N°40 - January 15 2009 Published every two weeks / International Edition CONTENTS P. 1 GEORGIA c What form of strategic part- c What form of strategic partnership with nership with the ? the United States? P. 2 KAZAKHSTAN c A contrasting economic One of the last official acts of the US State Department has been the “Strategic Partnership and industrial landscape Charter” with Georgia signed in Washington on January 9 by Condoleezza Rice and the new IRAN Georgian foreign affairs minister, Grigol Vashadze who was appointed last December. The c The supreme leader in sup- agreement was spoken of by as a founding act implying the end of Russ- port of Ahmadinejad ian influence in Georgia. But its true importance is not easy to make out. The charter reaf- ALERT firms US support for Georgia’s integration into “Euro-Atlantic institutions” and its backing for c Inter Rao to jointly manage ’s bid to join NATO. It makes a barely veiled reference to continuing military coopera- Inguri power plant tion between Georgia and the United States as part of the fight against “global threats”. P. 3 SOUTH OSSETIA c Trouble brewing between During the short signing ceremony at the State Department, Condoleezza Rice stressed that the Kremlin and “President” the United States “supports and will always support Georgia’s sovereignty and territorial Eduard Kokoyty integrity”, and will do everything to keep the spirit of the “Rose Revolution” alive. Concern- BEHIND THE SCENE ing NATO membership, Condie Rice stressed that this depended on “the desires of the Geor- gians themselves and their ability to meet NATO standards”. Grigol Vashadze was a bit more c Kyrgyzstan: US base loses out against Russian loan grandiloquent, calling it a “historic day” and describing the agreement as the “stepping stone that will bring Georgia to Euro-Atlantic structures, to membership within NATO, and a return to the family of western, civilized nations”. READ ALSO… It is understandable that the Georgian authorities consider the charter of such importance. INTELLIGENCE It symbolizes the fact that Georgia now has only one serious ally in the West – the United States www.russia-intelligence.fr – and that Saakashvili is counting on Washington to prevent the question of Georgia’s territo- rial integrity from disappearing off the agenda in international meetings on security in Europe THE GAS CRISIS and on relations between Europe, the United States and Russia. c Who will pay for the damage in and Kiev? On Washington’s side things are less clear. Support for Georgia has been a consistent fea- PROFILE c Alexandre Medvedev, ture of the Bush administration’s policy in the region even though Washington’s reaction to the Gazprom’s Viceroy war that took place in South Ossetia this summer was rather restrained. Be that as it may, ENERGY Washington think tanks, which play such an important role in defining the Administration’s c OPEG: When the mountain foreign policy, do not all support Mikheil Saakashvili. Close ties have been established in re- gives birth to a mouse cent months between these institutes and some of Saakashvili’s political opponents, such as DEFENSE Nino Burdzhanadze, the former speaker of parliament and now his political rival. Barack c MiG: Mikhail Pogosyan takes Obama’s attitude towards Georgia will of course depend on the type of relationship that will all be established between Washington and Moscow. The odds are that there will be a period of observation during which many elements will come into play, such as how the situation in Gaza UKRAINE INTELLIGENCE evolves, the approach to take in dealing with Iran and the role that Russia might play with re- www.ukraine-intelligence.fr spect to Tehran. ELECTIONS c Viktor Yanukovich bides his Finally, the tragicomedy that Moscow and Kiev have been playing in recent days concern- time ing the supply of Russian gas to Europe will leave a deep mark on the central and eastern Eu- ropean countries that suffered the most during this crisis. The question of securing Russian SUBSCRIPTION gas deliveries to Europe will inevitably come back up for discussion. Moscow will try to make Electronic Edition significant progress on the North European Gas Pipeline project. But the recent events will (PDF, published every two weeks, consolidate the views of supporters of alternative routes that do not go through Russian terri- 23 issues per year) tory, such as the Nabucco project, for example. Regarding this matter, Georgia’s role is not of SPECIAL OFFER minor importance, as its territory offers a natural shelter for energy corridors linking Central Discount 15 % Asia, the Caspian region and Europe. The stakes of a strategic partnership between Georgia € 600 and the United States are therefore real, but Moscow’s role in this discussion must not be un- €510 per year derestimated. d

A EURASIAN INTELLIGENCE PUBLICATION CENTRAL ASIA & CASPIAN INTELLIGENCE KAZAKHSTAN c A contrasting economic and industrial landscape It is no easy task to measure the extent of the economic and of the world’s leading producers. In 2008 Kazakh uranium ex- financial crisis affecting Kazakhstan. We have already described ports totaled 8,500 tons, up by 28.1% compared to 2007. Kaza- the different measures taken in November and December to prop khstan’s total uranium production now represents 19% of the up the banking and real estate sectors (CACI n°39 dated Novem- world’s production. It is possible, moreover, that the uranium ber 6 2008), but a few recently published figures give a more pre- market is reaching equilibrium. Rates were under a lot of pres- cise idea of the extent of the damage. The ratings agency Fitch sure in the second semester of 2008. Experts predict that prices released a new report in early January indicating an estimated should stabilize in 2009 at around $50/$60 per pound and that 2.5% growth rate of the country’s GDP for 2008 and a 1% growth considering the medium term demand, they should gradually go rate in 2009, whereas the 2003-2007 period saw an average annual back up to $70/$80. This is expected to ensure the stability of growth rate of 9.6%. Fitch based its estimates on the assumption Kazakhstan’s export revenue. of an average $60 for a barrel of oil, which will make balancing the budget a real acrobatic feat. Problems in refinancing the pri- Finally, despite the crisis in Russia, all industrial oper- vate sector debt are expected. The sector is this year faced with ations are not frozen. Thus the purchase of KazakhGold by Polyus reimbursing some $14 billion. The quality of banking assets has Gold (whose main shareholders are still Vladimir Potanin and suffered (the rate of default on loans reached 7.6% in October Mikhail Prokhorov) is still on the agenda. On December 29 last 2008, as opposed to 3% one year earlier) although the four largest Polyus announced that it had lowered its offer (evaluating the banks in the country – Halyk, BTA, KKB and Alliance – claim Kazakh company at $593 million as opposed to $836 million ear- they do not need debt restructuring for the time being. The Cen- lier on). The price proposed by Polyus still represents a 200% tral Bank’s foreign currency and gold reserves are stable. On De- “bonus” (on the London market Kazakhgold plunged from $12 to cember 31, 2008 they were at $19.4 billion ($17.4 billion in for- $3 a share within a few weeks). Moreover, Polyus decided not to eign currency and $2 billion in gold), up by 1.6% over the previous finance the operation in cash as it had planned to do, but to pay month - not a bad result. The stability of foreign currency reserves in shares. This is an important transaction for Polyus as Kaza- is due in part to the steady export of raw materials. khGold is Kazakhstan’s leading gold producer. The company is today controlled by the Assaubaev family, which owns about 60%. This is especially true of uranium, of which Kazakhstan is one Its chief executive is Khanat Assaubaev. d

IRAN ALERTS c The supreme leader in 3 Inter Rao to jointly manage Inguri support of Ahmadinejad power plant The political climate in Iran is tense and next June’s presiden- Although political relations between Georgia and Russia are at a tial election is expected to be feverish. President Mahmoud Ah- standstill, an agreement was signed on December 28 between the madinejad faces opposition from both more conservative as well Georgian government and the Russian company Inter RAO (which as more “liberal” sectors of society, against a backdrop of social handles the activities of the former RAO UES outside of Russia) for a and economic crisis. Given this situation, the fact that the Supreme ten-year period of joint management of the Inguri hydroelectric power Leader, Ayatollah Ali Khamenei, has publicly taken a stand in fa- plant, located on the border between Georgia and Abkhazia. This vor of Ahmadinejad, breaking with the tradition that the spiritual plant, along with the dam of the same name, the highest in the leader refrain from taking position in favor of a candidate, has Caucasus, built in 1988, is of vital importance for Georgia and Abkhazia. not gone unnoticed. In a long speech on December 13 last on the All the details of the contract between the Georgian government and occasion of National Student Day, Khamenei encouraged his com- Inter RAO have not been made known but it appears that the Russian patriots to vote for the candidate who would best respect the coun- company has the possibility of exporting electric power to Turkey and try’s “national identity”, to back Ahmadinejad a “revolutionary, that Inguri will also supply the city of Sochi, if needed, during the winter efficient and courageous leader” and to turn away from “weak and Olympics of 2014. Georgia’s electric power infrastructure is fragile and impotent” individuals - a barely veiled reference to the former re- following snowfall over recent days, over 30,000 homes were deprived formist president Mohammad Khatami, who, according to ru- of electricity. Some members of the opposition nonetheless slammed mors in Tehran, is preparing to enter next June’s race. Seasoned the deal with Russia, in particular Salome Zourabishvili, who during a experts of Iran’s domestic political situation believe that the press conference called it “a government crime”… d supreme leader’s activism is due to the toughening of the inter- national situation. The recent events in Gaza are a quite clear 3 Uzbekistan deals with Oman indication that Iran’s leaders are not in the mood for concessions. It is likely that the new Obama administration will address the Uzbekistan is reinforcing its ties with the states of the Arab Iranian nuclear issue very warily. Moreover, Hillary Clinton’s spe- peninsula. A large delegation of economic and financial officials, led cial Middle East and Iranian advisor at the State Department is by the minister of external economic relations, Elyor Ganiyev, was in likely to be Dennis Ross, a veteran of the Clinton administration Oman in late December were a series of agreement were signed, in who is not a “dove” when it comes to the Iranian issue. The Iran- particular concerning the export of fruits and vegetables. Oman for ian authorities therefore expect to go through a rather difficult its part has agreed to establish a quota for Uzbek migrant workers. period on the foreign affairs level, which explains in part why its One may recall that last October Uzbekistan signed a very important political and religious leaders are prepared to stand solidly be- trade deal with Dubai on marketing 100,000 tons of Uzbek cotton in hind Ahmadinejad. d Asia. d 2 Central Asia & Caspian Intelligence N°40 January 15 2009 CENTRAL ASIA & CASPIAN INTELLIGENCE

SOUTH OSSETIA BEHIND THE SCENE c Trouble brewing between the Kremlin Kyrgyzstan: US base and “President” Eduard Kokoyty loses out against Russian loan On the surface, everything is fine between Russia and South Ossetia. Moscow gave It is expected that 2009 will see important unwavering diplomatic support to Tskhinvali during the 3rd round of negotiations with political and military realignments in Central Georgia on December 17 in Geneva. The previous day, the new Russian ambassador, Asia. According to certain indiscreet remarks Elbrus Kargiev – himself of Ossetian origin and the former deputy prime minister of leaked in Bishkek, on the eve of his visit to the Tskhinvali government - presented his credentials to the South Ossetian “presi- Moscow at the end of the week, Kyrgyz dent”, Eduard Kokoyty. But behind the scenes, tension is mounting between Moscow President Kurmanbek Bakiev is preparing to and Tskhinvali. publish a decree making official the closure within six month of the US base in The first signal came from the Russian Audit Chamber when, on December 23, Sergey Gansi/Manas. This is not a total surprise Stepashin’s staff made public the conclusions of a report written in late November on since, in an interview with the Russian press the use of public funds granted by Moscow to finance reconstruction in the republic. agency Svobodnaya Pressa in mid –December, The accusations are weighty. The Russian auditors indicated that there are serious the Kyrgyz head of state indicated that it was problems and heavy delays in construction (only 8 of the 111 buildings that were to be time for the Americans to think about leaving. rebuilt in 2008 had been completed by November 18, as less than 10% of the $20 mil- But with the disappearance of the interview on lion released by Moscow was committed). The report does not explicitly mention em- the Internet and no official confirmation from bezzlement, but this is what it amounts to for the Audit Chamber. The report suggests Bishkek, there had been doubts over the that in order to reinforce control over the flow of money, Vladimir Putin’s government truthfulness of the information. should create a special federal department like the one set up within the regional af- The ousting of the US military from Manas is fairs ministry to supervise the reconstruction of Chechnya. Initially, Moscow had counted the political price Kyrgyzstan is paying for the on the new South Ossetian prime minister, Alexandre Bulatsev, a former North Osset- economic aid it has asked of Russia and which ian tax service official, to keep an eye on the money coming from Moscow. But he the latter is about to grant. The principal was handed in his resignation to Eduard Kokoyty in late December. Likewise, the new Fi- agreed on in mid-December. On the sidelines nance minister, Alexey Panteleev, formerly of the SOK Group based in Samara (Rus- of the Eurasian Economic Community Summit, sia Intelligence n° 88 dated November 27 2008), did not remain at his post for more Vladimir Putin made it known that Moscow than one week. was to release a $2 billion loan ($300 million to balance Kyrgyzstan’s budget, the remainder Tskhinvali is pretending to be untroubled and considers the conclusions of the re- being loans for energy projects involving port to be dated and the information partial. While refraining from accusing the Audit Russian companies). The sum will largely Chamber, whose head, as many know, is a close associate of Dmitry Medvedev, Eduard compensate the $80 million in lost annual Kokoyty’s entourage has condemned a campaign to discredit him. Fingers have been revenue from rent the Pentagon pays for the pointed in particular at Anatoly Barankevich and Yuri Morozov, respectively former Manas base. prime minister and secretary of South Ossetia’s Security Council, as well as at Albert Thus the Kremlin will reinforce its influence in Dzhussuev, head of the BTP Stroyprogres company. It must be said that the first two Kyrgyzstan. But it may not be able to relish have not minced their words over the past weeks. In a long interview in the daily Kom- this Central Asian success for very long, as mersant published on December 5, Anatoly Barankevich denounced widespread cor- there are insistent rumors going around of an ruption in Eduard Kokoyty’s circle. Kokoyty was, in passing, depicted as a coward who imminent return of the US military to fled Tskhinvali in the minutes following the Georgian attack on August 8. Yuri Moro- Uzbekistan, after it was chased away zov accused the “president” of being implicated in the mysterious disappearance of following the Andizhan repression in 2005. some $30 million that had been in the coffers of the national bank at the start of the After having already indicated that his country “five day war”. Albert Dzhussuev was more discreet but has good reasons to hold a was leaving the Eurasian Economic grudge against Eduard Kokoyty who did all he could to convince Gazprom to withdraw Community (CACI n° 39 dated November 6 the contract for construction of the new gas pipeline between Russia and South Osse- 2008), Islam Karimov is reportedly planning tia from Stroyprogres. Kokoyty is also trying to oust the company from the development to withdraw from the CIS Collective Security project involving the Kvaysa zinc deposit, the republic’s only natural resource, of which Treaty. In a sign of the times, the Uzbek 49% belongs to Dzhussuev’s group. president “skipped” the informal summit of heads of state of the organization held late The Kremlin has as yet not reacted to the proposals made by the Audit Chamber nor December in Kazakhstan because of a meeting to Eduard Kokoyty’s initiatives, but according to our sources, his popularity is incom- with General Petraeus, the new head of US parably lower than that of the other new “president”, Sergey Bagapsh of Abkhazia. d troops in Afghanistan. d

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Central Asia & Caspian Intelligence N°40 January 15 2009