N°64 - October 25 2007 Published every two weeks / International Edition CONTENTS KREMLIN c P. 1-5 Politics & Government The war of the kings continues unabated KREMLIN The world of politics in Moscow continues to live these days at the rhythm of the c The war of the kings contin- Cherkesov/Patrushev serialised melodrama, named after the two figureheads who have hurled a ues unabated nearly-public challenge to each other by means of spectacular arrests and reciprocal accusations SECRET SERVICES of corruption and profiteering ( Intelligence n°63 of October 11). We are naturally follow- cJust where will Patrushev- ing ever closely this conflict where one of the stakes is the National security council, whose lead- Cherkesov war lead ? ership is vacant at the moment. Viktor Cherkesov has the ambition to take over in order to c Alexandre Grigorev, Nikolay Patrushev’s «horse» support Sergey Ivanov in his presidential aspirations. This is one of the outcomes impossible to accept by the Patrushev/Sechin clan which naturally wants to preserve this highly strategic post. BEHIND THE SCENE This war has made its collateral victims, notably in the press, where each camp possesses its sup- c The return l’inflation porters. The wife of Viktor Cherkesov is a very well-known journalist in worries the Kremlin and Moscow, Natalya Chaplina, whom he met in the northern capital in the early 1990s. FOCUS But Cherkesov is also the beneficiary of support in other press organs, and certain journalists find c The unknowns of the themselves by chance, accused of shady deals. One of them had the surprise of noticing that an « Putin plan » off-shore account had been opened in his name and that a «generous benefactor» had credited DIPLOMACY him with several million dollars, another was accused of supposed links to Vladimir Barsukov, c A major Russo-American alias Kumarin, currently enprisoned as the presumed chief of the Tambov . In brief, in bargain in view this war inside the «services» which concerns individuals reputedly close to , ALERTS all blows are permitted. c François Pérol c Sergey Naryshkin The prudent reservation in which the Russian president has camped is unusual for him in this c Mikhail Margelov type of circumstance. The most pervasive of confusion reigns in his immediate circle as a result of these events. The new Prime minister Viktor Zubkov, has adopted a fairly disconcerting, lectur- ing style of government without sensitivity, with ministers and officials, sometimes in front of tel- P. 6-8 Business & Networks evision cameras. Because of his Saint Petersburg and Poutinian past, Zubkov can count on allies ALERTS in all camps. During his time in the Saint Petersbug municipal government, he helped Cherkesov c PKN Orlen and Patrushev to find appropriate dachas in the region of the northern capital. He is said to be on c friendly terms with Nikolay Patrushev and , but his relations with Cherkesov remain FOCUS good. The fact that the Kremlin has not intervened on one side or another (it has even consolidat- c Yuri Yarov, the new strong ed in a way the position of Cherkesov, as we relate on page 2) is also a sign that concerning the man of the naval sector succession of Vladimir Putin, nothing has been decided. In the aftermath of the intitiatives and BEHIND THE SCENE spectacular declarations of recent weeks, which we described (the consecration of Zubkov as a c Chemezov weaves his web possible successor, Putin’s accord to lead the list in the December legislative elec- in the Defence ministry tions, suggestion of a possible role as Prime minister for the current president), new scenarios INDUSTRY have circulated. c The strange two-step by Moscow and New Delhi As we analysed in our last mailing (Russia Intelligence n°63 of October 11), the scenario of c “The Russo-Indian accord on Putin as Prime minister is perhaps not the most credible in view of the fact that the balance of the 5th generation fighter has power that exists today clearly favours the president. One thing seems assured according to those indeed been signed” knowledgeable about the Kremlin we have consulted in Moscow in recent days : Vladimir Putin SUBSCRIPTION wants an new term. For this wish to be fulfilled, he must manage the period between the two elec- Print Edition tions, or at least four years if the president elected in March 2008 does not stay in office for its (23 issues, airmailed overseas) entire term. Four years in the current Russian political climate can seem like an eternity. Suddenly €77Ø0 TTC strategists working for the Russian president foresee another solution : Vladimir Putin will be a The Web Pack member of the Duma after the presidential ballot, without a doubt. If he resigns his post immedi- (Print Edition ately after having been elected to remain in the Kremlin, he conserves the possibility of returning + PDF + archives acess) to the Duma, even several months later. Returning to his seat in the Duma after the presidential € 880 TTC vote, he would become the president, a symbolic and popular figure — whose shadow would no The Premium doubt spill over the occupant of Kremlin, especially if that person is Viktor Zubkov. 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SECRET SERVICES c Just where will Patrushev-Cherkesov war lead ? The open war raging in Moscow between the director of the where General Bulbov’s wife, Galina, is one of the managers, is FSB, Nikolay Patrushev, the boss of the federal anti-narcotics also being investigated by tax authorities. service, Viktor Cherkesov, and their respective allies (, and Alexandree Bastyrkin for the first, Yuri The FSB also led others to believe that General Bulbov was the Chayka, and Yevgeny Murov for the second — owner of a number of investments and properties in the Kalin- read Russia Intelligence n°63 of October 11 2007) has witnessed ingrad region, his place of origin. Accusations of corruption, taken some new developments. The lines of fissure between the main up by Oleg Mitvol, the n°2 at the Federal environmental protec- power structures in the country have crystalised, while an exten- tion agency, also recently denounced illegal building in the pro- sion of the battleground into the national Security council is also tected areas of Kurshkaya kosa (read the profile of Oleg Mitvol in evident. Russia Intelligence n°42 of october 27, 2006).

The power centre where the division between those who were This lethal conflict between Cherkesov and Patrushev is, ac- for long — in a very simplified way — referred to as “silovikis” in cording to our information, in the process of shifting to the Na- the Western press is without a doubt the prosecutor’s office. On tional security council, whose leadership is vacant since the de- October 15, it was learned that the services under Yuri Chayka parture of Igor Ivanov this summer. The head of the Federal had filed an appeal to obtain the release of General Bulbov, the anti-narcotics service would like to be named as the new head. He right-hand man of Viktor Cherkesov detained since early would have even drawn closer to Sergey Ivanov, the first vice Prime October.Probably unheard of before in Russian judicial history, minister, to lobby in this direction with the president. Apparently the Prosecutor’s office and the lawyers of an accused esablished with only limited chance of success. At the end of his “direct line” a common front, in this case against the Investigating committee with the public, Vladimir Putin, had in fact told the correspondant (SK) of Alexandree Bastyrkin, who was behind the detention. An- for Kommersant, Andrey Kolesnikov, of his exasperation in the other of Viktor Cherkesov’s assistants’, Vladimir Zubrin (ex-deputy face of the public nature of this settling of scores between the serv- prosecutor from 2002-2004), followed the complete public unfold- ices. “I consider it inproper to spread out this kind of problem in ing between the services by giving a press conference on October the media. And if someone acts that way, by expressing complaints 11. Apparently sure of his strength, the FSB director also entered about a conflict between secret services, he should first of all be into the media debate, not to cross swords with his foes, but to beyond reproach himself.” A barely disguised allusion to the lengthy present the results of his services in counter-espionage operations. interview granted by Cherkesov to Kommersant Tuesday October But he did not lose sight of his true objective — the downfall of 9. Nikolay Patrushev on his side is trying to have his protégé, Alexan- Cherkesov and his allies. The director of the FSB scored a hit by dree Grigorev, named as the head of the National security coun- having one of his close associates, General Yuri Nyrkov, named cil (read box). as a deputy to Alexandree Bastyrkin. The clean-up of the FSB In- vestigating committee, which Russia Intelligence underscored in Finally, the leadership conflict within the Russian secret serv- its last edition, was thus confirmed. ices has also had the effect of delaying of consideration of the text on the war on corruption prepared by a working group Faithful to the good old KGB methods – again recently applied headed by (Russia Intelligence n°49 of february during the Gutseriev affair (Russia Intelligence n°60 of Septem- 16, 2007). It was originally foreseen that the National security ber 30, 2007) – the FSB has also put pressure on the family of Gen- council adopt it and announce the creation of a new intermin- eral Bulbov. His son was handed a citation to appear in the midst isterial organ along the lines of the National committe on anti- of his studies at the FSB Academy. For the best impact undoubt- terrorism. A highly sensitive question that will only be resolved edly for the pursuit of his career. Evrobalt-Tour, a tourism agency once the war between services is settled. d

Alexandre Grigorev, Nikolay Patrushev’s «horse» According to information gathered by had spent all his career in the secret services. sitive as it is lucrative — of economic security. Russia Intelligence, the director of the FSB, Graduated from the Leningrad mechanical He held the post for only two months because Nikolay Patrushev, is trying to reinforce his institute (1973) and the KGB school of on October 5 1998 he was appointed to the position in the «war of the services» currently advanced studies (1975) he met Vladimir post of regional director of the FSB in Saint gripping Moscow (RI n° 63 of October 11 Putin (and also Nikolay Patrushev and Viktor Petersburg with the rank of deputy director of 2007) by obtaining the nomination of one of Cherkesov) toward the end of the 1970s in the the service. Advisor to Nikolay Patrushev from his close associates, Alexandree Grigorev, to regional direction of the KGB in Leningrad. In January to June 2001, he was then named to the post of secretary of the National security 1983, he was dispatched on a mission to assist head the RAGR, the predecessor of Rosrezerv. council, vacant since the resignation of Igor the Afghan government. Alexandre Grigorev At the rank of Colonel-general (equivalent Ivanov this summer. stayed two years in Kabul, where he became to general of an army corps), Alexandre Born in Leninggrad in 1949, Alexandre acquainted with another member of the Putin Grigorev has been since 2001a member of the Grigorev since 2001 has directed one of team — Viktor Ivanov. Returning home, he board of the Centre for Russian national glory, Russia’s most secretive organisations — the continued his rise within the regional direction the club spearheaded by the head of the rail- Federal state reserves agency (Rosrezerv). in the «northern capital» : he was the n° 2 (at ways, Vladimir Yakunin, to promote «patriot- Under the Economic development and com- the side of Cherksesov) from 1994 to 1998, ism». Alexandre Grigorev is also a member, merce ministry since 2004 Rosrezerv is in when he was recalled to Moscow by the new but according to various sources in agreement, charge of the country’s strategic stockpiles. director of the KGB, Vladimir Putin, who Alexandre Grigorev has been at odds with his 2 Before that, Alexandre Andreevich Grigorev named him to head the department — as sen- boss since the autumn of 2000. d Russia Intelligence N°64 j October 25 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

CLANS c The little economic secrets of the «war of the services» Who controls what ? A beginner’s geography of the economic The war of the «compronats». In early 2006, the Sechin group interests of the Sechin/Patrushev and Cherkesov/Zolotov clans. by way of the general prosecutor’s office – then directed by Vladimir Ustinov – sought to eject Semyon Vaynshtok from Transneft. The most important asset of the Sechin group is without hesi- Cherkesov’s teams, charged by Vladimir Putin to follow the «Tri tation the public oil company Rosneft. It is on the other hand not kita» affair, intercepted a telephone conversation between Sechin commonly known that Sechin controls certain departmens or sub- and Ustinov during which the post-Putin period is discussed. A sidiaries of , which is theoretically within the sphere of recording of this conversation – in which it emerges that Ustinov influence of . It is notably the case of Gazprom- could seek the presidency – is transmitted to the Russian presi- bank. The Patrushev group itself also has a priviledged connection dent. Several days later Ustinov is dismissed from the general pros- in Gazprom in the person of Valery Golubev, the n°2 of the direc- ecutor’s office (he was finally redeemed and sent to the Justice torate in charge of relations with the CIS. Golubov’s first wife was ministry). Simultaneously, Cherkesov provides Vladimir Putin a re- the cousin of Patrushev, and the two older sons of Golubov work in port on the corruption in the midst of the FSB, which leads to the the FSB. A number of high-level FSB personnel also hold interest arrest of Sergey Zuev (the code-name of Zaostrovtsev in «Tri kita» in certain commercial firms. The true owner of the firms «Tri kita» and the firing of 19 top officials of the FSB and the presidential ad- and «Grand», implicated in smuggling cases (Russia Intelligence ministration, all close to Patrushev and Viktor Ivanov (general n°63 of October 11 2007), is none other than the ex-n°2 of the FSB Kupryazhkin nevertheless kept his post). in charge of economic security, Yuri Zaostrovtsev. The father of the latter, Yevgeny – today an influencial personality in the field of Following these events, the Sechin and Patrushev groups forged private security – had helped Patrushev at the beginning of his ca- a united front (which was not the case before) against Cherkesov reer in the KGB in Carelia in the 1980s. The officers close to gen- and his allies. The first results of this alliance were noticeable in eral Alexandre Kupryazhkin, ex-boss of the FSB internal security, the summer of 2007. Last June, Sechin (who does not particularly were themselves more specifically occupied with operations in appreciate Valentina Matvienko) helps Patrushev and Viktor Ivanov China. to checkmate the intrigues by Zolotov and Cherkesov against the governor of Saint Petersburg. The Sechin-Patrushev-Ivanov (Vik- Viktor Zolotov, the director of the FSO — the Russian equiva- tor) trio neutralised the attempts by Cherkesov aiming at taking lent of the «secret service» – maintained for his part friendly and over the head of the national security council (read article oppo- business relations with Roman Tsepov one of the godfathers of the site). He also draws closer to Alexandre Bastyrkin, the undisputed Petersburg underworld who died in suspicious conditions in 2004 boss of the investigating committee newly created (Russia Intel- (Russia Intelligence n° 33 of May 18 2006). He is equally close to ligence n° 58 of June 28). Supposedly neutral, Bastyrkin is quickly Vladimir Barsukov alias Kumarin, whose arrest set fire to the revealed to be a satellite of the Sechin group. He plays a front line powderkeg (Russia Intelligence n° 61 of September 13 2007), and role in the arrests of Kumarin and general Bulbov. the Rotenberg family which notably controls the bank «Severny morskoy put’» (Northern maritime route). Viktor Zolotov especially In October, Vaynshtok leaves Transneft and is replaced by Niko- has business dealings with Semyon Vaynshtok, the former boss of lay Tokarev, the director general of Zarubezhneft (read his bi- the public operator Transneft, recently named by Vladimir Putin ographic profile in Russia Intelligence n°46-47 of January 19 to the head of Olympstroy (the state establishment charged with 2007). Tokarev worked with Vladimir Putin in the KGB Dresden construction of the infrastructure for the winter Olympics in Sochi residence during the mid-1980s and is reputed to be close to the in 2014). Zolotov and Vaynshtok are considered as the true owners oil trader Gennady Timchenko (Gunvor), himself linked to Ros- of the oil terminal n° 3 in Primorsk, at the Finnish frontier. In ad- neft, for which he commercialises part of the crude oil. Finally, dition, Viktor Cherkesov and his right-hand man, Alexandre Bul- since a few days ago, a press campaign was launched against East- bov – arrested October 1 by the FSB – «protect» East-Line, the Line. second air freight line after Aeroflot, officially controlled by Dim- itry Kamenshchik. The war of the clans, as we can see, is far from finished. d

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BEHIND THE SCENE cc FOCUS The return l’inflation The unknowns of the « Putin plan » on the eve of elections worries the Kremlin “In 2008, here in the Kremlin, there will be someone else”. The small sen- During his “direct line” with the population tence dropped by Vladimir Putin is undoubtedly the main conclusion to be drawn Thursday October 18 (read article oppo- from the “direct line” of October 18, this annual televised high-mass that provi- site), the Russian president once again ex- des a – very structured – occasion for an exchange between the head of state pressed his satisfaction with the country’s and the Russian population. It confirms what the president had said a few days vigorous growth — which this year should earlier to German Chancellor Angela Merkel during their meeting in Wiesba- reach 7.7% against the 6.7% originally fo- den : “the configuration of power will be different”. For the rest, the “Putin recast — and sought to reassure regarding plan” – which the pro-president United Russia party has made one of its main the country’s economic situation. The sus- slogans for the forthcoming elections – remains a mistery. As in previous edi- tained high level of oil prices of course tions, the “direct line” of October 18 was largely dominated by socio-economic bolsters a general optimism and allows the themes (the only exception had been the one in 2003 during which Vladimir Pu- Russian central bank to accumulate unpre- tin had violently denounced the oligarchs in order to prepare public opinion for cedented foreign exchange reserves (434 the Yukos affair). The president studiously avoided raising political questions. billion dollars in mid-October). Some indi- This was an attitude dictated, at least partly, by the ambivalence of his dual sta- cators nevertheless are beginning to se- tus as head of state and leader of the party list in the legislative elections of De- riously worry the government economic cember 2. The Kremlin legal services did everything to avoid leading to possible authorities. At the same time that Vladi- accusations by the opposition on the mixing of roles (even if it is hard to believe mir Putin was expressing himself on tele- they would have had any impact). The other reason that led the Russian presi- vision, the vice minister for Economic de- dent to avoid raising the only really important question – concerning his per- velopment and commerce, Andrey sonal future – is connected to his will to preserve as much and as long as possi- Belousov, was intervening during a confe- ble the state of uncertainty within the elite. “We beat the weak” had said Vladimir rence on capital markets, making a speech Putin during his famous speech following the Beslan tragedy in the fall of 2004. that was rather pessimistic, even alarmist, Without a doubt convinced that a similar fate awaits “lame ducks” , the Russian in tone. According to him, the Russian eco- president then must maintain the clans surrounding him in a permanent state nomy will be confronted with several ma- of tension, which is not without risk as the “war of the services” shows (Russia jor risks by 2010 : overheating of consump- Intelligence n°63 of October 11 and articles page 4 and 5). In 2005 and 2006, tion and credit to individuals (+37% over Vladimir Putin had successively praised the merits of Dmitry Medvedev an d the first 9 months of the year), erosion of Sergey Ivanov. This time, he did not mention any ministers, with the exception the balance of payments and especially, of Viktor Zubkov – for his action at the head of the financial intelligence ser- inflationary risks. There is now hardly any vices – and of Tatyana Golikova and , to express satisfac- doubt that the increase in prices for 2007 tion at the femininisation of the government. will exceed 10%, or two points more than predictions by the government early in the The other message that Vladimir Putin sought to spread is that he intends to year. The vice minister in charge of finan- conserve the reality of power for many years to come. Comparing himself to Fran- ces, Alexey Kudrin, admitted it at the end klin Roosevelt and making the parallel between his political action and the of the Council of ministers October 18. He American president after the “great depression”, he estimated that the mainte- also confirmed that Russian had not been nance of the current system (“guided democracy”) would without a doubt be ne- spared by the international financial crisis cessary during the coming 15-20 years. From there to think that it refers to the of this summer and that Russian banks length of the “Putin plan”.... were experiencing some difficulties for re- financing. A few days earlier, it was Elvira In the wake of his “direct line”, answering informally questions from journa- Nabiullina, the new minister of Economic lists accredited to the Kremlin, Vladimir Putin had also confirmed what we in- development and commerce, who rang dicated in our previous edition : that there would be no modification of the consti- this alarm bell. tution in view of a rebalancing of the prerogatives of the president the Prime The increase in prices worries more the minister. The criptic statements by Vladimir Putin about the need to put in place, government in that it concerns food prod- after his departure from the Kremlin, “an effective system” of interaction bet- ucts and that they are taking place on the ween the executive, legislative and judicial powers”, lent more credence to ano- eve of the elections. Certainly nothing indi- ther scenario than the Putin-Prime minister one, potentially very risky (Russia cates at this stage that the situation could Intelligence n°63 of October 11 2007). The presidency of the Duma, eventually contradict the expected success of Vladimir coupled to that of Russia United, would have the merit of being represented as Putin in the legislative elections (the a contribution to the strengthening of parliamentarism and development of de- United Russia party list he will lead is cred- mocratic institutions. ited with 54% of the votes). But the return of a two-digit inflation is not the most It remains that the scenarios imagined in the Kremlin or fantasised by Mos- favourable signal in a time presenting cow observers are based on a proposition that is perhaps not so solid as it seems records to the electorate. Quickly, the gov- : “Putin or chaos”. A recent public opinion poll conducted by the Levada centre ernment has multiplied its warnings indicates that if the president is indeed popular, 45% of persons asked reject the against “speculators”, while certain re- contention that there would be no other “worthy” candidates for the post of pre- gional authorities are considering a freeze sident. Stalin liked to say, at the height of the purges, that noone was irrepla- on prices, as in the heyday of Gosplan and ceable. The are apparently convinced. d 4 the command economy. d Russia Intelligence N°64 j October 25 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

cc FOCUS ALERTS Iran, antimissile defence, NATO : a major François Pérol, « Mr. Russia » at the elysean Palace Russo-American bargain in view According to information collected by Russia The widely-noticed speech by American vice president Dick Cheney in Vil- Intelligence, Nicolas Sarkozy and Vladimir nius in early May 2006, and especially the address by Vladimir Putin during the Putin decided, during their meetings on Oc- annual Munich security conference last February, had confirmed the profound tober 9 and 10 in Moscow, to assign the fol- degradation of bilateral relations between Moscow and Washington. Bringing low-up of their bilateral economic relations to an end the deceptive years of the 1990s and the period immediately after Sep- to two trusted associates. On the Russian tember 11, the leaders of the two countries had chosen to publicly express their side, vice Prime minister Sergey Naryshkin respective complaints, whether about NATO enlargement, the antimissile de- has been chosen. The French president also fence, Georgia, Iran or the evolution of the internal situation in Russia. It is proposed François Pérol. Aged 43, this ins- still too early to say whether we may be in the process of leaving the viscious pector of finance graduate of HEC and ENA circle of mutual defiance, but several indications show that in any case the worked on the staff of Francis Mer and then United states are ready to engage in a logic of a «grand bargain» with Russia. Nicolas Sarkozy at the Economics and Fi- nance ministry before joining Rotshschild & In a visit to Prague October 23, the American Defence minister, Robert Gates, Cie Banque in 2004. Named deputy secre- had indeed proposed to put on «stand-by» a number of elements of the future tary general of the presidency last May, Fran- antimissile defence which would still be built but would only be «activated» at cois Pérol keeps a steady hand on the major a time when the ballistic missile threat became tangible. According to certain industrial issues of the moment (GDF-Suez, information, these proposals would have been officially presented to the Russ- Alstom-Areva, etc...) ian side during the visit by Robert Gates and Condoleeza Rice in Moscow Oc- tober 12 and 13. Another sign was sent by Daniel Fried, the n° 2 of the State Sergey Naryshkin deparment in charge of Europe and Eurasia, known for his intransigence in his reafirms the Russian position toward Russia.Expressing himself in a press conference in Brussels Oc- presence on Spitzbergen tober 18, he let it be understood that an evolution of the Iranian position on the After the widely-noticed expedition by Ar- issue of uranium enrichment «could not fail to be taken into account in the con- thur Chilingarov to the north pole this sum- text of the antimissile defence». mer, Moscow continued its “flag planting” policy in the Arctic. October 12, the vice The Americans are apparently ready to put on the table other issues that are Prime minister Sergey Naryshkin travelled sensitive in Moscow. On the occasion of an interview granted to Radio Liberty to Spitzbergen, the first visit by a Russian October 23, Robert Gates declared that he did not consider the entry of Ukraine governmental delegation to the archipeligo in NATO as probable in the short-term.This contradicts the resurgence of At- in 80 years. The vice Prime minister notably lantist euphoria visible in the circles close to president Viktor Yushchenko since announced an increase in subsidies to the the legislative elections of October 30. Aktikugol coal facility, the only Russian pre- sence on this Norwegian territory where It obviously remains to be see how Moscow follows up these American over- Moscow has the right to conduct economic tures. For the president of the Foreign affairs commission in the Duma, Konstan- activities under the terms of the Paris treaty tin Kosachev, questioned by the Russian public television October 23, it repre- of 1920. Oslo follows closely the increase in sents «a first step in the right direction». The Foreign affaits minister for his part Russian activity on Spitzbergen. says that he awaits for these proposals to be officially transmitted by diplomatic channels. The Kremlin had not reacted by the time we printed this edition. Tallinn campaigns against Mikhail Margelov The other major question relates to the Russian policy toward Iran. What does In its edition of September 13, Russia In- the Kremlin really want and what is it capable of achieving in Teheran ? In a pre- telligence spread the news of the candi- vious edition (Russia Intelligence n° 51 of March 2007), we underlined that the dacy of the Russian senator Mikhail Mar- path for Russian diplomacy in this case was very limited. Wanting to prevent a mil- gelov for the presidency of the Council of itary intervention against Iran – the only country in the Gulf not to be in one way Europe Parliamentary assembly in the or another under American influence – , Moscow has no confidence in the Iran- name of the Group of European demo- ian leadership and has no desire to see a new nuclear power near its borders. crats (GDE). This prospect aroused, that’s the least that could be said, certain unrest During the visit to Teheran October 15 and 16, Vladimir Putin tried to pre- . Decided to counter such a scenario, serve this fragile balance. He firmly warned against a military intervention, re- some Estonian parliamentarians addres- called the right of every country signator of the Non-proliferation treaty to have sed the current president of the assembly, access to civilian nuclear energy and underlined his position on the undesirable René van der Linden, of the Netherlands. presence of «third countries» in the region. Certain Russian sources also put Marco Mihkelson accused the president forward the signature of an accord concerning the delivery of fifty RD-33 en- of the assembly of pro-Russian sympa- gines to power the future Iranian Azarakhsh fighter. But president Putin pro- thies, explained, according to him, by fi- vided no precision on the date of delivery of fuel for the Bushehr nuclear facil- nancial interests in Russia. Accusations ity. He would have also transmitted a firm message to Guide Ali Khamenei. As qualified as “defamatory” by the interes- much as we can know, Prime minister Ehud Olmert, who Vladimir Putin wanted ted party, who had already received a to receive in the Kremlin on his return from Teheran, left Russia more reassured warning shot during his last visit to Tallin about Russian intentions. d in mid-September. d 5 Russia Intelligence N°64 j October 25 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

ALERTS cc FOCUS PKN Orlen and the « Russian threat » Gazprom places its chips in Serbia The Polish counter-espionage services At the same time as the thorny debate over Kosovo enters a crucial phase, Russia (ABW) recently alerted the government of continues to convert its political support for Belgrade into assets in strategic sectors Jaroslaw Kaczinski about the risks of a hos- of the Serbian economy. It should be recalled that last spring, Aeroflot had expressed tile takeover of PKN Orlen by Russian oil its interest in the national airline JAL (Russia Intelligence n°56 of May 31, 2007). The groups. That is in any case what was revea- acquisition of the Belgrade airport by the organisation controlling Sheremetevo, as led by the daily Rzeczpostpolita in its Octo- well as the creation of an important logisctics centre had also been raised. Quite lo- ber 11 edition.PKN Orlen today controls 7 re- gically, it is the energy sector that Moscow is now focussing on. fineries (including two in the Czech republic and one in Mazeïkiu in Lithuania) with a to- According to information in the Serbian daily Politika, confirmed a few hours later tal annual capacity of 32Mt. The Polish state by the Gazprom press service, Alexey Miller was in Belgrade October 9. He met Ser- directly controls 10.2% of the capital, to bian president Boris Tadic, as well as the Prime minister Vojislav Kostunica. Two to- which can be added the 17.32% of Nafta pics were on the agenda. First of all, the privatisation of NIS (Nafta Industrija Sbrije). Polska. The floating remainder — or 72.48% Created in 1949 by Tito, the national hydrocarbons firm’s holdings include two refine- of the capital — is listed on the Warsaw stock ries in Novi-Sad and at Panchevo (total capacity of 7.2Mt/yr), as well as the main chain exchange. But ABW analysts have monitored of service stations in the country. Experts evaluate its assets at around 1.9 billion dol- an unprecedented activity in the shares of lars. Since the spring of 2006, the Serbian government has foreseen the privatisation PKN Orlen. 9% of the capital may have chan- of NIS. It represents an important issue since the public hydrocarbon firm accounts for ged hands during the month of July alone. close to 20% of the revenues for the national budget. A certain indecision nevertheless The price of the shares on the other hand surrounds this operation. In a first stage, it was a question of selling 25% of the capital has increased by about 13% since the begin- to a strategic investor, which would then be authorised to increase its interest to 37.5% ning of the year. Representatives of the ABW and then 49%. On the Russian side, Lukoil and Rosneft – which were trying despara- and PKN Orlen have declared they don’t tely to increase their refining capacity outside the CIS – had informed themselves. Most know the identity of the buyers of the shares of the companies of the region (Austria’s OMV, Hungary’s MOL, Romania’s Rompetrol, of the Polish oil group, but the Polish press Poland’s PKN Orlen, as well as Greece’s Hellenic Petroleum) had also approached the quickly got into the act — a few days before authorities in Belgrade. the early legislative elections — by pointing to Lukoil as the potential “predator”. Recently, anothber possibility also surfaced and seems to be gaining ground – the sale of 51% of the capital of NIS. Another potential buyer has also appeared – Gaz- Nuclear sector : the new prom neft, the petroleum division of the Russian hydrocarbons giant. projects by Oleg Deripaska In its April 13 2007 edition, Russia Intelli- As much as we can know, Alexey Miller would have submitted to the Serbs a global gence spread the news about a Rusal po- offer also including an importan gas segment. Parallel to the purchase of NIS, Gaz- wer station in the Far east. The group be- prom may be proposing to Belgrade to participate in the South Stream gas pipeline longing to Oleg Deripaska is planning a project. We remind readers that Moscow and Sofia signed in the spring a final accord new investment in the nuclear sector. Ac- planning the construction of a undersea pipeline between the Russian Black sea co- cording to Alexandree Bulygin, the direc- ast and the Bulgarian coast (Russia Intlligence n°58 of june 28, 2007). Two branches tor general of Rusal, about four billion are then proposed – one toward Italy by way of Greece, the other destined for Hun- dollars could be allocated to the construc- gary and Austria. For the second project, Gazprom has a choice between Romania and tion of the last two of the six portions of Serbia as a transit country. The financial stakes are far from being negligeable. If rea- the nuclear power station in Balakovsk lised, Serbia could in fact count on 250 milion dollars annually from transit rights, wi- (halted in 1993 for lack of financing). This thout counting the investments lined to the construction of the natural gas pipeline project, which according to our informa- (some one billion dollars are being spoken about). Alexey Miller may have also inclu- tion, was the object of in-depth discussions ded in his offer the construction of an important infrastructure for stockpiles. The “pi- with the boss of Rosatom, Sergey Ki- peline diplomacy” by Gazprom relegates to the ‘flavour of the day’ a major Russian po- rienko, must be accompanied by the litical classic since the end of the XIXth century – the alliance with the Bulgars and construction of the world’s largest alumi- Serbs – to which is now added the all-directions partnership with Italy (Russia Intel- nium production facility (1.05Mt/yr). Ac- ligence n°52 of march 30 and n°53 of april 13, 2007). cording to Alexandree Bulygin, the new complex should be operational in 2013. Considered as the weak link of the Gazprom empire notably because the stagna- The aluminium plant — which alone will tion of its production (-2% in 2006), Gazprom neft has in any case registered a sharp cost between 6 and 7 billion dollars — will rise in its share price since the revelations of its dicussions with Belgrade (7.8%); Good be supplied by iron ore from Kazakhstan. news never travels alone, and Gazprom neft announced a few days later having disco- Rusal does not exclude addressing itself to vered an important deposit on the Yamal peninsula, which should lead to an increase the Russian government so that it could as- in its reserves f’rom 723 Mt to 778 Mt next year. Last but not least, it was also learned sume part of the financing, through the In- October 17 that the Saint Petersburg municipal assembly had definitely endorsed the vestment fund, for part of the infrastruc- very controversial Okhta-Centre project. Evaluated at 2.2 billion dollars ( of which half ture. Rusal would own the new nuclear will be financed by the municipal budget), it consists in the construction, in front of reactors. In return, Rusal would be awar- Smolny, of a tower of 396 metres in height that will house the future headquarters of ded long-term preferential rates for power Gazprom. UNESCO has let it be known that it would compromise the historic centre 6 supplied to its aluminium plant. d of Saint Petersburg in the world heritage of the organisation. d Russia Intelligence N°64 j October 25 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc FOCUS BEHIND THE SCENE Yuri Yarov, the new strong man of the Sergey Chemezov weaves his web Russian naval sector in the Defence ministry It should be remembered that the new Russia Prime minister Viktor Zubkov had In its edition of October 11, Russia Intel- been unable to dictate his choices during the composition of the government formed ligence disseminated news of the creation directly by the Kremlin (Russia Intelligence n° 62 of september 27, 2007). Most ob- soon of a new public holding company, servers had concluded that he would have no voice in the exercise devoted to nom- Rostekhnologii, based on the assets inations. A bit hastily, it seems. Viktor Zubkov has just in fact placed one of his close controlled by the federal agency Rosobo- associates at the head of one of the strategic sectors of Russian industry, whose re- ronexport. With the green light from Vla- structuring has frequently been cited as a priority by Vladimir Putin – the navy. dimir Putin to expand his industrial em- pire, Sergey Chemezov apparently has no It should also be recalled that the Russian president signed on March 21, an intention of standing still. If certain infor- oukase concerning the creation of OSK (“United naval constructions corporation”). mation filtering in Moscow are confirmed, Seeing itself as a twin to OAK, the consortium of Russian aircraft manufacturers he may have submitted in early October to which saw the day in late 2006, OSK has as its mission to consolidate all state as- Prime minister Viktor Zubkov a proposal sets ( research institutes, consultants, shipyards and repair facilities) around three aimed at placing the agency Rosoboron- geographic poles (Far east, Baltic and Northern). As in the aerospace sector, the postavka under the control of Rostekhno- aim of the Russian authorities is to rationalise an industrial tool inherited from the logii. with an overcapacity and to rebalance its activities to the advantage of the civilian side, notably thanks to major investments by hydrocarbon companies As a reminder, Rosoboronpostavka was (Gazprom has therefore just placed an order for two drilling platforms with the Vy- created by a presidential decree in early borg shipyards – read Russia Intelligence n°61 of september 15, 2007). Alexandre 2007. This civilian organisation has the res- Burutin – the former military adviser to the president – had been entrusted with ponsibility for centralising and managing the presidency of OSK last April. It had been vacant, however, since the recent pro- procurement programmes of organisa- motion of Alexandree Burutin to the n°2 post in the General staff (which in pass- tions of power, the leading of which is the ing places him as the favourite to succeed Yuri Baluevsky, 61, said to be one the Ministry of defence. Largely inspired by the way out). French General armaments delegation (DGA), Rosoboronpostavka today remains At least four men were candidates for the OSK presidency : Andrey Dementev, an empty shell since only its director, the vice minister for Industry and energy, who was backed by ; Alexandree Denisov has been named. Its Andrey Dutov, the n°2 of the Federal industry agency (Rosprom) in charge of naval creation nevertheless responds to one of affairs; General Vladislav Putilin, assistant to Sergey Ivanov at the military-indus- the major demands of the Defence minis- trial commission (VPK); Yuri Yarov, the director of the consultants “Severnoe”, spe- ter, , the rationalisation cialised in the design of warships. It was finally the candidacy of the latter which of the funds allocated to armed forces Viktor Zubov backed. It must be said that the two men have been friends for a long equipment programmes (302 billion rubles time : Yarov, in the late 1980s had been the secretary of the executve committee of - or about 12 billion dollars in 2007). ` the Communist party for the Leningrad region. His assistant was none other than the new Prime minister. The nomination of Yuri Yarov, 65, was surprising. It was It may be recalled that one of the first generally considered that the careeer of the former representative of decisions by Anatoly Serdyukov after his in Saint Petersburg (1991), who was also vice Prime minister in the government of surprise nomination in the spring had been (1993-1996) and the deputy to Anatoly Chubais and Valentin to dismiss General Alexey Moskovsky, Yumashev in the presidential administration (1996-1998) was behind him. vice minister in charge of procurement with a controversial reputation in Russian de- Yuri Yarov will have as his mission to get back on track the reform of the naval fence industry cricles (Russia Intelligence sector, which has been severely delayed (OSK has still not been officially registered, n° 53 of april 13, 2007). while this should have been done by the end of summer). He is best able to accom- plish this since, according to our information, he played a determinant role in the According to usually well-informed drafting of the restructuring plans accepted by the Kremlin last spring. One of the Moscow sources, Sergey Chemezov’s pro- questions that is sure to quickly arise for Yuri Yarov concerns the modus vivendi posals should be accepted by Viktor Zukov with the private group OPK of Sergey Pugachev, which controls two of the most im- by the end of this year. portant shipyards of the “northern capital” (the Baltic factory and the Northern ship- Rosoboronexport/Rostekhnologii would yards). We recall that in the spring of 2006, Rososboronexport had made a bid for then achieve their takeover of the Russian these assets, an offer that was brusquely rejected by Sergey Pugachev. The latter had military-industrial complex. In addition to then announced an ambitious modernisation project of his Saint Petersburg yards, arms exports (about 6 billion dollars a which would notably pass through a regrouping of activities at the site of the North- year) Sergey Chemezov’s chaebol would ern shipyards and an investment of 500 million dollars. Sergey Pugachev is even less also control the important cash flow linked inclined to sell his assets since he should be awaiting an important order both from to the ambitious arms procurement pro- the Russian combat navy ( a ocean-going multi-mission 22350 frigate project) and gramme for 2007-2015 (200 billion dollars). two clients (Algeria, among others for the modernisation of two vessels and con- The military-industrial commission (VPK) struction of two others in the Northern shipyards for 900 million dollars). d presided by the first vice Prime minister, Sergey Ivanov would itself be charged only with the choice of programmes. d 7 Russia Intelligence N°64 j October 25 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

INDUSTRY c The strange two-step by Moscow and New Delhi Is the Russo-Indian “strategic partnership” on the cusp of telligence service from 1996 to 2000) spared no effort to con- a new era or will it soon been seen as a geopolitical anachro- vince the leadership of the local Communist party to radicalise nism ? Some at least contradictory signals have appeared in its position. It must be said that some of them are among his recent weeks in two particularly sensitive domains — military old friends : a fresh graduate of the KGB academy, Vyacheslav cooperation and energy. October 11, Indian media announced Trubnikov had in fact been sent to South Asia in 1971 and made the decision of the government in New Delhi to become asso- lengthy visits to India until 1977. Officially the correspondent ciated with the Turkmenistan-Afghanistan-Pakistan gas pipeline for the APN press agency, he was notably assigned, according project. An Indian delegation will participate in the coming to our information, to liaison with the local party. Moscow had round of discussions on the topic November 28 and 29 in Is- also wanted to score points in the field of military-technical co- lamabad. This project, which has been supported since the operation. In its edition of August 30, Russia Intelligence un- middle of the 1990s by Washington and which the Asian devel- derlined the stiff displeasure of the Indian military in the face opment bank is also involved in, is certainly far from being im- of delays in the contract regarding the aircraft carrier “Admi- plemented in view of the numerous uncertainties remaining ral Gorshkov” and the uncertainties concerning the aerospace in Afghanistan. But the Indian decision is a symbolically im- sector (MTA and maritime patrol aircraft Il-38). However, Oc- portant setback for Moscow. So much so that it apparently com- tober 10, Rosoboronexport and HAL signed a contract for 1.6 promises the gas pipeline project between Iran, Pakistan and billion dollars for delivery by 2010 of 40 Su-30MKI heavy fighter- India in which Gazprom was to participate. bombers (built by NPK Irkut, they will be assembled in India). Then, two days later, the Indian press agency Express News Ser- Russia on the other hand greeted with satisfaction another vice announced that the visit of the Defence minister A.K. Indian government decision in the energy sector. October 15, Antony to Moscow planned for October 19, would lead to the the Prime minister Manmohan Singh telephoned American signing of an historic bilateral accord on the joint development president George Bush to announce the suspension of the bi- of a 5th generation fighter (PAK-FA or IS-21) by Sukhoi. lateral accord of 2006 on cooperation in the civilian nuclear sector.The reason was the opposition of the Communist party, As we close this edition, no information has filtered in the whose support is indispensible to the governmental coalition Russian press, but keen specialists of industrial issues believe led by the Congress party. According to information gathered the accord in question has indeed been signed. If confirmed, by Russia Intelligence, the Russian ambassador to New Delhi, it would amount to a major success for Russian diplomacy in Vyacheslav Trubnikov (former director of the SVR foreign in- India. d

“The Russo-Indian accord on the 5th generation fighter has indeed been signed” Indian sources had announced that the re- view of technical-mili- But the Indian military orders exclusive sys- cent visit to Moscow by the Defence minis- tary cooperation bet- tems (Talwar frigates, Su-30MKI, etc...) which ter, A.K. Antony, would lead to the signing ween Moscow and New leads to excess costs and delivery delays lon- of an ambitious cooperation accord on the Delhi? ger than for standard equipment. 5th generation fighter. What’s happened, Indeed, recently the In- exactly? Ruslan Pukhov, dian side regularly expres- The signature this summer of a technical Yes, in fact, this accord has indeed been si- director of the ses it displeasure concer- cooperation agreement between France gned and represents a first degree victory for Centre for ning the fulfillment of and Libya aroused certain debate in Pa- the Kremlin, but also for the boss of AKhK Su- Analysis of Strate- certain contracts signed ris. What can you tell us about Russian gies and Tech- khoi, Mikhail Pogosyan. There nevertheless nologies (CAST) with Rosobonexport. This arms sales to Libya ? exists a risk that this decision by New Delhi situation stems from two A visit by Vladimir Putin to Tripoli is expec- will lead to the cancellation of the Indian De- factors. First, the degradation of a certain ted before the end of the year. We expect fence ministry for 126 light fighters [ for which number of Russian firms that produce high- that on this occasion a series of accords will the MiG-35 was well placed]. technology components, especially for naval be signed that are close in their structure, to systems. The naval industries (like those lin- the accords concluded with Algeria in March The Indian military have recently demons- ked to space as well) have had lots of difficul- 2006 (combat aircraft, anti-air systems, trated their disappointment concerning ties in adapting to the new post-communist tanks). We nevertheless have the impression the delay in the implementation of the economic environment. The other is the very for several weeks that this presidential visit contract for the aircraft carrier “Admiral low profitability of the contracts signed with could be delayed sine die. Which could ob- Gorshkov” and project for an MTA military India. As a result, Moscow delivers the major viously compromise the signature of this transport aircraft. What is your general part of these armaments at break-even prices. “mega-contract”. d

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