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Home , Anatoly Kvashnin, Andrey Borodin, Arkady Rotenberg, Dmitry Kozak, Mikhail Prokhorov, Suleyman Kerimov

N°76 - April 24 2008 Published every two weeks / International Edition CONTENTS KREMLIN P. 1-3 Politics & Government c faces a « Putinian » steamroller KREMLIN c Dmitry Medvedev faces a We would like to believe in the “soft” version of the transition in the Kremlin according to which Dmi- « Putinian » steamroller try Medvedev and agree completely and especially on the allocation and geography of the ALERTS power between the President of the Federation and “his” Prime minister. But the truth requires acknow- c 5th generation combat air- ledgement that the ground between the two men is not as pacified as they would like us to believe. From craft : Brasilia enters the race many signs that we have decyphered in this edition, it can be seen that a quiet struggle is underway, that FOCUS it is more the work of “Poutinian” elements of Russian power and that they aim at restraining Dmitry Med- c Medvedev-Putin : who will vedev in a sort of institutional and political collar that he could have trouble liberating himself from, at control the regions ? least in the first months of his presidency. LIBYA c RZhD's bountiful harvest The fact of elevating Vladimir Putin to the head of party that he is not a member of, United , is Russia" the last of the “innovations” from those close to the President to install the future Prime minister in a sta- c Balkans : a second Russian tus of “national leader” and to limit the President in the role of super Foreign affairs minister abandoned wave in energy and metals to internatioal summits and protocol encounters. In the wings, other “reforms” are under preparation, in- cluding some treating a subject that was up to now virtually taboo in Russia : the territorial partitioning P. 4-7 Business & Networks of the Federation. For several years, we have witnessed some regrouping of regions between themselves, OG -2014 notably in the north and in . This strategy should continue and even be accompanied by new ini- c Alexandre Tkachev and Oleg tiatives such as the creation of a dozen economic “super regions”, led by “super governors” having the rank Deripaska get Semyon of vice ministers, therefore members of the government and depending on the Prime minister (read page Vaynshtok's scalp 2). In a related domain, the role of the “high representatives” of the President could evolve in order to TRANSPORT place them under the more direct control of the government.We can well perceive the underlying inten- c East Line and the tions of these projects, not all of which may see the light of day nevertheless : to change the balance of po- Domodedovo airport, the new battlegrounf of the clan war wer between the President and the Prime minister without having to resort to modifications in the consti- tution. The major reform announced in the autumn of 2004 by Vladimir Putin, the suppression of gubernatorial ALERTS c Alitalia : Aeroflot in reverses elections by popular vote, had as a goal the replacing of the regional leaders of the Federation under the direct control of the Kremlin. The entourage of the outgoing President apparently nourishes the ambition MINING c Yakunin, Makhmudov and of achieving a new transfer and to reposition the governors in the hands of the governmet and not the pre- Dmitriev in pole position for sidency. It is hard to believe that Dmitry Medvedev could allow himself to be stripped in this way, unless the privatisation of the Udokan he automatically renounces to exercise his full powers bestowed on him by the constitution, which up to copper deposit now his speeches have rejected. FOCUS c Potanin-Prokhorov finish by In other domains, there is no evident truce in the clan wars , even within a few days from the introni- separating on good terms sation of Dmitry Medvedev. A few “hot” issues are waiting on the desk of the future President that illus- trate the ferocious battle already underway for several months and which we have extensively related, between the “Cherkesov” clan and the “Sechin” clan. The latest battleground to date concerns control of P. 8 Regions & CIS the airport of Domodedovo (read page 5) that the “Sechinians” would like to capture from the “Cherke- FOCUS sians”, the brutality of the offensive has, however, created a certain emotion in Russian business circles, c Chechnya : Kadyrov wants to eliminate Yamadaev who have already seen many others. We could also cite the conflict that opposes of RAO UES against the inevitable , as chairman of Rosneft, concerning the privatisation of the energy company TGK 11, which Chubais intends to carry out fully and which Sechin opposes before the courts. Dmitry Medvedev has been presented the issue, put under notice to decide between the two, and decided SUBSCRIPTION Print Edition to create...an arbitration commission, a prudent step that is all the more surprising since it involved two (23 issues, airmailed overseas) state companies whose managers should normally be subject to his orders... And we could also cite the €770 TTC last developments that occurred at the head of the committee charged with the preparation of the winter Olympic games of 2014 in Sochi (read page 4). The Web Pack (Print Edition + PDF + archives acess) This agitation, at the same time institutional, political and commercial, is a sign of a certain anxiety in € 880 TTC the midst of Russian power, about the way the distribution of power between the President and the Prime minister will be organised. Certain Russian political scientists or those who claim to be do not hesitate to The Premium state that the “duo-poly” is an assurance of stability and balance. At this hour, it hardly seems to be and Subscription (Print Edition + PDF + access instead there are perceptions of the establishment of a “counter-Kremlin” around Vladimir Putin without to all the website contents) anyone knowing exactly what ramparts Dmitry Medvedev will erect against those who already want to chal- € 1200 TTC lenge his power. d www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

ALERTS cc FOCUS 3 5th generation combat aircraft : Brasilia enters Medvedev-Putin : who will control the race Following India (Russia Intelligence n°64 the regions ? of october 25, 2007), it is the turn of For several weeks, initiatives, discussions and rumours have multiplied in Mos- Brazil to sign a cooperation agreement cow concerning the possible recomposition of relations between the central po- for development of the 5th generation wer and the “subjects of the Federation” with, as an underlying theme, the ques- combat aircraft (PAK-FA). The text was tion of power-sharing between Dmitry Medvedev and Vladimir Putin after completed April 15 during the visit to May 8. by the Strategic affairs minister Roberto Mangabeira Unger. Brazilian Two verticals of power ? The start of the intrigue goes back to the month of experts consulted by Russia Intelligence March. The young deputy from Pavel Semyonov introduced an underline that no details were provided amendment to a text of an apparently anodine law on the status of civil concerning a possible financial participa- servants.”Blown up” by the presidential administration, the amendment lifts the tion by Brasilia. prohibition against the combination of the status of elected official and federal ci- According to them, Roberto Mangabeira vil servant. It became quickly apparent that the object of this legislative cosmetic Unger — an intellectual member of the was to confer to the governors (or a certain number of them) the authority over Harvard Law School faculty — fre- the representations of the federal ministries in their regions (often considerably quently assumes the role of “ideas mi- more important in staff than the regional authorities themselves). In this case, nister” but does not hold the purse- the governors would become links in the governmental chain, which would, in fact, strings. He is nevertheless the author of place them under the authority of the Prime minister. the Defence White book that should be published next September. According to Coincidence or not, this episode came at the same time as several leaks in the our sources in Brasilia, a commitment in Moscow press relating a possible evolution of the role of the high presidential re- favour of the PAK-FA would strengthen presentatives (“Polpredy”) in the federal districts. Their primary mission (the har- Sukhoi’s chances of placing its Su-35 monisation local legislation with the federal constitution) being accomplished, while awaiting the full production of the they could see themselves being assigned some new tasks, in particular in the so- 5th generation fighter (probably by cio-economic domain. A slide that would distance them from their initial role as 2015). In the shorter-term, the outcome sub-prefects of the Kremlin. In early April, the deputy Sergey Pekpeev, a member of the Brazilian Defence ministry call for of the commission on Federation affairs and regional policy, even let it be unders- tender on combat helicopters will pro- tood that the “polpredy” might in the future be attached to the Prime minister. vide a first indication. The Mi-35M is well-placed, even if Agusta in recent ’s new plans. The Regional development minister is days has waged an intense lobbying naturally very active in the current debates on federal reforms. He campaign to get the prize in extremis. presented on April 10 a draft aiming to set up a new method of eva- luating the work of governors. In principle, nothing shocking, ex- 3 The Bushehr power sta- cept that up to then it was the role of the presidential administra- tion : steps in tion (which is more logical since after the reforms of 2004 the head While relations between Moscow and of State had the power to dismiss the heads of regional authorities). Tehran appear to have progressed early In fact, we can hardly imagine that the president could retain a go- this year with the first deliveries of fuel Dmitry Kozak vernor with poor ranking or the opposite, that he discharge a “good by TVEL (Russia Intelligence n°72 of student” in the eyes of the government. february 28, 2008), a new obstacle has surfaced that seems to have compro- Another idea circulating in Moscow—the remodelling of the Russian territory mised the entry into service of the in 8 or even 10 economic macro-regions (a re-drafting that would restore the one Bushehr nuclear power station by Sep- existing in the period of Soviet Russia). New “super governors” would emerge from tember 2008 as Atomstroyexport had each of these new entities and would see themselves bestowed with the status of announced. It has been learned that vice-minister of Regional development (the names of Alexandre Khloponin [Kras- since March 29, the customs authorities noyarsk], Alexandre Tkachev [Krasnodar] or Viktor Ishaev [Khabarovsk] perio- in have blocked a train in dically return in the Moscow press). This thesis was notably expressed by the pre- Astara travelling from Russia with isolat- sident of the Federation council, . It is evidentally difficult at this ing material destined for the Bushehr re- stage to sort out the trial balloons from the authentic proposals. The Regional de- actor. According to Baku, a special au- velopment minister, Dmitry Kozak, on April 17 denied all territorial remapping. thorisation is required for this type of He also insisted on the fact that his ministry had no view on the prerogatives of material, an argument that aroused in- the Finance or Economic development ministries, a declaration that had the ef- comprehension at Atomstroyexport. Bi- fect more of comforting Moscow commentators in their conviction that there is lateral discussions should continue at an something in the wind. One thing seems in any case achieved : recalled last year unspecified level. Their content should from his “exile” in Rostov-on-Don, where he spared no trouble as presidential high quickly determine whether it involves a representative to maintain the Caucasian cauldron under control, Dmitry Kozak technical problem or if more political will be one of the strong men of the coming years in Moscow. It is no less evident considerations are hiding behind the As- that Vladimir Putin will try to preserve, in one form or another, the “vertical” of d power that he had patiently erected since his arrival in power in May 2000. d 2 tara problem. Russia Intelligence N°76 j April 24 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

c LIBYA RZhD's bountiful harvest The visit of Vladimir Putin to Tripoli on April 16 and 17 cording Russian sources in agreement, the main subject of dis- was historic, since no Russian president had yet travelled to cussion by Alexey Miller and his Libyan counterparts was the Libya and that it involved in all likelihood the president’s last participation of in the project for an African gas pipeline visit before his departure from the Kremlin next May 7. After to link Nigeria to the Mediterranean. The theme was also raised having travelled to Egypt (April 2005), in Algeria (March 2006), by Vladimir Putin with Silvio Berlusconi in Sardinia on April then Morocco (September 2006), Vladimir Putin completed 18. The Russian side would like to make Libya a second theatre the tour of the Maghreb by renewing acquaintance with Muam- (after the Balkans) of the strategic partnership between Gazprom mar al-Gaddafi, an old friend of the USSR, who had been a bit and ENI. According to information gathered by Russia Intelli- neglected since 1992. gence, the question of asset transfers between the two groups, recently raised by Vladimir Putin during his meeting in the As was already the case in Syria or in Algeria, it was through Kremlin with the Italian business community, should be de- the conversion of debts inherited from the cold war into indus- cided by summer. It should be noted in passing that the visit of trial contracts that Russia navigated its return to Libya. Under the Russian President in Libya should allow the resolution of the terms of an integrovernmental accord on commercial, eco- the thorny issue of Tsygankov, the Gazprom executive in prison nomic and financial relations, Moscow will erase 4.5 billion in Tripoli since last November (Russia Intelligence n°67 of de- dollars as soon as the Russian firms concerned by the new con- cember 10, 2007). , who exchanged a few words tracts receive money from Tripoli. An accord whose essence in Arabic with Colonel Gaddafi under his tent May 17, may have was negotiated by Sergey Storchak before his arrest in late received assurance in this direction. The main surprise of the November, which the Finance minister, Alexey Kudrin, did not renewed Russo-Libyan relations were the absence of major arms fail to underline. contracts. At this stage, the only documents signed concerned the modernisation of equipment delivered by the USSR in the The principal beneficiary of the renewed relations between 1980s (S-125 anti-aircraft systems, T-72 tanks, frigates and pa- Moscow and Tripoli is Vladimir Yakunin, the boss of the Russ- trol boats). A package of an estimated value of 2.3 billion dol- ian railways. RZhD should recover about 70% of the Libyan debt lars including a dozen Su-35, S-300MU2 and TOR-M1 batteries, thanks to a contract of 3.5 billion dollars for the construction Grad multiple-launch rocket systems, a Kilo class submarine of a line of 554 kilometres between Syrte and Benghazi. It rep- and 48 T-90 tanks is still under discussion, which theoretically resents a major new success for Vladimir Yakunin following his leaves some margin of manoeuvre for and its Rafales. breakthrough in Saudi Arabia and in Armenia in mid-Janu- Finally it should be noted that even if Vladimir Yakunin was ary (Russia Intelligence n°70 of january 31, 2008). particularly pleased in Tripoli, he was not the only associate of Vladimir Putin to return in good humour from Libya. Gazprom- The visit of Vladimir Putin to Tripoli also led to progress in bank, a new part of the Kovalchuk-Shamalov team (Russia In- the energy sector. Gazprom signed memorandums of cooper- telligence n°69 of january 17, 2008), would have reached agree- ation with the National Oil Company and the Libyan Invest- ment with Mohammed Layas, the powerful boss of the Libyan ment Corporation. The prospecting and development of gas Investment Corporation, to plant several hundred million and petroleum deposits, construction of refinries, gas liquifi- petrodollars, in particular in property development projects in cation plants and also power plants were mentioned.But ac- . d

Balkans : a second Russian wave in energy and metals

Three months after the conclusion of the geography of activities by Inter RAO, the pro- 2003) and in Macedonia. headline Russo-Bulgarian and Russo-Serb ac- bable partner for Electricité de France, Finally, the Base Element cords on the South Stream gas pipeline (Rus- whose activities up to now have concentrated run by should logically in- sia Intelligence n° 70 of january 31, 2008), we in the former USSR (Georgia, Armenia, Tajikis- herit RTB Bor, the complex that operates the are witnessing a new drive — less publicised — tan for the most part). large copper mine in this location close to the by major Russian groups on the Balkan penin- On April 17, it was learned elsewhere that Lu- Romanian border. The privatisation organised sula. April 14, Inter RAO, an international koil would soon resume discussions with the in late 2007 by the Serbian government had subsidiary of the national electricity company Slovenian company Petrol in view of the been won by the Austrian group A-Tec, but its RAO EES Rossii run by Anatoly Chubais, si- constitution of a joint venture in distribution boss, Mirko Kovac, proved incapable of gned a declaration of intent with Elektropri- of petroleum products. A framework agree- meeting his financial obligations. As a result, vreda Srbije (EPS). Within 30 days the Serb ment in this direction was signed in 2006, but the very pro-western Serb Economic and re- side will transmit to its Russian partner a first and Slovenes were unable to reach gional development minister, Mladjan Din- list of projects in view of a collaboration that an accord on the financial evaluation of the kic, cancelled the accord and announced that should cover construction of new thermal and assets to be placed in common. The fall in the discussions would open soon with Strike- hydroelectric power stations According to value of the shares in Petrol (-50% since the force Mining & Resources, a Base Element Yevgeny Dod, the director general of Inter beginning of the year) would have made the subsidiary, which had made the second best RAO, 2 billion euros may be invested in Ser- Slovenian side a bit more flexible. The future offer in late 2007. The amount of investments bia during the coming years. If carried out, Russo-Slovene joint company will include the in Bor should amount to more than 750 mil- the Russian breakthough in the Serb power about 200 service stations that Lukoil posses- lion dollars (purchase and modernisation of d sector would confirm the enlargement of the ses in Serbia (via Beopetrol, purchased in production capacities). 3 Russia Intelligence N°76 j April 24 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

OG SOCHI-2014 c Alexandre Tkachev and Oleg Deripaska get Semyon Vaynshtok's scalp

It was known that the control of immense financial flows lin- Should the Vaynshtok affair be seen as a new episode ked to the organisation of the 2014 winter Olympic games in So- in the clan wars that have wracked Russian circles of po- chi would lead to a serious free-for-all between different inte- wer since last autumn? The possibility is tempting but not rest groups in Moscow, but what has taken place in recent days necessarily the most credible. It is undoubtedly certain went well beyond what the most seasoned observers of the Rus- that the ex-boss of Olympstroy is a close associate of Vik- sian corridors of power expected. Late in the evening of April 16, tor Cherkesov. From good sources, the two men would Prime minister suspended from his post, Semyon have common interests in one of the oil terminals in Pri- Vaynshtok, the boss of Olympstroy, the public establishment morsk near Saint Petersburg. They also have the same en- charged with the construction of infrastructure in view of the emies, that is the Patrushev-Ustinov-Bastyrkin-Sechin 2014 winter games. At the same time, an extraordinary munici- clan. The latter would in fact be behind the replacement pal council was convened in Sochi. The mayor of the olympic city, of Vaynshtok by Nikolay Tokarev at the head of Transneft Viktor Kolodyazhny, was dismissed...before being named in the last autumn. follow-up as the successor of Semyon Vaynshtok at the head of Olympstroy. Officially, it involves a non-event or nearly. If we can According to information gathered by Russia Intelli- believe Dmitry Kozak, the Regional development minister, Se- gence, the real instigators of the “putsch” at the head of myon Vaynshtok had reached agreement with Vladimir Putin as Olympstroy are Oleg Deripaska and his friend Alexandre early as his nomination last September for a temporary term of Tkachev, the governor of the Krasnodar region. The two six months. According to Sergey Grigorev, the n°2 at Olymps- Kuban associates considered that Semyon Vaynshtok had troy, Semyon Vaynshtok had already dreamt of his retirement drawn too close to their main rivals for the countrol of the while he was managing Transneft. These attempts to de-drama- property market in the Russian riviera, that is the Moscow tise the events nevertheless fooled no-one judging by the disbe- clans — Yuri Luzhkov, his wife Elena Baturina, boss of lief that reigned in Vladimir Putin’s delegation in Tripoli the mor- the construction and public works group Inteko, and Kons- ning of April 17. tantin Zatulin. The drop that made the vase overflow was the decision taken at the beginning of the year by Semyon What were the reasons behind this dramatic scene? In its edi- Vaynshtok to confide the management of part of the Olymps- tion of february 28, 2008 Russia Intelligence had revealed the troy funds to the Bank of Moscow, an establishment ma- explosion of the bills for the 2014 winter games and the delays naged by Andrey Borodin, a friend of Yuri Luzhkov. — apparently not critical — linked to the property expropria- tion procedures in Sochi. According to our information, relations In this matter, mention should be made of the impor- between Semyon Vaynshtok and Alexandre Zhukov, the vice tant, yet little-known, role of Konstantin Zatulin in the ex- Prime minister in charge of the issue, were not simple. But these pansion policy of the Luzhkov clan on the coast around So- objective difficulties, in reality inherent in a project of this scale chi and Abkhazia. Counsellor to the mayor of the capital, (especially in Russia), do not explain the Kremlin’s choice. n°2 of the CIS affairs commission, great op- ponent of Viktor Yushchenko and Mikheil Saakashvili, Konstantin Zatulin, a former KGB general, ended his ca- ALERT reer in the 1980s in Sochi. He was notably charged to “fol- 3 , from the judo mats in low” the numerous touristic establishments in the zone. Saint Petersburg to the docks in Novorossiysk When the time came for privatisations in 1992-1993, Zatu- It was a graceful blow that Alexandre Skorobogatko and Alexandre lin father’s networks proved very useful to Konstantin, who Ponomorenko, the two main shareholders of the commercial port of in the meantime had joined the teams under Yuri Luzh- Novorossiysk, have just struck and which Russia Intelligence publi- kov. Under the presidency of , the mayors of shed the outline of in its last edition. The two are currently in discus- Sochi were named by recommendation of the Zatulin-Luzh- sions with Arkady Rotenberg to sell him 20% of their firm Kadina (or kov team. 10% of NMTP). Arkady Rotenberg is not completely unknown to our readers. In our number of september 27, 2007, we indicated that this Alexandre Tkachev and Oleg Deripaska have therefore judo master knew Vladimir Putin and has trained with him since the just scored an important point. They may even have struck 1960s. Arkady Rotenberg is the head of the Javara-Niva club whose two blows with one stone since from February persisent honorary president is none other than the Russian president and rumours had circulated in Moscow of the nomination of which is financed, among others, by , the boss Yuri Luzhkov — said to be leaving the Moscow mayor’s of the Geneva-based Gunvor International trading company. He also post — to the head of Olympstroy. Its new president, Vik- controls with his brother Roman some fifteen companies, including tor Kolodyazhny, 55, is close to the governor of Karsnodar. the “Maritime way of the north” bank. Skorobogatko and Ponoma- He is the one who secured his appointment as 1st deputy renko may have decided to “invite” the Rotenbergs into the capital of to the mayor in 2003 (even as Kolodyazhny had acknow- the commercial port of Saint Petersburg in order to defend against the ledged that he had never set foot in Sochi in his life) be- apettite of another member of the Vladimir Putin inner circle, Nikolay fore putting him forward for the municipal elections in the Tokarev. The boss of Transneft in effect is trying to take over control spring of 2004. The transition at the Sochi city hall will be of the oil terminal at Sheskharis, which represents close to half of the assured by Vladimir Afanasenkov, 46, deputy to Tkachev revenue in the commercial . d in charge of the winter games of 2014. d 4 Russia Intelligence N°76 j April 24 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

TRANSPORT c East Line and the Domodedovo airport, the new battlegroung of the clan war

Will Russia’s first airport — Domodedovo — change hands the “war of the services” in Moscow. and be nationalised? Those are the stakes in a contest which paradoxically has hardly aroused the interest of Western me- As a consequence of these FSB actions, in 2003, the State dia, but which is in reality one of the latest episodes to date in Property fund challenged the agreement signed in 1998 bet- the clan wars which have raged inside the workings of the Mos- ween the Domodedovo administration and East Line that fore- cow power structure since last autumn. saw the concession of the airport for a period of 75 years. In 2005, the Federal arbitration court for the Moscow district (FAS Who is hiding behind East Line? Since the MO) abrogated this agreement. Reliable sources say that the end of the 1990s, East Line has controlled judge that gave the verdict, Lyudmila Maykova, is a close friend the Domodedovo airport and virtually all of of Larisa Kalanda, whose husband Vladimir is technical advi- the site’s commercial activities. This group sor to . We also recall that at the time, the gover- is owned by FML Ldt, a firm based on the nor of the Moscow region, Boris Gromov, intervened in favour Isle of Man and whose official shareholders of East Line before Vladimir Putin. are Jane E. Peters and Shaun F. Cairns. At the end of 2005, during a meeting organised by the Econo- The directorate and the supervisory board mic development minister, German Gref, and his Transport col- Viktor Cherkesov are presided respectively by Dmitry Kamensh- league, — a meeting attended by General Alexey chik and Valery Kogan. Originally from Eka- Fyodorov, the head of the FSB’s Department T — it was deci- terinburg, Kamenshchik is the son of a se- ded to seek a compromise with East Line.Finally in October nior official of the Ural police. Valery Kogan 2006, a new contract was signed with the State Property fund. — often confused with the ex-banker from The truce was to be , however, since new challenges were Saint Petersburg Vladimir Kogan — is a ve- also undertaken. This time they were directed against the pri- teran of the 1st principal directorate of the vatisation of the Domodedovo aero-station. After a number of KGB (PGU — external intelligence) now an contradictory legal decisions, the presidium of the Supreme Israeli citizen. According to information ob- Court of arbitration judged this privatisation to be illegal and tained by Russia Intelligence, Valery Kogan abrogated it in 2007. The problem is that the building concer- Dmitry may be linked to Viktor Cherkesov, the di- ned no longer exists since it was destroyed during the construc- Kamenshchik rector of the Federal anti-narcotics service. tion works on the new terminal. A detail for the State Property Cherkesov’s enemies contend that his right-hand man, Gene- fund, which in a communication dispatched last February to ral Alexandre Bulbov, imprisoned since October 1, 2007, was the new Economic development minister, Elvira Nabiullina, es- the “protector” (“Krysha”) of East Line. They also maintain that timated that the appropriation of the entire Domodedovo com- the journalist Vladimir Solovev, very much in view in Moscow plex would be suitable. in recent years, is financed by Kamenshchik (it is true that So- lorev often intervenes on the radio airwaves with strong audien- Medvedev enters (cautiously) into the breach. The East Line ces Serebryanny ’ to support Bulbov). affair has led to a veritable information war in Moscow. Para- doxically, “liberal” journalists (such as for exam- In the months that followed the collapse of the USSR, Ka- ple) tend to support the Cherkesov-Kogan group despite their menshchik was the head of a travel agency before involving KGB past. New legal developments are underway since one of himself in the organisation of charter flights to China. His small the advisors to Viktor Ivanov, Vladimir Voev, has filed suit for airline — East Line — was based at Domededovo, where it gra- diffamation against Vladimir Solovev. The latter has also obtai- dually took over control. By the end of the 1990s, East Line un- ned the backing of the Deputy Alexandre Lebedev, the leading dertook the modernisation of the airport and the construction private investor in Aeroflot and an old enemy of Viktor Ivanov of a new terminal, an investment of over 1 billion dollars that (and in addition the proprietor of the Moskovski korrespon- permitted Domodedovo to supplant Sheremetevo, the home- dent daily, which was searched following the publication of an base of the national carrier Aeroflot. article concerning the so-called divorce of Vladimir Putin). Up to now managed discreetly in the kitchens of power, the East In the line of fire of the Patrushev-Sechin-V.Ivanov clan. Ac- Line affair has re-surfaced at the highest levels of the State. cording to Vladimir Solovev, the n°2 of the FSB, Yuri Zaostrovt- During his meeting with leading Russian directors April 8 at sev, a close friend of Nikolay Patrushev and of Viktor Ivanov the Union of industrialists and entrepreneurs (RSPP), Dmitry (councillor to the president and head of the Aeroflot board), Medvedev took the defence on behalf of East Line. If the de- gave instructions to his services to launch inspections at Do- clarations reported by Alexandre Shokhin can be believed, the modedovo in order to open the maximum in criminal investi- president-elect would have said that “even if errors were com- gations. Searches took place, supervised by the deputy general mitted during the privatisation, it is not certain that the State prosecutor, Yuri Buryukov. Zaostrovtsev and Biryukov are not must recover [the airport-editor’s note]. The degree of the gra- unknown to the readers of Russia Intelligence : in our edition vity of the infraction must be taken into account”. A legal point of october 25, 2007 we mentioned them as the main protago- of view that could have important consequences once Dmitry nists in the “Tri kita” smuggling case, which was the reason for Medvedev is in the Kremlin if he implicates himself into other the resignation by the general prosecutor in issues (such as the affair for example - Russia Intelli- the spring of 2006 and which served as the spark that ignited gence n°71 of february 14, 2008). d 5 Russia Intelligence N°76 j April 24 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

ALERTS MINING 3 Alitalia : Aeroflot in re- c Yakunin, Makhmudov and Dmitriev verse It was without excessive enthusiasm that the in pole position for the privatisation management of Aeroflot greeted the decla- of the Udokan copper deposit rations by Vladimir Putin concerning a pos- sible resumption of the discussions with It will be the first large-scale privatisation of the Medvedev presidency. The Na- Italia during the brief stopover of the Russ- tural resources minister, Yuri Trutnev, has just given instructions to the Federal ian president in Sardinia with Silvio Berlus- agency Rosnedra to establish the conditions for a competition for Udokan. Loca- coni on April 17. Interested in the purchase ted in the Chita region in the Far east, Udokan contains about 20 million tonnes of the Italian national company in the spring of copper, making it the third largest deposit in the world. The State had plans to of 2007 (Russia Intelligence n°53 of april 13, privatise it since 1992, but its hesitation on the details of such an operation, as well 2007), Aeroflot finally withdrew from the as the rivalry between the major Russian oligarchs potentially interested have for competition. Valery Okulov, the boss of the long frozen the situation.In recent years, , Russian carrier, questioned a few weeks ago (Gazprominvestholding), (Polimetall), Oleg Deripaska (Base on the subject, had declared that he would Element) had, among others, demonstrated their interest. Western mining groups no longer bother with this “head-ache”. “But such as BHP, Rio Tinto, Phelps Dodge or Codelco had also sought to position if they gave us the order, we would resume themselves since 2005, the date when Udokan was placed on the list of stategic re- the negotiations” declared under the cover serves by the Russian government. of anonimity a senior Aeroflot official. Russia Intelligence’s sources in Moscow believe nev- Although July is often mentioned as a probable date for the privatisation of Udo- ertheless that the Kremlin will not force kan, major operations have resumed in the wings in Moscow. The first to come out Valery Okulov’s hand on this deal. It con- in plain sight was Vladimir Yakunin. The boss of the Railways (RZhD), announ- cerns more for Vladimir Putin to show con- ced on April 8 being in the process of creating a consortium with Vneshekonom- cern toward his old friend Silvio, who he ex- bank and UGMK. RZhD and Vneshekonombank — which assure the bulk of the pects a lot from on energy and NATO operation’s financing — would have 51% of the interests, the remainder going to enlargement issues. d UGMK, which would naturally play the role of the deposit’s operator.

3 Lukoil settles its old scores The alliances chosen by Vladimir Yakunin are logical : Vneshekonombank is ob- with De Beers viously the financial strong arm of the State, while UGMK is a major actor in the The oil group Lukoil confirmed on April 16 Russian copper sector. Its boss, , is in addition Yakunin’s having found an accord with De Beers partner in Transmashholding (TMX), the major producer of rolling stock in the concerning the Verkhotina diamond deposit country. The industrial coherence of this project and especially the proximity of near Arkhangelsk, bringing to an end one of Vladimir Yakunin both with Vladimir Putin and with Dmitry Medvedev make the the oldest post-Soviet shareholder conflicts. RZhD-VEB-UGMK the big favourite in the Udokan privatisation; So much that No- The business dates in effect back to 1993. At rilsk let it be known that it was no longer in the competition. It is true that the time, AGD — a Lukoil subsidiary, obtai- the associates of have been absorbed by the counter-attack ned the operating license to the Verkhotina against Oleg Deripaska (read article opposite). Matters are less clear concerning deposit, whose reserves are estimated at 67 Rostekhnologii. Sergey Chemezov had declared in March that he was interested million carats (or 5.3 billion dollars at current in Udokan and that he wanted to collaborate with RZhD on this deal. Since Vladi- rates). Then in 1994, AGD created a joint mir Yakunin has concluded other alliances, will the boss of Rostekhnologii quit. venture named Almazny bereg with Ar- Nothing is less certain. changelsk Diamond Corporation (ADC), a De Beers subsidiary registered in Canada. According to information gathered by Russia Intelligence, Sergey Chemezov ADC, which held 40% of the joint company, would not under-estimate the difficulty of such an undertaking, especially after his was to finance the prospection works. It was failure on the Erdenet copper deposit in Mongolia, where he had been overtaken understood, according to its officials, that the by Gazprombank (n°74 of march 27, 2008). It would be logical for him to collabo- operating license of the Verkhotina deposit rate with Oleg Deripaska who holds the (vanadium and titaniun) deposit at Chi- should be transferred to the joint venture, neyskoe, close to Udokan. It is nevertheless doubtful that the boss of go into which was never done by AGD. As a result, battle against Vladimir Yakunin, with whom he has good relations. There remains Archangelsk Diamond Corporation filed se- the Alrosa possibility, which has been very discreet in this matter. There also, it veral legal actions against Lukoil, in Colo- could be believed that the chairman of the group oversight board, who is none other rado but also in Stockholm, demanding than the vice Prime minister in charge of Finance, Alexey Kudrin, would not give from these jurisdiction respectively 4.8 billion a green light to an operation that is openly hostile to Vladimir Yakunin, with whom and 492 million dollars in damages and inte- he is close. rest. In the end, Lukoil preferred to nego- tiate. Vagit Alekperov’s group gave up The outcome of these races should be known in the middle of summer. The happy 49.9% of its AGD subsidiary to De Beers for winner of the government contest will receive an operating license for 20 years. It 225 million dollars, according to our sources. should, within 30 months, complete the technical planning for operation in Udokan. To the distress of ALROSA, which is opera- According to criteria issued by the Rosnedra federal agency, industrial extraction ting the neighbouring deposit at Lomonovs- is supposed to begin in 2013, with a production of at least 33000 tonnes per year koe and whose main rival is setting foot in by a 2015 timeframe. Investments — including construction of a metalurgy com- 6 Russia. d plex — are estimated at 1.6 billion dollars. d Russia Intelligence N°76 j April 24 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc FOCUS Potanin and Prokhorov finish by separating on good terms The Potanin-Prokhorov saga, which we have regularly pro- in the first ranks of which were Sergey Chemezov and Oleg De- vided accounts of in these columns since its unleashing in Ja- ripaska. As a sign that Vladimir Potanin was decidedly resour- nuary 2007, is entering into its final phase. And, as Russia In- ceful, he obtained in the space of a few weeks, a private mee- telligence let it be understood in its latest editions, the end of ting with Vladimir Putin then with Dmitry Medvedev in order to the story is less conflictual than the episodes of last autumn see- brief them on the Norilsk deal. med to indicate. The question that remains is obviously that of the entry of On April 17, Vladimir Potanin and announ- Rusal into the capital of . Officially, the recent ac- ced in a communiquéé that they had found an accord on KM In- cord on KM Invest has no bearing on the discussions underway vest. As a reminder, this firm sheltered the joint investments by between the teams of Oleg Deripaska and Prokhorov. Rusal had the two men in a certain number of assets, in particular Norilsk even indicated in writing to its interlocutors that it no longer Nickel (8%) and Zoloto (7.6%). At the end of 2007, the had designs on the 4% of Norilsk Nickel held by Prokhorov through value of KM Invest was estimated by Russian experts at close to KM Invest, which would facilitate the accord between 15 billion dollars. Under the terms of the recent accord, Inter- and Onexim. The deadline set for the closing of the transaction ros, Vladimir Potanin’s holding company, will buy the 50% of KM between Deripaska and Prokhorov remains April 30. According Invest belonging to Mikhail Prokhorov. In a second phase, Onexim, to certain sources close to the boss of Rusal, one part of the Mikhail Prokhorov’s holding company, will purchase from Inter- amount would have already been transferred and the rest should ros the assets of KM Invest that do not interest Vladimir Pota- be by Friday April 25. Such information, however, was denied by nin. This concerns primarily the insurance firm “Soglasie”, 38% associates of Prokhorov. of Rosbank and of the “open investment” fund. This means that in addition to the interests of KM Invest in Norilsk Nickel and The latter is objectively in a strong position (which is just as Polyus Zoloto, Vladimir Potanin will retain control of the press unexpected as for Vladimir Potanin) and has less and less inte- holdings (Pro-Media), property (Roza Khutor, heavily invol- rest in selling his 25% + 1 share of Norilsk to Rusal. Mikhail Pro- ved near Sochi), petroleum (25.8% of Rusia Petroleum) and khorov can in fact expect to draw an additional 2 billion dollars agro-food (Agros). In the end, the operation should come to from an eventual sale of his stake to the Potanin-Usmanov team. about 5.5 billion dollars for the boss of Interros. Without counting on a non-sale that would not really expose him politically in view of the new conditions in Moscow. If things go according to the plan of the April 17 accord, it could be considered that Vladimir Potanin has come a long way. Will Oleg Deripaska abandon what he thought would be the No-one or nearly in Moscow would have bet a kopeck on his chan- crowning of his ambitious strategy of industrial conquest? Or ces of retaining Norilsk Nickel after Oleg Deripaska entered will he concentrate on raking in the dividends from Norilsk into the race for the interest held by Mikhail Prokhorov. Vladi- Nickel without wanting a share in the strategy of the group? mir Potanin understood how to fully profit from the new politi- Up to now in Russia, the boss of Rusal has always sought the cal context born of the nomination of Dmitry Medvedev as suc- operational control of the assets in which he invested. But per- cessor to Vladimir Putin. The wind gradually changed (or should haps his experience as a majority shareholder in the West we say that it ceased to blow in the sails) of a certain number (Magna, Strabag), will lead him to demonstrate more prag- of oligarchs who had been particularly well-served in 2006-2007, matism. d

Oleg Deripaska disavowed in the Ingostrakh deal

As if the problems encountered with Norisk immediately took legal action. They won a fact just threatened to cancel the privatisation Nickel weren’t enough, Oleg Deripaska has first decision on November 12 when the Mos- of the Friguia complex which includes a just registered a major reversal in another cow arbitration court approved a certain bauxite mine, a refinery, as well as port and matter of quite symbolic importance, invol- number of conservation measures preventing rail infrastructure. It should be recalled that ving the Ingostrakh insurer. To briefly remind the backers of Oleg Deripaska from procee- Rusal had won the bidding in 2006 for an un- readers of the facts, in the spring of 2007, the ding effectively toward an increase in the In- specified but modest amount (22 million dol- businessman Alexandre Mamut decided to gostrakh capital. Begun in January, the hea- lars have been mentioned) thanks to the sup- sell his stake in Ingostrakh (38.5%) to the rings on the substance finally resulted in a port of President Lansana Conté. This asset Czech group PPF which belongs to Peter new positive verdict for PPFI (which in the joined Société des bauxites de Kindia, Kellner. Oleg Deripaska, who controls close meantime has drawn closer to Italy’s Gene- which Rusal had obtained a 25-year conces- to 60% of the capital was furious at being pla- rali). The results of the October 8 general as- sion for. But last summer a special commis- ced in front of a fait accompli and decided to sembly were invalidated. A decision in which sion charged with verifying all the accords schedule a general assembly of shareholders Jan Piskacek, spokesman for PPFI, sees the concluded with foreign mining groups was for October 8. It approved a massive increase proof of an independent commercial justice created. It is with this entity that Rusal will of the capital which had the effect of diluting system in Russia. Base Element, for its part, have to deal. Reliable sources indicate that the PPF stake to 9,6%. The Czech sharehol- let it be known that it would appeal this deci- Oleg Deripaska’s group will undoubtedly ders — who did not receive notice of the Oc- sion. agree to pay a supplement rather than risk tober 8 meeting and only learned of its re- Oleg Deripaska is also under pressure on the the nationalisation of Friguia which would im- sults on the 12th through the media — African continent. Guinean authorities have in pact on all its activities in Guinea. d 7 Russia Intelligence N°76 j April 24 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Regions & CIS

cc FOCUS Chechnya : Kadyrov wants to eliminate Yamadaev Road accidents can have grave political consequences. This is is that he cannot abide to see on the territory of “his” re- one of the numerous lessons to draw from the latest events in Chech- public a Chechen army unit that is not under his control. nya, where a crucial episode for the future of relations between Will he achieve his objectives? Close to 250 men of the Vos- the Kremlin and Razam Kadyrov is being played out. tok battalion are said to have tendered their resignation — we can imagine quite spontaneously — and now refuse To briefly recall the facts : On April 13, outside to serve under leadership of the “criminal Yamadaev”. The of Goudermes, a car transporting fighters from the issue of this affair will depend on the position of the fede- “Vostok” battalion — a unit composed of Chechens, ral authorities. But during the period of transition in Mos- commanded by Sulim Yamadaev and attached to cow, no-one seems truly interested in developments in the GRU, Russian military intelligence — entered Grozny. The Defence ministry — which has command of Sulim Yamadaev into a collision with a vehicle belonging to one of the Vostok battalion — has maintained complete silence. the organisations of the President Ramzan Kady- It is known that a meeting on this subject took place Fri- rov. Two of Yamadaev’s men were killed on the spot. The following day April 18 in the presence of General Baranov, comman- day, companions of the men killed who were regaining their bar- der of the military region, but nothing has racks after the funerals found themselves nose-to-nose with a group filtered out. of President Kadyrov’s men. With no side willing to yield the way to the other, tension rapidly escalated. Bursts of automatic wea- In fact, the Kremlin is confronted by the contradictions pons wre fired in the air, but the incident appeared closed after and limits of its Chechen policy. Since 2000, it has consis- the Chechen president gave an accolade and condolences to Ba- ted in subcontracting the problems — first economic and drudi Yamadaev, Sulim’s brother. social, then security — to the Kadyrov clan. The terms of the deal were the following : Moscow will shut its eyes on A false impression. A few hours later, units from the Chechen the means (and the massive diversion of funds) as long Interior ministry — Ramzan Kadyrov’s praetorian guard numbe- Chechnya is not heard of. In the facts, this policy has fini- ring some 10000 men — blockaded the barracks of the Vostok bat- shed by creating a “mini-turkmanbashi” all-powerful in its talion. Men leaving were arrested. Commenting on the situation republic and toward whom the Kremlin is more and more on April 16, Ramzan Kadyrov declared that the “criminals, whoe- dependent. Power-conscious — but also of his nuisance ca- ver they are and wherever they may be, must be punished”. pacity — Ramzan Kadyrov is asking no more no less that the Kremlin deliver to him its men in Chechnya. The ans- The Yamadaev brothers are certainly far from being choirboys. wer — which will probably be delivered by Dmitry Medve- Badrudi was condemned in 2003 to 11 years of criminal detention dev — will be a major political signal. d for attempted murder and group violence. He nevertheles saw his sentence commuted for “exemplary conduct”: Liberated, he was ALERT placed under judicial control, in theory, since it did not prevent 3 Sergey Chemezov places one of his him from leading the Vostok battalion in the absence of his older friends at the head of the Irkutsk region brother. Sulim’s “exploits” are better known. Born in 1973, he fought In it edition of march 27, Russia Intelligence drew the attention in Shamil Basaev’s group during the (1994-1996). of its readers to the difficulties of the governor of Irkutsk , In 1999, Sulim Yamadaev — just like the former Grand Mufti Akh- Alexandre Tishanin, contested by the members of the regional mad Kadyrov — chose to join Russian Federal forces and rejec- assembly but also by United Russia. This issue has found its epi- ted wahhabism. In 2003, Sulim Yamadaev was named at the head logue.On April 15, Vladimir Putin accepted the resignation of of special Vostok battalion based in Goudermes. This unit was for- Alexandre Tishanin. In the aftermath, he named a new governor mally integrated into the 42d division — but was only answerable in the person of Igor Esipovsky. A deputy in the State Duma to the general headquarters — notably distinguished itself by ob- and former director of the automotive works Avto VAZ, Esi- taining the head of the Arab warlord Abu al-Walid in April 2004. povksy was warmly recommended to the outgoing president by A feat of arms that resulted in Sulim Yamadaev being made “hero Sergey Chemezov, the boss of Rostekhnologii, himslef a na- of Russia”, a title worn also by his older brother Ruslan, for a time tive of Irkutsk. The nominee was then introduced to the regional deputy in the State Duma. In a less glorious, but just as violent, re- administration officials April 17 by the high presidential envoy in gister, the Yamadaev clan displayed itself in the summer of 2006 the Siberian federal district, . In a difficult po- through its strong-armed arbitration of a shareholder conflict in sition against Vladimir Yakunin in the Udokan affair (read Saint Petersburg (Russia Intelligence n°44 of December 1 2006). page 6), Sergey Chemezov has thus won his revenge in Irkutsk where he got a friend nominated in place of an associate of the The real reason of the showdown engaged by Ramzan Kadyrov boss of the railway. d

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