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N°63 - October 11 2007 Published every two weeks / International Edition CONTENTS KREMLIN c P. 1-4 Politics & Government Hunting scenes in KREMLIN It is Moscow as it’s never been seen before : a senior officer of a power centre, Viktor Cherkesov, 56, c Hunting scenes the boss of the anti-narcotics service, a co-disciple of at the university of Leningrad in in Moscow FOCUS 1973, who entered the KGB in 1975, the point man in the hunt for dissidents in the northern capital un- c Vladimir Putin, the til 1984, Putin’s deputy at the direction of the FSB in 1998 and anxious enough about his security to pub- improbable "Chancellor of licly denounce in an open letter in the daily Kommersant «the fratricidal struggle within the secret serv- " ices» that could «weaken the government and undermine the stability of the state»...Just as we have FOCUS never ceased to write, the process of Vladimir Putin’s succession is leading to chain reactions in his in- c Who will take ? ner circle which is developing into mass formation battles between two clans. (presidential ALERTS administration), Nicolay Patrushev (FSB), Rashid Nurgaliev (Interior) have decided to clash with the c Gazprom in line for the opposite clan, whose principal leaders are Dimitri Medvedev, , Alexey Kudrin, Vladimir Ankara distribution network Kozhin, Viktor Cherkesov, , Yevgeny Murov (read details page 4). It’s likely that the ar- c Suez is preparing rest of Vladimir Barsukov, alias Kumarin, reputed head of the Tambov in (Rus- its entry on the Russian sia Intelligence n 61 of September 3 and n 62 September 27) was the first shot of the war whose most electricity market ∞ ∞ recent episode was the arrest by the Sechin clan of Cherkesov’s closest associate, the latter obviously be- ALERTS ing in the grasp of Sechin and Patrushev. We indicated in our last number that Alisher Usmanov would c Settling scores in the leadership of the Russian probably be the subject of an offensive of the purest kind. This has been confirmed since the boss of Kom- secret services mersant, of GazpromInvestHolding and of MettaloInvest is the target of attack from the South African group De Beers concerning the diamond mine at Verkhotina in the region of Arhangelsk from which De Beers feels it was fraudulously expelled by Usmanov at the end of the 1990s (Russia Intelligence n∞18 P. 5-6 Business & Networks of September 23 2005). Mines c The "peace of the brave" Naturally the Sechin-Cherkesov clash is nothing like our own police conflicts. As Cherkesov said him- over the coal in Yakutia self in his article «the stakes are too important for a winner in this war». What stakes is he referring FOCUS to? It concerns Sechin creating the conditions so that Vladimir Putin has no other option than to stay in c RZhD : Vladimir Yakunin unveils his industrial strategy power since he is the only guarantor of «stability» between the clans who are all composed of personal- ities considered as members of his inner circle and certainly the only guarantor of the physical security ALERTS c AFK Systema en Inde of Sechin and his allies. The risks of destabilisation of the state is therefore not pure speculation. The c Alexey Fyodorov quits fact that Vladimir Putin decided to «extract» Sergey Lebedev from the SVR (the external intelligence the general direction of MiG service) is probably the sign that he wanted to avoid a «spillover» of the internal struggles into territo- ries outside Russia by placing a man (former Prime minister ) whom he thinks will scrupulously inform him of what goes on in the «service». We can understand better, in these conditions, P. 7-8 Regions & CIS the strange announcement made by Vladimir Putin during the congress of the October 1, FOCUS indicating he was assuming the leadership of the list of the presidential party (of which he is not a mem- c Sergey Lebedev as the ber) for the legislative elections and that he could accept being named as Prime minister if he could be saviour of the CIS? assured of cooperating with an acceptable president. This possibility, which contradicts no provision in ALERT the constitution, is nevertheless not as simple to implement as it seems (page 2). In any case, this «arrange- c Belarus : a good show by ment» could not last for four years unless a serious constitutional reform made the post of Prime minis- Telecom Austria ter a sort of equivalent to the Chancellor in Germany.

SUBSCRIPTION It is, however, less and less in doubt that the succession process was announced in the worst of con- Print Edition ditions since it was not prepared with sufficient care and anticipation. The authority of the president (23 issues, airmailed overseas) over his own friends has suffered as seen by the events we report in this number. Taking into account the €770 TTC nature of the regime he put in place or that he allowed to be established, Vladimir Putin could not have The Web Pack failed to know that all uncertainty on the identity of his successor would produce movement that would (Print Edition be difficult to control, since the stakes for the competing clans with each other can be counted in the tens + PDF + archives acess) of billions of dollars. He probably underestimated the level of violence that each and all were ready to use € 880 TTC to remain masters of the game. By exacerbating the rivalry between Sergey Ivanov and The Premium and in finally chosing , he worried rather than reassured his allies. If the objective was for Subscription Vladimir Putin to remain in the Kremlin, then it would have been better to modify the constitution while (Print Edition + PDF + access there was still time and the conflict between Sechin and the others was still not irreparable. Putin can to all the website contents) only remain in power one way or another, at least under current conditions, but it is no longer certain € 1200 TTC that this is the unanimous choice even in the midst of his circle after the events of the last few days. d www.russia-intelligence.fr RIA63 11/10/07 10:59 Page 2

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GOVERNMENT c Vladimir Putin, the improbable "Chancellor of Russia" Ever since the thundering announcement by Vladimir Putin also contravene the declarations by Putin to the effect that you during the United Russia congress October 1, the plan of succes- don’t change the constitution «for only one man». Otherwise, it sion — or rather of non-succession — to the head of executive would have been simpler to stage the disappearnce at the right power is apparently is already all drawn : the current president time of the article forbidding the president from serving two con- will lead the list of United Russia in the legislative elections De- secutive terms. cember 2 (the constitution does not require him to abandon his 2/ Vladimir Putin becomes Prime minister and initiates a mod- post as head of state ahead of this) before taking over as head ification of the law «On the government». The objective would of the government, without a doubt before the end of the year. be to transfer to the Prime minister the control over the power The preliminary calendar of the presidential elections will not ministers. This procedure would obviously be lighter. It never- be upset since the maximum interval following the resignation theless remains that in the absence of constitutional reform on of the head of state will correspond with the date already fore- its own, the nomination — and therefore the dismissal — of the seen, that is March 2008. The principal condition voiced by Putin head of government remains the under the authority of the pres- for such a co-habitation — «that the future president be some- ident. In other terms, even if the confidence that Putin has for one good [poryadochny chelovek]» — will be achieved in his Zubov is total, the position of the Prime minister would be made eyes inasmuch as the probable future head of state will be Vik- vulnerable under this sword of Damocles. tor Zubkov. 3/ The third choice offered to Vladimir Putin is an informal This scenario nevertheless presents a number of uncertain- sharing of power with the next president, without touching the ties, and to consider at this stage the «self-transmission» of power constitution or the laws in effect. This is evidently even riskier as settled would be extremely unwise. In fact, at least four op- than the precedent. tions are available to the Kremlin chief. Finally the only advantage evident of the post of Prime min- 1/ Vladimir Putin decides to radically modify the constitution ister is that the latter substitutes for the president in case of in- and to transform Russia into a parliamentary republic where capacity or resignation of the latter. Tested succesfully by Vladimir the president would have essentially honorofic powers. Accord- Putin December 31 1999, this scenario would be the most logi- ing to the articles 108 and 136 of the the current constitution, cal and the least risky for the current president. In any case, as this would require the support of 2/3 of the deputies and 3/4 of long as he benefits from the support of such a large majority of the senators, as well as 2/3 of the regional assemblies. All this is the population and he succeeds in mastering the different clans technically possible, but this plan presents the inconvenience surrounding him. Which is not necessarily the case in view of of being an identical copy of the constitutional proposals formu- the «service warfare» raging for some time in Moscow (read ad- lated by before his disgrace and would joining article). d

A new wave of nominations before the elections The game of musical chairs in Moscow to Rostov on Don, where he will soon take January 19 2007, we had in fact drawn at- is continuing. Vladimir Putin in the last few his post as extraordinary representative of tention to this general in the intelligence days has announced a number of nomina- the president in the southern district. Trained services who had associated with Vladimir tions, rather unexpected for some but also at the prestigious Bauman instiute in Moscow, Putin in Dresden in the middle of the 1980s of another significance than the «real-fake» spent nearly 30 years in the then in the direction of the Kremlin general ministerial reshuffle of September 12. KGB, then the SVR, where he was the n°2 services between 1996 and 1998. His mis- After more than seven years spent at the from 1994 to 1998. The predecessor of Grig- sion will be to successfully manage the ma- head of external intelligence services (SVR), ory Rapota, , recently recalled jor projects initiated by his predecessor, Se- General Sergey Lebedev was named Exec- to Moscow to occupy the post of Regional myon Vaynshtok, now responsible for the utive secretary of the CIS (read article page development minister, strengthens his team construction of infrastructure for the Win- 8). He is being replaced by the former Prime by recruiting , the ex- «su- ter Olympics 2014 in (Russia Intelli- minister, Mikhail Fradkov. This nomination per prefect» in the Far East. Other newcom- gence n°62 of september 27 2007). It con- surprised Moscow, where it was expected ers to the «White house», the seat of the cerns notably the Eastern Siberia-Pacific that the ex-Prime minister would become Russian government — Vasily Yakemenko, Ocean oil pipeline, the BTS-2 bypassing Be- the head of the newly-created Development the leader of the «Nashi» the main putinian larus as well as the transbalkan Burgas- bank. The act of confiding the SVR to a polti- youth movement. This protégé of Vladislav Alexandroupolis pipeline. cal figure rather than a master spy was seen Surkov, the Kremlin ideologue, will in fact Finally, it is also being whispered in as an innovation. But there is nothing to say direct the Committee on youth affairs. Moscow that the ex-Economic development that Mikhail Fradkov was not an agent of Lastly, two other nominations were pre- and commerce minister, German Gref, could the PGU during the Soviet era. The Com- sented as imminent in Moscow. One, of be named to head the Savings bank, the merce ministry was in fact known for serv- Nikolay Tokarev, the boss of the public oil country’s principal banking estblishment. ing as a cover for a number of intelligence company Zarubezhneft, to the post of di- His predecessor, Andrey Kazmin, has in agents. rector general for the operator Transneft. any case already packed his bags to join the The Secretary of the Eurasia economic Nikolay Tokarev is not an unknown to read- presidence of another public organ, the union, Grigory Rapota, 63, was transferred ers of Russia Intelligence : in our edition of Postal service. d 2 Russia Intelligence N°63 j October 11 2007 www.russia-intelligence.fr RIA63 11/10/07 10:59 Page 3

RUSSIA INTELLIGENCE Politics & Government

FOCUS c Settling scores in the leadership of the Russian secret services While most Western observers are focusing on the recent The counter-offensive by the Sechin-Patrushev-Ustinov clan decision by Vladimir Putin to lead the list of United Russia in (resorting to justice) has gone through three phases. In order the legislative elections of December 2, a virtual clash of ti- to marginalise the new General prosecutor, Yuri Chayka, who tans is underway at the heart power between the heads of the they see as too close to Cherkesov, the three men first had to major force structures. This «war of the services» pits the Igor convince the president to create the high-profile Investigat- Sechin/Nikolay Patrushev tandem (respectively the n∞2 of ing committee linked to the Prosecutor’s office, which takes the presidential administation and the boss of the FSB) and over most of Yuri Chaika’s powers (Russia Intelligence n°58 the director of the Federal anti-narcotics agency (FSKN), of June 28 2007). They then drew closer to Alexander Bastyrkin, Nikolay Cherkesov, as well as generals Viktor Zolotov and the head of the new committee, who sees no objection to Yevgeny Murov (director of the FSO, the service charged with strengthening his team with officers from the FSB detached protection of senior personalities, and head of Vladimir Putin’s administratively. The role played by Bastyrkin’s men during personal guard). Its stakes is no more, no less than the shar- the investigation of general Bulbov owes nothing to chance. ing of spheres of economic and political influence on the eve The very fact that Cherkesov’s assistant is in personal charge of phase-2 of the Putin era. of the Chinese smuggling and the «Tri Kita» cases also explains a lot. To summarise the facts, October 1st, general Alexander Bulbov — n°2 of FSKN in charge of operations and «right hand The other signal sent by the Patrushov-Sechin clan (to which man» of Viktor Cherkesov — as well as three of his associates must be added the Interior minister, Rashid Nurgaliev) is the were arrested by agents of the FSB and the Prosecutors inves- arrest of Vladimir Barsukov alias Kumarin, generally pre- tigating committee. They were then placed in preventive de- sented as the «godfather» of the Tambov group, the main crim- tention following a judgment by the Basmanny tribunal in inal organisation in Saint Petersburg. In its edition of Sep- Moscow. They are suspected of corruption and illegal wiretap- tember 13, Russia Intelligence had described the very special ping. The affair took on a public dimension when the boss of conditions of his investigation and the potential implications the FSKN — in an unprecedente act — published a warning of this case for certain members of the entourage of Vladimir in the daily Kommersant against the suicidal impact of an Putin. According to our information, the object of Barsukov’s open war between these power structures. arrest would be to compromise one of the principal allies of Cherkesov, general Viktor Zolotov, as well as his friend, Yevgeny In reality, the arrest of general Bulbov is but the visible tip Murov. In place of a «warning shot», the Sechin-Patrushev- of the iceberg. The genesis of this affair can be found around Ustinov trio had already in early summer teleguided a message two scandals that shook the power centres in recent years by a Duma deputy, Nikolay Kupryanovich, who asked the Gen- which were barely broadcast outside the Kremlin. It involved, eral prosecutor to examine the possible links between Zolotov on one side, «Tri Kita», a furniture smuggling case that broke and Kumarin. in 2000 implicating senior customs and FSB officials. Charged with the case, the general Prosecutor’s office — at the time Nikolay Patrushev and Igor Sechin have another reason to directed by — tried to stifle a matter that want to eliminate Zolotov : they in fact suspect him of «trav- risks plunging into an endless spiral of retaliation between In- eling» with Yevgeny Murov, for Dmitry Medvedev (Russia In- terior, Customs and the FSB. The situation was so delicate that telligence n∞55 of May 16). According to our information, it Vladimir Putin had to call on an old university friend, Vladimir is in fact agents of the FSO who guard over the contact be- Loskutov, an investigator in the Saint Petersburg Prosecutor’s tween the first vice Prime minister and his principal links in- office, to follow the case. The Russian president also chose to side the power structures, namely Alexander Bortnikov — assign the FSKN, regarded as «neutral». The other case, which the head of economic security for the FSB — , finds the same parties involved and which explains the most — a former KGB agent who passed through the Saint Peters- recent events in Moscow, concerns contraband imports from burg municipal administration and the Court of accounts, China and also directly implicating the FSB, the owner of the named Interior vice minister last year — and Yevgeny Shkolov warehouses where the merchandise was discovered. — an intelligence agent who was on duty in with Vladimir Putin before becoming a technical adviser to «Tri Kita» and the «Chinese connection» had as a direct Dmitry Medvedev and taking over the deparment of economic consequence the dismissal of the General prosecutor Vladimir security of the Interior ministry in 2006. Ustinov and his team in the spring of 2006 (Russia Intelligence n°35 of June 16 2006). The Customs service was also «purged» Now open to public view, the «war of the services» will with- and taken over by a trusted associate of the president, Andrey out doubt make Vladimir Putin do what he most dislikes : in- Belyaninov (Russia Intelligence n°33 of May 19 2006). The tervene to arbitrate in his closest circle. Otherwise, the second head of FSB, Nikolay Patrushev, was able to save his skin, but phase of his reign risks beginning on a very dangerous base. d he had to get rid of several associates (including the deputy director of economic security, Sergey Fomenko) The Sechin- The biographical profiles for Nikolay Patrushev, Vik- Patrushev-Ustinov clan saw in these misadvantures the hand tor Cherkesov, Vladimir Ustinov and Igor Sechin are avail- of Viktor Cherkesov, whose long-held ambitions to become the able on the Russia Intelligence website. Reserved for head of the FSB are well known. Premium subscribers. 3 Russia Intelligence N°63 j October 11 2007 www.russia-intelligence.fr RIA63 11/10/07 10:59 Page 4

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cc FOCUS ALERTS Who will take Gazprom? 3 Gazprom in line for the Ankara distribution network Battle lines in the energy sector, which Russia Intelligence announced in its Au- Bosporus Gas Corporation, a joint gust 30 edition, have been drawn up. The head of the federal agency RosEnergo, venture controlled by Gazprom (40%) and Sergey Oganesyan, was removed from his post after several months of conflict with Tur Enerji (60%) has indicated its interest his Minister, . Insistant rumours were also circulating in Moscow in purchasing Baskent Dogalgaz. The pointing to a profound shake-up in the leadership of Gazprom, information to take second ranking gas distribution company in more seriously since it was announced by the semi-official agency (Interfax), and , Baskent Dogalgaz has recently disseminated by Kommersant daily — controlled, it is known, by Alisher Usmanov, been awarded a 30-year license for the head of GazpromInvestHolding — and denied very slowly by the group commu- operation of the network for the capital, nication office. Ankara, where the annual consumption should increase from 3Md/m3 to 7.5Md/m3 The name of Alexander Ananenkov, 55, n∞2 of the Gazprom directorate in charge in the coming decade. According to Melih of production and transport since December 2001, was provided to the press on Sep- Gökçek, the mayor of Ankara, the call for tember 30. This trained engineer, graduated from the Ufa Petroleum institute in tenders for Baskent Dogalgaz should be Bashkortorstan, worked for nearly 15 years in the production affiliates of the group made official during October and its results in the far north before arriving in Moscow to benefit from «purges» waged by the made public before the end of the year. On Kremlin against the associates of Rem Vyakirev. Discreet and having the confidence this subject, Gazprom and its partner Tur of Alexey Miller — whom he essentially substituted for since June — Alexander Enerji should clash with the powerful Ananenkov kept up with sensitive issues, notably the matter of Shtokman (Russia private conglomerate Zorlu (which is Intelligence special edition of July 13 2007). Several versions have already been put currently building two electricity power forward in Moscow to explain this departure which could be made official by the end stations for itself near Moscow, in of October, according to Kommersant : disagreements on trade of crude by Gazprom Tereshkovo and Kozhukhovo). It should be neft (assured, it should be recalled by the structures run by ), noted that, following Baskent Dogalgaz, the conflict on the sharing of roles with the Economy and finance department of Andrey Turkish authorities should also approve the Kruglov (cf infra) and even major differences on the group strategy in Kovytka and, privatisation of Istanbul Gaz Dagitim AS, a more generally, in oriental Siberia. company charged with the water distribution in the other capital of the According to information gathered by Russia Intelligence in Moscow, at least country. three other members of the direction appear to be particularly at risk. It involves We should also recall that, Gazprom Bogdan Budzulyak and Vasily Podyuk — both graduates of the western Ukrain- delivered 19.6 Md:/m3≥ to Turkey in 2006, ian Petroleum and gas institute of Ivano-Frankivsk and who were respectivelly its third leading client in Europe after at the head of stockpile/transport and gas extraction, condensate and petroleum Germany (34.4Md/m3≥) and Italy (22.1 departments — as well as Viktor Ilyushin, 60, ex-n°2 in the government of Vik- Md/m3≥) d tor Chernomyrdin who had joined Gazprom in 1997 and who was charged with relations with the regions. In contrast, those on the rise in Gazprom are Andrey 3 Suez is preparing its Kruglov, 38, formerly at the Saint Petersburg municipality where he was in charge entry on the Russian of economics and finance since 2003, Kirill Seleznyov, 33, head of Mezhregiongaz electricity market and a member of the Russia UES electricity group , Alexander Dyukov, the head After ENEL and E.On, which of , and Mikhail Sereda, 37, who combines the posts of member of announced investments of close to 6 the directorate, member of the administrative council and chief of staff of Alexey billion dollars in the power generating Miller. The future of the latter two, as well as Elena Vasileva, head of account- companies OGK-5 and TGK-4, other ing — are oviously closely linked to that of the head of the group, whose depar- Western companies seem intent on ture until today has remained taboo but who is known to be weakened physically. following in their footsteps. This is notably , 55, benefits from the protection of Vladimir Kozhin, the di- the case for SUEZ, up to now fairly rector of the Kremlin general services (Russia Intelligence n°61 of August 30 discreet in Russia. A delegation from the 2007) beside whom he worked from 2000 to 2005. The director of legal services group travelled to Moscow last September of Gazprom and member of the directorate since 2002, , in order engage in preliminary discussions himself could be weakened by the collatoral damage of the «gas war» with . with the management of UES of Russia as He represents, along with Oleg Palchikov, the Russian side on the administra- well as the territorial generating firm TGK- tive council of famous operator RosUkrEnergo. Alexander Medvedev, the head 2, which includes several production units of Gazexport, very active in recent months on the issue of the gas in the regions of Arkhangelsk, Vologda, pipeline and who daily follows relations with the Western majors and «M. CIS» of Tver, Yaroslavl, Kostroma and the group, Valery Golubev, 55, who presents an unpecable profile (KGB and Saint Novogorod. TGK-2 had a turnover of 7.1 Petersburg municipality) emerge as pretenders in case an internal strategy is pre- billion rubles (or about 280 million dollars) ferred to succeed Alexey Miller. in the first quarter of 2007 for a net profit of 194 million rubles (a bit less than 4 Only Dmitry Medvedev remains. Officially the head of the administrative council, million dollars). A share offering for 26% not any more than Alexey Miller, is on the point of departure. He even recently was of its capital should be organised in March reappointed at the post of first Prime minister in charge of natural resources. But his 2008. In addition to SUEZ, the British legitimacy, and therefore his influence in the Moscow power structure, depend to a group International Power is expected to large measure on a status as a «successor» that is no longer applicable. d be interested. d 4 Russia Intelligence N°63 j October 11 2007 www.russia-intelligence.fr RIA63 11/10/07 10:59 Page 5

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MINES c The "peace of the brave" over the coal in Yakutia

«What in the devil was he doing in that galley?» The reply self to build a steel complex in Yakutia as the republic has no by Geronte in Molière’s «Trickeries of Scapin» could well ap- human or energy resources to support such a project) thus ply to Lakshmi Mittal, the boss of the world’s number one failed and the government decided to «give a flower» to steel producer concerning the coal in Yakutia. This topic is not whose managers were beginning to despair of ever achieving unknown to our readers since we raised the subject on numer- their ambitions of becoming the leading coal group in the coun- ous occasions in recent months (read again notably n°34 of try. June 2 2006). October 5 the Russian government held an auc- tion for the shares of the federal state and the Sakha repub- ... But there will be a price to pay for having been crowned lic (Yakutia) in two very important coal deposits, Elgaugol «king coal». Mechel will finance its acquisition thanks to loans and Yakutugol. The combined reserves of the two deposits (es- from ABN Amro and BNP Paribas. It’s a major operation for sentially coke) are estimated at 3.9 billion tonnes. This repre- the Russian group, whose stock capitalisation is a bit below 8 sented the last major privatisation in the coal sector. Arcelor billion dollars and its turnover this year will amount to about 6 Mittal had, in the previous few days, made public its intention billion dollars. It therefore solidifies its position in the coal sec- to participate in this auction at the invitation of the president tor (in which it produces today about 17 million tonnes a year, of the Sakha republic, Vyacheslav Shtyrov and the director through Southern Kouzbass Coal). But this operation raises general of Alrosa, the state firm that commercialises diamonds another question that we in fact raised in our columns on sev- in Yakutia, Sergey Vybornov. In reality, Mittal was present in eral occasions : two capacities. He had promised Alrosa and Shtyrov his sup- c what will be- port if the mining group and the republic of Sakha won the The last attempt by Shtyrov to come of the bidding, in which they were candidates. But Mittal also planned get back in the game with the Mechel steel op- to participate on his own, through an organisation created for erations. It is backing of Mittal thus failed and the occasion, Kolorprofile. Finally on October 5, Kolorprofile building the was not authorised to participate in the auction for reasons the government decided to "give Chelyabinsk that were not revealed (apparently not to Lashmi Mittal him- a flower" to Mechel steel complex self) and it was the steel and mining group Mechel which won and the special the bidding (75% of the capital of Yakutugol and 68.86% of El- steel production gaugol) for the sum of 58.2 billion rubles (about 2.3 billion dol- unit at Chebarkul. But this latter activity interests Sergey Cheme- lars). This failure can naturally be traced back to the aim of zov who is putting the finishing touches to the creation of a large the Kremlin to block foreign groups from getting close to the public holding company regrouping a certain number of state strategic mining reserves of Russia and these coal deposits are strategic assets, on the basis of Rosoboronexport. According to seen as quite «strategic» in the eyes of the Kremlin. But in any Russian sources, Chemezov had already made an offer to Zyuzin case, the situation had been lost in advance for Mittal, despite several months ago for the Mechel operations in special metals his intensive lobbying efforts directed at the Kremlin, in view and stainless steel, an offer which the management of Mechel of the specifics of this subject and of the political situation has still not replied to. In the general conflict over control of a that prevails currently in Russia (read pages 1, 2 and 3). number of assets currently being waged in Moscow, if would hardly be surprising if Chemezov had returned to the charge with Mechel has been «working» on the Yakutugol deal for a new deal : the Yakut coal for Chelyabinsk. Even if Zyuzin does two years... In January 2005, Mechel bought, through the in- not seem enthusiastic to the idea of ceding some of his steel ac- tervention of a Virgin Island registration, Littel Echo Invest tivities, it must be admitted that up to now Chemezov has always Corp, 25% plus one share of Yakutugol. Even then, the aim of gotten what he wanted (for example the world leading producer the owners of Mechel, Igor Zyuzin and Vladimir Iorikh (the of titanium sponges VSMPO Avisma...). latter sold his shares during 2006), was to use Yakutugol as a doorway into the Elga deposit and to combine the two assets Shtyrov’s days in Sakha are probably numbered. The within a joint entity that would be called Sakhaugol. They had president of Yakutia, who supported Alexey Kudrin and espe- also obtained a commitment from Shtyrov to support them in cially Vladimir Putin as few regional leaders dared to, was ob- their projects, which explains the inflated price (close to 500 viously reappointed to his post last January, especially to as- million dollars) paid for the acquisition of these 25%. But these sure the «good» functioning of the legislative and presidential plans encountered a lengthy delay because of the conflict that elections in that region. But few are those who expect him to for the past two years opposed Vyacheslav Shtyrov and the cen- fill out his full term. A new development took place in Moscow tral government, represented in this case by Alexey Kudrin, in recent weeks : the unexpected promotion of Alexey Kudrin Finance minister and president of the administrative council to the post of vice Prime minister, with broadened responsi- of Alrosa) over the control of the Yakutia mining assets (in bilities, even though he was expected to leave the government. particular diamonds and coal). On several occasions, Mechel His «return» can be explained by the war of the clans around had to face fairly pernicious offensives aiming at barring it Vladimir Putin which in recent days has escalated to a level from Yakutia. The Sakha republic was the main shareholder of violence rarely seen (read pages 1 and 3).Shtyrov humili- in Elgaugol along with the public railway group RZhD and it ated Kudrin several times in recent months and it is unlikely was not until the summer of 2007 that Shtyrov finally gave in that the latter will not be interested in the business of the to the Kremlin and transferred the control of Alrosa and El- Sakha republic since he is still president of the council of Al- gaugol to the state. The last attempt by Shtyrov to get back in rosa and that he will be able to count on on the good will of the game with the backing of Mittal (who had committed him- his new «ally», Igor Zyuzin. d 5 Russia Intelligence N°63 j October 11 2007 www.russia-intelligence.fr RIA63 11/10/07 10:59 Page 6

RUSSIA INTELLIGENCE Business & Networks

INDUSTRY c Time for the chaebols «We are currently witnessing a dangerous trend toward the draft law concerning the creation of Rostekhnologii was for- creation of public holding companies in numerous spheres of warded to the Duma by the Kremlin (without passing through the economy...it’s the best way to destroy growth...the state the government services) and should be subjected to a vote must defend competition and offer development possibilities...it and first reading by October 15. Rosoboronexport will soon be must protect citizens, guarantee property rights, address ed- transformed into a shareholding company, whose shares will ucation and public health. Instead and in place of which we be incorporated into the capital of Rostekhnologii. The previ- see a general tendency to conquer new sectors of the economy ously-mentioned subsidiaries of Rosoboronexport will be par- by public power.» This is an observation that is at the same tially pritvatised by 2012 acording to (the time an alert and tinged with impotence presented by Arkady first IPO, foreseen for 2009, should involve Avto VAZ, VSMPO- Dvorkovich, the head of the analytical branch of the presiden- Avisma and Russian Helicopters). At the opening of the sec- tial administration in early October on the occasion of the third ond phase of the Putin era, Sergey Chemezov is therefore business forum organised by the economic weekly Expert. It strengthening his position. We also remind our readers that in must be said that the creeping nationalisation of the economy mid-September, just before the real-fake ministerial reshuf- is not limited to the hydrocarbon sector (it should be noted in fle, he had placed his protégé, (formerly with passing that after of , it was the turn Oboronprom), to the post of vice minister for Industry and en- of Vladimir Bogdanov, the boss of Surgutneftgaz, to publicly ergy. If certain information filtering through Moscow in late complain in late September about the dominant role of the September can be believed, another public holding firm could state in the oil sector). After the creation of the Development see the light of day in the coming weeks. The services of the bank (Russia Intelligence n∞46-47 of January 19 and n°59 of Transport minister, Igor Levitin, are in fact counting on the July 12 2007), of Nanotekh (Russia Intelligence n°55 of May «Avtodor» project. According to its planners, Avtodor would 16 2006) — an entity devoted to nanotechnologies which the be called on to become the exclusive operator of federal tracks presidency finally conferred to Leonid Melamed, who is close (of about 47 000 km). This organ will be in charge of the mod- to —, of Atomenergoprom in the civil nu- ernisation of the existing network and construction of some clear sector, and of Olympstroy, the corporation charged with 4000 km of autoroutes by 2015. In return for the investment the infrastructure for the Olympic games of 2014 that will be foreseen, Avtodor would convert some segments into toll roads presided by Semyon Vaynshtok (Russia Intelligence n∞62 of and would assume their operation. It would also be the par- September 27 2007), the hot topic of the moment is Ros- ticipant with other eventual private actors (including some tekhnologii. foreigners) that wanted to invest in the development of the motorway infrastructure. It had been at least three years that As we indicated in our previous edition, it is thanks to the the Transport ministry had sought to to get a draft bill voted personal support of Vladimir Putin that Sergey Chemezov is through the Duma clarifying the proposal related to the toll ready to obtain the creation of a holding company overseeing roads. But it remains that the eternal problem of Russian mo- all the activities of Rosobornexport. torways would not be resolved by this. Observers note with some irony that the Transport ministry took more than six years In addition to the arms trade, it involves production of ti- to conclude the construction of some 104 km for the Moscow tanium (VSMPO-Avisma), of specialty steels (Avto VAZ). The ring road, a project nevertheless presented as a priority. d

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RUSSIA INTELLIGENCE Business & Networks

cc FOCUS ALERTS 3 AFK Systema in India RZhD : Vladimir Yakunin unveils In its preceding edition, Russia Intelligence revealed to its readers the his industrial strategy interest of the telecommunications group Having, like the eternal «potential succes- AFK Systema for Vivendi. In the sors» to Vladimir Putin, buried his presiden- meantime, Vladimir Evtushenkov is tial ambitions, the head of the Russian railways, pursuing his strategy of external growth on the other hand, firmly intends to conserve outside the CIS. September 26 it was his position in the years to come and is multi- learned that AFK Systema had taken a 10% plying announcements about the strategy of stake in the Indian mobile telephone Vladimir Iskander his group, in Russia as well as internationally. Yakunin Makhmudov operator Shyam Telelink for a bit more than 11 million dollars. A modest One of the priorities of Vladimir Yakunin transaction since Shyam Telelink counts is to find sources of financing for the ambitious Development strategy for rail- only 100 000 subscribers (in Rajasthan) way transport 2007-2030 approved by the Kremlin this summer. One of the priv- and controls only 0.05% of the Indian iledged short and medium-term approaches is the partial privatisation of some market. It hopes nevertheless to obtain of the group’s 143 subsidiaries. Concerned, according to Vladimir Yakunin, would from the government a a national be the Primary freight company (PGK) and Transcontainer, as well as several operating license. AFK Systema in any case rolling stock repair units. By 2010, RZhD hopes to collect through IPOs no less is letting it be known that it counted on than 150 billion rubles (or about 6 billion dollars). The head of the Russian rail- taking a majority share of Shyam Telelink ways is also counting on the support of Western banks, from which he foresees as soon as it obtained the required borrowing 140 billion rubles next year. It should be recalled that RZhD recorded authorisation from New Delhi. a turnover of 849 billion rubles (or about 34 billion dollars) in 2006 for a net It should be recalled that AFK Systema profit of 26.4 billion rubles (a bit more than one billion dollars). The investment has up to now encountered several programme for RZhD for the 2008-2010 period amounts to more than 1300 bil- rejections in its attempts to expand outside lion rubles (52 billion dollars), of which 402 billion rubles are for next year. the CIS. In 2005, it had been overtaken at the wire by Vodafone in Turkey for the The other hot topic of the moment for RZhD concerns its entry into the cap- purchase of the mobile telephone operator ital of TransMashHolding (TMX), its principal supplier of rolling stock. We re- Telsim. Then, in 2006, Vladimir call that an accord in principle in that direction was concluded last May between Evtushenkov’s group was checkmated in Vladimir Yakunin and , the principal shareholder in TMX. Egypt by the Arab Ertisalat consortium. d (Russia Intelligence n°56 of May 31 2007). RZhD before the end of the year will assume 25.1%+1 of the shares of TMX for about 500 million dollars. In the wake, 3 Alexey Fyodorov quits the negotiations should begin with a view toward the entry by a foreign partner into general direction of MiG TMX. That’s what was confirmed by Anatoly Mereshchyakov, the director gen- After Mikhail Pogosyan, the director eral of the group at the end of September. Sources close to TMX suggest that the general of AKhK Sukhoi, it was the turn of choice would be made between Alstom, Siemens, Bombardier and Hitachi. Alexey Fyodorov to leave his post. The two «enemy brothers» of the Russian It should be remembered that the first three are already very present in Rus- aerospace sector will now work full-time in sia : Bombardier signed last May an accord concerning the creation of several the public holding company OAK joint ventures (Russia Intelligence n°56 of May 31 2007); Siemens should de- respectively at the posts of n°∞2 in charge liver as from 2009 8 Velaro RUS trains destined for the future high-speed line of military programmes and of president. between Moscow and Saint Petersburg, Alstom — whose transport division The succession of Alexey Fydorov will chief, Michel Mellier, was in Russia in September 19 — has also signed a con- be no small affair. It has given rise in the tract for 120 million dollars covering 4 Pendolino models. Cooperation with TMX wings to numerous manoeuvers since late and RZhD is a more interesting proposition for Western groups since the Russ- 2006. At the time, the heir foreseen by the ian railways have made a choice to develop their high-speed lines. The n∞2 of boss of MiG, Sergey Tvisilyov — who has RZhD, Valentin Gapanovich, had announced that no fewer than 18 lines had in fact managed the group since the been designated around Saint Petersburg, Moscow, Samara, Novosibirsk and departure of Fyodorov to OAK last October Krasnodar. After entry into service of the Moscow/Saint Petersurg and Saint Pe- — had been investigated by the General tersburg/Helsinki segments, the priority should be given to the line between prosecutor’s office in an affair linked Moscow and Sochi in anticipation of the 2014 winter Olympic games. to the aircraft manufacturer’s maintenance contracts in Poland. The chrges had been The other development corridor is placed in Poland. October 1, Vladi- rapidly lifted, but this episode had mir Yakunin declared that the group had presented a joint offer with Deutsche apparently left scars. Two other names are Bahn for the purchase of a non-specified Polish freight operator. According circulating. Vladimir Barkovsky, the to certain sources in Russia, it could involve PKP Cargo, a subsidiary of Polish current deputy director general for MiG, railways. d and Alexander Mikheev, head of aviation at Rosobornexport, who was linked by Analytical profiles of Iskander Makhmudov/TMX and of Vladimir several Russia Intelligence sources to a Yakunin/RZhD are available on the Russia Intelligence website. Reserved role in the misadventures of Sergey for Premium subscribers. Tsivilyov in late 2006. d 7 Russia Intelligence N°63 j October 11 2007 www.russia-intelligence.fr RIA63 11/10/07 10:59 Page 8

RUSSIA INTELLIGENCE Regions & CIS

FOCUS c Sergey Lebedev as the saviour of the CIS?

Most observers didn’t expect too much from the summit of Russia has 57%). The lightness and casualness displayed by Vik- the CIS heads of state held October 5 in Dushanbe. Some scep- tor Lukashenko when Vladimir Putin — who was presiding the tics even went so far as to assert that Vladimir Putin’s 55th session — asked him if he had any objectives show that the Be- birthday would be its key event. It’s true that since its creation larus president had not signed the document in good humour. in December 1991, the CIS has not exactly sparkled with effec- for its part was apparently sensitive to the nomina- tiveness, a fact admitted recently by the Kremlin chief in re- tion of Tair Mansurov — former ambassador in Moscow — to peating the formular first used by the former Ukrainian presi- the post of Secretary general of the EvarzES to replace Grigory dent Leonid Kravchuk about «a civilised handling of a divorce» Rapota (read box page 2). between the former Soviet republics. Looking at it more closely, however, the Dushanbe summit — especially its agenda points The summit of the ODKB — an organisation that includes devoted to the CIS Treaty organisation for collective security Belarus, , Russia and the former Central Asian republics (ODKB) and the Eurasian economic community (EvrazES) — with the exception of Turkmenistan — was also the occasion illustrates a new political will by Russia and could mark seri- for important decisions. At the end of four years of diplomatic ous progress in economic and military integration. The nomi- efforts, Russia succeeded in convincing its partners to create nation of Sergey Lebedev, director of Russian external intelli- collective peacekeeping forces. These brigades will be tasked gence services (SVR) since 2000, to the Executive secretariat to intervene in priority on the territory of the member states in of the CIS confirms the importance still attached to the post- case of threats.The counterpart proposed by Moscow to its part- Soviet space by Vladimir Putin. ners to have them accept the inevitable centralisation of oper- ational function involves the delivery of military equipment at The summit of the CIS heads of state— which the Ukrain- the domestic Russian price. This is a gesture that could compli- ian president Viktor Yushchenko, did not attend and was rep- cate plans by the major Western groups such as BAE Systems resented by his External affairs minister, Arseny Yatsenyuk — even Armaris or MBDA who have been striving for several years was especially noteworthy for its signature of cooperation accords to break into the Kazakh market. in domains as sensitive as combatting narcotics trafficking or controlling migration in the post-Soviet area. As always, some Finally by naming Sergey Lebedev to replace the insignifi- texts were nevertheless ignored or signed with reservations by cant Vladimir Rushaylo as Executive secretary of the CIS, the states of GUAM. Ukraine therefore rejected an article in the Vladimir Putin was sending a very clear signal about his diplo- document — inspired by Kazakhstan — on reforming the CIS matic priorities and his threat perception. Officially the SVR which stipulated that the was a positive fac- does not conduct intelligence activities against states of the tor for international relations in the former USSR. Azerbaijan CIS, but the direction of the external counter-intelligence serv- for its part presented a series of observations conerning the set- ices is very active in following the activities of Western services, tling of the dispute over Nagorno-Karabakh. Mikhail Saakashvili according to credible Russia Intelligence sources. d also departed precipitously from the summit to travel to Zug- didi where he inaugurated that very evening «the Voice of Abk- hazia» a radio station aiming — in the image of its illustrious ALERT big sisters from America during the cold war — to erode a ri- val regime, in this case that of Sergey Bagapsh in Sukhumi. 3 Belarus : a good show by Telecom Austria The Georgian president, on the other hand, supported, along The Austrian group created a surprise by announcing the with his colleagues, the candidacy of Kazakhstan for the presi- purchase, for about 1 billion dollars, of the Belarus operator of dency of the OSCE in 2009, which at least displays a certain mobile telecommunications MDC. 51% controlled by the state until openness for realpolitik, Astana being one of the main investors last August, MDC had been sold to the Cypriot firm SB Telecom in . (according to certain information, the true owner of SB Telecom would be the Syrian businessman Aed Al-Samawi). The second The summits of the other two subregional organisations — operator in Belarus after MTS-Belarus, MDC was also sought after by ODKB and EvrazES — on the other hand, were much more pro- , the telecom subsiary of the Alfa-Group. Pyotr Aven and ductive. Presidents Putin, Lukashenko and Nazarbayev signed could finally turn their sights on BeST. It remains to a triannual plan that foresaw the constitution of a virtual cus- be seen if the Belarus president Alexander Lukaschenko — who toms union. The discussions were lengthy and nearly stumbled recently displayed his irritation toward the Kremlin by meeting his over the allocation of votes within the future supranational or- Georgian counterpart, Mikhail Saakashvili — will try or not to block gan that must supervise the harmonisation of tariffs (Belarus the expansion plans of the Russian oligarchs in his country. d and Kazakhstan finally obtained 21.5% of the votes each, while

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