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N°59 - July 12 2007 Published every two weeks / International Edition CONTENTS KREMLIN P. 1-2 Politics & Government c The Olympic Games - or greatness by other means KREMLIN c The Olympic Games - On 4 July in Guatemala, won the right to organize the 2014 Winter Olympic Games. But its or greatness by other means success is not just of passing interest. Over the last few months the Kremlin has powerfully lobbied the MEDIAS International Olympics Committee. In addition to using the good offices of Gazprom, RAO EES and c How the Kremlin cares Rosneft, in the last two or three years has mobilized several oligarchs including Vladimir for “good journalists” Potanin (), Alexey Mordashov (Severstal), Vladimir Yevtushenkov (Sistema), Mikhail Fried- c Trouble in the Anti-Putin man (Alfa Bank), Viktor Vekselberg (Renova) and, especially, (). It nonetheless camp remains that the challenge is huge as most of the infrastructure has yet to be put into place, whether it is information technology, road, rail and air access, energy supply or accommodation (an estimated P. 3-6 Business & Networks 25,000 hotel rooms need to be built). Nevertheless, the leading members of the candidature committee ENERGY - Deputy Prime Minister Alexandre Zhukov, Minister of Finance Alexey Kudrin and Sports Minister c Rosneft: comes Vyacheslav Fetisov – have won a precious victory for Russia. out of the shadows But what are the short-term consequences of this victory? First of all a stampede of Russian compa- ALERT nies (followed by foreign undertakings) is expected on the main work to be carried out. It is interest- c Diplomatic Problems for the North Europe Gas Pipeline ing to note that one of the first interventions of Vladimir Putin following the Olympic Committee’s de- FOCUS cision was to warn against corruption and the embezzlement of public funds. Among the main beneficiaries c Caspian Pipeline Consortium: of these Games (which will attract investments estimated at around 10 billion dollars), one can already the trial of strength continues mention Deripaska who last November won the auction for the privatized Sochi airport, the country’s BEHIND THE SCENE seventh-ranking gateway, and for which speedy development is expected (Russia Intelligence No.44 of c Who’s got a grudge against 1 December 2006). Construction of a new terminal is already earmarked and Oleg Deripaska’s recent Vladimir Bogdanov? acquisitions in the building sector, notably Strabag and Hochtief, have become clearer (Russia Intel- SILOVYE MASHINY ligence No.56 of 31 May 2007). It is also probable that the Russian oligarchs will wage battle, not for the c Alexey Mordashov Ambushed right to build Olympic infrastructures but to enhance the region’s tourist facilities. Besides, numerous ALERT heated exchanges have taken place on this subject this winter (Russia Intelligence No.42 of 2 Febru- c Rosbank: Société Générale ary 2007). ’s Interros is particularly engaged in Roza Khutor, a vast scheme to build speeds up operations several hotels and ski lifts while Gazprom is building a “presidential village” on a “green field site”. The DEVELOPMENT BANK acquisition of land and the grant of building permission could result in fierce legal and financial bat- c The Fradkovs in Control tles. DEFENSE At the political level the Sochi Olympics are a personal victory for Vladimir Putin whose complete c Russian Naval Shipbuilding personal investment in securing the Games is widely recognized, boosting his popularity in Russia. It is opens to International certainly not this that will make him change his mind on his decision not to run for a third term, but it Cooperation could be useful in the “Post Putting” period. On the other hand, it is certain that it will enhance the prestige of Alexandre Tkachev, the governor of Krasnodar. Russia Intelligence has followed his career P. 7 Regions & CIS for a long time ( devoted a major profile on him in our Number 40 of 30 September 2006), for the very TATARSTAN good reason that he enjoys a good reputation with Vladimir Putin. Tkachev has the support of Oleg De- c Mintimer Shaymiev wins ripaska, but even if the governor’s name has been brought up in this matter on several occasions, it is his case in the Kremlin probably not enough for him to be a candidate in the presidential election. But it is felt that an impor- ALERT tant scenario is being played through the Winter Olympics that cannot fail to have repercussions on the c : Anatoly political scene. Moreover, it is the whole of southern region of Russia which might at last benefit from Chubais’s advisor freed a return to favor both from Russian and foreign investors. SUBSCRIPTION At the international level Russian diplomacy will not fail to grasp a new opportunity to fight for the Print Edition recognition of the country’s newly acquired importance on the world political scene. This will be of little (23 issues, airmailed overseas) use in the quarrel between and Washington on the establishment of a missile defense shield in €770 TTC central Europe (and which over the last few days has resurfaced with the United States’ categorical re- The Web Pack fusal to Russia for a “shared investment” as Vladimir Putin suggested at the G8 summit), but Russia will (Print Edition be only more swift to claim to be a major power. “This is one of the greatest moments in Russia’s history”, + PDF + archives acess) said Dmitry Chernyshenko, the managing director of the Sochi 2014 Committee. This statement may € 880 TTC seem somewhat grandiloquent but it is in line with the deep-seated feeling of Vladimir Putin’s govern- The Premium ment. This will undoubtedly have political consequences both within and outside the Federation. d Subscription (Print Edition + PDF + access The next editions of Russia Intelligence, Ukraine Intelligence and Central Asia and Caspian Intelli- to all the website contents) gence will appear on 30 August next – unless, of course, if event demand immediate analysis and € 1200 TTC comment. Central Asia and Caspian Intelligence will be published on 30 August as a double issue. www.russia-intelligence.fr RIA59 11/07/07 22:00 Page 2

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MEDIAS c How the Kremlin cares for “good journalists”

This is all about a ceremony that the main people concerned four of the NGOs receiving these funds are lead by or have been hope will remain discreet. On 27 June sixty or so journalists set up by members of the Public Chamber. The institute of received awards from the Kremlin for their “major contribu- Valery Fadeev, Number Two at the commission for national tion to the development of national television and their fruit- development strategy, thus will receive two million euros to ful work”. Among the lucky few were Alexey Pushkov, the pre- carry out various opinion polls and “ensure the monitoring of senter of the “Post-Scriptum” political programme on TV Tsentr, Russian civil society”. The All-Russia national charity fund and several reporters from NTV (including the correspon- the “Knowledge” foundation will receive 18 million euros in dent, Vadim Glusker), the news presenters of the public chan- grants. These two organizations are unknown in the Muscovite nel RTR - Maria Sittel, Mikhail Antonov and Konstantin NGO scene, but, questioned by the correspondent of gazeta.ru, Syomin - Alexey Malkov (who distinguished himself with sev- the FSB declared it knew about them. It should be said that eral very incisive features on , Viktor gazeta.ru is located at No.4, Lubyanka court. . . . Yushchenko, Boris Berezovsky and Garry Kasparov), the editor in chief of the rolling news channel Russia Today, Mar- On the eve of the elections, the Kremlin is using all the garita Simonyan, much appreciated by Vladimir Putin, who means at its disposal to avoid bad surprises. It is noteworthy never fails to send her flowers on her birthday, and Nikolay that the supervisory board of one of the country’s main daily Senkevich, the managing director of Gazprom media. After newspapers, Komsomolskaya Pravda, purchased by the ESN having received their decorations from the hands of Sergey Grigory Beryozkin power group, (Russia Intelligence No.48 Sobyanin, the head of the president’s services, the journalists of February 2) has appointed a new chairman in the shape of left for Novo-Ogaryovo, where they had an informal meeting Oleg Rudnov. This citizen of Saint Petersburg heads the BMG with Vladimir Putin. press group which has under its wing several newspapers cir- culating in the northern capital (Smena, Nevskoe Vremya, Journalists are not the only intermediaries that the Krem- Vecherny Peterburg etc) and the Baltika radio station. Oleg lin has been particularly pampering recently. On 3 July the Rudnov, aged 59, is close to Vladimir Putin, who he met in 1996 Russian President announced the grant of around 35 million on the support committee for Anatoly Sobchak. He is also a euros to six non-governmental organizations “with the aim of business partner of Yuri Kovalchuk, the head of Rossia bank developing civil society”. These institutes were chosen on the whose activities have been regularly reported in Russia Intel- recommendation of the Public Chamber (Obshchestvennaya ligence (No. 46-47 of 19 January 2007 and No.55 of May 16 2007) Palata), the consultative body established in 2005 that is sup- and which, among other things, controls the national televi- posed to represent Russian civil society. Coincidence or not, sion stations Ren-TV and TRK Peterburg. d

Trouble in the Anti-Putin camp

With just a few months to go before the movement’s strategy and especially, settle Russia”. Georgy Satarov, a former advisor presidential and legislative elections, the thorny question of a possible united to who is director of the optimism is not the order of the day among candidate for the coming presidential Indem research institute, boycotted the 7 the radical opposition to the Kremlin. election. But on the eve of the conference, and 8 July conference, as did Vladimir Ostracised by the media, unmercifully Mikhail Kasyanov let it be known that he Ryzhkov. If certain indiscreet remarks dispersed by the police during the would not attend and that there was no gathered by Russia Intelligence in Moscow “disagreement marches” this spring and reason why “The Other Russia” coalition are to be believed, the Vladimir Ryzhkov targeted by the new draft law on extremism should exist. This defection was not exactly is on the point of accepting the proposal recently adopted by parliament, the a surprise, as the former Prime Minister of Nikita Belykh, the chief of the Union representatives of “The Other Russia” had never concealed his intention to be the of Forces of the Right (SPS), to join the movement are now confronted by radical opposition’s united candidate. party’s top-of-the-list trio at the next insurmountable ego quarrels that seriously However, over the last few weeks, his legislative elections. compromise already very uncertain numerous detractors had encouraged political prospects. others to come forward as candidate. The The most likely hypothesis now is former head of the Central Bank Viktor that Gary Kasparov this autumn will For the record, until recently, “The Other Gerashchenko, the writer and Soviet ex- be appointed as “The Other Russia” Russia” comprised four bases: Gary dissident as well as candidate for the presidential election Kasparov’s United Civil Front, the National Saint Petersburg-based Sergey Belyaev with only a slight chance he will be Bolshevik Party of Eduard Limonov, the had come forward while Gary Kasparov allowed to take part. By then, the other Republican Party of Russia of the agitated in the wings to counter Mikhail “traditional” democratic political parties, parliamentarian Vladimir Ryzhkov and the Kasyanov’s plans. So the latter assumes his Yabloko and SPS, will have presented People’s Democratic Union of former prime independence but remains alone. separate lists for the legislative Minister Mikhail Kasyanov. These rather elections and will probably each disparate forces were due to meet in The former Prime Minister is not the have their own candidate for the d 2 conference on 7 and 8 July to define the only one to take his leave of “The Other presidential contest. Russia Intelligence N°59 j July 12 2007 www.russia-intelligence.fr RIA59 11/07/07 22:00 Page 3

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ENERGY c Rosneft: Igor Sechin comes out of the shadows The Annual General Meeting of the Rosneft shareholders in observers emphasize that the price Prana paid – four times the Moscow on 30 June was a big first. In fact until then the oil group’s original asking price – finally was not absurd as Item 13 included executives only had to report back to the State, their only mas- thousands of crude oil tanks, liquidities and considerable receiv- ter. This is no longer the case since last summer’s organization able VAT accounts. Eduard Rebgun, ’s legal liquidator, in- of the IPO on 14.8% of its capital (Russia Intelligence No.?? of directly let the cat out of the bag when he announced that a ??). Besides the in- friendly agreement had been struck between, ’s c stitutional investors, holding company Mihouse Capital and Yukos. For the record, These events should inspire 115,000 individuals in 2003, Mikhail Khodorkovsky and Roman Abramovich agreed the western media to revise bought the oil to merge Yukos and Sibneft. The deal between the two oligarchs group’s shares for a provided for Yukos to purchase 92% of Sibneft partly through a the labels they are generally total of 755 million share exchange and partly in cash (3 billion dollars). Roman prompt to hang on members dollars. Nine hun- Abramovich – dampened by the imprisonment of his colleague of Putin’s circle and perhaps dred people at- at the end of October 2003 – backed down and broke the deal. tended the meeting He retook control of 72% of Sibneft, which in autumn 2005 he reconsider Igor Sechin’s role and the least that sold to Gazprom for 13 billion dollars. The 3 billion dollars handed during the coming months. can be said is that over by Yukos then seem to have been “forgotten”. It would ap- they did not go pear that Roman Abramovich settled this debt by purchasing there to just sit and Item 13 via Prana. Seeing the present situation of Mikhail Khodor- listen. Rosneft’s executives, starting with its chairman, Sergey kovsky, such an action at first seems astonishing but nothing says Bogdanchikov, were submitted to a torrent of questions and had that the real beneficiaries of this deal are not in fact the credi- to justify their actions on several sensitive issues such as the low tors of 2003. In any case the Russian state has completely en- level of the dividend (1.33 rubles for each nominal 205-ruble dorsed it with the curious indulgence shown by the Anti-trust share) and on the honoraria of the independent administrators committee to Prana being the first illustration of this. And Ros- (585,000 dollars to be shared by the presidents of Vneshtorbank neft’s purchase of Prana on 2 July for a little more than 3 billion and of Barclays Capital, Andrey Kostin and Hans-Jörg Rudloff dollars is the confirmation. In order to finance the deal without and the vice president of the Russian Academy of Sciences, increasing a debt that has already reached 26 billion dollars, Alexandre Nekipelov). As well as the astonishingly “democratic” Sergey Bogdanchikov sold 50% of Tomskneft - another piece of tone of the debates, also of surprise to observers was the role confetti from the former Yukos empire acquired last May - to played by Igor Sechin, chairman of the Rosneft board and Num- Vneshekonombank, the new development bank set up by the ber two in the President’s office. Abandoning his role as a man Russian state (see the article on Page 5). It is very likely it will in the background operating in the corridors of the Kremlin, he fall to Gazprom, which had expressed interest in this asset. And ran the meeting in a masterful way, avoiding none of the ques- it goes without saying that all of this will be undertaken in per- tions and even shaking some of the group’s executives such as fectly transparency. d Sergey Makarov, the Vice President responsible for Finance. Igor Sechin showed to those who still had doubts that he was the real head of the Russian public oil group and showed himself as ALERT a competent communicator. His performance compares reveal- ingly with the very “Soviet” style of his opposite number and ri- 3 Diplomatic Problems for val, during the Annual General Meeting of the the North Europe Gas Pipeline Gazprom shareholders held the previous day. These events should The North European gas pipeline, which, for the record, is to inspire the western media to revise the labels they are generally link Russia and Germany through the Baltic Sea, continues to prompt to hang on members of Putin’s circle and perhaps recon- stir up ill feeling in the region. Construction work is behind sider Igor Sechin’s role during the coming months. schedule, irritating the shareholders, Gazprom on one side and the German groups E.ON and BASF, on the other. And the Po- Although they were the subject of Igor Sechin’s concerns, Ros- lish government’s opposition to the project is well known. But, neft’s minority shareholders nevertheless did not have the op- in Sweden, another country affected by the course of the pro- portunity to hear the explanations of the group’s executives on ject, the atmosphere is not exactly one of fellowship with Russia. the mysterious Prana affair which for several weeks has shaken To the extent that Sweden consumes almost no gas in produc- Moscow’s elite. As a matter of interest, this little-known com- tion of its electricity, it sees little usefulness in the project. Besi- pany had pipped Rosneft at the post by purchasing for almost des, the origin of the misunderstanding between Sweden and four billion dollars Item 13 in the auction for Yukos held in May Stockholm lies in a joke made by Vladimir Putin during one of (Russia Intelligence No.55 of May 16 2007). Since then theories his trips to Sweden and that the Swedish authorities didn’t find have abounded in Moscow both as to the identity of Prana’s own- very funny. Answering a question put by a Swedish journalist at ers and the aims of the deal that in many ways reminded one of a press conference on the risk of terrorist attacks against the the incredible “Operation Baikal” in December 2004 that opened installation and the damaging effect that the pipeline might the break-up of Yukos (Russia Intelligence No.6 of 11 February have on the Baltic Sea, Vladimir Putin replied that the “Red 2005). Some Russian journalists believe they have traced Prana Army” would be responsible for security. One can understand to Gazprombank and have presented this affair as all the more the commotion caused by this remark in Sweden’s political cir- symbolic as it concerned the headquarters of the former com- cles that still have mixed feelings about the many incidents bet- pany of Mikhail Khodorkovsky as the revenge of Alexey Miller ween Sweden and the in the Baltic Sea… d and Dmitry Medvedev on the Bogdachikov/Sechin tandem. Other 3 Russia Intelligence N°59 j July 12 2007 www.russia-intelligence.fr RIA59 11/07/07 22:00 Page 4

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cc FOCUS BEHIND THE SCENE Caspian Pipeline Consortium: Who’s got a grudge against the trial of strength continues Vladimir Bogdanov? After Sakhalin-2 and Kovytka, the Caspian Pipeline Consortium (CPC) will most It’s a misadventure that the executives probably be the subject of the next open confrontation between the interests of the of Surgutneftgaz – Russia’s fourth-ranking State and those of the western oil majors. oil company, with a production of 65mt in 2006 - are not ready to forget. During the For the record, the CPC operates the oil pipeline linking the Tengiz deposits in evening of 3 July, a release ostensibly western with the oil terminal at Novorossiysk on Russia’s Black Sea coast. released by the group’s press department, Its shareholders comprise Russia (24%), Kazakhstan (19%), the Sultanate of Oman was widely distributed by email: “ . . . (7%), Chevron Caspian Pipeline Consortium Company (15%), Lukarco (a joint ven- Vladimir Leonidovich Bogdanov, ture of and BP, 12.5%), Rosneft-Shell Caspian Ventures (7.5%), Mobil Caspian managing director of Surgutneftgaz and Pipeline Company (7.5%), Agip International (2%), BG Overseas Holding (2%), Kaza- Nickolay Petrovich Zakharchenko, khstan Pipeline Ventures (1.75%) and Oryx Pipelines (1.75%). The CPC, which was chairman of the board, have been placed set up in 1996 and which came into service in autumn 2002, has the particularity of under arrest, suspected of tax fraud. Some being the only exporting pipeline crossing Russian territory that is not under the con- of the Group’s assets have been seized”. trol of Transneft – an anachronism that in the eyes of the Kremlin must be ended. The text specified that the Tyumen district court had opened a criminal investigation A veritable wrestling match has been underway for several months on the one hand for tax fraud through offshore companies between Transneft (which represents the Russian State on the CPC board) and the and that quotation of Surgutneftgaz shares Consortium’s western shareholders (Russia Intelligence No. 46-47 of 19 January 2007). had been suspended sine die. The Russian side considers itself cheated financially by the way the operation func- After several hours during which tions at the moment and is seeking renegotiation of the shareholders’ pact. Chevron confusion reigned, it appeared that it was (which operates the Tengiz deposit), most of the other oil majors in the CPC and Kaza- an operation of disinformation coupled khstan want a rapid increase in the pipeline’s capacity from the present 32 million with electronic tampering of the tonnes to 67mt, then 76 mt a year. This is a demand that is all the more pressing as oil Surgutneftgaz web site. Vladimir Bogdanov production in western Kazakhstan is called upon to increase over the next few years had not been arrested but was on a and that the country’s current export capacities are almost at saturation point. working trip to a production facility in eastern Siberia while Nickolay In this context, the general shareholders’ meeting, which took place in Moscow on Zakharchenko was resting at his country 3 and 4 July, was awaited with great interest. However, no progress was achieved as house outside Moscow. If it had not all the parties maintained their positions. Transneft submitted the other sharehold- implicated Surgutneftgaz, the incident ers a memorandum drawn up jointly with the Russian government. The document im- could be considered as a joke in bad taste poses several conditions on any increase in the CPC’s capacity: an immediate increase undoubtedly organized by a talented from $29 to $38 per tonne in transit rights, a reduction in the interest rates on loans Russian hacker. Over the last few weeks, by the western shareholders to the CPC from 12.75% to the LIBOR rate, that is, 4-5% Vladimir Bogdanov’s group in fact has per annum and revision of the unanimity rule for the consortium’s decision-making been at the center of events that in the process. Murod Muhamedzhanov, the managing director of Transneft-Finances who context of Russia today are anything but represented the Russian side at the board meeting, also confirmed that he hoped that insignificant. Last April a false CPC’s debt (5.6 billion dollars on 1 January 2007) would be restructured through a Eu- memorandum from the Troïka Dialog robond issue. bank concerning Surgutneftgaz was sent out to investors. It is also noteworthy that These proposals, unsurprisingly were rejected by the western shareholders (Only last summer original – and not necessarily BP joined Lukoil, a decision that perhaps is linked to the recent agreement with spontaneous – industrial action in the oil Gazprom on Kovytka – Russia Intelligence No. 58 of 28 June 2007). Kazakhstan, to sector shook the group. Then, during the avoid an open confrontation with Russia, chose not to take part in the vote. autumn, strong rumors circulated in Moscow concerning an imminent hostile Russia, however, does not intend to let this setback hold it back. Sergey Naryshkin, takeover by Rosneft (Russia Intelligence the Deputy prime minister responsible for relations with the CEI, has already had No. 43 of 10 November 2006 and 46-47 of exchanges with Semyon Vaynshtok, the head of Transneft on possible retaliatory 19 January 2007). measures. Rumors in Moscow have it that the government may decide to include Whoever was at the origin of the most the CPC’s section in Russia among the list of natural monopolies. In such a case, recent manipulation of Surgutneftgaz will prices would be regulated by the State and not by the shareholders. Moscow could probably never be discovered. The most also play the card of the CPC’s bankruptcy, a scenario that, from its own viewpoint, probable hypothesis is that those would have the advantage of a complete re-examination of the whole question. It responsible sought to speculate on remains, of course, to be seen if such a policy would not in fact be counter-produc- what they expected to be a collapse tive. Kazakhstan, very much in the eye of the Chinese and the Americans, could of the company’s share price, something then decide to redirect its export flows. And yet, it is understood that Russia counts that did not happen. A few days earlier, on volumes of Kazakh crude oil to supply the future “orthodox tube” that will link Sergey Bogdanchikov in any case had the Bulgarian port of Burgas with Alexandroupolis in Greece, probably from around stated that closer relations between 2011 (Russia Intelligence No. 52 of 30 March 2007). d Rosneft and Surgutneftgaz were not 4 on the agenda. d Russia Intelligence N°59 j July 12 2007 www.russia-intelligence.fr RIA59 11/07/07 22:00 Page 5

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SILOVYE MASHINY c Alexey Mordashov Ambushed Open for almost four years, the matter concerning Silovye around the year 2030. The current privatization process of elec- Mashiny – reported regularly by Russia Intelligence (No.15 of tricity production companies, OGK and TGK, should be followed 24 June 2005, No.19 of 6 October 2005 and No. 52 of 30 March by major investments. If certain information from Moscow is to 2007) – should soon be the subject of further developments with be believed, Severstal boss Alexey Mordashov has made inquiries the announced withdrawal of RAO EES and Interros, which to- at the antitrust committee with a view to acquiring Silovye Mashiny. gether control more than 52% of its equity. Along the road he’ll probably find Oleg Deripaska, who was al- ready in the running in 2005 and who is seeking to boost his busi- As a matter of interest, Silovye Mashiny was set up in 2000 ness in the nuclear industry (Russia Intelligence No.53 of 13 April from the merger of some of the jewels in the crown of the for- 2007) as well as Viktor Vekselburg, whose Renova holding com- mer Soviet Union’s heavy industry: EnergoMashExport (EME, pany took 25% plus one share in EMAliance-Atom at the end of Moscow), the Leningrad engineering combine (LMZ), Saint Pe- May 2007 (Russia Intelligence No.57 of 14 June 2007). d tersburg-based blade manufacturer ZTL and the Kaluga turbine facility. Silovye Mashiny works at one and the same time for the civil power sector (particularly as a supplier for RAO EES and ALERT RosErnergoAtom ) and for defense industries (maritime de- fense electrotechnical equipment). In 2003, Vladimir Potanin, 3 Rosbank: Société Générale speeds up who personally holds just over 30% of the shares and wields de operations facto control over the Group, decided to draw closer to Kakha On 29 June the board of the Société Générale decided to exercise Bendukidze’s OMZ, the sector’s other heavyweight. In June 2004, the option it has on 30% plus two shares in the capital of Rosbank. in a last-minute move, the Russian state vetoed the plan, thus For the record, in June 2006 the French bank paid 317 million dollars compelling Interros to seek alternatives. Vladimir Potanin then for 10% of Rosbank, owned by Vladimir Potanin’s holding company approached Siemens but the prospect of seeing Silovye Mashiny Itnerros. In October 2006 a similar transaction enabled it to increase fall into foreign hands provoked a general outcry in Moscow. And its capital shareholding to 25% minus two shares. Société Générale in the autumn of 2005 the government opted for a “national” so- and Rosbank at that time agreed the price of the option enabling the lution with electrical specialist RAO EES taking a blocking mi- French bank to hold a majority share at 1.7 billion dollars. The nority share and management of Interros’s 30% shareholding. deadline in the agreement was fixed for the end of 2008. According to information obtained by Russia Intelligence, this speed-up in the But and Vladimir Potanin sought to quit the calendar is linked to the desire of Vladimir Potanin and Mikhail group’s capital and the shareholding set-up had to be reorgan- Prokhorov to settle the division of their assets as soon as possible (RI ized. Logically, there is no shortage of suitors to take over. In fact, No.48 of 16 February 2007 and No.57 of 14 June 2007). currently capitalized at 1.2 billion dollars, Silovye Mashiny’s At the beginning of April 2007 Rosbank was the tenth-ranking prospects are most promising. Sergey Kirienko, who has just Russian banking company in terms of assets (around 10 billion been appointed to chair the supervisory board of the new Atom- dollars). Its 600 agencies, 58 of them in Moscow, give it the country’s EnergoProm, has announced the construction of 40 reactors for second biggest distribution network after Sberbank. d

DEVELOPMENT BANK c The Fradkovs in Control After being in the pipeline for the last few months (Russia will function is still being formulated (a memorandum on this Intelligence No. 46-47 of 19 January 2007), the Bank of Devel- subject is expected to be approved on 12 July), but it is agreed opment was officially inaugurated on 8 June last. Established that most power will be concentrated in its supervisory board on the bases of three existing public banks (Vneshekonombank, rather than its management board. Apart from the Prime Min- Roseximbank and the Development Bank), its mission is to fi- ister, who is its titular chairman and Vladimir Dmitriev, at the nance major industrial and infrastructural projects in conform- moment this comprises Deputy Prime Minister Sergey Naryshkin, ity with the aims expressed by Vladimir Putin in his address to Alexey Kudrin, German Gref, Viktor Khristenko (industry parliament on 26 April. According to Andrey Sharonov, the for- and power), Igor Levitin (transport), general Vladislav Putilin mer Deputy Minister for Trade and Economic Development, to (Sergey Ivanov’s deputy with ministerial rank at the Industrial- this end around 10 million petrodollars accumulated in the sta- Military Commission) and AtomEnergoProm boss, Sergey Kirienko. bilization fund will be allocated to its capital. Such a line-up shows that the defense and nuclear industries Over the last few months setting up the Bank of Development should not be forgotten when the cake is finally shared out. has given rise to bitter struggles for power within the Russian One of the main unknown factors in this matter is how long establishment between the advocates of a so-called policy of Vladimir Dmitriev will remain in his new function. Strong ru- “sterilization” of the funds generated by oil and gas revenues mors point to Mikhail Fradkov’s intention to take over the run- (this is particularly the view expressed by the finance minister ning of the Bank of Development after the presidential elec- Alexey Kudrin) and the camp led by German Gref and the tions next March. Whatever the outcome, the Fradkov family Prime Minster, Mikhail Fradkov, who are seeking to pursue is already solidly represented in this new public body as the ambitious public policies. The Kremlin has therefore come Prime Minister’s son, 29-year old Pyotr Fradkov, who since down in favor of the latter. January 2006 has headed the Vneshekonombank’s investment It is former Vneshekonombank boss Vladimir Dmitriev who department, has been appointed to the Bank of Development’s will head the Bank of Development. The way in which the bank management board. d 5 Russia Intelligence N°59 j July 12 2007 www.russia-intelligence.fr RIA59 11/07/07 22:00 Page 6

RUSSIA INTELLIGENCE Business & Networks

DEFENSE c Russian Naval Shipbuilding opens to International Cooperation The 2007 International Naval Exhibition (IMDS-2007) in deep-sea patrols, and reputed to be capable of engaging all Saint Petersburg was seen as being especially important by kinds of targets. Construction of the first unit began in 2001 the Russian authorities. Jointly organized by Rosoboronex- with entry into service with the Russian naval defense forces port, the Federal Service for Military-Technical Cooperation, earmarked for the end of this year. It will very soon be followed the Ministry of Defense, the Federal Agency on Industry with the delivery of two more vessels, the Soobrazitelny and (Rosprom) and the northern capital’s government, this event, the Boyky, which will also most likely be deployed to the Baltic which brought together 383 exhibitors from 28 countries came fleet. Almaz has also designed “Tiger“(Project No.20382), an just weeks after the official establishment of OSK, the unified export version of the Steregushchy. Evaluated at between 120 shipbuilding consortium. For the record, OSK is a holding com- and 150 million dollars a unit, it notched its first orders dur- pany whose aim it is to bring together all State assets in the ing IMDS-2007. On 29 June, Rosoboronexport signed a prelim- shipbuilding sector (research institutes, design offices, ship- inary agreement on this with the Indonesian minister of de- builders and repair yards). It will be structured around three fense. According to Nikolay Kireev, Rosoboronexport’s geographic areas - the Far East, the North and the West – representative in Jakarta, the deal is for two units. To land though the latter will not include the two main sites in Saint this contract, Rosoboronexport had to form an alliance with Petersburg (the Baltic facility and the Northern Shipyard) that Spain, the traditional supplier to Indonesia’s naval forces. The belong to OPK, the group of oligarch Sergey Pugachev (Rus- hulls of the future Tiger corvettes will be built in Spanish dock- sia Intelligence No.50 of March 2 2007). The former advisor to yards and will then be transported to Saint Petersburg where Vladimir Putin on military-industrial questions, general Alexan- they will be finished and equipped with armaments. The mil- dre Burutin this spring was appointed to head OSK while itary-technical cooperation between Russia and Indonesia is Sergey Ivanov, the First Deputy Prime Minister in charge of expected to grow in the next few months. Rosoboronexport ex- industry, chairs its supervisory board as of right (Russia In- pects to finalize a new contract for around 10 Su-30 fighter telligence No.52 of March 30 2007). According to Rosprom chief jets and is continuing discussions with the head of Indonesia’s Boris Alyoshin, the capitalization of OSK should be something Naval Forces, Commander Admiral Slamet Subijanto, regard- like 3 to 4 billion dollars initially with the aim of doubling this ing the sale of Amur class submarines (Project No.1650). It is figure by around 2020. According to estimations communicated noteworthy that at the end of 2006 the Russian government by Rosoboronexport Number Two Vladimir Pakhomov at the decided to give a 500 million dollar loan to Indonesia to fi- end of June, the export of shipbuilding equipment and tech- nance a part of these deals. The other big event at IMDS-2007 nology in 2007 alone will represent some 2 billion dollars. was the signature of a declaration of Intent between Rosoboronexport and the naval division of Thales. Faced with The Steregushchy corvette (Project No.20380) was the un- the dynamism of Italian industrialists (Fincantieri is collab- challenged star of IMDS-2007. A 2,200 tonne multi-role vessel, orating with the Rubin design office on the S-1000 submarine it is heavily armed (Uran anti-ship missiles, Kashtan anti-air- project), the French group has decided to take advantage of craft missile system, Medvedka-VE anti-submarine missiles, restructuring in the Russian naval sector and redirect its busi- A-190 artillery weapons etc), the Steregushchy was designed ness. The parameters of future cooperation have yet to be de- by the Saint Petersburg-based Almaz design office. In 2001 fined but the most likely shape it will take is that implemented the Northern Shipyard won the Russian Defense Ministry’s ten- by Thales with Rosoboronexport in the aerospace industry in der to build these vessels dedicated to anti-submarine opera- Malaysia and Algeria (installation of French systems on Russ- tions, the escort and protection of amphibian convoys and ian hardware platforms). d

NPO Saturn seeks Gazprom support The next few weeks will be crucial for of AkhK Saturn, in charge of the IS-21 industrial commission, confirmed that he Rybinsk, the engine-maker that is Safran project and its close collaborator on the would like to see the engine sector partner on the SaM-146 project. As we Superjet-100 program. Yuri Eliseev is hoping restructured around two holding companies wrote in one of our recent editions, (Russia that the recent departures of Air Force chief – without, however, specifying what the Intelligence No. 56 May 31 2007), in August Vladimir Mikhailov and of the Deputy future organization would look like or how the Minister of Defense is to launch a new Minister responsible for acquisitions, Alexey it would be achieved – NPO Saturn has invitation to tender concerning the Moskovsky, will not affect his privileged decided to strengthen its “administrative propulsion for the future 5th generation relationship with the military hierarchy resources” by drawing closer to Gazprom. combat aircraft (IS-21) to equip the Russian (Russia Intelligence No. 55 of May 16 2007). Leonid Gryaznov, the head of the Horizon Air Force. The previous offer to tender, As a matter of interest, the Minister of investment fund that controls the gas giant, organized in 2006, was in fact annulled by Defense has chosen Salyut’s AL-31F-M1 has just become a member of Saturn’s the Russian government. NPO Saturn will engine to modernize his Su-27s. The future supervisory board. As far as can be most probably find its traditional rival, Yuri engine for the 5th generation aircraft is ascertained, Gazprom does not, however, Eliseev’s MMPP Salyut along the way. expected to be operational around 2015. intend to enter into the capital of NPO NPO Saturn in this matter can count on While Sergey Ivanov, the Deputy prime Saturn, which it supplies with turbines and the support of Mikhail Pogosyan, the head Minister and chairman of the military- other power-related equipment. d 6 Russia Intelligence N°59 j July 12 2007 www.russia-intelligence.fr RIA59 11/07/07 22:00 Page 7

RUSSIA INTELLIGENCE Regions & CIS

TATARSTAN c Mintimer Shaymiev wins his case in the Kremlin It was widely accepted in Moscow that the case was well and cordance with the previous text. Among other things it lays down truly over - but this was failing to take into consideration the Tatar that, in addition to Russian, the head of the local executive must be flu- President’s lobbying capacity. On 27 June the State Duma received ent in the Tatar language and that, within the limits of the Russian a fresh draft of the agreement defining the competencies between constitution, Kazan has the right to establish external relations, the federal government and the Republic of Tatarstan signed the especially with the diaspora. In the same vein, identity documents previous day by Vladimir Putin and Mintimer Shaymiev. For the delivered in Tatarstan will include mentions in the Tatar language. record, last winter this matter had been the source of consider- As over the last few weeks the electoral prospects of his party, Fair able tension. On 9 February 2007, the lower House of Parliament Russia, appear less brilliant (Russia Intelligence No.57 of June had approved an initial version of the document but, by a very big 14 2007), Sergey Mironov is at risk of really being taken in. d majority in (93 votes against, 13 for and five abstentions) the Sen- ate had amended it – not really very surprising as Sergey Mironov President of the Council of Federation, had warned that he would ALERT leave no stone unturned in the battle to oppose the agreement be- tween Moscow and Kazan (Russia Intelligence No. 44 of 1 Decem- 3 Moldova: Anatoly Chubais’s ber 2006). Officially it is the special dispensations within the text advisor freed that created problems: to grant a special status to Tatarstan at a The warming of relations between Moscow and Chisinau that time when even Chechnya had given it up was see as inopportune. Russia Intelligence recently analysed continues (No.57 of June 14 Lyudmila Narusova, the widow of former Saint Petersburg Mayor 2007). On 9 July the release was announced of Valery Passat, the Anatoly Sobchak, who is the current representative of the Repub- former Moldovan Defense Minister and advisor to Anatoly lic of Tyva in the Council of Federation., had even said that the Chubais, the boss of RAO EES, the national electricity company. text carried within it a “threat to Russia’s territorial integrity”. In- In March 2005 Valery Passat was arrested at Chisnau airport and in deed, the question was put of the coherence between the approach January 2006 sentenced to 10 years in prison. The Moldovan court seeking to satisfy the Tatar specificity and the presidential project accused him of embezzlement during the famous sale in 1997 of to re-establish “vertical power”. But the Senate’s block essentially MiG-29 aircraft to the United States. The accused immediately was an expression of the atrocious relations between Mintimer slammed a political trial due to his support to the opposition to Shaymiev and Sergey Mironov. It is noteworthy that the latter has President Vladimir Voronin. For their part Anatoly Chubais and come out in complete support of one of the Tatar President’s main the Kremlin saw it as a new anti-Russian move from the Moldovan rivals, Refget Altynbaev, who influenced his appointment as sen- Head of State. At a time when Moscow and Chisinau have settled ator against the wishes of the Kazan authorities. their commercial differences and where agreement on Transdniester appears to be near, Vladimir Voronin has therefore The new version of the agreement defining the competencies decided to send Vladimir Putin a new goodwill sign. d transmitted from the Kremlin to the Duma is a copy that is in ac-

SAINT-PETERSBURG c Valentina Matvienko sees big The governor of Saint Petersburg has been multiplying her sen- to the great astonishment of her staff (the deputy governors of sational declarations in this, the beginning of summer. After hav- the “economic bloc”, Yuri Molchanov and Mikhail Oseevsky ad- ing proposed the candidature of Yuri Rybakov - a former Yabloko mitted she had not confided in them on this) and of the gover- parliamentarian and now a member of Liberal Russia, the move- nor of the Leningrad region, Valery Serdyukov (no relation to ment supported by Boris Berezovsky - to the post of municipal me- the Minister of Defense). Reappointed to his position by the Russ- diator in charge of human rights, on 7 July, Valentina Matvienko ian president at the end of last week, the Governor of Leningrad announced the formation of a working party, responsible for exam- thought it positive to recall that he was happy with the good re- ining the economic details of merger between the capital of the lationship he has with Valentina Matvienko as “two leaders of North and its region (still called the “Leningrad region”). neighbouring regions”. But the Mayor of Saint Petersburg, who was attending the official ceremony at the Leningrad regional The idea of bringing the two parts of the Federation, sepa- assembly on 9 July, said clearly that unity is strength, a position rated as part of a redrawing of administrative boundaries in- that the “super-prefect” Ilya Klebanov seemed to share. spired by Stalin in 1931, is not new. During the 1990s, the Mayor of Saint Petersburg, Anatoly Sobchak, came out in favor of such Merger among the Federation’s subjects seems to be in fash- a move. The Saint Petersburg and regional tax and pension fund ion: in April 2005, the autonomous areas of Evenki and Taimyr bodies met but the process never went further because of the merged into the autonomous territory of Krasnoyarsk, an ex- extremely complex relationship between Anatoly Sobchak’s suc- ample followed by the Koryak autonomous area to the Kam- cessor, Vladimir Yakolev and Vladimir Putin. Until now, Valentina chatka region In December 2005 and the Buryatia autonomous Matvienko had been rather reserved on the question (she had territory to the region of Irkutsk (April 2006) and the region criticized an initiative going in this direction while she was the of Chita (March 2007). However, until now these tie-ups have plenipotentiary representative of the president of the Federal concerned only small and sparsely populated areas and not North West district). Feeling somewhat cramped in the confines heavyweights like Saint Petersburg and its region located in of her city, she thus chose to put the question back on the table European Russia. d 7 Russia Intelligence N°59 j July 12 2007 www.russia-intelligence.fr RIA59 11/07/07 22:00 Page 8

Russia Intelligence On www.russia-intelligence.fr

THE POWER CIRCLES WATCH Who Really Runs Russia ?

RATES In addition to our regular publications (Russia Intelligence, Ukraine Intelligence and Reports (12 a year) Central Asia & Caspian Intelligence), Eurasian Intelligence’s editorial team has launched € 700 Each a new series of reports on power brokers in Russia and the CIS countries. The series Free for the Premium Subscribers is aimed at providing greater insight into the new political and business leadership in Biographies (12 a year) these emerging countries. The new reports and biographical details focus on key fig- € 200 Each ures in a number of strategic sectors as well as on the different power circles gravitat- Free for the Premium Subscribers ing around political chiefs, starting with Vladimir Putin in the Kremlin. The series will How To Get Them d If you are a premium subscriber you must merely identify obviously be updated each month with new reports and biographies. To make sure yourself on the site to download the reports you don’t miss any of them simply take out a premium subscription to Russia Intelli- d If you aren’t a subscriber, send an e-mail to gence. For the moment, the reports are available only in French but you can obtain [email protected] to order a report. an English-language version on request. François Roche

Detailed biographies of three of the most influential men in the Russian power elite cYuri Kovalchuk cIskander Makhmudov cAndrey Belyaninov Yuri Kovalchuk is the Iskander Formerly with principal Makhmudov is the KGB, Belyaninov shareholder in AB president of the Ural was named just Rossia, a bank of mining and a year ago at the modest size which metallurgical head of the Federal nevertheless enjoys company (UGMK) customs service widespread influence in the circles of and majority shareholder in (FTS). His main mission : strengthening power in Russia because of its proximity Transmashholding (TMX – rolling stock). control of the financial flows linked with the Kremlin. He thus manages He is at the head of the 86th leading to hydrocarbon exports that represent « strategic » interests in energy, media world fortune (8 billion dollars) no less than 70 billion dollars for the and high technologies. according to the latest Forbes ranking. fiscal year 2006.

c And also...

Sergey Chemezov Sergey Ivanov Viktor Ivanov German Gref Alexey Miller Rosoboronexport First Vice Prime Minister Presidential admin. Ministry of Development Gazprom

c Reports on power brokers and their circles

Arkady Gaydamak, Sergey Pugachev and Moscow’s Alexey Fyodorov the new a new Press Tycoon ? the military Shipyards Oligarchs Boss of the Aeronautics (25 pages) (22 pages) (34 pages) Industry (21 pages)

Who manages Russia? On www.russia-intelligence.fr, more than 30 exclusive notes & biographies on the circles of power. Free access for subscribers.

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