N°72 - February 28 2008 Published every two weeks / International Edition CONTENTS KREMLIN P. 1-3 Politics & Government c Putin, Medvedev and the alchemy of the ”new Russia” KREMLIN c Putin, Medvedev and the The deluge press conference given February 14 by Vladimir Putin in the Kremlin before more alchemy of the ”new Russia” than 1000 journalists and the intervention of Dmitry Medvedev during the 5th Krasnoyarsk eco- ALERTS nomic forum the next day are fueling the debate over the nature of the transition being announced c A close associate of in Moscow, notably concerning the organisation of power after the taking over of the functions by Medvedev named rector of the next Russian president on May 7. Two themes confront each other, as is well known. The first the university of Saint Petersburg priviledges continuity : put forward to fulfill the famous «Putin plan», Dmitry Medvedev would have as his vocation to be a weak president, denied the reality of power, which would instead mi- c Former nuclear strongman heavily condemned grate toward the White house, the seat of the government. Partisans of this reading have read into the press conference by Vladimir Putin an additional element of the political «strait-jacket» of his OLIGARCHS c Putting the brakes on Oleg heir. The 2020 horizon, which also figures in the Russian development strategy presented by the Deripaska's ascension ? president to the Gossoviet on February 8, would in reality be the date when Vladimir Putin truly BALKANS retired from office. The fact that the current president has no intention of hanging the portrait of c A diplomatic baptism of fire his successor in his future office is interpreted as a strong signal. This continuity, also acclaimed for Dmitry Medvedev by Medvedev, would also be evident in foreign policy. The informal summit of the heads of state of the CIS which was held February 22 in Moscow, as well as the lightning visit of Dmitry Medvedev P. 4-7 Business & Networks to Belgrade (read article page 2) would be the most recent illustrations. OIL c Legal embroglio over the last The adherents to the other thesis – that of a «break» – also see in the latest developments in Yukos assetsLegal embroglio Moscow good reasons to believe in the validity of their interpretation. The statements made by over the last Yukos assets Dmitry Medvedev in Krasnoyarsk on freedom – always preferable, according to him, to its ab- ALERT sence – are not in harmony with extensive portions of the heritage from Vladimir Putin. The ac- c Mikhail Gutseriev resurfaces cent put by the future president on the need to remove high officials from the administrative coun- in Baku cils of the large public groups also does not square with the practices seen during the past few BANKING years. The interview accorded by Dmitry Medvedev to the weekly Profil is even more explicit : c German Gref besieges Sberbank «Our country is and will remain a presidential republic. There is no other way. There will not ECOLOGY be two, three or five centres of power. At the head of power, the president and, acording to the c Oleg Mitvol on an ejection constitution, there can be only one». seat BEHIND THE SCENE A more refined analysis nevertheless leads at a less pronounced antagonism between the two c Sergey Chemezov sets his dominant themes. The 2008-2020 programme defined successively by Dmitry Medvedev and Vladimir eyes on KBP (Tula) Putin evidently announces profound changes, but the two men are on the same wave length on the major orientations for the future. Putin, Medvedev and, with them, large segments of the Russian P. 8 Regions & CIS political and economic elite understand that a cycle is in the process of closing. This cycle wit- WINTER GAMES 2014 nessed two phases : the first, which extended from 2000 to 2003, is marked by the assumption of c Sochi : costs explode control over the state apparatus by the new Poutinian elites, essentially emerging from the power ALERTS organs. The second saw the conquest of the principal economic sectors by these elites and the sur- c New murder at AvtoVAZ facing of a new «model» embodied by the new «state oligarchs» like Sergey Chemezov or Igor c Gazprom invests in Sechin. The Yukos affair is the pivotal moment between the two phases. Kirghistan What emerges, still in confusion, of the current transition in Moscow is a transmutation of the SUBSCRIPTION Print Edition system as it chrystallised during the second mandate of Vladimir Putin. This transmutation con- (23 issues, airmailed overseas) cerned in the first place the role of the state in the economy and, by consequence, the place of €770 TTC the «new oligarchs». Having freshly converted their political into economic positions, most often within public holding companies, the Chemezov, Yakunin and others, Gref (read page 5) will now The Web Pack (Print Edition address a new and just as exalted task : privatisation. This objective should allow, at the minimum, + PDF + archives acess) the federation of the elites, all the more so since the period of the division of assets is nearing its € 880 TTC end (which is also undestood very well by Vladimir Potanin and Oleg Deripaska - read article page 3 - or Sergey Chemezov – read article page 7). The «Putin project» – which is also Dmitry The Premium Medvedev’s – is to assure that this transmutation take place without affecting the general eco- Subscription (Print Edition + PDF + access nomic trajectory of the country, which – for the first time in its history – can reasonably expect to to all the website contents) recover the major part of its economic lag vis-à-vis western Europe in the space of a generation. € 1200 TTC After 2020, if all goes well... d www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

ALERTS cc FOCUS 3 A close associate of Medvedev named rector of Balkans : a diplomatic baptism of fire for the university of Saint Dmitry Medvedev Petersburg The state university of the “northern capi- Even before entering into the Kremlin, Dmitry Medvedev has assumed the tal”, the alma mater of Vladimir Putin mantle of the presidency, resulting in the first denials to many western commen- and of his probable successor in the tators who see in him only a docile instrument of the will of Vladimir Putin. Cer- Kremlin, has a new rector in the person of tain declarations by the future head of state on economic matters and foreign po- licy lift the veil on sometime fairly pronounced nuances with his mentor (read Nikolay Kropachev. The former professor article page 1). The visit undertaken by Dmitry Medvedev to Belgrade January 25, and director of research to Dmitry a week after the Kosovo declaration of independence, itself provides a few ele- Medvedev at the law faculty, Nikolay ments about what could appear to be Russian foreign policy in the coming years. Kropachev succeeds Lyudmila No fundamental break, but another style, reflecting the differences in pedigree Verbitskaya, who held the post since between the current and the next tenant of the Kremlin. 1993. Close to Vladimir Putin, the latter had nevertheless seen her position weaken Kosovo : the trial by gas. To emphasise to the west that the Russia of 2008 is no after the regional direction of the FSB, in longer the one of 1999. This is the preoccupation of Russian leaders on the Kosovo 2006 launched an investigation for suspec- issue. While the NATO military campaign against Yugoslavia is still felt in Mos- ted misappropriation of some 6 million cow as traumatic, at the same time the consequence and illustration of the col- euros by certain university managers. lapse of their country after the Yeltsin years, it involves a confirmation of the theme of Russia’s “return” on the international stage. A first analysis indicates that the 3 Sergey Mironov relocates rhetoric has hardly changed. The declarations of the new Russian representative Vitaly Tretyakov to NATO, Dmitry Rogozin, or those of Vladimir Putin during the informal summit The president of the Federation Council is of CIS heads of state on February 22 were certainly less dramatic than in 1999 said to have proposed – in agreement with (it’s no longer a question of a 3d world war, raised at the time by Igor Sergeev, his counterpart at the State Duma, Boris the Defence minister), but they remain virulent. What has changed, on the other Gryzlov – that Vitaly Tretyakov assume hand, is that Russia now possesses some new trump cards in its hand. the direction of the “Parliamentary gazette”. The founder of the Nezavisimaya From this point of view, the recent visit of Dmitry Medvedev to Serbia singu- gazeta thereby recovers his former post, larly contrasts with the one carried out in late March 1999 by Yevgeny Primakov. after a not very convincing passage at the The future Russian president did not return empty-handed from Belgrade. A month head of the weekly Moskovskie novosti, to the day after the signature of framework agreements between Gazprom and NIS (Russia Intelligence n°70 of January 30 2008) Alexey Miller and his Serb which closed its doors in late December counterpart from Srbijagas, Sacha Ilich, concluded the conditions of Serbia’s 2007 on the orders of its main sharehol- participation in the future South Stream gas pipeline. A joint venture, in which der, Arkady Gaydamak. the Russian group will hold 51% and which will be charged with development of the project, should be put into place within three months. It will then have a year 3 Former nuclear strong- and a half to construct the pipeline, aimed at entering into service in 2013. Sym- man heavily condemned bolically, Dmitry Medvedev also visited the site of the Pancevo refinery, bombed The former nuclear energy minister, by NATO in 1999, where he announced that Gazprom will invest 900 million euros Yevgeny Adamov, has received the har- in the Serbian hydrocarbon industry. The message is clear : Russia intends to count shest sentence ever pronounced by a in the Balkans by other means than in the past. Russian court against a former federal offi- cial. A Moscow court in fact sentenced him Hungary joins South Stream. The second stage of the lightning diplomatic out- to 5 and a half years in prison. We remind ing by Dmitry Medvedev was no less productive than the first. Arriving in Bu- dapest early in the evening of February 25 to meet Prime minister Ferenc readers that Adamov had been arrested Gyurcsany, the future Russian president returned to Moscow a few hours later on May 2 2005 in Bern at the request of after having obtained the definite agreement of Hungary to participate in South American legal authorities who accused Stream. The Hungarian Prime minister was awaited in Moscow February 28 to him of having misappropriated 9 million sign with full ceremonial honours this accord negotiated patiently by the Krem- dollars coming from the Energy depart- lin over long months (Russia Intelligence n°52 of March 30 2007). Officially, Hun- ment in order to improve nuclear security gary is not abandoning the Nabucco project, but no-one is in any doubt. Budapest’s in Russia (Russia Intelligence n°33 of choice (which joins the one by Gaz de France, which has also indicated its in- May13 2005). On December 29 2005, he terest in South Stream) clearly tilts the scales in favour of Gazprom in the natu- was finally extradited to Russia, which for ral gas “great game” in southern Europe. It only remains to formalise the partic- long feared that the United States would ipation of Greece in South Stream. To judge by the declarations by the vice Foreign get its hands of the possessor of many affairs minister, Petros Dukas, who met the Russian Industry and energy minis- state secrets. An accomplice of Adamov, ter Viktor Khristenko, it should be only a formality. According to our informa- Mark Kaushansky, for his part was tion, the Greek side – also in discussions with DEPA and Edison in view of ex- condemned to 15 months in detention for tending the Azerbaijan-Turkey gas pipeline toward southern Italy – would like tax fraud by a court in Pittsburg in the to increase the bidding, but is already said to have reached a decision in princi- d ple in favour of South Stream. d 2 summer of 2007. Russia Intelligence N°72 j February 28 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

OLIGARCHS c Putting the brakes on Oleg Deripaska's ascension ? One of the indirect consequences of the arrival in the Krem- notably from Kazhakstan and Ukraine. Discussions had also lin of Dmitry Medvedev could very well be that the brakes taken place led with Rimat Akhmetov of System Capital Ma- would be slammed on the ambitions of Oleg Deripaska, the nagement, Sergey Taruta of the Donbass Industrial Union. owner of Basic Element and United Rusal, for the assets of If the merger takes place, Usmanov will find himself a 28% Vladimir Potanin’s Norilsk Nickel group. Since December owner of Norilsk Nickel, or a bit more than the interest of 2007, Oleg Deripaska has controlled between 25 and 29% of Oleg Deripaska and a bit less than that of Vladimir Pontanin. Norilsk Nickel, a share purchased from Mikhail Prokhorov, formerly asociated with Vladimir Potanin (Russia Intelligence On the industrial side, such an operation is justified inas- n°67 of December 6, n°68 of December 20, n°69 of January 17 much as on a world scale, the concentration of the major mi- and n°70 of January 31). It once seemed certain that Oleg De- ning actors is still continuing. It’s known that the two Aus- ripaska would shortly achieve control over Norilsk Nickel and tralian giants, BHP billiton and Rio Tinto are engaged in a unleash a merger operation to create Russia’s leading metal- ferocious stock exchange conflict since the first announced working and mining company. its plans to mount a takeover bid against the latter. In ano- ther corner, Brazil’s Vale has announced that it had engaged But in recent days, this scenario seems compromised. Vla- with the Xstra group, whose main shareholder is none other dimir Potanin has first of all undertaken a spirited defence, than the trading company Glencore, extremely active in the by opposing the acquisition of Norilsk shares held by an unlis- Russian mining sector and a shareholder in United Rusal. ted entity, under joint ownership of Potanin and Prokhorov, KM-Invest. February 4, the Norilsk Nickel board declared the In this context the Russian mining groups face two dan- Rusal offensive “unfriendly”. In parallel, Vladimir Potanine gers : of having to accept price increases on raw materials launched a programme of acquisiton of the Norilsk Nickel sha- coming from foreign groups, such as is already the case cur- res, both on the market and also by using the “spin-off” of No- rently in ferrous metals, and find itself marginalised in terms rilsk’s energy operations (which Prokhorov opposed last De- of financial power.The merger between Norilsk Nickel and cember). According to the most recent details from analysts, the Usmanov assets, even if they are not of the ranking of Potanin could “fence off” about 40% of Norilsk’s capital, for- other operations we have described, would nevertheless mark cing Oleg Deripaska to launch a more formal takeover bid to the first step in a necessary consolidation. obtain control of Norilsk, an operation that would cost bet- ween 16 and 17 billion dollars. But the political bakground is naturally not insignificant. To tighten links with Potanin could assure Oleg Deripaska Even more significant, Vladimir Potanin met Vladimir Pu- the high-level escape after which he was manoeuvering for tin in Sochi February 5. It seems that he came out of this mee- some time. Considered as a support by Dmitry Medvedev for ting reassured of his ability to maintain his control over No- the Kremlin’s other camps, notably the one run by Igor Se- rilsk Nickel. This would mean, on the other hand, that the chin, Usmanov finds himself propelled into the role of “white Kremlin is not in favour of the continued irresistable ascen- knight” against Oleg Deripaska. sion of Oleg Deripaska in the world of Russian capitalism. Ac- cording to the latest listing of Russian billionaires issued by Whatever the outcome, these major manoeuvers around the magazine Finans, Oleg Deripaska has the lead with a for- the control of Norilsk demonstrate that the change at the tune estimated at 40 billion dollars, or twice the amount of head of the Kremlin is not as “anodine” as some would like last year. But this increase in power came with the backing of to think. It will be acompanied by a rectification of the bor- the Kremlin, at least until the last few weeks when the first ders and modification of the perimeters between the giant signs of defiance emerged, such as rumours about possible tax private and public groups in the country. d revisions. It had been common knowledge that Oleg Deripaska and Dmitry Medvedev were not on friendly terms. That’s en- Consult on the Internet www.russia-intelligence.fr a complete ough to feed the rumour of a desire by the future Russian pre- file on the Prokhorov-Potanin divorce and the manoeuvers sident not to allow an operation that would further establish around Norilsk Nickel and Polyus. his position as the “first among equals” among Russian oli- garchs. ALERT Then on February 20, a third partner crashed into the fray in the person of Alisher Usmanov, who controls MetalloIn- 3 Evraz loses RZhD contracts to Mechel vest and Gazmetall. That day, in reply to news concerning the The boss of the Russian railways, Vladimir Yakunin, has aim of Usmanov to draw closer to Norilsk, Vladimir Potanin decided to change the supplier of rails. RZhD and Mechel announced he “considered the idea in a positive light”. On- on February 26 signed a cooperation accord for the 2010- viously, we are only at a starting point, but should such an in- 2030 period.Up to that time, the group Evraz – whose prin- volvement materialise, it would constitute a group of 75 bil- cipal shareholder is none other Roman Abramovich – was lion dollars in value (55 billion for Norilsk, 20 billion for the exclusive supplier to the Russian railways. The latter had Usmanov’s holdings), which would protect it from an eventual decided to open up to competition after Evraz announced takeover bid by Oleg Deripoaska. Gazmetall and MetalloInvest an increase in price of 30% for 2008. The decision by RHzD control two major iron ore deposits (Mikhailovsky and Lebe- is good news for Mechel, which should inherit a annual dinsky) as well as two steelworks, Oskol and Nosta, organi- windfall evaluated at between 400 to 500 million dollars, or sed within Ural Steel. For several years already, Usmanov has 10% of its sales. been trying to consolidate his shares with those of other groups, 3 Russia Intelligence N°72 j February 28 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

OIL c Legal embroglio over the last Yukos assets By the end of March, Dutch courts in Amsterdam will or- port it toward refinery platforms in central and eastern Europe. ganise an auction of Yukos Finance, an entity under Dutch law But he did not have time to carry out these plans. But in the belonging to the former empire of Mikhail Khodorkorvsky, the complex energy struggle currently being carried out in this re- control of which is being fought over by Russian interests al- gion of Europe, Transpetrol nevertheless represents a certain lied to Rosneft and the former managers of Yukos, including strategic interest for Russian oil companies, and especially Ros- Bruce Misamore, who was the financial director. Yukos Finance neft. This explains why all those after Khodorkovsky who tried contains 1,492 billion dollars in cash, blocked in two accounts to enter were quickly “disqualified” by Russian authorities in the Fortis bank and which result from the sale of 54% of the through various means. Such as Mikhail Gutseriev, the former Lithuanian refinery in Mazeiku, and also a 49% share of the ca- boss and owner of Russneft, whose difficulties with the Russian pital in Transpetrol, evaluated at between 1,2 and 1,6 billion law we have often written about (Russia Intelligence n°74 of dollars. Transpetrol manages the pipelines in Slovakia and the February 14, n°60 of August 30 2007, n°56 of May 31 2007). Slovak state holds a majority. Between 2006 and 2007, Gutseriev tried to negotiate directly It is not the first time that these assets have been put up for with the Slovak government to purchase control of Transpetrol, sale. They were notably August 15 2007 by Vladimir Regbun, which would have placed him in a good position to obtain the the judicial administrator and liquidator of Yukos. On that date, remaining 49% in the hands of Vladimir Regbun. Dismissing the a lone candidate came forward, Promneftstroy (PNS), won the “advice” of the Kremlin and Alexandre Ryazanov, at the time bid for 305, 8 million dollars. Officially, PNS is held by three vice president of Gazprom and director general of Gazprom- shareholders, Stephen Lynch, Richard Deitz and Bob Fores- neft, inviting him to abandon interest in the Transpetrol deal, man. The first two are managers of an investment fund and the Gutseriev insisted. But from May 2007 onward, legal and tax third is one of the vice presidents of the Moscow investment problems began to be showered on him. With the result of his bank Renaissance Capital. In reality, PNS is acting on behalf exile to London and the “forced” sale of Russneft to Oleg Deri- of Rosneft because the Russian oil group did not want to ap- paska, even if for the moment the Federal anti-monopoly ser- pear directly in this transaction in view of the legal risks sur- vice has still not given its green light for the operation, which rounding it. clearly indicates that it presents problems in “high places”. The Kremlin in fact suspects that Gutseriev was acting in collabo- The management of Yukos Finance, former associates of Mi- ration with the former Yukos shareholders, especially Leonid khail Khodorkovsky, who mostly reside in London or the Uni- Nevzlin, currently a refugee in Israel, who for long managed ted States, naturally contest the authority of Vladimir Regbun operations against the Russian state concerning the dismant- and therefore his right to sell Yukos Finance under an injunc- ling of Yukos. tion from Russian courts. They have therefore launched legal actions in the Netherlands in order to annul this transaction. Elsewhere, the aim of Bruce Misamore and the former Yu- They first obtained a freeze on some 1,492 billion dollars in cash kos management to “save” Yukos Finance can be explained ea- and, October 31 2007, a Dutch court nullified the auction of Au- sily. These assets are the last of the group belonging to Mikhail gust 15. December 20, this same court set March 28 as the new Khodorkovsky to be saved from liquidation.To put them beyond date for the auction and declared at the same time that the firm the reach of the Rosneft people is one thing. To return them PNS had no priority over these assets even if it were authori- into the hands of the former Yukos shareholders and their al- sed to participate in the auction. Since then, Vladimir Regbun’s lies is another thing altogether. The first part of the answer is mission has concluded and the legal structure of Yukos Oil, the awaited March 28... d parent-company of Yukos Finance, has disappeared. On the Internet site ww.russia-intelligence.fr: the extensive “Gut- The embroglio is now complete for the three shareholders seriev file”, notes on Alexandre Ryazanov and the complete his- of PNS who appear alone in the proceedings since, legally, no- tory of the Yukos dismantling. A service reserved for our sub- thing links them to Rosneft. According to published informa- scribers. tion, Lynch, Deitz and Foresman were reported to have approa- ched Bruce Misamore during last autumn to obtain a freeze of ALERT the legal proceedings in the Netherlands in return for their pro- mise not to try to get the Yukos Finance cash. This proposal 3 Mikhail Gutseriev resurfaces in Baku was, apparently, rejected. The three PNS shareholders then The former boss of Russneft, who is still the subject of an interna- bought for more than 300 million an organisation over which tional arrest warrant, is again being talked about in the oil world. He they had no property rights, at least not until the forthcoming in fact purchased, in mid-February, the Canadian firm Nations auction on March 28. Petroleum, holder of exploitation licenses for two deposits in Azerbaijan. This transaction, which approaches 300 million dollars, The tenacity of the legal conflicts can be explained by the was achieved through GCM Global Energy Inc., itself controlled by nature of the Yukos Finance assets. The cash, of course, but two offshore companies registered in the Virgin Islands. The choice also those 49% of Transpetrol. Of course this firm is a not a front- of Mikhail Gutseriev is not really surprising in view of the fact that line one in European terms because of its size. The fact that he has sound connections in Baku. In 2006 and 2007, Russneft had Mikhail Khodorkovsky was interested in it in 2002 was based signed several contracts with SOCAR, the national hydrocarbon on his ambition to begin to establish a network of pipelines out- side the control of the Transneft Russian monopoly in order to company of Azerbaijan (Russia Intelligence n°44 of December 1 d 4 commercialise the Yukos crude throughout Europe and to trans- 2006). Russia Intelligence N°72 j February 28 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

BANKING c German Gref besieges Sberbank German Gref is without a doubt one of those who, in the cir- Stanley in Moscow, or as well Denis Bugrov, 33, formerly cles of Russian power, has the best negotiated the turn of the with McKinsey & Company, who was charged with the stra- Putin era. Since his departure from the government last au- tegic development of the Sberbank. Olga Kanovich arriving tumn, the former Economic development and commerce minis- from Vneshtorgbank, will handle operations, while Viktor ter has begun a new career. November 28 2007, he in fact was Orlovsky was assigned to manage information technologies. named president of the Sberbank, the Russian savings bank, Stanislav Kuznetsov is the only associate of German Gref to the main banking establishment in the country (and eastern have accompanied him from the Economic development and Europe) with a capital of 95 billion dollars as of last November commerce ministry. 1. A solid promotion that was relatively unexpected since Ger- man Gref had repeated numerous times that he wanted to re- Since his entry into service, the new president of Sber- enter the private sector (while Sberbank is still to this day the bank has announce plans to profoundly renovate the opera- property of the Russian state). tions of the institution, particularly reputed to be conserva- tive. The creation of an on-line bank, a single call centre for We recall that the Sberbank was managed since 1996 by An- all the country, or also the development of housing credit are drey Kazmin. This brilliant financier, who had survived the the among the priorities for German Gref. The latter also intends collapse of August 1998, hoped, it seems, to assume the presi- to assure that the shares of Sberbank be listed on the Lon- dency of the Central bank. He was in the end, recast without don stock exchange this year. While waiting, banker Gref excessive enthusiasm as the head of the Russian postal service wants to make his full weight felt in the economic debate. by Viktor Zubkov. Andrey Kazmin did not, however, lose every- He continues to regularly cross swords with the vice Prime thing since he was able to exercise his option on 0,03% of the minister in charge of finance, Alexey Kudrin, whom he ac- capital of Sberbank, which represents a nest-egg of at least 20 cuses of excessively conservative management of oil revenues. million dollars. The departure of Andrey Kazmin quite naturally German Gref has also criticised the anti-inflation measures also involved the removal of his faithful right-hand, Alla Alyosh- of the Zubkov government, as artificial as counter-produc- kina, who was in charge of the entire Corporate sector (it should tive, according to him. also be noted that Alla Alyoshkina was named in early February president of the Svyaz bank, a private organisation which works Ukraine is one of the few subjects on which the boss of closely with the Postal service). Four other members of the di- Sberbank is on the same line with the Kremlin. Fearing that rectorate – Irina Bokhan, Alexandre Brinza, Andrey Manoylo Yulia Timoshenko assume as hers the proposed law pre- and Andrey Pogodin – were cast overboard. To replace them, sented in the Rada demanding that Russia financially com- German Gref did not carry former associates in his baggage, as pensate for deposits of the ex-Soviet Sberbank lost after 1991, is usual in Russia. He preferred to recruit young bankers, most German Gref has suspended the recapitalisation of NRB- whom have worked in western institutions. This is notably the Ukraina, the Sberbank subsidiary in Kiev bought in 2006 from case for Anton Karamzin, ex-financial director for Morgan Alexandre Lebedev. d

Oleg Mitvol on an ejection seat

The nomination of the Saint Petersburger gey Say, with whom he was in permanent zor surface at a time when Vladimir Kirillov to the head of Rosprirod- conflict, had submitted his resignation to the the Duma should soon nadzor, the federal Environment monitoring Prime minister in early 2008. But Viktor Zub- examine new proposed agency, which Russia Intelligence published kov had then preferred to name one of his laws directly concerning in its edition of last January 31, is beginning old comrades from Leningrad rather than sa- natural resources. It invol- to have its impact. If insistant rumours circu- tisfy the ambitions of the “white knight” of ves, on one hand, of the lating in Moscow can be believed, one of his Russian ecology. Suddenly, Oleg Mitvol was Oleg Mitvol “sub-soil” law in first decisions would be the removal of his free to explore greener pastures. All the more abeyance since 2004 and, deputy, Oleg Mitvol. The latter is far from an so since Vladimir Kirillov has already taken on the other, of a law “on foreign access to unknown for our readers. He had in fact held contrasting measures he deemed to be har- strategic sectors”. The second draft foresees top billing in the media in the autumn of rassment (the new boss of Rosprirodnadzor that all foreign firms (including offshore com- 2006 and the spring of 2007 (read his biogra- notably banned his subordinates from under- panies) planning to take more than 10% of a phic profile in Russia Intelligence n°42 of No- taking legal actions without his consent). Up deposit considered as “strategic” will need to vember 27 2006). At the time, Oleg Mitvol to now, Oleg Mitvol had always been able to acquire the authorisation of the state (a limit distinguished himself by conducting in a way count on the protection of his supervising mi- reduced to 5% if the foreign firm in question that was as visible as enthusiastic a number nister; Yuri Trutnev, but there also the situa- includes the government of its country of inspections of environmental standards on tion has changed. Kirillov, backed Zubkov, wi- among its shareholders). Sakhalin Energy and of Rusia Petroleum, shes in fact to transform Rosprirodnadzor An interesting detail in the last draft of the operators of Sakhalin-II and of Kovytka. Fa- into an Ecology committee that would escape proposed law of interest to the relevant mi- ced with the withdrawal of their licenses, they from the control of the minister for Natural nisters, the administation and the FSB stipu- were finally obliged to let Gazprom take resources. The future of Yuri Trutnev within lates that it will be the Prime minister and not control of these assets. Oleg Mitvol expected the government is itself anything but assured. the president, as originally foreseen, who will to reach his goal when his former chief, Ser- These movements around Rosprirodnad- deliver the authorisations. d 5 Russia Intelligence N°72 j February 28 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

AEROSPACE c Mikhail Pogosyan moves his chips Three years to the day after having launched the process of to the Gromov institute could in fact compete with Volga- restructuring civil and military aircraft manufacturers, Vladi- Dniepr or Antonov Airlines if it acquires Il-76 or An-124 mir Putin travelled once again last February 20 to Zhukovsky heavy transport aircraft. The recent manoeuvers over AirU- to participate in the official presentation of the development nion, the 3d airline in the country (Russia Intelligence n°71 strategy of OAK. In addition to certain announcements; this of February 14 2008), could also be explained in the light of presidential visit – in which Dmitry Medvedev participated – the ambitions of Sergey Chemezov at Zhukovsky. If no-one or was especially the occasion to unveil the first accounting of a nearly so in Moscow have no doubts that the Zhukovsky pro- reform with major industrial and symbolic importance. The ject will see the light of day sooner or later, many are those OAK objectives, the public holding company uniting all the Rus- who wonder about its real impact for aerospace industries. sian producers, were agreed during the administrative council All the more so that the launch of OAK is rather complica- of February 12. They are most ambitious. By a 2025 time-frame, ted. The new consotium of manufacturers exists on paper, Russia plans in fact on a 25% share of the world market for mi- but the situation of the companies involved has hardly chan- litary aircraft and 15% of the civilian sector, which would re- ged and the industrial synergies are slow in coming. This is present an annual production of between 250 and 300 planes. an observation that also goes for the reform of naval shipbuil- To this end, the Russian authorities hope to accelerate the crea- ding industry launched by the Kremlin in 2007 (Russia In- tion of a national Aeronautic construction centre. It involves telligence n°64 of October 25 2007). In fact the voluntary ap- gathering at the Zhukovsky site the design bureaus and the ex- proach of Vladimir Putin clashes with the reality that is far perimental centres for Sukhoi, MiG, Yak, Tupolev and Ilyushin. removed from the official rhetoric about the renaissance of It is also planned to install a fundamental and applied studies the national military-industrial complex, which is confirm el- centre. The project, developed in the Kremlin and transmitted sewhere by the Algerian MiG-29 affair (read opposite). last October 18 to Prime minister Viktor Zubkov, is estimated at about 2 billion dollars. It will be cofinanced from the fede- In this context, it should be noted that Mikhail Pogosyan, ral budget, the Moscow region investment fund and OAK (the the boss of AKhK Sukhoi, got out of a tricky situation. Vladi- land and property belonging to Ilyushin and Yakovlev in the ca- mir Putin in effect announced January 20 that he had asked pital would be sold at a high price). Rostekhnologii will also the Defence ministry to amend the 2007-2015 armaments take part in the project. In its edition of January 27 2007, Rus- programme to increase the procurement budget. A measure sia Intelligence revealed that Sergey Chemezov wanted to that should profit the Su-35 above all, and whose initial flight strengthen the presence of his group in Zhukovsky. His objec- has just taken place in view of the head of state and whose tive is to be granted the management of some 400 hectares at full production should begin in 2010. Mikhail Pogosyan in ad- the site (an area that should be quadrupled shortly ), including dition profited from the occasion to comment on the PAK- commercial space dedicated to expositions (the MAKS air FA programme on the 5th generation comabt aircraft. Ac- show) and the runway for the Gromov institute (the longest in cording to the boss of Sukhoi, which is the prime contractor Europe - 5 kilometres). of the project, the state of advancement was put at 30%. Ge- neral Igor Sadofiev, n°2 of the Russian air force, for his part Rostekhnologii expects to be in a way the operator of the fu- estimated that the involvement of India in this project – which ture Zhukovsky national centre. Acording to our information, Russia Intelligence spread the news about in its edition of Sergey Chemezov would also be planning to make this site a October 26 2007 – should mean a first test flight in 2012 and freight aeroport platform. The company “Moskovia” attached entry into service in the 2015 time-frame. d

Riyadh wants to convince Moscow to keep its distances from Teheran As complex and filled with ulterior motives as Riyadh would have obtained fairly precise ele- gence, certain close associates of Mikhail they may be, Russo-Iranian cooperation also ments about the discussions between Russians Dmitriev, the boss of the federal military-tech- arouse no less concern in certain Gulf states, and Iranians in late December in the frame- nical service (FSVTS), would not be indifferent foremost of which is Saudi Arabia. According work of the bilateral commission on military- to the Saudi arguments. Especially since the to Russian sources in agreement, this point technical cooperation and would have decided Iranian military has a reputation of being bad was on the agenda of the long meeting that to take the lead. Prince Saud Al Faisal would in paying bills. Vladimir Putin had with Prince Saud Al Faisal have also put on the table a proposal for eco- Will Russia gradually rebalance its policy in the February 14 in Moscow. The Foreign affairs nomic cooperation aimed at stimulating the Gulf by engaging on the path of an unprece- minister of the Wahabbite kingdom is said to embryonic bilateral trade (250 million dollars dented partnership with Saudi Arabia ? The have proposed to Russia to reduce its military- in 2006). In fact, the Saudis would be ready to possibility is credible, but to bet on a rapid technical cooperation with Teheran to a mini- foresee cooperation in domains as diverse as weakening of the links between Moscow and mum in exchange for major arms contacts.In agriculture, civil nuclear or space. The green Teheran would be inprudent in the least. It is the short-term, it would involve 150 T-90 light given January 21 to RZhD to build a 520 not in any case the scenario privileged by tanks, 100 BMP-3 armoured vehicles, as well km lign between Az Zabirah and the Riyadh Alexey Miller and Anatoly Chubais, the as about 160 Mi-17, Mi-35 and Mi-26 helicop- international airport should, according to our bosses of Gazprom and RAO EES Rossii, who ters, amounting to a total of about 2.3 billion sources, confirm in the view of the Kremlin, were both in the Iranian capital February 19 to dollars, as we wrote in our edition of Novem- the credibility of the Saudi intentions. Accord- discuss new cooperation projects in the natural d 6 ber 27 2007. According to our information, ing to information gathered by Russia Intelli- gas and electricity sector. Russia Intelligence N°72 j February 28 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc FOCUS BEHIND THE SCENE Algeria : revelations behind the MiG-29SMT affair Sergey Chemezov sets It was the kind of publicity that Vladimir Putin and Russian aircraft manufac- his eyes on KBP (Tula) turers could have done well without. On the eve of the visit to Moscow by Presi- In our editions of January 31 and Fe- dent Abdelaziz Bouteflika – originally foreseen in January and which finally took bruary 14, Russia Intelligence spread the place February 19 and 20 – it was learned that Algeria had restituted to Russia news of the hunger for industrial assets some fifteen MiG-29SMT delivered last spring by Rosoboronexport. In essence, by the boss of Rostekhnologii, whether the Algerian military concluded that MiG tried to pass the old as new by selling air- in the fields of mining (Erdenet, Verkh- craft with a number of components dating back from 1990s production. It should nekamsk), energy (Tekhnopromex- be recalled that the contract for 1,26 billion dollars for 34 units (28 MiG-29SMT port), or air transport (AirUnion). But and 6 MiG-29UB two-seater planes) had been signed in March 2006 in the frame- Sergey Chemezov has not lost sight of work of the bilateral intergovernmental accord foreseeing the cancellation of the his first loves, which is to say defence in- Algerian public debt toward Russia (4,7 billion dollars) in exchange for the rene- dustries. If certain information filtering in wal of their bilateral military-technical cooperation. It should have been achieved Moscow can be believed, he has included between February 2007 and March 2008, but the deliveries of the MiG-29SMTs were KBP in his shopping list transmitted in suspended on request of the Algerian military as early as last May. Rosoboronex- late December 2007 to Prime minister port, the Federal military-technical cooperation service (FSVTS) and MiG first tried Viktor Zubkov. to discreetly resolve the problem. Without success. In early February, the Algerian Located in Tula, KBP produces, among army chief of staff, Akhmed Gaïd Salah, travelled to Moscow to meet the boss of other things, the Kornet-E and Metis-M FSVTS, Mikhail Dmitriev. The message was quite clear : refusal by Moscow to re- antitank systems, the Krasnopol laser- claim the defective MiG-29 would lead to the cancellation of the visit by Abdelaziz guided shells, as well as the Tunguska Boutefilka to Moscow and would not be without consequences for the other arms and Pantsir-S1 antiair systems. Close to contracts in the pipeline. 90% of the state-owned enterprise’s turnover comes from exports. Its main The most widespread interpretation among Russian observers is that the MiG- clients are located in the Maghreb (Mo- 29 problem is not the result of technical difficulties but can be attributed more to rocco, Algeria) and the Middle East political considerations. As we wrote in our edition of last January 18, many in Mos- (Syria, Iran and United Arab Emirates, cow point the finger at France and its president, Nicolas Sarkozy, who has been countries which in fact financed the de- very active in recent months in Morocco, in Algeria and in Libya, another Soviet velopment of the Pantsir-S1 in the frame- “private hunting ground” that the Kremlin wants to reclaim. At the heart of the work of a 734 million dollar contract matter, Abdelaziz Bouteflika was looking for a way to reassure Paris – and also signed in May 2000). Its order book, ac- Washington – against the impression of a pro-Russian shift in his country’s diplo- cording to good sources, amounted to macy since 2006. The power struggles between the different clans surrounding the more than 6 billion dollars. KBP has long Algerian presidency have also been put forward by Moscow commentators to ex- enjoyed great autonomy within the Russ- plain the MiG-29 business. Such readings present a double advantage of being par- ian military-industrial complex thanks to tially credible – particularly concerning intra-Algerian rivalries – and to not da- the export license which it had been de- mage – in the eyes of Russian citizens at least – the image of a national aerospace livered in January 2000 by the govern- industry resurrected from its ashes that the power elites seek to circulate (read ment. The situation abruptly changed, article opposite). In private, certain sources close to the subject recognise never- however, as soon as Sergey Chemezov theless that the Algerian complaints are well-founded. It is in fact not the first time received from the Kremlin that he grant that Rosoboronexport has been reproached concerning the quality of its delivered Rosoboronexport the monopoly on arms materiel : in 2005, Prague had demanded that certain elements of the Mi-35 fur- sales abroad. nished by the Rostvertol factory in exchange for the settling of the Russian public According to information gathered by debts toward the Czech Republlic be replaced. More recently, the Venezuelan air Russia Intelligence in Moscow, the KBP force had observed the same problem with these helicopters. For MiG, the situa- deal should be promising for Sergey tion is unpleasant because it affects its credibility on other markets, such as India, Chemezov. His protégé, Denis where the Russian manufacturer must confront French or American competition. Manturov, the former boss of Oboron- Knowlegeable experts of the Russian defence industy consulted by Russia Intelli- prom, named Industry vice minister last gence underline that real doubts exist aboutMiG’s capacity to assure chain produc- September, is watching over the tion of new aircraft (problems that do not exist at Sukhoi, which has succeeded in seedlings. maintaining the nucleus of its design team despite the decline of the 1990s). It should be noted that in this matter, the boss of Rostekhnologii risks involvement In the end, the visit of Abdelaziz Bouteflika to Moscow was not as dramatic as in the interests of another close associate expected for Russian authorities. Algeria confirmed that the Russian national rail- of the president, Viktor Ivanov. The lat- way company (RZhD) had won a request for tenders for the construction of some ter presides in fact the administrative one hundred kilometres of lign around Algiers. It amounts to another success for council of Almaz Antey, whose Tor Vladimir Yakunin, a few weeks after his breakthrough in Saudi Arabi (Russia In- short-range anti-air system will soon telligence n°70 of January 31 2008). MiG had for its part let it be known that its have to face the competition from the contract with Algeria had not been broken. Rosoboronexport is said to have pro- Pantsir-S1 on export markets. In 2006, posed the replacement of MiG-29MT with MiG-35 equipped with thrust-vectoring Viktor Ivanov had even tried to integrate engines (star of the last MAKS-2007 show) or even by the Su-30. The planes shunned KBP into Almaz-Antey, but his initiative by the Algerian military could wind up with Russian colleagues. d had not been supported by the presi- dent. d 7 Russia Intelligence N°72 j February 28 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Regions & CIS

WINTER GAMES 2014 ALERTS c Sochi : costs explode 3 New murder at AvtoVAZ Organisation of the 2014 winter Olympic games in Sochi could cost twice as much It was bound not to have the best impact as the original forecast. This is what Sergey Stepashin, the boss of the Court of ac- on the eve of Renault’s entry into the counts, declared February 19 during an audition of the Federation Council. The state- capital of the automobile manufacturer ments of the short-lived Prime minister, who is known to be close to Dmitry Medvedev, Togliatti. On the evening of February 21, were characterised as “premature” by Viktor Zubkov, but sources close to the head of Vyacheslav Shirshov, 36, charged with government confirm the existence of the problem. The diagnosis is shared by Semyon relations with sub-contractors at Avto Vaynshtok, the director of Olympstroy, the public holding company charged with in- VAZ, was killed with a knife at the frastructure construction. It should be recalled that the bulk of the financing of the entrance to his building when he retur- 2014 winter Olympic games should operate in the framework of the Federal “Sochi de- ned from a shopping trip. Indications of velopment” programme. 314 billion rubles have been budgeted (or close to 9 billion a “professional” slaying seem to be the euros). It is planned that the state will contribute up to 185 billion rubles, with the main suspicion of investigators, who rest for the Krasnodar region and private investors. underline that Shirshov was trying to profoundly shake-up the group’s sup- Several factors are thought to have contributed to the explosion of costs announ- pliers. It’s not the first time that the ced by Sergey Stepashin. At first sight, the costs of property and construction in the management of Avto VAZ has become Sochi region since the decision of the Olympic committee in early July in Guatemala the target of the undeworld. In 1997, (the price per square metre on average amounts to 250$, with peaks of 700$ on the sea Vladimir Shishkov, the purchasing mana- coast). In its edition of November 8, Russia Intelligence spread the information of a ger, was killed by five shots. In 2005 and draft law for exemptions from the Property code to accelerate expropriation procedu- 2006, Alexey Potapov and Boris res. This proposal has been adopted but it isn’t certain that it will allow the govern- Selivanov – respectively in charge of ment to limit the bill. Semyon Vaynshtok and his assistant, Sergey Grigorev (another deliveries of metals and equipment – formerly with Transneft), have in fact confirmed that the land concerned would be were the victims of “contract” killings. purchased at market prices. But the lots identified at this stage represent a surface of Obviously, the cleaning up of the Augias 4 200 hectares, 679 of which belong to private or corporate owners (with the rest ow- stables undertaken by the ned by the municipal or federal government). This represents a charge of 1,4 billion Rosobornexport teams since 2006 is dollars in total. not finished.

It also appears that the Russian authorities by and large underestimated the amount 3 Gazprom invests in of infrastructure required to be built by 2014. This is particularly true in the field of Kirghistan transport and energy. The Minister Igor Levitin then requested – and received – an On his return from Teheran , Alexey Miller extension of 900 million euros for construction of the new bypass around Sochi and the made a brief stopover on February 20 in modernisation of the rail and port infrastructure around Tuapse. New electrical capa- Bishkek, where he met the new Prime mi- city will also need to be built. It is also likely that the organisation committee will have nister – of Russian origin – Igor Chudinov. review certain parts of its plans for reasons linked to environmental protection. An ap- The boss of Gazprom saw himself officially pelate court overturned a first decision in favour of ecological NGOs (Russia Intelli- awarded exploration licenses for two depo- gence n°65 of November 8 2007). But the emphasis placed on environmental issues by sits in the south of Kirghistan. According to Dmitry Medvedev (the future president presented a report January 30 to the national our information, it would also have a ques- security council) gives the impression that property developers will not have a free tion of the privatisation of Kyrgyzneftgaz, hand. It is also known that on another sensitive issue – the eastern Siberia-Pacific which belongs 85% to the state, and of Kyr- ocean oil pipeline – Vladimir Putin had finally arbitrated in favour of the ecologists gyzgaz, the public company that manages despite an important cost increase. the gas transport network. In a first phase, Gazprom had agreed to the idea of control- The rainfall of dollars forecast for Sochi during the coming years has led big in- ling only one part of these two companies, vestors to reinforce their presence there in any case. In addition to Oleg Deripaska, but it now wants complete control, arguing who has a time lead, it involves Gazprom and Interos. Vladimir Potanin who had an- that it cannot invest if it is not completely nounced in January 2007 being ready to invest 1,5 billion dollars by 2014, is said to certain about their future. His objective is have come forward to finance the Olympic stadium, as well as the arenas destined to specifically geopolitical : it involves the contol house the competition for ice hockey and figure skating. It must be recalled that In- of exports lines for Kazakh gas toward nor- terros has also built at Krasnaya Polyana the “Rosa Khutor” resort. Gazprom on the thern Kirghistan and of Uzhbek gas in the other hand has bought Alpika-Service, a firm that manages most of the mechanical ski direction of southern Kirghistan, in the Fer- lifts and hotel complexes existing in Krasnaya Polyana. d gana valley. d

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