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Home , Alisher Usmanov, Andrey Kostin, Denis Manturov, Dmitry Patrushev, Gennady Timchenko, Gunvor

N°78 - May 30 2008 Published every two weeks / International Edition CONTENTS OLIGARCHS P. 1-3 Politics & Government c The « national champion » of the mining OLIGARCHS c The « national champion » sector in view ? of the mining sector in view ? A climate of economic euphoria has reigned in recently which has not been seen for a long DIPLOMACY time. It is fed by a succesion of good news : rises in the price of crude oil, unexpectedly fast rate of growth c -China : what's left of (8.4% in annual rate in April 2008 against 7.1% in April 2007), record numbers of net influx of capital (19 the strategic partnership ? billion dollars in April, 15 billion in May); very good grain harvest at 85 million tonnes which will not re- ALERT quire export restriction measures...Without speaking of projected fiscal exemptions to relaunch oil explo- c Stubborn Russo-Iranian dif- ration and production or the measures destined to support the shipbuilding industry (pages 3 & 7). ferences on a “Gas OPEC” FOCUS Then, during the night of March 28 and 29, the icing on the cake : the official announcement by Vla- c The insinkable dimir Potanin and of the conclusion by their two groups of a strategic partnership, ren- BEHIND THE SCENE dered concrete through cross shareholdings, which could lead eventually to the constitution of the one c Who wants Mikhail of world’s largest mining and metals companies, if, since he is invited, joins the opera- Kovalchuk's head ? tion. For several months already we have chronicled in these columns of the separation between Vladi- mir Potanin and his associate , of the sale by Prokhorov of 25% of Norilsk to Oleg De- P. 4-7 Business & Networks ripaska and the discussions held between Potanin and Usmanov to prevent Deripaska from purely and OIL simply taking control of Norilsk. c When emerges from the shadows According to the official communiqué distributed May 29, (Potanin’s holding company) ta- ALERTS kes 25% plus one share of while Gallagher (Usmanov’s holding firm) will buy between 5% c Neighbourly quarrels on the and 10% of on the stock markets. This first exchange of shares should be followed by a mer- shores of Lake Léman… ger between the two grroups. Two possible outcomes are possible : if Oleg Deripaska joins the project, No- c The appetite for property of rilsk will be the centre of operations and each of the three oligarchs will holds about 25% of the capital the Russian Orthodox church of a complex whose value would be on the order of 100 to 120 billion dollars. If Deripaska refuses to join RAILWAYS the merger project, the operation would then take place around Metalloinvest in which Usmanov and Po- c Privatisation of Deutsche tanin would hold 30% each, leaving Deripaska in a minority position. But even in its broad outlines, the Bahn, Bombardier : Vladimir Yakunin’s major projects manoeuvre is not simple, because at the same time he negotiated with Potanin, Usmanov stated he wan- ted to list Metalloinvest on the market. The negotiations should have been particularly animated bet- FOCUS c Shipbuilding : the Kremlin ween the two partners. In fact, the Ria Novosty agency announced at 20:26 May 28 that the discussions reshuffles the cards between Metalloinvest and Norilsk were frozen before stating an hour later the conclusion of an accord... ALERTS The financial discussion between the three partners will be ferrocious, as well as the negotiations rela- c Agusta approaching ting to the composition of the future administrative council. c A brawl at TNK-BP We can neither ignore the political backdrop to this deal. The more or less “spontaneous” union of three of the most powerful oligarchs in Russian metals and mining is monitored by and P. 8 Regions & CIS who have for years run after the creation of a “national champion” of world scale, conso- FAR-EAST lidating the desire of Russia to become a global “player” in the globalised economy. The background trends c Governor Sergey Darkin in at work in the mining and metals industries (spectacular rise in prices for raw materials and steel, conso- the eye of the storm lidation underway or projected such as the offer of BHP Billiton for Rio Tinto or the discussion between Valle and ) provide a favourable terrain for Russian actors. Especially since the potential of the SUBSCRIPTION Print Edition new Norilsk/Metalloinvest/ group could benefit from a welcome gift from the authorities : the award (23 issues, airmailed overseas) of a operating license for the Udokan copper deposit, in the region of Chita, discovered in 1949 and whose €770 TTC reserves are estimated at 14.9 million tonnes of copper per year, or 15% of the annual Russian production. We know that four competitors are vying to win the auction, whose date has been delayed from July 17 to The Web Pack (Print Edition August 14 : Norilsk Nickel, Rostekhnologii owned by Sergey Chemezov, BasEl, Oleg Deripaska’s holding + PDF + archives acess) company and a consortium regrouping RZD owned by Vladimir Yakunin, the Vnesheknonombank and € 880 TTC the mining group UGMK belonging to . The opening bid has been set at 4.5 billion rubles, or a bit more than 122 million Euros. If the planned mergers are confirmed by August 14 (but this The Premium date may change again), there will be only two bidders, the complex of Norilsk/Rusal/Metalloinvest which Subscription (Print Edition + PDF + access has been joined by Chemezov on one side , and the alliance of Yakunin/Makhmudov on the other...Unless to all the website contents) the rumour which has Mikhail Prokhorov and associating is confirmed. We are the- € 1200 TTC refore on the eve of an industrial and capitalist operation of a scale never seen before in Russia. d www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

c DIPLOMACY Russia-China : what's left of the « strategic partnership » ?

German leaders had long hoped that Berlin would be the first vedev involves 6 Ka-226 and Ka-32 helicopters. Even though destination for the new Russian President, but it was in Astana the Russian side had to swallow a lot of rebuffs to relaunch the and that Dmitry Medvedev made his entrance on the system. The boss of Sukhoi, Mikhail Pogosyan, systematically international stage as head of state. This choice has been widely — and very courteously — avoided the pirating by his Chinese interpreted in the European press as a first discordant note to partners of the Su-27 produced under license in Shanghai (200 the supposed attraction of the new tenant of the Kremlin for the units were to have been produced, but China stopped impor- West, but also as a sign of continuity with the foreign policy of ting the components from Russia after 105 aircraft were as- Vladimir Putin. sembled).

Paradoxically, the meetings of Dmitry Medvedev in Kazakhs- Things are hardly any brighter concerning energy issues. tan and, especially, in China illustrate more than anything the The Altaï gas pipeline project which had been signed during very ambiguous character of the diplomatic heritage of the for- the visit of Vladimir Putin in Beijing in the spring of 2006 has mer President to his heir. not seen the least concrete beginning. The oil issue arouses even more questions. estimates losing 40 dollars per Officially, the “strategic partnership” between Moscow and tonne of crude delivered to the Peoples republic and is ready Beijing is better than ever. At the conclusion of his visit to Bei- to break the contracts underway if the rates are not revised jing, Dmitry Medvedev declared that it represented a major fac- upward (the Chinese side — in this case CNPC — recalls that tor of stability and balance in the world. And he added, in very it was thanks to the credit of 6 billion granted in late 2004 that Putinian tones : “Some don’t like this kind of strategic coopera- Rosneft was able to absorb Yuganskneftegaz). Also, the defi- tion between our countries, but it serves the interest of our coun- nite path for the East Siberia-Pacific ocean pipeline (VSTO) tries and we will strenghten it whether some like it or not”. The has still not been decided. The n°2, Mikhail Bar- members of the Russian presidential delegation for their part kov, declared concerning the diversion of the oil pipeline to insisted on the spectacular development of bilateral trade, pas- the Chinese frontier that the decision was the choice of the sed from 28.6 billion dollars in 2006 to 48.2 billion in 2006. Wi- sharholder, in other terms the state. thout really succeeding in dispelling the doubts about the real state of Russo-Chinese relations. It must be said that differen- Finally, the only contract of any significance was to the cre- ces — some sublimated — have multiplied in the course of the dit of the boss of Rosatom, Sergey Kirienko. Tekhsnabexport past few months. At the politial level, while and Chi- (TENEX) will build a nuclear enrichment plant in China va- nese affirmed up to now sharing a common vision of the inter- lued at 500 million dollars minium for semi-enriched uranium national order, several subjects of importance are now avoided for its Chinese neighbour beginning in 2010. d in public. Therefore, the final declaration does not mention the opposition to the plans for enlargement of the Atlantic alliance, ALERT a subject that is known to be sensitive for Russia and which the staff of Sergey Prikhodko, Dmitry Medvedev’s diplomatic advi- 3 Stubborn Russo-Iranian differences on a sor tried vainly to “sell” to their Chinese counterparts. Accor- “Gas OPEC” ding to our information, Beijing’s position on the question will Periodically brandished as a scarecrow against Westerners, the be dictated by its desire not to jostle certain European members idea of a natural gas OPEC has been slow to materialise. The cause of NATO who are still opposed to lifting the embargo on the ex- has been the lack of a consensus between Moscow and Tehran port of arms to the Peoples republic. Moscow and Beijing also concerning the charter of such an organisation. This was confir- clash on the recasting of the UN Security council : Russia wants med by the vice president of the and president of the to limit the addition of new members and does not necessarily Russian natural gas association , Valery Yazev, during a confe- see in it the same countries as China (Japan among others). rence organised by the DGAP in Berlin May 20. According to him, there are currently two proposals on the table : one, which is The subjects of friction are even more numerous in the eco- more restrictive and is in fact modeled after the OPEC one, which nomic sphere. The shipment of Russian arms to China, which represented up to 40% of the total military exports of the coun- was proposed by the Iranians, and a more flexible one proposed try at the beginning of decade, are frozen. It’s known that the by the Russians. In the absence of an accord, the next session of Chinese side hardly appreciated that the contract of August 2005 the forum of natural gas exporting countries, originally foreseen for 38 Il-76 and Il-78 transport and supply aircraft has not been for June, will probably be delayed until October. Concurring sour- fulfilled (the Russian side has put forward technical problems ces in Moscow believe that Russia has decided to exercise pru- at the site, where the planes should have been assem- dence on a subject that it knows to be particularly sensitive in the bled, and wants to increase the amount of the contract). Discus- eyes of the West. To follow the lead of the Iranians would probably sions on the sale of Su-33 for the Chinese naval air wing and the not be the wisest course at a time when the Kremlin is seeking to Su-35 are stopped. One of the objectives of the Russian side in convince its partners of the non-political orientation of its hydro- Beijing had been to obtain a date to be set for the next meeting carbon energy strategy. Last May 22, the Republican vice president of the bilateral military-technical cooperation commission, but of the House of representatives, Ilena Ros-Lehtinen, declared that General Vladimir Dmitriev left empty-handed, according to our the could not tolerate the creation of a gas OPEC that sources. The only contract signed during the visit of Dmitry Med- would amount, according to her, to “nothing more than a global 2 attempt at extortion and racketeering”. d Russia Intelligence N°78 j May 30 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

cc FOCUS BEHIND THE SCENE The insinkable Igor Sechin Who wants Mikhail Kovalchuk's head ? The reactions have continued unabated in Moscow relating to the composition of the Who wants Mikhail Kovalchuk’s head ? government, the staffing of the Presidential administration and, more fundamentally, It’s a tragic affair and for the least a troubling about the balance that is being established between Dmitry Medvedev and Vladimir Pu- one which has just unfolded in Moscow. May tin. From this standpoint, one of the most striking and most unexpected elements in the 8, Svetlana Zheludeva, assistant director of wave of nominations announced May 12 is that Igor Sechin retains such an important the Cristallography institute of the Academy of place in the ranking, which is obviously quite upsetting for the new President. sciences (IKRAN), was opening an envelope containing a letter and a bag of white powder If it is not completely lacking, the margin of manoeuvre now available at this stage to sent by another academy institute in Novosi- Dmitry Medvedev is limited. He has not been able to chose the head of his administra- birsk. Five days later, she was rushed to a tion. It is known that he wanted for this post either (who was named 1st hospital, before plunging into a coma and vice Prime minister) or Alexandre Voloshin. The new President had to accept the no- dying on May 17. Doctors at the Sklifovosky mination of , who is certainly not a dyed-in-the wool “Sechin man” but Institute declared anonymously they “do not who is neither one in whom he can have complete trust. Dmitry Medvedev also had to understand what happened. The patient saw accept the imposition of Marina Entaltseva to the post of head of protocol. Maria En- her liver destroyed in the space of three days”. taltseva is one of the most loyal friends of Vladimir Putin’s and has been his personal se- An ordinary hepatitis B with no connection to cretary since 1991, first in the and then the Presidential administra- the contents of the envelope, as maintained by tion. She is eternally grateful to Vladimir Putin for having saved her from a fire that Gennady Onishchenko, the head of the Rus- ravaged her in 1996. According to information gathered by Russia Intelligence, sian health services, who had distinguished Marina Entaltseva is also close to Igor Sechin, with whom she collaborated directly in himslef by eminently declaring Moldovan and the Kremlin from 2000 to 2008. Georgian wines to be toxic in the autumn of 2006 ? Several elements lead to the possibility The only man whom Dmitry Medvedev could select to fill his staff in the Kremlin was that the matter may be more complicated. In , his old school friend, member of the direction and particular the fact that the letter opened May 7 administrator of RosUkrEnergo. As we indicated in our previous edition, Konstantin was addressed to Mikhail Kovalchuk. The Chuychenko will be responsible for the very powerful general direction for controls. Dmi- brother of Yuri Kovalchuk, the boss of the try Medvedev should in addition be able to count on Natalya Timakova, his new press Rossia bank, Mikhail is not unknown to our secretary, a close associate of and of Alexandre Voloshin, to whom she readers. In its edition of May 16 2007, Russia owes her entire career. Intelligence indicated that this great friend and dacha neighbour of the Science minister An- Things are more complicated when it comes to the organs of power. Igor Sechin loses drey Fursenko, who also holds the post of di- his two companions Nikolay Patrushev and . The first is “put in the rector of the Kurchatov Nuclear research ins- closet” in the national security council and replaced by his assistant, Alexandre Bort- titute and is a member of the supervisory nikov, reputed to be equidistant from Putin and Medvedev. But the predictable weake- council of Rosnanotekh (the public holding ning of Igor Sechin’s position in the FSB is partly compensated by the nomination of Vik- company created in 2007 to guide the deve- tor Ivanov to the post of the federal anti narcotics service, up to now controlled by Viktor lopment of nanotechnology), might fancy him- Cherkesov, an avid supporter of Dmitry Medvedev. Vladimir Ustinov — whose son is mar- self as the president of the Academy of scien- ried to Igor Sechin’s daughter, Inga — is certainly replaced by someone close to Medve- ces. Less for the prestige than for the direction dev, Alexandre Konovalov, but he recovers an important post, that of high presidential of the “budget downpour” linked to the deve- representative to the southern federal district, long supervised by . lopment of nanotechologies (4 billion Euros) and the immense financial and property re- Elsewhere, Igor Sechin also maintained in the loop former Prime minister Viktor Zub- sources of the Academy.Appetites which do kov, whom he hoped to make the “heir” to Putin in autumn 2007. should not please everyone surrounding the current soon be named to the presidency of the Gazprom supervisory council, which is not neu- president, Yuri Osipov, who had discreetly tral in view of its rivalry with Rosneft. With Zubkov with Gazprom and Igor Sechin in the worked to assure that Mikhail Kovalchuk did position of vice Prime minister in charge of the energy sector, the balance will change not receive the title of Academy member on (since the Energy minister, Sergey Shmatko, who comes from the nuclear power stream, May 28 (which should in theory prevent him is unlikely, at least at the beginning, to involve himself too much with hydrocarbon energy). from taking over the direction. Mikhail Koval- The retention of the son-in-law of Viktor Zubkov, Anatoly Serdyukov, at the Defence mi- chuk nevertheless was named acting vice pre- nistry should also be noticed. Lastly, Igor Sechin will also probably cut across the paths sident of the Academy of sciences by decree of Sergey Ivanov and perhaps also Sergey Chemezov by taking over control of the pre- last June). From there to imagine that so- sidency of the supervisory council for OSK, the public holding company for shipbuilding meone would seek to bar his way at any (read also article on page 7). price...The family of Svetlana Zheludeva has in any case indicated that she was in good health Igor Sechin in addition can also count on the loyalty of the Industry minister Viktor before the events and that it would not be sa- Kristenko, long-time friend at Rosneft (his daughter is married to the son of Viktor Bog- tisfied with the version extended by Gennady danchikov). Other second-ranking federal officials such as Anatoly Ledovskikh (Sub- Onishchenko. Visibly embarrassed, the police soil development agency) are also Sechin men. We also observe, according to informa- services indicated they would give themselves tion gathered in Moscow by Russia Intelligence, that the president of the Senate, Sergey one month to decide whether or not to open a Mironov, has also drawn closer to the new vice Prime minister of Vladimir Putin. d d criminal inquiry. 3 Russia Intelligence N°78 j May 30 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

OIL c When Gennady Timchenko emerges from the shadows

Very strange, this duel between the and core and . All the Russian oil groups, even TNK-BP, Gennady Timchenko, the man of , which in a few years turn to the services of Gunvor (with the notable exception has become the third leading oil trading company in the of ) which handles about 30% of Russian crude oil world... May 14, the British economic daily published a long exports by maritime transport and whose principal clients article, signed by its correspondents in Moscow, Catherine are Surgutneftegaz, Gazpromneft and Rosneft, three firms Belton and Neil Buckley, retracing the career of Timchenko, whose managers are close to Vladimir Putin. As for his per- since his early days in Saint Petersburg , until his spectacu- sonal ties to Vladimir Putin, they must be more solid than lar climb in power begining in 2003 and letting it be unders- Timchenko today contends. It is known that it was in the tood that this spectacular ascension had a connection with latter’s villa on the Basque coast in July 1999 that secret the friendly links between Gennady Timchenko and Vladi- meetings took place between Putin and Boris Berezovsky mir Putin. The readers of Russia Intelligence in fact have concerning the nomination of the man who was then only been informed for a considerable time about the voyage of the head of the FSB to be Prime minister. Gennady Timchenko as well as certain episodes that the Fi- nancial Times does not raise, such as the creation of the flee- The theory of a plot always has considerable suc- ting Baikal Finance which won the auction on Yuganskneft- cess in Russia, and some in Moscow attribute the “attack” gaz on December 19 2004 (Russia Intelligence n°6 of February of the Financial Times against Timchenko to the desire 11 2005). Nevertheless, the publication of this article in the of certain Russian oligarchs to oppose the Financial Times was not to the liking of Gennady Timchenko, “Sechin/Zubkov/Timchenko” group whose influence over who replied through a letter to the daily on May 22, a posting the Russian energy sector can only increase, the day after in which he downplays his friendship with Vladimir Putin and the formation of new management teams (read page 3). specifically challenges the notion that Gunvor owes its suc- In truth, it is not difficult to anticipate such a phenome- cess to any “favours” from the Kremlin. It was the first time non. The mission confided by Vladimir Putin to Igor Se- that Timchenko had taken a public stance and it is interes- chin is clear : to replace Russian oil production on a rising ting to analyse the reasons. No one ignores that the rise in path (between January and April 2008, production of crude power of Gunvor has coincided with the resumption of the declined by 0.3% compared with the same period the pre- control of Kremlin in Russian oil activity, whose most sym- vious year). Two strategies will be deployed, a fiscal one, bolic episode naturally was the arrest in autumn 2003 of Mi- the other concerning development of port infrastructure. khail Khodorkovsky, the boss of . In 2004, Gunvor rea- The government “presidium” decided during its meeting ched 4 billion dollars in sales. This year, the firm, whose of May 26, to transmit to the Duma a draft law planning a headquarters is at , will be close to 70 billion dollars, fiscal exemption for up to fifteen years for the establish- according to Torbjörn Törnqvist, a former BP trader, who is ment of production for deposits already identified or the president and co-founder of Gunvor with Timchenko (the exploration of new felds. In addition, the extraction tax company was officially created in 1997). This makes it the will be lightened, which would represent a “gain” for oil third leading oil trading company in the world, behind Glen- companies of 4.2 billion dollars in a full year, according to Alexey Kudrin. In total, according to experts, the Russian ALERT oil industry should benefit from at least twenty billion dol- lars in additional revenues thanks to these fiscal measu- 3 Taxation threat hangs over the steel in- res, and the first beneficiaries should be Rosneft and Gaz- dustry promneft.

If Russian oil groups benefit from tax exemptions, it is not the On the infrastructure side, it only took a few same for steel and metalurgical companies. The Russian market days for the new Prime minister Vladimir Putin to visit the for steel is one of the most active in the world, but it is subject to oil terminal in Primorsk and confirm the development of substantial price increases : more than 40% from one year to the the one at Ust Luga, in the gulf of , a project which next. The major steel consumers in Russia (especially the oil the former president of Transneft, Semyon Vaynshtok ap- groups and tube pipe producers) accuse the steelmakers of a parently did not defend with the enthusiasm required. price conspiracy and complain bitterly to the government. The Since he has been replaced by Nikolay Tokarev (Russia steelmakers reply that the increase in domestic prices is due to Intelligence n°63 of October 11 2007) the pace has quic- the skyrocketing of world prices for steel. But the government is kened. Gunvor should notably be involved in the construc- seriously considering imposing a tax on steel imports and a con- tioon of the new terminal at Ust Luga (of a capacity of 11 trol on domestic prices. In addition, the old question of transfer million tonnes) along with Zarubezhneft, the public com- pricing returns to the fore. Russian steel groups are highly inte- pany presided over until last autumn by Tokarev. It is the- grated vertically, which allows them to play on prices for raw ma- refore clear that the men of the Prime minister will play terials, coal or iron ore, in order to “optimise” their tax charges. a key role in the development of crude oil production and From time to time, the government raises the threat to examine exports. The “outing” of Timchenko denying all political these practices more closely to bring of the sector to backing from the state to Gunvor may be unprecedented, their senses, and this is precisely what it has just done. it is no more convincing... 4 Russia Intelligence N°78 j May 30 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

ALERTS

3 Neighbourly quarrels on the shores of Lake Léman…

Daggers have been drawn by two of the and European Jewish congress, has bought founder and executive director of the Davos prestigious residents of Cologny, the VIP land to enlarge his Cologny property to World Economic Forum, who has launched district of Geneva, on the shores of Lake build a private museum aimed at housing legal proceedings against Kantor, without Léman. Vyacheslav Kantor, the fertiliser his rich collection of Russian paintings. success up to now. But this has no bearing magnate (Akron group) and property hol- These enlargements are not to the taste of on the interest that Schwab has for the Rus- dings, who is also president of the Russian his neighbour, in this case Klaus Schwab, sian market (read below).

3 Yuri Kovalchuk and the Berlusconi group in NTV ? It is still only a rumour, but Yuri Kovalchuk viously bought certain assets from Gazprom of the Fininvest group, controlled by Silvio (, Bank Rossiya), is said to Media, such as the Izvestia daily. Koval- Berlusconi and his family ( his daughter want to take over control of the NTV televi- chuk already controls two television chan- Marina is president), a stake of some 20% sion channel, at the moment held by Gaz- nels, Ren TV (with Surgutneftegaz and Se- in NTV, which during the Yeltsin years was prom Media. The links between Kovalchuk verstal) and TRK-Petersburg. Contacts are the symbol of the rebirth of Russian televi- and the Gazprom galaxy are well-known also said to have been made at the highest sion. and the Saint Petersburg banker has pre- level to propose to Mediaset, a subsidiary

3 Record attendance awaited for the Saint Petersburg Economic Forum The cream of politics and the business participating in the last two or three edi- garde, Anne-Marie Idrac will be among world has found a new gathering spot : the tions. Co-organised in part by Schwab, the the French delegation). It must be said that Saint Petersburg Economic Forum, whose founder of the Davos economic forum, the the Kremlin mobilised itself for the organi- 12th edition will take place June 6 and 8. Saint Petersburg Forum has already obtai- sation of this forum, whose organising Up until recent years, the Saint Petersburg ned the registration for this year of the par- committee was constituted through Presi- Forum had been relegated to a second le- ticipation of most prominent Russian and dential decree n°65 of January 22 2008. It vel in comparison with the London one. international business managers (Thierry is presided by , Economic But the latter has lost the favour of Russian Desmaret, Christophe de Margerie, Da- development and commerce minister. politicians and entrepreneurs after the niel Bouton, Patrick Kron, Bernard Ar- Kremlin prevented several ministers from naud, Jean-Louis Befa, Christine La-

3 The Grefs, a new banking dynasty

In its edition of February 28, Russia Intelli- the commercial operations of the Moscow tional security council, is assistant director gence spread the news about the first steps affiliate of . The younger general of the Vneshtorgbank (VTB) of German Gref in the presidency of Sber- Gref has been nurtured by Alex Bazarov, alongside Andrey Kostin. Pyotr Fradkov, bank, the Russian savings bank, the coun- an apparently fruitful collaboration since the son of the former Prime minister and try’s leading banking institution. It has been the latter was recruited after a month by currently boss of the external intelligence learned that the former Economic develop- the elder Gref for the position of corporate service (SVR) , is for his ment minister is not the only member of director at Sberbank. The banking connec- part member of the directorate of the De- the Gref family to inaugurate a financial ca- tion is, as is well known, especially attrac- velopment bank, integrated into the reer . His son Oleg, a yound graduate of tive to the offsprings of the Russian official Vneshekonombank (Russia Intelligence the noted Saint Petersburg law faculty, elite. , the son of the ex- n°46-47 of January 19 2007). has been working since last summer with FSB director and new secretary of the na-

3 The appetite for property of the Russian Orthodox church According to information gathered by Rus- tion — and hopes to build a new Russian this society since 2007, who conducted the sia Intelligence, the Moscow Patriarchy Orthodox pole in . negotiations and who was given the deeds has become actively involved recently to The property plans of the Moscow Patri- to the properties by Mahmud Abbas. The find a building site in Paris. Contacts have arch are not limited to France. A church other topic is the Serge Hermitage been made with the circles around Prime has recently been inaugurated in Rome. (Sergievskoe podvorie) in Jerusalem. minister François Fillon and a meeting The Holy Land is also a priority objective. Since the break in diplomatic relations be- may be scheduled with the capital’s The President of the Palestinian Authority tween Moscow and Tel Aviv in 1967, this mayor Bertrand Delanoé. The assistant Mahmud Abbas has also given his accord two-story building housed the services of to the Patriarch of the Russian Orthodox to the restitution to Russia of several sites the Israeli Agriculture ministry. Discussion church, Metropolitan Kirill, recently dis- in Bethlehem, Jericho and on the Mount initiated in the wake of the visit of patched to Paris two young clerics fluent of Olives. These sites belonged to the Or- Vladimir Putin to Jerusalem in the spring in French and also knowledgable in legal thodox Imperial Palestinian Society of 2005 are on the point of concluding. issues, accordiing to our sources. Moscow founded in 1882 by the Emperor Alexan- Before leaving the Kremlin, Vladimir Putin seems to have eliminated the rue Daru — der III. It was the boss of the Court of Ac- released 300 000 Euros for the restoration the bastion of the white Russian immigra- counts, Sergey Stepashin, president of of this site. 5 Russia Intelligence N°78 j May 30 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

RAILWAYS c Privatisation of Deutsche Bahn, IPO, rapprochement with Bombardier : Vladimir Yakunin’s major projects

The boss of the national railway company, who — accor- billion rubles (or about 8 billion dollars). We can see there- ding to information gathered by Russia Intelligence in Mos- fore that the financial operation foreseen by Vladimir Yaku- cow — refused a post as vice Prime minister for transporta- nin would one of major importance. tion, has displayed his intention to accelerate toward a certain number of priority objectives for RZhD. Another related industrial operation — the entry into the capital of Transmashholding (TMX), the main provider of Strengthened by recent successes in and Libya rolling stock to RZhD, by a Western investor — should see (Russia Intelligence n° 70 of January 31st, 2008 and n°76 of some important developments in the coming weeks. It is April 24, 2008), Vladimir Yakunin intends to pursue his am- known that Vladimir Yakunin publicly declared in early De- bitious international development strategy. The next objec- cember 2007 his support for Canada’s Bombardier. tive for RZhD is Germany. Speaking on May 21 in du- ring the Russia Transport 2008 show, the strongman of the According to our information, the Transmashholding team Russian railways declared his interest in the partial privati- is more reserved, close associates of Dmitry Komisarov even sation of Deutsche Bahn (24.9% ) planned for this autumn. favouring the Alstom option. But some signs indicate that in He also is said to have had discussions on this subject with this matter, the Canadians have the lead. The latest to date his German counterpart Hartmut Mehdorn. In this case, was the conclusion on May 21 of an accord aimed at establi- RZhD would have to disburse between 4 and 6 billion euros, shing a joint company for the development of a new genera- according to the different evaluations of experts. Such a stra- tion of locomative using the asynchronous propulstion tech- tegic decision would also require the approval of the Krem- nology. The text was signed in Sochi by Wolfgang Tölsner, lin. But at this stage, the Russian authorities appear not to the head of development for Bombardier Transport, and An- have decided. The vice Prime minister Alexandre Zhukov, drey Andreev, acting director general for ZAO “Transmash- who is also the president of the RZhD supervisory board, has holding” in the presence of Vladimir Yakunin. We also recall just underlined in the midst of the declarations by Vladimir that in May 2007, a preceding accord had been signed by for Yakunin that to raise such prospect now was “premature”. creation of two joint companies between TMX and Bombar- But it is a good bet that the boss of RZhD, who is on good dier (Russia Intelligence n°56 of May 31st, 2007). According terms with both Vladimir Putin and Dmitry Medvedev, will to our information, the visit planned by Vladimir Yakunin to have no trouble in putting his views across when the time co- Canada on June 12 in the context of his Foundation for the mes. dialogue of civilisations should not be limited to an acade- mic exercise. The other priority for Vladimir Yakunin is to find the fi- nancing to put his development strategy for rail transport The only false note in this rather harmonious score for 2030 adopted last autumn into practice (Russia Intelligence Vladimir Yakunin came in Saudi Arabia. In our edition of n°63 of October 11th, 2007. We recall that this document fo- January 31st 2008, we indicated that RZhD had won the call resaw massive investments — no less than 520 billion dol- for tender by the Saudi government for the construction of lars — in modernisation of infrastructure and replacement 520 km of rail between Az-Zabira and the King Khaled inter- of rolling stock. 40% of this amount will have to be financed national airport in Riyad. But this result has just been can- by RZhD. To guide the group finan- celled . According to Vladimir Yakunin, the technical propos- ces, Vladimir Yakunin last Novem- als of his group have not been questioned, but the reason for ber recruited Tatyana Paramonova, the Saudi turnaround arise from “problems of international the former vice president of the Rus- relations”. In fact, it was the contract obtained by RZhD in sian central bank. A first wave of as- mid-April in Libya during the visit by Vladimir Putin to Tripoli set sales (notably a 15% stake in the (Russia Intelligence n°76 of April 24, 2008) which might be freight operator Transkonteyner) has the reason for the problem. It is known in fact that the wah- already taken place in late 2007, habist kingdom has horrible relations with the Jamarihiya which led to the entry of 316 million (in 2004 the Saudi services had even accused Colonel Kad- dollars into the RZhD coffers. Vladimir Yakunin hafi of having fomented a plot again the heir to the throne, Prince Abdalallah). But the biggest operations are yet to come. By next au- tumn, the Russian railways will place on the market 4 billion Russia Intelligence sources close to Vladimir Yakunin be- dollars in Euro obligations. The second phase will be the or- lieve nevertheless that the loss of the Saudi contract is not ganisation of an IPO for 25% of the capital of RZhD (held up necessarily bad news from a financial standpoint. The RZhD to now, we remind, by the state). According to Fyodor An- offer (800 million dollars, or about 1.5 million dollars per km, dreev, 1st vice president of RZhD, the operation should take while the going price in Russia is close to 7 million dollars), place in 2011.Estimating last fall what the opening of 20% of was obviously undervalued and the implementation of this the capital of the Russian railways might bring, the boss of contract would have generated significant losses for the Vneshtorbank, Andrey Kostin had raised the number of 300 Russian group. 6 Russia Intelligence N°78 j May 30 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc FOCUS ALERTS 3 Agusta approaching Shipbuilding : the Kremlin reshuffles The spectacular breakthrough of Italian the cards groups in Russia, which we have regularly analysed in these columns (see, among To once again make Russia a great maritime power, we know, is one of the others, Russia Intelligence n°52 of March 30 constant preoccupations of Vladimir Putin since his accession to office. On July 2007, n°53 of April 13 2007 and n°77 of May 27 2001, the Russian President at the time had promulgated, on the occasion of 13 2008), is continuing in the aerospace sec- the fleet festival in Saint Petersburg, the “Maritime doctrine of the Russian fe- tor. Oboronprom, the “Russian helicopter” deration to 2020”. A few weeks later, he created a Maritime college (Morskaja kol- public holding company and AgustaWestland legjia), an ad hoc creation uniting members of the government, governors and in- signed an important accord during the dustrialists in order to reach a consensus on the initiatives of the different protagonists HeliRussia 2008 show in mid-May. This docu- in the matter. On the industrial side, Vladimir Putin stimulated the creation of a public holding company — OSK — uniting the totality of the public actors in ship- ment foresees that Oboronprom will market building. Founded by a presidential decree on March 21 2007 (Russia Intelligence the AW109 and AW139 on the Russian mar- n°52 of March 30 2007), OSK was officially registered last autumn (Russia Intel- ket (the Italians count on selling for some 400 ligence n°64 of March 30 2007). It should also be recalled that this holding com- million Euros by 2012). Maintenance centres pany will involve three regional centres : West (Saint Petersburg, Kaliningrad), will then be created in Moscow and Saint North (Sevmash and Zvezdochka in Severodvinsk on the White sea) and Far-east. Petersburg, then, in a third phase, an assem- The Saint Petersburg shipyards owned by Sergey Pugachev (Baltiysky zavod and bly unit will be installed in Lyubersty on a site Severnaya verf) are not involved in this reorganisation in view of their status and belonging to Kamov. We recall that Agusta despite their industrial importance. The landscape would be incomplete without had already made a first attempt at industrial Sovkomflot, the public maritime transport company which the Kremlin wants cooperation in Russia in the middle of the make a national champion and a Russian standard-bearer on the world seas. The 1990s. The Ka-64 civilian helicopter project administrative council of Sovkomflot is, it is known, directed by Igor Shuvalov, had nevertheless been abandoned for lack of the new 1st vice Prime minister, very close to Dmitry Medvedev. financing on the Russian side. In this deal, AgustaWestland was able to count on efficent The least that can be said is that the brief existence of OSK up to now has not lobbying on the part of , the resembled a peaceful voyage. From March to September 2007, it was General former boss of Oboronprom today Industry Alexandre Burutin, former military adviser to the President, who assumed the vice minister. The importing and assembly of operational management. Then it was Yuri Yarov, former executive secretary of the AW139 are presented as transitory solu- the CIS and vice Prime minister at the beginning of the Yeltsin presidency, who tions while awaiting the entry into production took the controls in September. With mixed results since Sergey Ivanov, the boss of the Ka-60/62, for its motor Turbomeca is in of the Military-industrial commission, and Vladimir Putin have each expressed contention. their disappointment about the advancement of the shipbuilding reforms in re- cent weeks. As a result, the Kremlin decided to once again change the pilot. The presidency of the supervisory board of OSK was awarded to the vice Prime minis- 3 A brawl at TNK-BP ter Igor Sechin. Among the new hats (read page 2), which was undoubtedly the The Russo-British oil group has continued to least expected since he had up until then displayed no interest for this sector of hit the headlines since early spring. Following activity. The other change involves the presidency of OSK directorate. Yuri Yarov searches by the FSB in late March (Russia yields the post to Andrey Dutov, who up until then directed the Federal Indus- Intelligence n°74 of March 27) and the swell trial agency (Rosprom). This nomination is interesting in more than one way. First of persistent rumours about an entry by of all because Andrey Dutov is reputed to be closely linked to Sergey Chemezov. Gazprom in the capital (Russia Intelligence We remember that the director general of Rostekhnologii in the summer of 2006 n°75 of April 10 2008), it has been learned had sought the shipyards owned by Sergey Pugachev. In addition, because Andrey that an open conflict erupted between the Dutov was named without Igor Sechin being consulted. It was the departing pre- Russian and British shareholders. The latter sident of the OSK supervisory board, Sergey Naryshkin, who signed the decree. want to concentrate investment by the group According to Russia Intelligence sources in Moscow, this slight manoeuvre was in Russia and reinvest the major part of the aimed a rebalancing things and avoiding that Igor Sechin exercise too strong a profits, while their associates are more incli- hold on the naval sector (we recall that Yuri Yarov is a friend of the former Prime ned to distribute dividends. The atmosphere minister Viktor Zubkov, who is himself allied to Sechin). has visibly deteriorated and low blows have multiplied. Robert Dadley, the president of The arrival of a “heavyweight” such as Igor Sechin in shipbuilding in any case TNK-BP, accused the executive director of the complicates matters and creates a new pole of influence (with Igor Shuvalov, Sergey group, (formerly of Alfa- Pugachev, Sergey Chemezov, without forgetting Yuri Kovalchuk, whose partners Group), of having deliberately reduced the control the promising Vyborg shipyards - Russia Intelligence n°77 of May 13 2008). number of requests for work permits for forei- These new upheavals take place as Vladimir Putin has just announced a certain gners from the Social affairs ministry in order number of fiscal measures for Russian transport companies in order to urge them to “Russify” the group’s Moscow staff. In this to place orders in Russia (during the past 10 years, only 6% of vessels ordered were context, Gazprom foresees an opening and is built in national shipyards). This decision is in direct line with the Federal pro- rubbing its hands, even if — officially — the gramme for the “Development of civil naval materiel” adopted in late 2007 and en- opening of the TNK-BP capital is not planned dowed with 136.4 billion rubles (about 4 billion Euros). by its shareholders. To be followed... 7 Russia Intelligence N°78 j May 30 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Regions & CIS

FAR-EAST c Governor Sergey Darkin in the eye of the storm

For some months already, Russia Intelligence has drawn the predecessor, Yuri Kopylov, is currently being tried in Vladivos- attention of its readers to the situation in the Far-eastern province tok for the same reason. of Primoria and indicated that the governor Sergey Darkin — whose past and reputation are somewhat controversial — was According to information gathered by Russia Intelligence , being watched closely by the Kremlin (Russia Intelligence n°46- this major house-cleaning in Primoria was decided at the hi- 47 of January 19 2007). Matters accelerated sharply in recent days, ghest levels in Moscow. Two factors, linked, led federal autho- foreshadowing a profound change in the local political landscape. rities to put such a scenario into place. On the one hand, the launching of the federal programme for the development of the On May 15, Sergey Darkin was convoked and questionned by Far-east, which foresees close to 23 billion dollars in public in- representatives of the Investigations committee of the Prosecu- vestment by 2013. These funds must serve to especially moder- tor’s office in Vladivostok. In the aftermath, searches were conduc- nise the infrastructure in Vladivostok, which will play host to ted at his residence. The investigators are looking into the possi- the summit of the APEC heads of state in 2012. It was out of ble role of the governor of Primoria in a case brought to light last the question that the Kremlin confide such amounts to perso- year that concerns illegal transfers of federal assets (some 70 hec- nalities as mercurial as Sergey Darkin and his little friends. In tares may have been improperly privatised — including one part a first stage, the Kremlin had dispatched to Vladivostok Sergey protected as a “green zone” — before being offered to property Ushakov, the former boss of security at Gazprom and former developers for construction of cottages). Five persons have already boss of the FSO (service for the protection of personalities), to been charged in the context of this investigation. On leaving the keep an eye on the local elites and especially on Darkin (Rus- office of the investigators, a pale Sergey Darkin was transported sia Intelligence n°60 of August 30 2007). Then the case was gi- to take a plane to Moscow, where he, according to the official ver- ven to the new high presidential representative in the Far-east, sion, was hospitalised in the Kremlin central clinic for cardiac Oleg Safonev, another KGB veteran who is none other, in ci- problems. In fact, it involves Darkin quickly mobilising support in vilian life, than the son-in-law of (Russia Intel- the capital. From a technical standpoint, a medical pause would ligence n°65 of November 8 2007). Elected to the general sur- have the advantage of preventing all destitution procedures of a prise in 2001 and re-named in his post in early 2005 by Vladimir governor. If the matter is taken very seriously by Sergey Darkin, it Putin, Sergey Darkin has obviously little chance of keeping his is because alarming signals had multiplied and the vice was tigh- post. Especially since the war on corruption is established as tened around him in recent months. One of his assistants, Alexan- one of the public priorities by the new President Dmitry Med- dre Shishkin, was arrested by the FSB in June 2007 in a flagrant vedev. act of corruption (he was receiving an envelope with 30 000 Eu- ros). Another of his associates in charge of the very lucrative mar- Names have already begun to circulate in Moscow to suc- kets sector, Leonid Beltyukov, fell for the same reasons last April. ceed Sergey Darkin. The n°2 of the parliamen- Other former regional officials were also in difficulty with the law, tary group in the State Duma, Vladimir Pekhtin, seems the which hardly contributed to reassure Sergey Darkin about the de- best placed. Yuri Osipov, who leads the Primorsky district in termination of the federal authorities. In 2007, the former mayor Saint Petersburg, as well as Semyon Vaynshtok — recently dis- of Vladivostok, Vladimir Nikolaev, for example had been condem- missed from his post as the boss of Olymstroy in Sochi — are ned to 4 years in criminal prison for misuse of public funds. His also mentioned.

Vladimir Kogan, future Senator from Saint Petersburg ?

The nomination of Senator to the post of minister for gan sold to the family of the governor Valentina Matvienko — Russia sports, tourism and youth in the Putin government opened up a — Intelligence n°17 of September 9 2005 — and the Petrovsky Bank, sold very desirable — position as representative of Saint Petersburg in to the MDM group). Close to Vladimir Putin and to the vice Prime mi- the Federation council. There are numerous candidates, but, accor- nister in charge of finance, Alexey Kudrin, Vladimir Kogan has gra- ding to various sources in the Northern capital, the best placed dually withdrawn from the business world to engage in political life. Af- would be Vladimir Kogan. The latter is not unknown to the readers ter having sold for 36 million dollars his interest in the Zenit football of Russia Intelligence. In our edition of March 1 2006, we retraced club to Gazprom in late 2005, he was named to the post of deputy di- the progress of this automotive mechanics graduate of the Lenin- rector of Rosstroy, but the recent dismantling of the federal agency du- grad Institute of engineering who during the 1990s gradually took ring the last ministerial reshuffle left him empty-handed. On the spot, over control of the Promstroybank and other Saint Petersburg ban- his old friends went out in search of a post. It will in all likelihood be king establishments (notably the Bank Sank Perterburg, which Ko- the Senate, which he has sought for years.

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