apparently, is not developing a demographic policy,but a political fact, essentially to put forward successeswhich are in large part illusory. d

    Alain Blum

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    RUSSIA INTELLIGENCE Business & Networks

    ENERGY

    Europe : a new challenge visible for GazpromcIf the discussions with Total, BP or E.On are proceeding and

    indicate some new and very promising cooperation (Russia In-telligence n60 of August 2007), Gazprom also nevertheless risksbeing confronted by new political obstacles from certain Euro-pean governments and the European commission in Brussels.

    Like in previous autumns, Gazprom is readying to launch dis-cussions with its clients on the price of gas for the coming year.Since world hydrocarbon prices remain particularly high (morethan 70$ a barrel on average in August), a new re-evaluation re-mains the order of the day. The first to get excited were theLithuanians. On August 29, the daily Lietvos rytas publishedan article reporting on a notification addressed by Gazprom tothe two Lithuanian gas importers, Lietvos dujos and Dujotekana,warning of an increase of 40% beginning on January 1 2008 (or280$/1000 m3 against 195 currently). The Lithuanian Prime min-ister, Gediminas Kirkilas, had for his part spoken of an evenlarger spread (312-320$/1000 m3) during an interview withReuters news agency a few days earlier. Comparable increasesare also awaited in Estonia and Latvia. After having demon-strated a policy of relative restraint for three consecutive yearson prices upon entry of the Baltic states into the European union a moderation which had found a counterpart in its entry intothe capital of the national gas distributing companies EestiGaas (37.02%), Latvijas gaze (34%) and Lietuvos dujos (37.1%) Gazprom will now charge the normal European prices to re-peat the expression of one of its managers. The Russian com-pany is even less inclined to make concessions in the case ofLithuania since the parliament of that country this spring adopteda law forbidding Lietvos dujos to apply a margin higher than 8%of the price of Russian gas bought at the border. The discussionscould continue until October 31, the date set by the Russian andLithuanian parties. In order to avoid a head-to-head confronta-tion with Gazprom that promises to be dangerous, Vilnius an-nounced that it hoped to associate other European union coun-tries in the discussions. This is an initiative that has few chancesof succeeding in the absence of a common European policy butwhich confirms the extreme politisation of energy questions inthe new member states in the Baltic region.

    Gazprom is equally confronted with significant political re-sistance in the case of Nord Stream, the underwater gas pipelinelinking the region of Vyborg to Germany. Poland has let it beknown that it would ask Stockholm to conduct new environmen-tal studies since the new path of the future pipeline was modi-fied to the limits of Swedish and Danish territorial waters. Thischange had the object of distancing Nord Stream from zoneswhere shells from the second world war lie, but all pretexts arevalid as seen from Warsaw to try to delay the Gazprom project.The Russian group could also find some other difficulties comingfrom Estonia. If certain information drifting out of Tallinn areconfirmed, the Reform party plans to submit to the parliament adraft law on maritime frontiers that foresees extension of ter-ritorial waters of 3 nautical miles. We recall that Finland and Es-tonia left a neutral corridor of 6 nautical miles between theirrespective waters, to permit Russia to have a free access to restof the Baltic sea to the north of which a segment of the NordStream should pass. There again, the prospects of such an ap-proach would seem, to say the least doubtful, so long as it is hardto see Helsinki headed toward a clash with Moscow in this mat-ter. But the strategy of harassment by the opponents of Nord

    Stream reveals a climate that is increasingly hostile toward allenergy projects originating in Russia .

    In this context, the attention of the Kremlin (and of its in-telligence services) is more than always focused on Brussels. TheRussians are anticipating notably new proposals from the Euro-pean commission, expected September 19, on the demonopoli-

    sation of the en-ergy sector.Gunter Ver-heugen let it beknown during avisit to Moscowin mid-July thatcertain provi-

    sions could affect Gazprom. It involves possible restrictions onthe ownership of gas and electricity distribution networks, sec-tors we know to be precisely the new targets of the Russiangroup in Europe (Russia Intelligence n 54 of April 24 2007).

    Another reason for Gazprom and the Russian government toworry concern the preparation of a series of directives underthe direction of Alejo Vidal-Quadras. In the aftermath of a votein the Euopean parliament in early August, its vice presidentwas charged with formulating a certain number of proposalsaimed at encouraging respect for the principle of reciprocityconcerning investments of third countries in the European en-ergy sector. The aim is to limit access of public companies fromcountries where the local energy markets are subjected to re-strictions. This measure is not specifically directed against Rus-sia (Algeria, Saudi Arabia or Iran are potentially concerned),but we can imagine that they would seriously contradict theGazprom ambitions if they were to be applied. d

    3 Lukoil and Gazprom soon in Somalia ?The ambassador of Somalia to Moscow, Mohamed Handule,

    has become quite active in recent weeks to persuade Russiangroups to invest his country. August 22, he declared during a pressconference that his government is ready to cooperate with Russiain the uranium extraction sector (Somalia holds a bit more than6000 tonnes of the mineral). If we believe certain informationcirculating in the Russian capital, he is ready to meet onSeptember 19, Igor Gavrilov, the director general ofZarubezhgeoligia. This public organisation had conductedimportant exploration campaigns in Somalia before the splitbetween the government in Mogadischio and the USSR in 1977.Somalian authorities would like to have access to the results of theresearch and invite Zarubezhgeoligia to undertake some newdrilling. The Russian side remains discreet on this question, but itwould seem that some very promising finds were made by theSoviet engineers in 1976. Certain generally well-informedconsultants in Moscow even believe that the Somalian reservescould be in the same range as those in neighbouring Sudan.Mohamed Handule has in any case approached Lukoil andGazprom in the past weeks. It remains to be seen if the evolutionof the political and security situation of this country ravaged by 15years of civil war will permit the fulfilment of these projects. d

    A L E R T

    c Like in previous autumns,

    Gazprom is readying to launch

    discussions with its clients on the

    price of gas for the coming year.

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  • RUSSIA INTELLIGENCE Business & Networks

    6Russia Intelligence N61 j September 13 2007 www.russia-intelligence.fr

    For several months, Russia Intelligence has regularly informed its readers ofthe reforms underway in the Russian civil nuclear sector. Carried out by formerPrime minister Sergey Kirienko, named to head the Federal Rosatom agencyat the end of 2005 by Vladimir Putin, they have as their objective the establish-ment of a national champion uniting the complex of the protagonists in the sec-tor along the lines of the model recently put in place for the aeronautic (OAK)and naval construction (OSK) industries. In the end, it means competing withAreva and Westinghouse on the world market thanks to an integrated organi-sation present from the extraction of uranium up to the construction of turnkeynuclear reactors.

    The signal for the launch of this reform was given, we recall, at the end of Aprilwith the publication of a presidential decree for the creation of AtomEnergoProm.Since, several important announcements have been made by the government. July7, the Prime minister Mikhail Fradkov, adopted its bylaws, as well as its admin-istrative council, to be headed by Sergey Kirienko. Vladimir Travin will occupythe post of director of AtomEnergoProm. It is not strictly speaking a surprise tothe extent that the latter is a confident of Sergey Kirienko. Born in 1960, educatedas an engineer, Vladimiur Travin began his career at the prestigious Sarov nuclearresearch centre (formerly Arzamas-16). He converted to finance during the 1990sbefore becoming vice president of Norsi-Oil, Sergey Kirienkos company based inNizhny-Novgorod, then vice president (in charge of finance) of the public opera-tor Transneft. As soon as he was nominated to the head of Rosatom, Sergey Kirienkohad summoned him to his side as counsellor. He then named him associate direc-tor, again charged with finance, January 26 2007.

    The pattern of integration and, especially, the allocation of spheres of influ-ence within AtomEnergoProm between the four pillars of the Russia civil nuclearsector (TENEX uranium enrichment services , RosEnergoAtom oper-ator of some of the 31 reactors in service in Russia and AtomStroyExport construction of power stations abroad), are far from being settled. At this stage,it is only known that Sergey Kirienko wants to create UGRK, an entity that willunite the mining assets of TVEL and TENEX. Its direction will be confided to theteam of Alexandr Shkarovsky/Vadim Zhikov, respectively n2 of PriangarskoeMining and Chemical Production Association (a complex located in the Chitaregion which extracts some 3300 tonnes of uranium mineral per year) and n2of TENEX.

    The other major uncertainty concerns the role of the large private industrialgroups in the civilian nuclear sector. Currently, several oligarchs have positionedthemselves. Oleg Deripaska, the boss of United Rusal, concluded last April anaccord on the construction in the Far east of an aluminium foundry and a nuclearpower station of 2000 megawatts. Since Russian law prohibits private parties frombeing operators of nuclear power stations, the most likely outcome is that UnitedRusal would participate in the financing of the project in exchange for a long-term accord guaranteeing electricity supplies under privileged conditions. Inter-ros, Vladimir Potanins holding company, signed on June 18 a cooperation frame-work agreement with Rosatom in the uranium extraction sector. Joint projectsare under study, especially in Uzhbekistan. But the most active is undoubtedlyViktor Vekselberg. After having concluded a framework agreement with TENEXto cooperate in southern Africa (Russia Intelligence n50 of March 2 2007), theboss of Renova took over at the end of may a 25%+1 share in EMAlliance-Atom,a joint venture created between TVEL and EMAlliance, the partner of Alstomand parent company of JSC Machine-building Plant ZIO Podolsk, ZIOMAR (en-gineering),and Krasny-Kotelshchik (turbines).

    Lastly, Gazprombank. In June 2006, the group sold 4% of the 53.8% it held inAtomStroyExport to TVEL, thus allowing Rosatom to reclaim majority. But sincethen relations have become tense between Andrey Akimov and Sergey Kirienko.The latter has sought since the summer of 2006 to convince the boss of Gazprom-bank to sell him the activities of OMZ linked to the nuclear, especially Izhorskiezavody, the only Russian producer of nuclear reactor vats. Matters are apparentlyreaching a scale where Rosatom announced in early August that it was suspend-ing orders from Izhorskie zavody. d

    cc F O C U S

    Nuclear : the first steps toward reform

    In one of its previous editions, (n50 ofMarch 2 2007), Russia Intelligence hadanalysed the reforms underway in theRussian naval construction and maritimetransport sectors by underlining theinteraction with large groups in the energysector, called on to be a more importantsilent partner and even more affluent than the Defence ministry. Gazprom has justprovided proof, twice within a few weeks, bytaking important decisions on the Shtokmanand Sakhalin-II projects.

    In mid-August, Valery Golubev, one ofAlexey Millers assistants, revealed that thecall for tender for the construction of twodrilling platforms concerning the Shtokmanproject had been won by the Vyborg (VSZ)shipyards, preferred over Sevmash and anunspecified Korean firm. The choice wassurprising at first glance since VSZ wasmoribund and had not won a contract since1997, the date when it built the launchplatform for a US-Russo-Ukrainian Sealaunch space programme. Looking at itmore closely, the VSZ victory owes nothing tochance. In September 2006, Ako Barss hadin fact sold his (75.6%) stake in VSZ toseveral private investors linked to YuriKovalchuk, the major Saint Petersburg bankerwho is well-known to readers of RussiaIntelligence. Included were, among others,Vasily Gorelov (son of Dmitry Gorelov,shareholder of up to 12.6% in the Rossiabank), or Sergey Kolesnikov, member of theboard of Sogaz, an insurance companyformerly affiliated to Gazprom which wasbought by Yuri Kovalchuks bank in thesummer of 2006. The entry of the Kovalchuknetwork into Gazprom (also illustrated by thepresence of Boris Kovalchuk, Yuris son, nearDimiti Medvedev) has begun to bear its fruit.The call for tender won by VSZ is worth thehandsome sum of 59 million rubles (2.3billion dollars).

    We should also mention that SakhalinEnergy, the operator of the Sakhalin-II projectin which Gazprom is now the majority holder,has announced that the Prigorodnoe terminalwould be operated in partnership withSovkomflot, the new Russian nationalchampion in maritime transport matter led byIgor Shuvalov, the sherpa for Vladimir Putin,(Russia Intelligence n 39 of September 2006and n52 of March 30 2997). d

    The updated biographic profile of Yuri

    Kovalchuk is now available on our Internet

    site. Reserved for our Premium subscribers.

    BEHIND THE SCENE

    Shtokman : Gazpromwaits hand and foot onYuri Kovalchuks friends

    RIA61 13/09/07 1:26 Page 6

  • 7Russia Intelligence N61 j September 13 2007 www.russia-intelligence.fr

    RUSSIA INTELLIGENCE Regions & C IS

    FOCUS

    Why Kamchatka is again becoming strategiccThe brief visit undertaken by Vladimir Putin on the way to

    Indonesia and then Australia (read article page 3) was onceagain the occasion for the president to demonstrate his prox-imity even a certain complicity with Sergey Ivanov, whosebowling prowess the Russian television viewer could admire(and learn at the same time that the new leisure centre builtat Vilyuchinsk for the families of the crews from the Russianpacific fleets submarine force was financed by Surgutneftegaz).The third to date since 2000, it primarily served to confirm thepriority afforded by the Russian state to the peninsula, whichhas been called on to play a new economic and military role inthe coming years.

    Forbidden to foreigners during the Soviet era, Kamchatka,during the 1990s, experienced an economic collapse aggravatedby its twin distinctions isolation and the strong military pres-ence the major victims during the Yeltsin presidency. In or-der to boost the region, the Kremlinfor a while imagined duplicating themodel tested with a certain successin neighbouring Chukotka with Ro-man Abramovich (Russia Intelli-gence n53 of April 13 2007). In otherterms, assign the province to an oli-garch ready to invest his personalresources as a means of redeeminghimself. Long considered, ViktorVekselberg managed to escape thehonour. As a result, the administra-tion privileged another scenario.

    The re-establishment of manage-ment over the peninsula came in threephases. The Kremlin first of all dis-missed in March 2005 Vladimir Logi-mov, the governor of the autonomousdistrict of the Koryaks. It then initi-ated the merger between this areasubject to Federation control withthe Kamchatka region, actually ap-proved by a referendum October 232005 and officially completed on July1 2007. This administrative remodel-ling also had as a byproduct the re-moval of the governor of Kamchatka,Mikhail Mashkovtsev, elected in 2000under the communist label. He was replaced last May by one ofhis assistants, Alexey Kuzmitsky, the governor of the autonomousdistrict of the Koryaks. The latter studied and passed most of hiscareer in Saint Petersburg. A graduate of the Electro-technicalinstitute (1992) and the administration academy (2003), he was,among other posts, counsellor of the director of the institute ofradio-navigation and then financial director of a firm linked tothe national fisheries committee. It was his connections with thissector of activities highly important to Kamchatka that ex-plains the rise of Alexey Kuzmitksy in the peninsula in May 2005.

    The other illustration of the renewed interest by the Krem-lin for Kamchatka was the announcement in early July 2007of a new submarine base in Vilyuchinsk. According the com-mander in chief of the Russian combat navy, Admiral Vladimir

    Masorin, no less than 9 billion rubles (about 300 million dol-lars) will be invested by 2010. The new base will host the firstunits of the Borey class nuclear missile launcher submarine(MLSM) the Yuri Dolgoruky (launched last April), theAlexandr Nevsky and Vladimir Monomakh (under construc-tion in the Sevmash shipyards in Severodvinsk). We also re-mind readers that up to now, most of the Russian MLSMs havebeen deployed with the Northern fleet and stationed on theKola peninsula. According to naval experts consulted by Rus-sia Intelligence, the choice by military authorities can be ex-plained by configuration of the bay of Vilyuchinsk, that allowssubmarines to rapidly reach depths to enable them to avoiddetection by American satellites.

    Last, Kamchatka has a vocation to become and import hy-drocarbon production centre in the coming decade. The headof Rosneft, Sergey Bogdanchikov, created a stir by announc-

    ing, September 5, that no less than24 billion dollars would be investedin exploration/production projectsin the Okhotsk continental shelf. Itshould be recalled that Rosneft hadsigned in September 2004 a cooper-ation memorandum with the KoreanNational Oil Company (KNOC)then in February 2005 an interme-diate financial accord. The two par-ties then created a joint-venture(West Kamchatka Holding BV), inwhich Rosneft holds a 60% interest.A first series of tests should be com-pleted in 2008, but if the informa-tion revealed by Sergey Bogdanovichis borne out, the Kamchatka off-shoredeposits would be larger than thoseof Sakhalin (3.8 billion TOE, with-out at this stage being able to detailthe proportion of oil and gas). Thecooperation accord negotiated withthe Koreans is especially interest-ing since it foresees that KNOC fi-nances the totality of the prospect-ing phase (300 million dollars for theyear 2008 alone), but that Rosneftwould begin to receive profits fromthe development of these deposits

    without waiting for its partner to reimburse its costs.

    We also underline that, like with the Sakhalin-III project,Rosneft risks finding Gazprom in the way. Valery Golubev, oneof Alexey Millers most visible associates in recent weeks, de-clared during the meeting on the socio-economic developmentof Kamchatka that Vladimir Putin presided on September 5that his group was prepared to substitute for the RAO EES ofAnatoly Chubais in the construction of the 300-kilometre gaspipeline between Sobolevo and the regional capital,Petropavlovsk-Kamchatksy. Under certain conditions. One ofthem being that the Ministry of natural resources grant it anexploration permit for certain zones of the continental shelfnear the Rosneft-KNOC deposits. d

    RIA61 13/09/07 1:26 Page 7

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    RUSSIA INTELLIGENCE

    CAUCASUS

    Ingushetia, the weak linkcAs in the autumn of 1999, the north Caucasus has invited itself

    into the heart of the Russian news on the eve of Russian legisla-tive and presidential elections. This time, however, its Ingushetiaand not Chechnya in the spotlight, and the federal power struc-ture could have done without such attention. Attacks, special op-erations, and clashes are in fact virtually daily events, arousingfears of increasingly wider destabilisation.

    Murat Zyazikov looses his footing. Elected in 2002 and ex-tended in his post by the Kremlin in 2006, Murat Zyazykov an ex-FSB general is far from controlling with assurance the situationin the Republic, as recently affirmed with confidence Karim-Sul-tan Kokurkhaev, a senior Ingush official in charge of human rights.Since the beginning of summer, no less than 40 armed incidentshave in fact taken place. June 26 the facilities of the presidentialadministration and the general direction of the FSB in Magas, thenew capital, were the targets. June 16, a Russian teacher, LudmillaTerekhina, was assassinated with her two children. Two days later,an explosion took place during her burial at the Ordzhonikidjevkayavillage cemetery, making 11 victims. We should note in passing thatthe small Slavic minority seems to be systematically the targetof terrorists: August 30; another teacher, Vera Draganchuk, wasassassinated in Karabulak; September 7, Natalya Mudarova doctor in charge of the blood transfusion service in Nazran, whowas married to a Chechen, met the same tragic end.

    This multiplication of attacks led the federal authorities to re-inforce the deployment of the Interior ministry in Ingushetia. Noless than 2500 additional men were dispatched on August 10 to con-duct a special prophylactic operation. With, up to now, mixed re-sults. The battalion of Interior troops stationed in Malgobek, forexample, was attacked on the night of September 9, leaving onedead and three wounded among the federal forces. The Russianpress has in addition begun to give voice to the increasing disquietof the Ingush population in the face of the often blind repressionof the FSB.

    In Moscow, several top specialists of north Caucasus affairs con-tacted by Russia Intelligence fear a repetition of events on a scalesimilar to the raid on Nazran in the summer of 2004, or on Nalchikin October 2005. It should be recalled that combat in the region inthe capital of Kabardino-Balkaria which had opposed membersof the Yarmuk Jamaat and state security forces lasted more thanthree days and claimed more than one hundred lives. As a sign ofincreasing anxiety but also of a certain defiance vis--vis MuratZyazikov the Duma commission on security affairs just announcedthat it would take up the matter. But the Kremlin does not seeminclined to drop soldier Zyazikov. Dmitry Kozak, the special rep-resentative of Vladimir Putin in the federal south district; has ex-cluded any change at the head of the republic. It must be said thatthose in the Centre have no alternative solution. The two other

    truly influential clans in Ingushetia are led by two of Moscows hatefigures : Ruslan Aushev, the ex-president (1993-2001) of the northCaucasus republic, and the Gutseriev brothers (Russia Intelli-gence n 56 of May 31 2007 and n60 of August 30 2007).

    Ramzan Kadyrov as a white knight? While the Kremlin is insearch of a strategy to avoid Ingushetia plunging into chaos, theChechen president, Ramzan Kadyrov, has declared his readinessto lend assistance. We will re-establish order, as two and two makefour. The republic (of Ingushetia) isnt large, he declared on Sep-tember 10, adding that he would act only on the request of thesupreme commander in chief, Vladimir Putin. These statementswhich are not made lightly and illustrate the state of grace thatthe Chechen president has enjoyed since his victorious showdownwith his predecessor Alu Alkhanov (Russia Intelligence Specialedition of February 16 2007). Ramzan Kadyrov has especially un-derlined the decline in armed incidents in Chechenya and theprogress undeniable after all in the reconstruction of Grozny.He also undertook in August a new tour of the Middle east (Jor-dan and Saudi Arabia) supposedly aimed at reinforcing his reli-gious and international legitimacy.

    The objective of the Chechen president is to reconstitute theChechnya-Ingush republic in its pre-1992 borders. At this stage,the federal authorities do not seem to be too enthusiastic at theidea of confiding the reins over Ingushetia to Ramzan Kadyrov,whom many especially in the military and within the FSB al-ready find too powerful (the headquarters in fact currently sup-port the military leader of the only pro-Russian unit the Za-pad battalion still outside Kadyrovs control, Said Kakiev. Weshould note in passing that the test of strength between the lat-ter and the Chechen president also includes a religious dimen-sion since Kakiev is a representative of a Suffist brotherhoodNaqshbandiya,while Kadyrov himself is a member of the Qadiriyabrotherhood). It goes without saying that Murat Zyazykov andmore generally, the Ingush elites have no desire to place theirfate in the hand of the Chechen big brother.

    The events in Ingushetia pose the question of Vladimir PutinsCaucasian political balance sheet. Certainly, the Kremlin has suc-ceeded in finely tuning the thorny question of the successions (allthe president of the north Caucasus republics have been replacedin recent years: in addition to Kadyrov and Zyazikov, Moscow hasalso installed Taymuraz Mamsurov in North Ossetia, ArseneKanokov in Kabardino-Balkaria, Mukha Aliev in Dagestan, AslanTkhakushinov in the Adygea republic). Dmitry Kozak also mo-bilised the Russian oligarchs to invest in the region (Russia Intel-ligence n41 of October 13 2006), and not only in Sochi. But if thespectre of Chechen separatism is receding, the principal socio-eco-nomic challenges which the north Caucasus is confronting remainon the agenda. d

    Regions & C IS

    RIA61 13/09/07 1:26 Page 8

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