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Home , Alexey Miller, Igor Sechin, Interros, Metalloinvest, Mikhail Prokhorov, Sergey Chemezov

N°81 - July 17 2008 Published every two weeks / International Edition CONTENTS METALS P. 1-3 Politics & Government c /Norilsk: all-out war METALS Even if the battle between Rusal and Norilsk does not arouse the same interest in Eu- c Rusal/Norilsk: all-out war rope or the United States as the struggles between Microsoft and Yahoo or Billiton and Rio Tinto, ALERTS it still confronts the two main metallurgy groups, world leaders in their respective domains, c is worried about the production of aluminium for Rusal, nickel and other non-ferrous metals for Norilsk. This makes ’s “big ears” several months already that Russia Intelligence has sought to follow extremely closely the evolution c Prosecutor’s office : the of this affair which puts into question the independence of , of which Rusal, already Chayka-Bastyrkin struggle one of its two top shareholders, hopes to take over operational control. resurfaces in Prague CAUCASUS The first weeks of July were fertile in developments which nevertheless did not modify substan- c South Ossetia, Abkhazia : tially the blocked situation in which the different protagonists find themselves in the matter. On what Russia wants to prove June 30, the stockholders’ general assembly of Norilsk Nickel took place to renew the administra- ALERT tive council. To no-one’s surprise, the new council is divided into three blocs of three administra- c Sergey Kirienko on the tors. The first is composed of and his allies in his holding company , An- point of departure ? drey Klishkas and Andrey Bugrov, the second involves and his colleagues and P. 4-7 Business & Networks associates, namely , and the n°2 at Rusa since always the friend of Deripaska, ENERGY Alexandre Bulygin. Lastly, the third bloc is the one of the independent administrators or represen- c The amazing « liberal trans- tated as such, who constituted, we imagine, the stake of this general assembly. Guy de Selliers, a formation » of Igor Sechin Belgian financier, will continue to sit in this group, beside Heinz Schimmelbusch, an Austro-Ger- c courts Mouammar man industrialist, former director general of Metallgesellschaft, the German conglomerate liqui- Kadhafi dated in 1993 following risky futures stakes, and Michael Levitt, an American financier, manager of cSerbia : the new govern- the investment fund Stone Tower Equity. ment bargains on gas accords with Moscow On July 7, the new administrative board met to elect a president and name a director general. Al- ALERT though the Deripaska “faction” supported the candidacy of Guy de Selliers, it was Vladimir Potanin cOleg Deripaska to create a who was elected to the post of president of the administrative board, while Sergey Batekhin, num- joint-venture with Rosatom ber two of the Interros holding company, was designated to the post of director general in place of FOCUS Denis Morozov. c Rostekhnologii : gives his support It goes without saying that these different elections set fire to the powder between Vladimir Po- cTNK-BP : the calm after the tanin and Oleg Deripaska, the first controlling about 30% of the capital of Norilsk, the second about storm ? 25%. At the close of the administrative board meeting of July 7, Rusal had published a “robust” com- NAVAL muniquè calling into question the way the deliberations inside the administative board had been cThe new Sechin-Chemezov conducted and casting serious doubt on the competence of Sergey Batekhin, who has no significant axis experience in the metals or industries, according to the contents of the communiquè. In fact, Sergey Batekhin, 43, who in the early 1990s worked at the Russian delegation to Unesco in Paris, P. 8 Regions & CIS is more of an economist and financier. He is the director general of Interros since 2005. Denis Mo- CASPIAN rozov, 35, more of an economist and lawyer than a “miner”, sat on the executive committee of No- c Will Dmitry Medvedev rilsk since 2002 before being named its director general in 2007. Oleg Deripaska especially chal- bury Nabucco ? lenges the independence of two administrators designated as such, Heinz Schimmelbusch and Michael Levitt. The first manages several enterprises he created or bought after the Metallgeselschaft di- SUBSCRIPTION Print Edition saster, including Advance Metallurgical Group, specialised in special metals, and notably alloys (23 issues, airmailed overseas) based on titanium. Rusal contends that professional links exist between Schimmelbusch and No- €770 TTC rilsk (Andrey Bugrov was member of the supervisory council of AMG until last June). As for Michael Levitt, Rusal states that he has substantial financial links with Interros. In Brief, Oleg Deripaska, The Web Pack no more, no less, accuses Vladimir Potanin of having waged a sort of management coup d’état to (Print Edition + PDF + archives acess) control Norilsk’s mines to the detriment of minority shareholders. But these accusations only rein- € 880 TTC force the observation that Vladimir Potanin continues to control Norilsk Nickel despite the attempts of Oleg Deripaska and Mikhail Prokhorov to oust him. The Premium Subscription (Print Edition + PDF + access What “exit” scenarios ? to all the website contents) € 1200 TTC The battle will continue to rage on several fronts. The first concerns the d d d Continue page 3 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

ALERTS cc CAUCASUS 3 Moscow is worried South Ossetia, Abkhazia : what Russia about Sweden’s “big ears” The law on the monitoring of information wants to prove adopted in June by the Swedish parlia- ment has Russian authorities worried. It The hopes that the Georgian authorities had put on a warming of bilateral rela- must be said that, according to the daily tions with Russia after the arrival to power of Dmitry Medvedev —believed to be Svenska Dagbladet, this text — that orders more “liberal” than — have been a long time coming. The situation telecommunications operators to retain around the secessionist provinces of Abkhazia and South Ossetia in fact became even all information transiting through their more tenuous in the past two weeks. After the attacks in Sukhumi and Gagry, which networks and, if needed, to transmit them had claimed a dozen wounded in late June (Central Asia & Caspian Intelligence to the FRA, the agency in charge of inter- n°32 of July 3 2008), a bomb was exploded July 6 in Gali, killing 4, including the lo- ception — would have as its primary cal official of the Abkhaz secret service, Dzhansuk Muratiya. It should be remem- objective to legitimise electronic intelli- bered that June 20 — while Sergey Bagapsh was meeting with Eurasian Intelli- gence against Moscow. In fact, the bulk of gence in Paris — it is the head of these same services, Eduard Emin-Zade (an Ajar Russian telephone traffic ( and all the e- who joined Sergey Bagapsh after the fall of the regime of Aslan Abashidze in Ba- mails) transit through cables located on tumi), who miraculously escaped an attack. The day after the explosion in Gali, the Swedish territory. Another information, Abkhaz “President” announced the suspension of all contacts with Georgia. carried by the daily Dagens Nyheter, is not really the kind to reassure Moscow, The escalation is all the more menacing in South Ossetia. After violent artillery even if it is a secret to no-one in the intel- exchanges around Tskhinvali on July 4, the arrest July 8 by Ossetian police of 4 Geor- ligence world. The FRA shares its informa- gian soliders increased the tension a notch. Certain Russian media even reported tion with “democratic” countries, accor- that Eduard Kokoyty, the head of the secessionist forces, briefly announced a gene- diing to its boss, Ingvar Akesson. The ral mobilisation, an announcement rapidly denied in Tsinkhvali. But the next day, 4 subject has emerged in a bilateral Russo- bombers overflew for some forty minutes the region of Tsinkhvali. For once, Russia Swedish agenda which has been somew- acknowledged the ownership of the planes, indicating that the overflight was aimed hat weighted down by the persistent to deter the Georgian side from launching an offensive. The next day, Tbilissi announ- reservations by Stockholm about the ced the recall of its ambassador to Moscow, as in the autumn of 2006 following an es- Nord Stream gas pipeline and its recent pionnage affair (Russia Intelligence n°39 of September 15 2006). proximity to Poland in proposing a new eastern policy for the European union.d How to explain this sudden crisis and how far can the escalation of violence go ? Certain French diplomatic sources close to the matter declared early in the week to 3 Prosecutor’s office : the Russia Intelligence to be struck by the coincidence between the recent incidents and Chayka-Bastyrkin struggle the contacts made by Brussels and Sergey Bagapsh. In other terms, the visit of Ja- resurfaces in Prague vier Solana to Sukumi, the contacts between Georgians and Abkhaz in Stockholm If the “war of the services” has calmed and the German proposals formulated June 30 in the frame of the Group of friends down since the expulsion of the in Berlin would have greatly worried Russia, not really upset at seeing all the contacts Patrushev-Cherkesov duo and the broken off between its Abkhaz protégés and Tbilissi. appointment of the discreet Alexandre Bortnikov at the head of the FSB, the The other determining factor is outside the bilateral Russo-Georgian context and power struggle is continuing in the concerns the “great game” between Moscow and Washington in the South Cauca- Prosecutor’s office. The latest episode, the sus.The overflight of South Ossetia by Russian bombers took place just before the ar- revelations by the journalist and deputy rival in Tbilissi of the American secretary of State, Condoleeza Rice, who had just si- Alexandre Khinstein on LAW Bohemia, a gned in Prague an accord on the deployment of elements of an antimissile defence Russian property firm based in Prague on Czech territory. whose beneficiary is said to be the boss of the investigating committee of the A certain calm has returned as this number goes to press, but Moscow and Tbilissi Prosecutor’s office, Alexandre Bastyrkin. continue to send each other signals that are not really reassuring. Close to 8000 Rus- In the follow-up, Yuri Chayka, the sian soldiers are participating in “Caucasus-2008” maoeuvres and are training, among Prosecutor general, who has never accep- other things, at peace enforcement missions, exercises linked by the Russian gene- ted the loss of most of his responsibilities ral staff to the deterioration of the situation in Abkhazia and South Ossetia. On the to his assistant, announced that he would other side, close to 1000 American soldiers are participating, beside 600 Georgians meet with Bastyrkin. The latter is now in the NATO “Immediate Response 2008”. under maximum pressure. Through him, it’s Igor Sechin and “hards” of the circles In this matter; the Russian preoccupation is to assure that Georgia — just as around Vladimir Putin who have been Ukraine — is not granted Membership Action Plan satus by NATO in December du- targeted. By coincidence or not, the very ring the next meeting of Alliance Foreign affairs ministers. From this point of view, day of the publication of Khinstein’s arti- the Medvedev position does not differ at all from the one of Vladimir Putin, which is cle, the Justice minister, Alexandre confirmed by the new Foreign policy concept signed by Dmitry Medvedev before the Konovalov, declared his support for the conference of ambassadors on July 15. The objective of the new Russian President is Prosecutor general to recover part of its also to convince the West -- through the Georgian example — that the system of se- investigative powers lost in 2007 to the curity of the continent is inappropriate and that it is imperative to seriously address Committee directed by Bastyrkin.d the proposals for a recasting that he formulated in early June in Berlin.d 2 Russia Intelligence N°81 j July 17 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

d d d From page 1 administative council of Norilsk Nickel. Oleg keover of control by Usmanov of the Kazakh metals and mi- Deripaska and his associates will attempt (with real chances of suc- ning group Kazakhmys, 45.8% controlled by the Kazakh cess) to increase the administrative council from nine to thirteen oligarch of Korean origin Vladimir Kim and in which the members. This possibillity was approved by the shareholders’ gene- State of holds 15%. Certainly Kazakhmys is ral meeting of June 30. To carry this out, an extraordinary general worth half as much as (14 billion dollars meeting must be convoked to vote on the composition of a new against 30 - 35 billion for Usmanov’s assets) but a possible council increased to 13 administrators. The rest of this process re- reverse takeover of the Russian by the Kazakh would make quires a 90-day delay.This lapse of time should be put to profit by the entire group listed in without Alisher Usma- Oleg Deripaska to try to rally others in the minority to his cause, nov having to answer sometimes very indiscreet questions but in the world of Russian business, 90 days are nearly an eternity of the exchange authorities and analysts from the City. If and many things can happen by next October or November. the drawing closer between Metalloinvest and Kazakhmys were carried out (which would understandably in any case, In fact, many questions remain about the real or supposed in- be with the tacit approval of Nursultan Nazarbayev), no- tentions of the associates of the two main protagonists in this mat- one could tell what consequence this could have on the ter, because all is carried out objectively in mimes. conditions for the merger between Metalloinvest and No- rilsk. At the sides of Oleg Deripaska can be found Viktor Vek- selberg (owner of the Renova holding company), who since It can be seen, many uncertainties make the he brought his own alimunium group (SUAL) to Rusal in Norilsk/Rusal equation particularly complex to re- 2007, holds about 18% of the capital of Rusal, which makes solve. We could be pleased to see this conflict, Alisher him the second leading stockholder in front of the fresh whose violence should not be underestimated, Oleg Usmanov associate of Deripaska, Mikhail Prokhorov; a former friend treated at the level of corporate governance of the Deripaska of Potanin, who brought his shares in Norilsk Nickel to Deripaska two groups and business law, and not in the Krem- in exchange for cash and 14% of the capital of Rusal. This trio, ap- lin or worse, in the street...This does not mean that the parently united for the conquest of Norilsk, is not as solid and they Kremlin, the White house (where the Prime minister and want to make believe. What interests the most Vekselberg and Pro- part of the government are housed) and the factions that khorov is that their participation in Rusal be made “liquid” in a rea- these two centres of power shelter may not become invol- sonable delay. ved, nor that pressures of all kinds will not be exercised on the managers, shareholders and administrators of the For now, Rusal has not concretised its IPO project in two companies (it is said in Moscow that Heinz Schimmel- London and its take-over of Norilsk, listed abroad which busch has already paid the price). would allow it to “jump” the stage of introduction on an exchange and to open to Rusal minority shareholders the But at the end, there exist the prospects of controlling Vladimir possibility of an “exit”. If Oleg Deripaska does not succeed, and managing the leading Russian metals and mining group, Potanin he will be in a luxurious minority position in Norilsk, wi- the constitution of such a group figured at the top of the thout an access way to management, a situation that could not long list of the objectives that president Medvedev and his Prime persist, first because markets don’t like to see so much money im- minister Vladimir Putin have accepted.d mobilised in a “sleeping” participation, then because Vekselberg and Prokhorov will want in one way or another to“liquify” part of their Rusal shares. But the cash flow available to Rusal, even if com- fortable, is not infinitely extensive. In addition, the fact that Pro- ALERT khorov was elected administrator of Norilsk and not Vekselberg, al- though he was expected initially, annoyed the latter, who is not 3Sergey Kirienko on the point of known for his great patience when his interests are concerned. The departure ? Russian press in fact in recent weeks has passed on “discussions” According to information gathered by Russia Intelligence, the between Vekselberg and , Vladimir Potanin’s as- strong man of the Russian nuclear sector has declared on sev- sociate. The two men have confirmed... eral occasions in recent weeks to his contacts — including Western business executives — that he considered his mission Alisher Usmanov, as a matter of fact, is not an ally for all times at the head of Rosatom as “accomplished”. Therefore the for Vladimir Potanin. Close to Russian President Dmitri Medvedev, question is being raised in energy circles about a possible Usmanov would have sided with Potanin against Deripaska at the game of musical chairs with, for example, , behest of Medvedev precisely to “enclose” Deripaska’s influence in the former boss of the national electricity company RAO EES, the Russian business world. True or false, this rumour ran before disolved July 1. The possibility of a nomination of Sergey the Presidential election. It nevertheless remains that Usmanov is Kirienko to Kiev to replace , another expected to become a shareholder of between 5 or 10% of Norilsk former Prime minister, has also been circulating in Moscow cir- (he perhaps already is), in anticipation of a merger between No- cles ( the name of the Governor of , Valentina rilsk and his group, Metalloinvest, which operates 40% of the Rus- Matvienko, a native of the region of Khmeltnisky, also sur- sian iron ore. Usmanov himself wants to “liquify” his industrial hol- faces regularly in conversation). It remains obviously to be dings and especially to improve them to a maximum in case of a seen whether the Kremlin also considers the mission of Sergey merger with Norilsk, which probably explains why this merger plan Kirienko to be finished. Certainly the institutional reorganisa- remains vague, as to details of its execution. tion of Rosatom is practically finished, the entry into operation of the ambitious plan of renewing the complex of nuclear Usmanov in fact is examining the possibility of carrying out his power plants (the construction of some thirty reactors is fore- own IPO in London, but he is also looking at other operations. In seen by 2030) and is far from certain.d recent days, there was considerable talk in the City of a possible ta- 3 Russia Intelligence N°81 j July 17 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

ALERTS cc ENERGY 3 Repsol in Sakhalin- The amazing « liberal transformation » III soon? The Spanish hydrocarbon group confir- of Igor Sechin med on July 8 that it was in discussion with to participate in the Rather discreet since his entry into the government, Igor Sechin in recent Sakhalin-III project. A few days earlier, days has demonstrated a remarkable activity, whether in the energy domain or the boss of Repsol, Antonio Brufau, had maritime construction (read article page 7). As a good tactitian, the initiator of indicated to the Financial Times that they the dismemberment of has adapted to the current of the times — rather were at “an advanced stage”. According liberal in the Kremlin at the moment — to promote his interests, which have to information surfacing in Madrid and hardly changed. Moscow, the Spaniards are seeking a 24.9% interest in the Veninskoe bloc The Gazprom pipeline and the Rosneft gas. The main protagonists of the and would be ready to spend 64 million Russian hydrocarbons industry were present Saturday July 5 around Igor Sechin dollars. It should be recalled that the at the White house, the seat of the Russian government. Sergey Bogdanchikov reserves in the Veninskoe bloc are estima- (Rosneft), Vladimir Bogdanov (Surgutneftgaz), Alexandre Ananenkov (Gaz- ted at 169 Mt of crude and 258 billion m³ prom), Vladimir Makeev (Itera), Anatoly Yankovsky (Energy vice minister), of natural gas. The development license as well as representatives of TNK-BP, , ESN and Nortgaz had been in- belongs to Venin Holding Ltd, whose sha- vited to discuss a controversial issue which had been thought dead and buried : reholders are Rosneft (74.9%) and the open access for independent producers of natural gas to the Gazprom network of Chinese company Sinopec. ONGC, the pipelines. Several ministers had addressed the issue at the end of the 1990s but Indian partner for Rosneft in the Sakhalin- had to throw in the towel in the face of unrelenting lobbying by Gazprom. Igor Se- III project, had also made known its inte- chin decided to take up the cause. For a worthwhile cause, it goes without saying, rest for the Veninskoe bloc in 2007 (RI for, according to the vice Prime minister, equal access to the pipelines should al- n°50 of March 1 2007). Repsol has been low independent producers to increase their volume, while national production present on the Russian market since the has tended to slow down. In the first half of 2008, 346 billion m³ were extracted acquisition in 2006 of 10% of the small in Russia, of which 290 billion for Gazprom. firm West Siberian Resources. By entering into Sakhalin-III, the Spanish group is Independent producers supply about 15% of the production, a proportion they hoping to increase the volume of its think could double if they held the required transport capacity. reserves, which have dropped by 28% during the past three years.d In reality, Gazprom has already signed accords with most of the independent producers (Novatek, but also the oil companies and TNK-BP). The gas 3Oleg Deripaska to create giant generally finds space in its pipelines, mostly if the producers concerned ac- a joint-venture with cept to let it have their gas at attractive prices ($46/1000m³ in the case of Lukoil, Rosatom when the current internal market price is $71/1000mn The only significant pro- In our editions of April 13 and October 26 ducer with which business has been blocked is Rosneft. This is where can be found 20007, Russia Intelligence spread the the explanation for the sudden conversion to liberalism of Igor Sechin, recently news about Oleg Deripaska‘s major extended in the presidency of the supervisory board for the public oil group. plans in the nuclear sector. At the time, the boss of Rusal and his right-hand man, Gazprom, it can be guessed, is slamming on the brakes. Alexandre Ananenkov Alexandre Bulygin, had communicated has declared that the proposals by Igor Sechin and the anti-monopoly committee about the construction of two power sta- aiming to make public information about the capacity available in the Gazprom tions in the region of Saratov and in the network constitute a violation of commercial secrets. Matters should neverthe- Far east. No concrete results have been less quickly fall into place after the ministerial meeting on energy held under the made on these two plans, but Rusal conti- chair of Vladimir Putin July 11 in Severodvinsk. The Prime minister in effect made nues to be closely interested in the very hard declarations concerning Gazprom and demanded from nuclear sector. Vladimir Petrochenko, that the conditions for independent producers change radically. the boss of Russkie mashiny, a subsi- diary of Base Element specialised in Oil : the State plans to buid a new refinery in Russia. The touching mechanical construction, has also just concern that Igor Sechin gave proof of regarding independent gas producers may revealed that it was in discussion with also be found in regards to the oil sector. July 9 the vice Prime minister publicly Rosatom. Its objective is the development supported the proposal by Assoneft — an association uniting 4 small producers: of of new generation reactors of the SVRB Nobel oil, Urals Energy, Bogorodskneft and Neftekonsortium — to built a new re- (lead-bismuth) type. Russkie mashiny finery that would not be controlled by a heavyweight in the sector. Not much more would be ready to finance an experimen- is known about the project other than its cost, 8 billion dollars, which might pre- tal unit in Obinsk. Rosatom would allo- sent a problem. Without speaking once more of the opposition of companies al- cate the plans for the reactors to the joint ready possessing refining capacity who would see in a different light the appea- venture. Oleg Deripaska’s group plans to rance of a competitor financed by the State. But in this matter, Igor Sechin might spend between 400 and 500 million dol- be less receptive to the interests of Rosneft. The construction of a new refinery lars in the course of the seven years should in effect stabilise or even lead to a decline of petrol prices in Russia, a po- required, according to Petrochenko, for litically highly-sensitive subject which Vladimir Putin is following closely.d d 4 the development of the prototype. Russia Intelligence N°81 j July 17 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

ENERGY c Gazprom courts Mouammar Kadhafi

Libya is, more than ever, the main target for Russia in the Ma- day as the adoption by the European parliament of a resolu- ghreb. We remember that in mid-April, Vladimir Putin, had made tion on Nord Stream drafted by Polish deputy Martin Li- his last foreign visit there as head of state. An important contract bicki calling for new environmental studies and denouncing had been signed then between the local authorities and RZhD, the an essentially political project. The visit of Alexey Miller to national railway company headed by Vladimir Yakunin (Russia In- Tripoli also sent a signal to his partner ENI. Well-established telligence n°76 of April 24 2008). Also part of the earlier delega- in Libya — with which it has extended by 35 years its exis- tion, the boss of Gazprom, Alexey Miller, once again travelled to ting contracts and concluded an accord for the construction Tripoli on July 9 for a working visit which did not go unnoticed. Re- of a new gas liquification plant — the Italian group is appa- ceived by Mouammar Kadhafi then by the boss of the National rently in no rush to proceed on an exchange of assets with Oil Corporation (NOC), Shukri Ganem, Alexy Miller proposed no Gazprom which should take place as compensation for the more, no less than to buy all the future amounts of oil, natural gas entry of ENI into Aktikgaz and Urengoil in 2007. But it re- and LNG from Libya available for export at “competitive” prices. mains to be seen whether, by going hunting in the traditio- According to Gazprom, these proposals were positively received, nal grounds of its partner, Gazprom will not reinforce its and bilateral discussions on the subject should begin during July. conviction that it would unwise to give up to the a The Russian group and NOC also decided the creation of a joint- stake, for example, in the giant Elephant deposit, as it was venture that will be charged with the construction of new capaci- a question of up until now (Russia Intelligence n°52 March ties of refining on Libyan territory. A gas pipeline between Libya 2007). and Europe is also under study. NOC also proposed to Gazprom some fields for exploration and production. In an interesting de- Opinions in Moscow differ on the exact impact of the co- tail, three of them had been awarded to Naftogaz Ukrainy in 2004, operation between NOC and Gazprom. The Algerian prece- but the Ukrainian group had not been able to meet its commitments dent shows that the Russian progress in the Maghreb was fra- for investments. It amounts to both a commercial success and a gile (the memorandum signed in the summer of 2006 between thunb on the nose to Ukraine by Alexey Miller, just a few days af- Gazprom and Sonatrach has remained a dead letter). The ter having announced that the gas delivered to Naftogaz beginning Kremlin also knows — for having frequented him since the in 2009 will be at world prices (Ukraine Intelligence n°59 of July 1970 — that Mouammar Kadhafi is a difficult and versatile 3 2008). interlocutor. But it remains that Gazprom has known how to progress patiently and consolidate its presence in Libya these The announcement by Gazprom concerning Libya is an impor- last few years. It should be recalled that Alexey Miller’s group tant signal. In the follow-up to the visit by Dmitry Medvedev and had won in 2006 and 2007 the bidding for 2 promising blocs in Ashgabat (read page 8), Gazprom is once again looking to pull (n°19 and 64). As part of its exchange of assets with Win- the rug out from under the feet of Europeans by pre-empting ex- tershall, Gazprom also obtained 49.9% of 9 deposits opera- ports from one of the countries that will be called on to play a gro- ted by its German partner.d wing role in the EU’s energy supply. This reminder came the same

Serbia : the new government bargains on ratification of the natural gas accords with Moscow

In its edition of last February 13, Russia In- Dvor. The second aspect concerned the pri- rial commission that will presided by Mlad- telligence underlined the political uncer- vatisation of the national hydrocarbon com- jan Dinkic, promoted to vice Premier in tainty surrounding the ratification of the pany Naftne Industrie Serbje (NIS) for the charge of the economy. It will be charged Russo-Serbian energy accords signed with benefit of . This transaction with resuming the negotiations with Gaz- great pomp in January in the Kremlin.The should be concluded by mutual understan- prom in view of obtaining more advanta- departure of the cabinet of Vojislav Kostu- ding for 400 million euros, to which would geous financial conditions for the privatisa- nica — the main partisan of a closer rela- be added an investment plan of 500 million tion of NIS.Failing this, the “energy package” tionship with Moscow — then the formation euros. It had aroused criticism from the Eu- of January 25 will not be ratified by the Serb of a pro-European government coalition in ropean commission and certain members of parliament, according to Djinkic. fact changed the situation in Belgrade. the Serbian government, such as Mladjan Dmitry Malyshev, “Mr Serbia” at Gazprom, As a reminder, the intergovernmental Djinkic (Russia Intelligence n°70 of January let it be known that it was not a question of Russo-Serbian accord contained two seg- 20 2007). renegotiating the price of NIS.The Russian ments. The first concerned the South At this stage, President Boris Tadic and the group would, however, be ready to review Stream gas pipeline. Gazprom committed new head of government Mikro Cvetkovic upward the amount of its investment plan. It itself to ship at least 10 billion m³ a year do not seem to want to abandon the bilate- can hardly be imagined nevertheless that through Serb territory and in exchange ob- ral Russo-Serb accords of January 25. They Gazprom, whose profits could reach 50 bil- tained 51% of the operator charged with the have in fact been approved again by the lion dollars in 2009, could jeopardise such a construction and operation of the future Council of ministers of July 10. But with an strategic project as South Stream by refu- pipe.The Russian group should also create important discordent note. The government sing a bonus of a few hundred million euros an important stockpile centre in Banatsky in effect decided to create an interministe- for the Serbian government.d 5 Russia Intelligence N°81 j July 17 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

FOCUS c Rostekhnologii : Dmitry Medvedev gives his support The episodes of Rostekhnologii are reaching their conclu- telligence n°67 of December 6 2007). The liberals in the econo- sion. The Russian President signed on Thursday July 10 a long- mic side of the government — Alexey Kudrin and Elvira Na- awaited decree detailing the list of assets that will be deposi- biullina — later tried to convince Dmitry Medvedev to exclude ted as capital in the new State holding company managed by , as well as a certain number of assets in the mining sec- . It was his former right-hand man at Obo- tor and air transport from Sergey Chemezov’s shopping list (Rus- ronprom, now Industry vice minister, Denis Manturov, who sia Intelligence n°71 of February 14 2008 and n°79 of June 19 announced the news in the margins of the interministerial 2008). meeting on energy July 11 in Severodvinsk. In the end, no less than 426 enterprises will join the group whose perimeter will A sheer waste of time, or nearly so, since Rosteknologii obtai- extend from defence industries to air transport, by way of mi- ned practically the totality of the assets he wanted. Among the nerals and automobiles. According to our information, it will meagre concessions conceded by Sergey Chemezov should be no- be Igor Shuvalov, the 1st vice Prime minister (biographic pro- ted the retention of a golden share for the State in defence com- file in Russia Intelligence n°79 of June 19 2008), who nego- panies, as well as the exclusion from Rostekhnologii of the 25.1% tiated the final arbitrage between the approval of the draft of the airline Sibir and certain buildings in front of the Krem- decree by Vladimir Putin in mid-June and its signature by lin. On the other hand, Sergey Chemezov obtained satisfaction Dmitry Medvedev. on Kamaz, in which he will receive a 38% stake, as well as the in- terests of Moscow in the Russo-Mongolian State joint-ventures The least that can be said is that Sergey Chemezov must (Erdenet and Mongolrostsvetmet copper deposits). have held the bar firmly to sail into his port of destination. Suggested as early as 2005, the constitution of Rostekhnolo- Sergey Chemezov’s new industrial empire, which is worth se- gii initially clashed against the reticence of the Prime minis- veral dozen billion dollars (a more precise evaluation will be pos- ter of that period, . It was only after the no- sible only after the transformation of all the components into mination of Viktor Zubkov that matters were unblocked (Russia share companies), will be structured around several poles : de- Intelligence n°63 of October 11 2007). Other officials then fence and aeronautic (), special steels (Russpets- came to the defence to express concern about the appetite of tal), mines and metals (VSMP-Avisma, Erdenet), air transport Sergey Chemezov. First there was Sergey Ivanov, who was re- (AirUnion) and automobiles (AvtVAZ, Kamaz). Sergey Chemezov luctant to give up to Rostekhnologii large segments of the mi- plans to list shares of some of the companies in Rostekhnologii litary-industrial complex. The Defence minister, Anatoly Ser- in 2010. The State will continue to hold a majority and will fol- dyukov, from his side worked so that the new holding company low a strategy for the holding company through a supervisory did not receive the task of managing acquisition programmes board with strengthened authority and a president who is still for the armed forces, as was suggested for a time (Russia In- to be named. d

TNK-BP : the calm after the storm ? The struggle between the Rus- rector general of the Russo-British joint ven- meetings between Dmitry Medvedev and sian and Brisith shareholders ture. As in June, the Russian shareholders Gordon Brown in the margins of the sum- of TNK-BP, which Russia In- could not get the scalp of Robert Dudley. The mit of the G8 in Hokkaido July 7 were not telligence has analysed at administrative council of TNK-BP Ltd held on particularly warm, assurances were given by length in its previous editions, July 11 in Cyprus maintained the status quo the Russian side on the neutrality of the Viktor is entering into a new phase. : and his partners had seen State in this affair. In this case, BP might Vekselberg If nothing has been resolved their demands rejected (other than the dis- hope that the Kremlin call Viktor Vekselberg on the essentials — which missal of Robert Dudley, they wanted to re- and his partners , German was demonstrated at the last administrative cover their general delegation in the petro- Khan and Leonard Blavatnik, to order, but council of the group — the two parties seem leum group and the capacity to name the promise of non-intervention is neverthe- to want to ease tensions and find a negotia- representatives in the administrative councils less considerable in view of what had happe- ted solution. The first days of July had howe- of subsidiaries in TNK-BP — a prerogative ned in other cases such as Sakhalin-II for ver seen a new rise in friction. BP had an- exercised today by Robert Dudley — in order example. nounced its recourse to British justice to to be on an equal footing with the British). The scenario which seems to be outlined is obtain the reimbursement from the Russian Although the conflict appears to be at an im- therefore the one of a gradual de-escalation shareholders in TNK-BP of some 360 million passe, certain signs indicate a possible re- of the conflict. The Russian side — which dollars, which corresponds to the tax arrears laxation.Several dozen British could not show its muscle — and the British of one of the TNK subsidiaries which had workers at TNK-BP have been — which wants a return to normalcy in order been paid by the “comon pot”. This action able to obtain work permits not to penalise the group’s activities -- took place on the eve of the extraordinary (Robert Dudley who himself should engage in calmer discussions. In pa- administrative council of TNK-BP Manage- feared his visa would not be rallel, TNK-BP, according to our information, ment called at the request of Viktor Veksel- extended, was finally not bo- will soon close the Kovytka deal. Gazprom berg and which had as its main item the Robert thered and has remained in would have in June made a more generous possible dismissal of Robert Dudley, the di- Dudley Moscow).In addition, if the offer, close to one billion dollars.d 6 Russia Intelligence N°81 j July 17 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc NAVAL ALERTS The new Sechin-Chemezov axis 3 Sukhoi : the Su-35 takes flight, delay for the Super- Already very active in his favourite sector, hydrocarbons (read article page 4), Jet 100 the new vice Prime minister Igor Sechin is entering another major industrial do- The cream of the Russian air force as well main, maritime construction. Named to the presidency of the supervisory board of as representatives of several military mis- the public holding company OSK in May (Russia Intelligence n°78 of May 29 2008), sions in Moscow were present at the offi- he is preparating for a nomination that will additionally provide proof of a drawing cial introduction of the Su-35 organised closer to another heavyweight of the Russian political-industrial landscale — Ser- July 7 in Zhukovsky. The aircraft of the gey Chemezov, the boss of Rostekhnologii. Among the major industrial reorgani- 4++ generation is expected to bridge the sations initiated by the Kremlin (aeronautics, nuclear, electricity...), those linked gap between the family of Su-27/30 and to the maritime construction sector are undoubtedly encountering the most diffi- the 5th generation plane awaited for culties.The public holding company OSK, which unites, it should be recalled, the 2015, the Su-35 has completed its flight totality of the State interests, from institutes for fundamental research up to the test phase. The full series production shipyards, and in fact saw the day on November 14 2007. In the opinion of most should begin in 2011 with interesting prospects for exports. Moscow observers, it nevertheless exists only on paper. No new dynamic has been The success of Sukhoi in the military do- generated on the industrial level, which in fact was publicly regretted by Vladi- main could not completely overshadow mir Putin May 13 in Saint Petersburg. Moreover, the management of this process other, less pleasant, news. The SuperJet by the Kremlin gives the impression of a great confusion and an absence of conti- 100, the regional transport plane develo- nuity in the reform. The procession of managers at OSK is one of the most evident ped in partnership with, among others, symptoms. In the spring of 2007, it was General Alexandre Burutin, Vladimir Pu- Thalès, Boeing and Alenia, is experien- tin’s former military adviser, who was confided the launch of the restructuring pro- cing a delay of a year. Valery Okulov, the cess (Russia Intelligence n°52 of March 30 2007). Named, the n°2 of the general director general of , has received staff, Alexandre Burutin passed the baton to Yuri Yarov last autumn.Close to the an official notice informing him that his Prime minister of the period, Viktor Zubkov, Yuri Yarov — a former minister for company would not receive its aircraft , who for a time occupied the post of executive secretary of the CIS until the 3d quarter of 2009. — was not convincing. As early as May, he was said to be on the way out. Accor- Theoretically, this delay could lead to ding to information filtering at the time, his successor should be Andrey Dutov, compensation payments of $12000 per the former boss of Rosprom, the Federal Industry agency, backed by Sergey Na- day and per plane or even lead to a rup- ryshkin, the new head of the Presidential administration (Russia Intelligence ture of contract. In view of the industrial and political investment that the SuperJet n°78 of May 29 2009). The matter seemed decided, until a new rebound occurred 100 represents, it is difficult to imagine in early July. It was then learned that the candidacy of Andrey Dutov was no lon- the Kremlin allowing Aeroflot take that ger current. Igor Sechin was said to have not appreciated being short-circuited in path.d May by Sergey Naryshkin and would have imposed his veto. A new name has been put forward by the vice Prime minister in anticipation of the OSK administrative council meeting on July 10 — Vladimir Pakhomov. 3 The former boss of the Unlike Alexandre Burutin and Yuri Yarov, Vladimir Pakhomov has a lengthy ex- space sector appointed perience in the naval sector. Since 2000, he has been 1st vice president of Roso- deputy Defence minister boronexport, where he was charged specifically with naval equipment. He is consi- General Vladimir Popovkin, 51, dered as being close to the former boss of the arms export agency, Sergey Chemezov. has just been named vice minis- ter of Defence in charge of ar- The “Pakhomov surprise” is interesting from more than one angle. In the first maments replacing Vladimir place, because it illustrates a drawing closer of two friends of Vladimir Putin — Vladimir Makarov, the new boss of Roso- Igor Sechin and Sergey Chemezov — whose paths up to now had not crossed. It is Popovkin boronpostavka, the federal too early to tell if it involves an temporary and tactical alliance or it announces a agency charged with acquisition of mili- real cooperation, but the matter should be followed closely. According to the in- tary materiel. The nomination formation gathered by Russia Intelligence, Sergey Chemezov — who is not a fa- of Vladimir Popovkin is interes- vourite of liberals around Dmitry Medvedev — would look upon Igor Sechin as an ting in many ways. First of all objective ally, who might be useful to him in matters other than the defence in- because the envelope of the dustries. Those that come to mind include, for example, the mining sector (the Viktor procurement ministry has Udokan copper deposit), where the boss of Rostekhnologii is confronted by the in- Cherkesov grown rapidly (11.5 billion eu- terests of the Kovalchuk and Yakunin networks (Russia Intelligence n°76 of April ros in 2009). Also because it si- gnifies that the military space sector, 242008). which Popovkin was in charge of up to now, will undoubtedly be coddled in the The appearance of a Sergey Chemezov faithful at the head of OSK should on the coming years. A priority that will also be other hand again place on the agenda the question of the positioning of Sergey boosted by the announced deployment Pugachev in the naval sector. It is recalled that in 2006, he had succeedeed in re- of elements of the American antimissile pulsing the advances of , which coveted his Saint Petersburg shi- defence in the Czech republic and Po- pyards (Baltiysky zavod and Severnaya verf). It is a good bet that with Vladimir land after the visit of Condoleezza Rice Pakhomov in the lead, Sergey Chemezov will soon mount a new charge in this af- to Praha July 10.d fair.d 7 Russia Intelligence N°81 j July 17 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Regions & CIS

ALERTS cc CASPIAN 3 Inguchetia : a massive Will Dmitry Medvedev bury Nabucco ? petition in favour of Ruslan Aushev Before attending the G8 summit in Hokhaido, Dmitry Medvedev undertook 80 000 signatures of Ingush citizens (or half an important diplomatic journey in early July in the Caspian region that took of the eligible voters in the small republic of him to Baku, Ashgabat and Astana. The objective was to reaffirm the Russian the North Caucasus) and an open letter to positions in the natural gas “great game” which has shaken the region and in Dmitry Medvedev should be transmitted which has seen its positions erode to the benefit of the Westerners and Chinese before July 20 to the Kremlin. Following the (Central Asian & Caspian Intelligence n°32 of July 3 2008). If the Kremlin ap- particularly violent repression of an opposi- parently scored some points in Azerbaijan by supporting the new commercial tion demonstration in Nazran at the begin- proposals by Gazprom, matters are more complicated with Turkmenistan, whose ning of the year (Russia Intelligence n°70 of President Gurbanguly Berdymukhammedov is firmly decided on increasing the January 30 2008), this action aims at the des- bidding. titution of President Murat Zyazikov and the return to power of Ruslan Aushev. Forced Can Ilham Aliev refuse the offer by Alexey Miller ? In its edition of June to resign from his post in 2002 by the Krem- 19, Russia Intelligence had reported the unexpected offer made by the boss of lin, the latter is still very popular in the repu- Gazprom to buy, at market prices, the entire amount of Azeri natural gas avai- blic, where he represents a last resort in the lable for export. We recall that as of now, Baku exports its gas toward Georgia face of an interrupted deterioration of the se- and Turkey at $120/1000m³. By proposing at least twice that amount, Alexey curity situation. It is nevertheless unlikely that Miller hopes to pull the rug out from under the feet of the Europeans and cap- the Federal power will swallow this scenario. ture all or part of the gas that could, the time arrived; supply the Nabucco gas No-one in Moscow is unaware of the situa- pipeline, the rival of the Russian South Stream project. It was this offer that tion in Inguchetia, but to reinstate Ruslan Dmitry Medvedev came to repeat to his Azeri counterpart on July 3. According Aushev to power would amount to a disavo- to information that filtered in Moscow, Gazprom could initially import up to 5 wal of the policies put in place by Vladimir billion m³ through the pipeline crossing Dagestan used until 2007 to export Rus- Putin in the region.d sian natural gas to Azerbaijan). Swap operations on the Turkish market were another option visualised. Ilham Aliev has up to now withheld his reply, decla- 3 Alexandre Lukashenko ring only that he would think about it. Baku’s strongman is confronted with a purges his power structure veritable dilemma. While the socio-economic situation in his country is far from The mysterious bomb attack which left brilliant, we can hardly imagine Ilham Aliev brushing aside a proposal that would some fifty wounded in the centre of bring several hundreds of million dollars to his country. But he also cannot ignore Minsk July 4 during a concert organised than the Gazprom offer would invariably be interpreted in Brussels and Wash- for Belarus independence festivities has ington — without speaking of his allies in GUAM — as a major political signal. already led to important political conse- The Azeri Foreign Minister, Elmar Mahmedyarov, in any case stated on July 4 quences. Alexandre Lukashenko dismis- that the determining criteria for his country’s gas projects would be their eco- sed without mercy two his faithful follo- nomic relevance. Another important element, SOCAR — the public hydrocar- wers, Viktor Sheyman and Gennady bon of Azerbaijan — had itself proposed to Gazprom early this spring to sell Nevyglas. The first held the post of secre- part of its gas. The idea of opening another export channel by the north is ma- tary of the national security council, after king its way in Baku, as can be seen. having been chief of the presidential administration and general prosecutor. Turkmenistan : Gazprom always hopeful. The Turkman phase of the tour The second had notably directed presi- by Dmitry Medvedev was aimed a assuring the commitment of Gurbanguly Ber- dential security from 2000 to 2001. The dymukhammedov to operationalise the gas accords signed in May 2007 with Vla- Belarus opposition believes that the July 4 dimir Putin. At the time, Ashgabat and Astana had notably agreed the construc- attack is a provocation that will serve as a tion of a new circum-Caspian gas pipeline with a capacity of 30 billion m³. The pretext for the power to step-up repres- Russian President and the Gazprom managers also hoped for guarantees by the sion on the eve of legislative elections in Turkmen aithorities to respect the 2003 accords under which their country com- September. Russia Intelligence sources mitted itself to deliver to Russia for 25 years, all its gas available for export, with also indicate that severe struggles for the exception of that destined for . In the end, uncertainty remains, des- influence are raging in the circles around pite the pre-emptive declarations by Sergey Prikhodko, Dmitry Medvedev’s di- the Belarus President and the perpetra- plomatic counsellor (according to him Nabucco is a project that “exists only in tors of the explosion sought perhaps to the imagination of European civil servants). Gazprom managers should once discredit Vladimir Naumov, the Interior again visit Ashgabat before the end of July to pursue negotiations.d minister.d

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