N°85 - October 9 2008 Published every two weeks / International Edition CONTENTS FINANCIAL CRISIS P. 1-3 Politics & Government c FINANCIAL CRISIS The game of massacre in Moscow c The game of massacre in The financial crisis has turned into a game of massacre in Moscow. October 6, 7 and 8, the Rus- Moscow sian stock market had to suspend operations several times, which did not prevent some shares from ARMY plunging by unimaginable proportions. Gazprom lost close to a quarter of its value in one session, No- c Serdyukov draws the lessons from the war in rilsk Nickel close to 40%, these two firms being probably the worst hit because they are the indus- Georgia trial standard-bearers of the Moscow marketplace and are especially the most “liquid” assets. The ALERT entirity of the listed Russian oil sector (including Transneft and Novatek) is worth today a bit less c Russia-Iceland : the than 130 billion dollars, or the equivalent of the value of the Brazilian company Petrobras according underside of a loan with to simulations by Russian analysts, which gives an idea of the price that Russia is paying in the cur- interest rent financial crisis. Even if the collapse of the Russian markets is totally exaggerated, investors consi- FOCUS der that Russia combines three major risks : a liquidity crisis in the banking sector despite massive c Anti- corruption campaign, support by the public authorities, a heavy indebtedness by the major industrial and energy compa- national cause or lost cause nies and the drop in oil prices and most of the primary commodities, on which the economic activity BEHIND THE SCENE is based. c The Union of rightist forces scuttles itself In the storm of the last few days, a certain number of facts are particularly significant : P. 4-6 Business & Networks 1/ Hardly anyone knows fully what is going on in the inner workings of the banking sector. The data revealed by the Central bank for the first eight months of the year in fact demonstrate the complete FOCUS surprise that the crisis has provoked in recent weeks. At the end of August, corporate and private de- c Transhmashholding : a boulevard for Alstom posits were on the increase by 60% over the same period in 2007 (974 billion dollars). On the credit side, it was, for the same period, on the rise by 52% for companies and 38% for individuals, figures in- ENERGY c Asia : Moscow explores the dicating a record progression. Since the start of the crisis, the “Kudrin package” for the banking sec- Korean option tor could be estimated at 200 billion dollars by the end of September, or 11% of the estimated GDP c Gazprom consolidates its for 2008, which is not negligable. But on October 7, the authorities announced supplementary mea- alliances in Germany and sures : 36 billion dollars in loans accorded to banks, for a period of five years, of which 19 billion for Italy the Sberbank, 8 billion for the Vneshtorgbank, 1 billion for the Rosselkhozbank and 9 billion for the LATIN AMERICA other banks. Nevertheless, the greatest secrecy reigns over the way these funds will be spread into c La Paz, new extension of the entire financial sector and toward companies and the greatest anxiety reigns over the number of Moscow/Caracas axis banks and companies that risk being left on the floor for technical or political reasons. 2/The major players in the energy, metal and mining sectors are beginning to be extremely weake- P. 7-8 Regions & CIS ned by both the very significant drop in prices and by liquidity problems. Oleg Deripaska, considered CHECHNYA up until now as the most powerful oligarch in Russia, even if this type of classificaton hardly has any c Interview with Mairbek sense, has been struck in a very concrete fashion. His group announced October 3 that the 20% of the VACHAGAEV Canadian auto component manufacturer Magna, acquired in 2007 at a cost of 1.54 billion dollars, MOLDOVA/TRANSDNISTRIA through a loan of 1.2 billion from BNP Paribas, had “left” the perimeter of the group to the profit of c Russia and the West strug- gle for the initiative the French bank, which held a guarantee on these shares. Accordiing to persistent rumours in Mos- cow, the 30% of the Base Element group in the public works firm Strabag and the 10% in Hochtief, purchased in 2007, were also in a position of being transferred to creditor banks. Strabag, involved in SUBSCRIPTION Print Edition very important property projects in Moscow and Saint Petersburg (last year its turnover in Russia (23 issues, airmailed overseas) amounted to 1.6 billion euros in a total figure of 9.8 billion), has in fact announced a freeze of certain €770 TTC sites, for a volume of 200 million dollars. Another important subsidiary of Base Element is in diffi- The Web Pack culty, the automobile manufacturer GAZ (Gorki Avtozavod), which announced October 7 the stop- (Print Edition page of all its activities because of the lack of liquidity to pay its suppliers. Suddenly, questions arise + PDF + archives acess) as well on the fate of the 25% interest by Rusal in Norilsk Nickel, bought from Mikhail Prokhorov for € 880 TTC a total of 7.5 billion dollars, and 14% of the capital of Rusal. The operation was conducted by borro- The Premium wing 4.5 billion dollars, guaranteed by the Norilsk shares. Financial analysts have already calculated Subscription that in view of the collapse of the Norilsk shares (which have gone from 285 in April 2008 to less than (Print Edition + PDF + access 100 recently), Rusal must have spent at least 1.5 billion dollars in margin calls and if the value of No- to all the website contents) rilsk continues to drop, this amount might even reach 3 billion. ddd € 1200 TTC www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government ARMY c Anatoly Serdyukov draws the lessons from the war in Georgia A bit more is starting to be known about the measures that nual budget that must be examined in second lecture on Oc- the Russian authorities intend to take to remedy the weak- tober 17. These amendments foresee an additional increase nesses brought to light by the “five-day war” against Georgia in the allocation for the Defence ministry of 68 billion roubles (Russia Intelligence n°82 of August 28 2008). If information (a bit more than 2 billion dollars) next year. Which, added to circulating in Moscow can be believed — information judi- the increase originally adopted, will lead to a growth in mili- ciously distilled by the media just after Dmitry Medvedev, on tary expenditures of 25% in 2009 (1277 billion roubles, or around September 30, noted the compelling need to improve the lea- 36 billion euros in exchange rate parity). dership structure — the central administration of the Defence ministry and the General staff should experience important It is a bit less than announced by Vladimir Putin in Sep- personnel reductions. The directorate general for operations tember (he had spoken of 80 billion roubles). More than any- and the one in charge of the organisation and mobilisation are thing, these additional expenses are to go for constuction of especially concerned since a “streamlining” on the order of new iunfrastructure and not for the procurment of materiel, 50% of the officer staff has been suggested. It must be said that which seems in contradiction to the announcements of the the number of posts in the general staff had not been signifi- Russian Prime minister and President “on the spot” after the cantly reduced since 1990, although the overall manpower of war in Georgia. As a result, it cannot be excluded that the cor- the army went from 4.5 million to 1.3 million. In addition, since rected budget proposed by the Defence commission and the it is not able to provide its higher-grade officers coming from “extension” announced by Vladimir Putin lead to different the provinces accommodations worthy of the name in the ca- things, and that another distinct budget line for the acquisi- pital, the Defence ministry had gradually abandoned any tur- tion of additional arms will soon appear. If the “five-day war” nover within the general staff and had been recruiting Mosco- has the effect of drawing attention of the Kremlin to the need vites above all, leading to the appearance of a special caste of to renew materiel and to invest in high-technology projects colonels and generals with no unit command experience for such as drones or the Glonass navigation system, it is impos- more than a decade. More surprising, military intelligence sible to also say that we are witnessing the “militarisation” of (GRU), at the spearhead of the Caucasus conflicts, had not the Russian budget. Expenses allocated to national defence in been spared. fact represent a bit less than 2.5% of GDP, and the increases expected in 2010 and 2011 (8.86% and 6.45%) are below cur- According to sources close to Anatoly Serdyukov contacted rent inflation. d by Russia Intelligence, these decisions had been taken as ear- lier as the summer. The war in Georgia only served to provide ALERT a pretext to accelerate their implementation. It is a good bet that this series of measures, which have not been officially an- 3 Russia-Iceland : the underside of a loan nounced but whose pilosophy are not in doubt, will not contri- with interest bute to an improvement in the already tense relations between the Defence ministry and the top military echelons. The latter First denied by the vice Finance minister Dmitry Pankin, then by has not accepted the reforms initiated by Anatoly Serdyukov, the vice Prime minister Alexandre Zhukov, who were obviously in which the uniformed services still see a former furniture not in on the secret, the information was then confirmed Tuesday dealer or, at best, a former tax agent.