N°71 - February 14 2008 Published every two weeks / International Edition CONTENTS KREMLIN P. 1-3 Politics & Government c Medvedev vs Sechin : the Khodorkovsky test KREMLIN c Medvedev vs Sechin : The Khodorkovsky affair, returned again to the forefront of the legal news during the first week of the Khodorkovsky test February, could become a sort of test of the freedom of movement that the future Russian President BEHIND THE SCENE could benefit from concerning supervision of the «organs of power «. This, in any case, c Kurile islands: progress is what a certain number of sound experts of the Khodorkovsky brief and its most recent developments in sight ? believe. It is known that the former attorney and legal director of , Vassily Aleksanyan, 36, suf- FOCUS fering fom AIDS, finally obtained the right to be treated and transferred to a private clinic after Mikhail c Medvedev : is another Khodorkovsky undertook a hunger and thirst strike in support of his former collaborator. At the same foreign policy possible? tilme, in Chita, Khodorkovsky has been subjected to new judicial actions seeking to attack him perso- ECONOMY nally on charges of . He could therefore run the risk of a new prison sentence on top c Russian elites over come with anxiety of the nine year term he was condemned to May 31 2005. ALERTS c Dmitry Medvedev, even if he has hardly expressed himself publicly on this matter, has, however, on several occasions placed emphasis on his desire to combat the «judicial nihilism» that currently reigns P. 4-7 Business & Networks in . A second Khodorkovsky trial, that would open shortly after his election, would hardly be ap- MINES, ENERGY... propriate for the new Russian president who is already subjected to numerous demands on the part of c The Chemezov steamroller the more liberal factions of the Putin clans. The Russian for do not lack DEFENSE INDUSTRY connections to Dmitry Medvedev and have appealed that one of the first gestures by the new president c Severnaya verf : Sergey be authorisation to release the former president of Yukos, possibly accompanied by a commitment for Pugachev’s revenge him to relocate outside Russia. In certain chancellries, notably and , messages to the same PROFILE effect have been addressed to the Kremlin. c Yuri Lastochkin,the man who holds his own against Sergey As of now, nothing has emerged of the real intentions of Medvedev. Barely was it seen that Aleksa- Chemezov nyan obtained access to medical care that the prosecutors refused him, that it had the effect to Khodor- FAR-EAST kovsky’s legal team to mount a new charge at the very time that it most embarrassed Russian authori- c is counting on ties. But those who are most interested to see that Khodorkovsky remains in prison as long as possible Dmitry Medvedev have no intent of laying down their arms. It is therefore being said in that would ALERT have already negotiated that in the future organisation of power, he would reinforce his position in Ros- c East--Pacific ocean oil pipeline neft at the cost of abandoning his functions as deputy head of the presidential administration. If such a plan were confirmed, Sechin would have no interest to see Khodorkovsky free and appealing before ALUMINIUM c The Chinese temptation international jurisdictions for reparations for the seizure of Yukos and its transfer to . of OIL More generally and at four weeks of the presidential election, questions abound concerning the po- c Movement around Russneft litical space that Dmitry Medvedev would dispose of/or authorised to conquer. The request of certain P. 8 Regions & CIS members of the government to relax certain aspects of Russia’s foreign policy hardly pleased the Krem- lin and it could be seen in the way that replied to these «expectations» in his speech of cMoscow in search of February 8. Nevertheless, on the ground, we can only observe some differences in tone, which are per- continuity haps indications of a change in style to come. As example, the way the the discussion between Russia ALERT and gas deliveries was managed. The management of Gazprom did not make the same mistake c / as in January 2006 : reducing deliveries to Ukraine first and discussing later. This time the process was reversed. And Yulia Timoshenko, the head of the government in Kiev, even, in appearance, obtained a SUBSCRIPTION Print Edition victory she probably did not expect so quickly : the programmed termination of the role of RosUkr- (23 issues, airmailed overseas) Energo as compulsory intermediary between Gazprom and Kiev in gas deliveries to Ukraine. The disap- €770 TTC pearance of this organisation is a political development in itself since it shoved aside these «interme- diaries» that didn’t please Moscow or Kiev, including the notorious Semyon Moguilevich, in prison for The Web Pack (Print Edition the past few weeks (Russia Intelligence n°70 of January 30), on the Russian side, and Dmitry Firtash + PDF + archives acess) on the Ukrainian side. Certainly it is a bit premature to conclude that gas transactions between Mos- € 880 TTC cow and Kiev will from now on be completely transaparent, but the disappearance of RosUkrEnergo is nevertheless a break with the past. At the same time, as a demonstrated willingness by Dmitry Medve- The Premium dev to maintain a hand on the case. The reorganisation of relations betwen Gazprom and Naftogaz Subscription (Print Edition + PDF + access Ukrainy will in fact be conferred, on the Russian side, to a man we have followed with interest, namely to all the website contents) Konstantin Chuychenko, already administrator of RosUkrEnergo, classmate of Dmitry Medvedev at the € 1200 TTC law faculty (Russia Intelligence n°68 of December 20 2007). d www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

BEHIND THE SCENE cc FOCUS Kurile islands: progress Medvedev : is another foreign policy possible? in sight Foreign policy and, more generally, security matters are the themes on which Like all previous years at this same time, the future Russian president has carefully avoided expressing himself. Dmitry the question of the Kurile islands surfaces in Medvedev is certainly not a neophyte on the international scene. It is someti- political debates in Japan and in bilateral mes forgotten that he played a discreet but non-negligeable role on the Ukrai- relations between Moscow and Tokyo. nian front during the “orange revolution” (he was at the time in regular contact February 7 is in fact the «day of the northern with the head of Leonid Kuchma’s administration, Viktor Medvedchuk) then territories» in the land of the rising sun. This during the first “gas war” in early 2006 (in his capacity as president of the over- gives rise to various commemorations sight board of Gazprom). More recently, he travelled to Sofia to accompany Vla- uniting former residents of the four islands dimir Putin in order to participate in the signature of the accord on the South- who were expelled in 1945 and their Stream natural gas pipeline (Russia Intelligence n°70 of January 31 2008). But descendents, demonstrations in which up to now, strategic issues were clearly the responsibility of Vladimir Putin, Ser- generally participate the highest authorities gey Ivanov and Sergey Lavrov who set to music the policy lines drawn up in the of the country. From this point of view, 2008 Kremlin. was no exception. The Prime minister Yasuo Fukuda therefore made a presentation on Will Dmitry Medvedev maintain a continuity with the foreign policy of the February 7. This year, however, the message second term of Vladimir Putin ? Should we expect, on the other hand, a change contained a certain number of new of tone, if not a break ? elements. The head of the Japanese government declared his desire for a «new We are witnessing in any case, as the presidential elections draw near, a re- level of relations with Russia», which implies surgence of a debate that was believed closed concerning the direction of Rus- a settling of the territorial dispute over the sian foreign policy. Last January 31, during the business forum organised by the Kurile islands. It concerns apparently not Troika dialog bank (read also article page 3), two front-line officials clearly ex- only a circumstantial diplomatic formula on pressed their disagreement with the Putin doctrine as it was presented in the the part of Yasuo Fukuda. It has been widely-noted speech in Munich in February 2007. “How much does its conflic- learned that he transmitted a message in this tual foreign policy cost Russia ? Are we ready to pay such a high price for direction to Vladimir Putin through the controversies over the British Council at a time when the world economy is intermediary of a predecessor Yoshiro Mori, deteriorating ?” exclaimed , the boss of the national electri- who inaugurated a new Toyota plant in city company RAO EES Rossii. More prudent in expressing himself, the vice Saint Petersburg in late 2007 with the Prime minister in charge of finance, Alexey Kudrin, for his part declared that Russian president. The Russian side is “To insure a stable growth, it is appropriate to specify the orientations of the evidently not insensitive to the Japanese country’s foreign policy as early as this year”. overtures. February 2, the vice minister of foreign affairs in charge of Asia, Alexandre These positions are not strictly speaking surprising coming from liberals, but Losyukov (ex-ambassador of Russia to they cut across the ambiant rhetoric. As a sign of , the same day, the Japan), was in Tokyo for a series of general Vladimir Shamanov – who “distinguished” himself during the two cam- preparatory consultations in view of a Putin- paigns in before trying out, with mixed results, politics in Fukuda summit in early May. According to – addressed the installation of tactical Iskander missiles in in or- our information, Moscow could again put on der to counter the deployment of elements of the American anti-missile defence the negotiating table a Soviet proposal in Poland. Vladimir Putin on his side also criticised at length the United States dating back to 1956 (repeated in November during his speech before the State Council February 8. “We withdraw our bases 2004 by the Russian foreign affairs minister in Cuba and Vietnam. What do we get in return ? New American bases in Ro- Sergey Lavrov) referring to the restitution of mania, in Bulgaria, elements of the anti-missile defence in Poland and in the two of the four islands in the archipeligo Czech Republic”, he asked. Sergey Ivanov himself hammered during his presen- (Shikotan and Habomai). tation at the Munich security conference February 10 that the American and Will Moscow and Tokyo finally European models and values are not made to apply to everyone. overcome their differences and sign a complete and formal peace treaty ? It The transition of power in Moscow between Vladimir Putin and Dmitry Med- should be recalled that , who vedev will coincide with two crucial events – the proclamation of independence considered restituting the four islands to by Kosovo and the NATO summit in Bucharest. Concerning the first issue, it Japan in 1992, had finally gone into reverse seems certain that Moscow will not symmetrically apply what it perceives as a in the face of hostility of Russian elites. “precedent” in international law. In other words, Moscow will not immediately This time, the brakes on a possible recognise the independence of Abkhazia, Ossetia or Transdnstria, preferring to compomise could come from Tokyo conserve its arguments in view of a global bargain with the West. Concerning instead. Trustworthy sources indicate that NATO, the agreement given February 12 by the Kremlin to Romania in early April the publicity given to two incidents recently seems to indicate that neither Ukraine, nor will at that time not be (the arrest in mid-January of a Japanese granted by the Alliance its Membership action plan (MAP). But the enlarge- senior official suspected of being a GRU ment question should nevertheless remain stated. agent and violations of Japanese air space by a Tu-95 bomber) could be linked to the In diplomatic matters, as with Russo-Russian matters, Dmitry Medvedev will jitters observed in relations between have to deal with the Putin heritage before eventually stamping his mark. d 2 Moscow and Tokyo. d Russia Intelligence N°71 j February 14 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

ECONOMY c Russian elites over come with anxiety In appearance, Russia is in good shape economically. Vla- State investment in shares of Russian public companies and dimir Putin during his speech to the State Council on Fe- even purchase of part of the debt contracted by these firms. bruary 8 announced that growth in 2007 reached 8.1% (a few A suggestion that was undoubtedly not completely disinte- days earlier, the Economic development minister Elvira Na- rested. Rosneft, which has accumulated 27 billion in debt, biullina, was still forecasting between 7.7% -7.8%). Russia re- must in fact face a deadline for 5 billion in March. Another gistered a budget surplus of about 50 billion dollars, or 5.9% indicator – the persistent attacks against the Central bank, of GDP, a figure that would make most European leaders blush another guardian of the treasure (along with the Finance with envy. The real income of the population continues its ra- ministry). A draft law has just been presented in the State pid growth (10.4% last year), while the Central bank still no- Duma that provides limits on the prerogatives of the bank tes an impressive level of foreign exchange reserves (483 bil- in matters concerning withdrawal of licenses. If needed, it lion dollars in early February).Nevertheless, optimism has no will have to coordinate these initiatives with the Federal fi- longer been a sure thing for several weeks within Russian eli- nancial monitoring service (FSFM), the financial intelli- tes. The belief in Russia as an island of stability spared from gence service long directed by . the global banking crisis – still defended by the vice Prime mi- nister in charge of finance, Alexey Kudrin in Davos in late A change in prospect is thus announced in Russia for ma- January – no longer holds up. cro-economic and budget planning. The illusion of financial abundance created since the beginning of the second term The preoccupations are both -term (liquidity problems for Vladimir Putin by the inflow of petrodllars will disap- expected in March-April when several large Russian groups pear in the coming months. Arbitration – notably on the will have to reimburse important loans contracted with Wes- role of the state – will have to take place. From this point tern banks and will have to make their quarterly TVA payments) of view, the evolution of different industrial issues concer- and long-term (the progressive erosion of the budget surplus ning, for example, (read article page 4) due to increasing social expenditures, but also the deteriora- will give a fairly precise idea of the balance of power in Mos- tion of the trade balance that should lead near 2010, accor- cow between the “new state oligarchs” and the liberals, who ding to most economists, to the end of the traditional surplu- are, it appears, placing a lot of hope in Dmitry Medvedev. d ses registered by Russia).

A number of signs point clearly to a change in the state of ALERT mind in Moscow. There are, first of all, the declarations of the n°°2 in the Central bank, Alexey Ulyukaev, during an annual 3 The suspicious death of the Georgian seminar gathering many of the leading participants in the Rus- oligarch Badri Patarkatsishvili sian banking sector at the Bor sanatorium January 31. Clear on the consequences of the international financial crisis, he The oligarch Badri (Arkady) Patarkatsishvili, 52, one of the lea- announced a slide in the Central bank’s priorities. The fluidity ders of the Georgian opposition, died Tuesday February 12 of a of the national banking system now appears more important heart attack in his residence in , on the outskirts of than combatting inflation, which is nevertheless very high . According to the British police, an autopsy should be (11.9% in 2007, 2.3% for the month of January 2008 alone). Ten- held in the coming hours to shed light into the death, already re- sions awaited on the budget also leads officials in the Finance garded as suspicious. ministry to call for a pause in tax reductions. “We don’t see any At the head of several companies, Imedi TV, JMG Consulting and possibility of reducing taxes in the current situation where Universal Ltd, Maudi Enterprises — Patarkatsishvili was close to Russia is more and more sensitive to the upheavals on the . It should be recalled that last autumn, he had world markets” declared Sergey Shatalov, one of Alexey Ku- taken over the leadership of the movement against Georgian Pre- drin’s deputies. As a reminder, fiscal orientations for the 2009- sident . Accused of having conspired against 2011 period should be discussed February 14 by the govern- the government, Georgia’s judicial system had frozen all his pro- ment. It should also be recalled that the share of tax perty and suspended Imedi’s TV broadcasting license. In the Ja- contributions passed from 33% of GDP in 2001 to about 26% nuary 2008 presidential election M. Patarkatsishvili had won 7.1% today. In an even more alarmist tone, the boss of the national of the votes and had declared that wanted to kill him. electricity company, Anatoly Chubais doesn’t hesitate to de- The death of Badri Patarkatsishvili took place three months be- clare to the liberal magazine The New Times that Russia is on fore legislative elections in Georgia and two months before the the threshhold of a new financial catastrophe. NATO summit in Bucharest during which discussions should take place on the entry of Tbilisi into the Alliance’s Membership This more uncertain context has logically revived tensions action plan (MAP) for accession. It also takes place in the midst between the large political-economic interest groups in the of a timid relaxation of Russo-Georgian tensions. Close to Boris country. In its editorial of December 20, Russia Intelligence Berezovsky, Badri, who lived in Moscow from 1993 to 2001, was underlined that one of the major stakes of the power struggles also sought by the Russian justice for trafficking in automobiles, in Moscow was the control of some 150 billion dollars in the tax , and complicity in the escape in 2001 of Nikolay Glush- Fund for stabilisation (divided since February 1 into a Reserve kov, former n°2 at , also accused of misappropriations. fund and a Fund for national prosperity). The temptation to The first Russian reactions were not long in coming. Gennady “dip” into these resources is increasingly strong in certain Rus- Gudkov, vice president of the Duma security commission, has al- sian authorities. During the business forum organised by the ready accused the Georgian secret services of being implicated in Troika dialog January 30, the financial director of Rosneft, the death of the main opponent to Mikheil Saakhashvili.d Anton Kozhinov, for example declared himself in favour of 3 Russia Intelligence N°71 j February 14 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

MINES, ENERGY... c The Chemezov steamroller While his old friend Vladimir Putin is preparing to leave the As reform of the electricity sector enters the final stretch, Kremlin, Sergey Chemezov is moving into high-gear. The boss Sergey Molozhavy, director general of Tekhnopromexport, de- of Rostekhnologii, the new public holding company whose vo- clared himself in favour of his group joining Rostekhnologii. cation is to unite the industrial assets of , is This announcement was made on January 30 on the the occa- active on all fronts — including some unexpected ones — in sion of the Rossia-2008 economic forum. According to various order to enlarge the outlines of its empire to its advantage. Russian sources, Tekhnopromexport figures in the draft pre- sidential proposal establishing the list of assets that should be Mines : Rostekhnologii eyes Mongolian copper and po- transferred to Rostekhnologii. tassium in Verkhnekamsk.After having failed to obtain cash from the government in late 2007 (the about 550 billion rubles But Sergey Chemezov is not the only one to set his sights on in public funds aimed at capitalising new state holding compa- Tekhnopromexport. Sergey Kirienko, the boss of Rosatom, nies were allocated in priority to the Development bank and to also wants to gain control over it. Another proposed presiden- Rosnanotekh, the agency charged with the promotion of nano- tial decree also foresees that Tekhnopromexport be attached technologies), Sergey Chemezov sought to convince the Krem- to Rosatom. The two texts are currently being studied in the lin to allocate to the Rostekhnologii capital a certain number Economic development ministry, but it is evident that the de- of public assets. Among them the involvement of Moscow in the cision will take place in the Kremlin. Sergey Chemezov ob- Russo-Mongol Erdenet joint venture. Created in 1972, Erdenet viously is counting on his friend Vladimir Putin, who had al- exploits the largest copper deposit in Asia. Last year, the group ready helped overcome certain governmental hesitations during achieved a turnover of 1.4 billion dollars. The Russian govern- the creation of Rostekhnologii last autumn (Russia Intelligence ment, which holds 49% of its interests, has benefitted from some n°63 of october 10 2007). According to our information, Sergey 100 million dollars in dividends, an agreement that obviously Kirienko, for his part, also made a number of overtures to Ser- has not left Sergey Chemezov indifferent (to his benefit, it should gey Sobyanin, who is both the president of the oversight board be noted that other Russian oligarchs had also displayed their of Rosatom, head of the presidential administration and cam- interests in recent months. Islander Makhmudov’s UGMK, No- paign director for Dmitry Medvedev (rumours have become rilsk Nickel and also Gazprombank had lobbied Alexey Gor- more and more insistent that he could also be the successor to deev, the Agriculture minister, who co-presides the bilateral Yuri Luzhkov as mayor of Moscow in late 2008 or early 2009). economic commission, to relinquish the Russian state interest in Erdenet to them). Will Rostekhnologii get its hands on AiRUnion ? In its edition of December 15 2006, Russia Intelligence relayed the Offically, the interest of Rostekhnologii for Erdenet is moti- information of the success of Boris Abramovich (who is not vated by industrial considerations. Molybdnum which is extrac- related to Roman) in his competition with Aeroflot. The CEO ted there is involved in the fabrication of titanium and is there- of the firm KrasAir had indeed convinced the state to autho- fore useful to VSMPO-Avisma. rise him to organise a private avitation pole – AiRUnion – against the advice of the national carrier. If certain informa- This argument was also put forward in another matter. In tion filtering in Moscow can be believed, Sergey Chemezov is late January, Rostekhnologii had sought to convince the minis- said to have written to Vladimir Putin to ask him to cede to Ros- ter of natural resources, Yuri Trutnev, to cancel the public auc- tekhnologii the about 40% of AiRUnion held to this day by the tion planned in March on the potassium deposit in Verkhne- state, but also its interest in “other airlines” (an ambiguous for- kamsk, a first-class asset since it concerns the world’s second mula that makes some believe that Aeroflot could also be tar- largest deposit. According to Sergey Chemezov, a potential pri- geted). It should be recalled that AiRUnion in early 2007 ab- vate buyer would not be interested in the development of car- sorbed the Hungarian national company Malev. nalite, another mineral used by VSMPO-Avisma, whose extrac- tion is hardly profitable. Ultimately, the boss of Rostekhnologii Sergey Chemezov’s ambitions are, as can be seen, pharao- did not succeed. The public auction on the Verkhnekamsk has nic. The boss of Rostekhnologii is seeking to advance his pie- been maintained for March 11. According to information gathe- ces as much as possible before the installation of Dmitry Med- red by Russia Intelligence in Moscow, Yuri Trutnev was not in- vedev in the Kremlin. Certainly his good friend Vladimir Putin different to the interests of his old friend from Perm, Dmitry should remain in control, but it is possible that the liberals who Rybolovlev, the boss of Urakliy also in line in this deal. surround the future president will in the future be less dispo- sed toward the state holding companies. The Economic deve- In mining matters, Sergey Chemezov is considering coope- lopment and commerce minister Elvira Nabiullina, has al- rating with . Rostekhnologii and Renova have ready announced herself against the transfer of the 34% of the created a joint venture labelled Rosinvestpartner for such ac- automobile manufacturer controlled by the state, ano- tivities. It is this organisation which, if needed, will take care ther “request” by Sergey Chemezov addressed to the Kremlin. of Erdenet. By then, the boss of Rostekhnologii is determined that his group be granted a “compensation” of 500 million dollars for the ac- Tekhnopromexport. Another target in the sights of Ser- quisition of VSMPO-Avisma, an operation conducted — he re- gey Chemezov. Tekhnopromexport. Founded in 1955, this pu- minded — on behalf of the state.d blic company specialises in the construction of turnkey projects for all type of (non-nuclear) power stations abroad. Its turno- The analytical profile of Dmitry Rybolovlev, ver in 2006 amounted to 420 million dollars and its order books the “potassium king ”, is available on the Russia Intelli- 4 contain some 2.8 billion dollars. gence website. Reserved for Premium subscribers. Russia Intelligence N°71 j February 14 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

DEFENSE INDUSTRY c Severnaya verf : Sergey Pugachev’s revenge In its last edition, Russia Intelligence relayed the information Pugachev. The senator from Tuva, who also controls another about the turmoil in the Yantar shipyards in Kaliningrad. Fol- shipyard in the northern capital, Baltiysky zavod, had then lowing the difficulties in the implementation of a contract cove- been approached by another close associate of Vladimir Pu- ring 3 frigates (Project 11356) destined for the Indian navy, the tin, Sergey Chemezov. The latter sought to buy his assets. Fa- Russian government initiated a procedure aiming at the dismis- ced with Pugachev’s resistence, the boss of Rosoboronexport sal of the current director general, Nikolay Volov, a personage had waged an intense lobbying campaign to deprive his shi- close to the MIB bank, the main private shareholder in Yantar. pyard of the Indian contract. This nevertheless did not make Matters should not remain there. The federal agency Rosoboro- Pugachev yield. So much so that the public holding company nexport in fact is said to have entered into contact with Sever- OSK, on which the Russian state intends to restructure the naya verf, the large Saint Petersburg shipyard for it to take over Russian naval sector, does not include Severnaya verf and Bal- the work of Yantar for the construction of two of the three Indian tiysky zavod (Russia Intelligence n° 64 of october 25 2007). frigates. This in any case is what Alexandre Gnusarev, the direc- tor general of OPK, the main shareholder of Severnaya verf, de- According to our information,the Indian military had been clared. The new director general of Rosoboronexport, Anatoly very firm with Rosoboronexport. There is no question of New Isaykin (biographic profile in Russia Intelligence n°67 of decem- Delhi accepting whatever delay in the delivery of the frigates. ber 6 2007) confirmed that his deputy, Vladimir Pakhomov, did A warning that was taken very seriously in the Kremlin, where travel to the site in late January but for another reason. there is concern about the consequences of various incidents within Military-technical cooperation The Indian Defence mi- If it should confirmed, the decision of Rosoboronexport to nistry in exchange is said to have given its accord for a revi- transfer part of the Indian contract to Severnaya verf would re- sion of the contract on the modernisation of the aircraft car- present a major turnaround. We indeed recall that the awarding rier Admiral Gorshkov, a deal that has also contributed heavily of that contract had given rise to sharp power struggles in late to the deterioration of the bilateral atmosphere in the defence 2005-early 2006. The director of the Federal industry agency, Bo- sector. New Delhi should release between 500 and 600 million ris Alyoshin (now with Avto VAZ), had come out in favour of Se- dollars additionally, an amount below Russian expectations vernaya verf. But the boss of the Federal military-technical co- (Rososboronexport wanted 1 billion dollars) and which will not operation service (FSVTS), Mikhail Dmitriev, had disavowed him be made available until 2009. As a result delivery of the vessel and conferred the implementation of the contract to Yantar. At could be delayed from 2012 to 2013, according to Denis Man- the time, several factors had come into play. First of all, the des- turov, the vice minister for Industry and confident of Sergey ire of the Kremlin to stimulate the Kaliningrad shipyards, an im- Chemezov). This subject should be on the agenda of discus- portant element of the local industrial fabric. It especially was sions between the Prime minister Viktor Zubkov and his coun- designed to put pressure on the owner of Severnaya verf, Sergey terpart Manmohan Singh February 12 in New Delhi. d

Yuri Lastochkin, the man who holds his own against Sergey Chemezov Even if he is far from being the only person in (SaM146 in cooperation with France’s (Saint Petersburg), Salyut (Moscow), NK Dvi- conflict with the boss of Rostekhnologii (see Snecma in the framework of the SuperJet- gateli () and Saturn. The latter pole article opposite), Yuri Lastochkin, the direc- 100 regional aircraft project, but also the D- should, according to the government, join tor general of the automotive firm NP Sa- 30KP Burlak for the Il-76 heavy transport). UMPO and Perm motors and rejoin state turn, is in any case one of the few to this day NPO Saturn is also very active in a sector cur- control under , the Rosoboro- in Russia to have suceeded in thwarting his rently enjoying surge in electric power turbi- nexport subsidiary. A renationalisation in ambitions. A brief reminder of the facts: In nes and includes Gazprom and national elec- keeping with the trend of the times. But in late December, the NPO Saturn press service tricity company RAO EES Rossii among its entering into the capital of UMPO (certain published a communiqué announcing that clients. UMPO’s production unit at Ufa is unofficial figures indicate 48% in the hands the purchase of 19.98% of the aircraft engine controlled by its top management. The state of organisations close to Yuri Lastochkin), Sa- producer UMPO had been completed.This holds only 12% through Oboronprom, while turn particularly hampers the mission of transaction, for an amount of about 80 mil- the government of Bashkortorstan has the Oboronprom. lion dollars, had been approved a few weeks right of oversight over strategic decisions. What are the real plans of Yuri Lastochkin? earlier by the administrative of the two UMPO derives the bulk of its turnover from Can he really go against the wishes of Sergey groups. This gave all the appearance of being exports since it is involved in most of the Chemezov? According to our information, he normal deal. NPO Saturn and UMPO are in contracts of the aircraft manufacturer NPO Ir- would like to duplicate the achievement of fact private companies and, on top of every- kut and AKhK Sukhoi. Alexey Fyodorov, the former boss of NPK Ir- thing, are complementary industrially. The But the collaboration between the two pri- kut, who obtained the presidency of OAK, the first, located in Rybinsk, is controlled by Yuri vate engine manufacturers was not to the consortium of Russian aircraft producers. In Lastochkin. The state is also present in its ca- taste of the state and Sergey Chemezov. It’s other words, covert his assets into a first line pital with a 37% stake. NPO Saturn — born true that Yuri Lastochkin’s contradicted the post in the new industrial complex set up by from the merger between the Lyulka-Saturn reform project for the engine production sec- the state. In the meantime, Yuri Lastochkin and Rybinskie motory — develops and produ- tor as it was presented last August 11 by the demanded — and obtained — from the Krem- ces engines for military aircraft (notably the Military-technical commission in the pre- lin that the right-hand man of Chemezov, AL-31 which equips the Su-27/30 family, the sence of Vladimir Putin. Denis Manturov, who was leading the nego- AL-55 for the Yak-130 and the 117-S destined This reform plans, it should be recalled, the tiations from the Industry and energy minis- for the Su-35) and for civilian aircraft establishment of four poles around Klimov try, be removed from the transaction. d 5 Russia Intelligence N°71 j February 14 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

FAR-EAST c Gazprom is counting on Dmitry Medvedev It was in his triple capacity as vice Prime minister, the pre- lin-III matter, Dmitry Medvedev has not officially decided. sident of the administrative council of Gazprom and as can- The blocks sought by Alexandre Ananenkov have not been didate for the presidential election that Dmitry Medvedev on included in the federal reserve of late November, although February 6 and 7 travelled to eastern Siberia and the Far-east. the designation can be done at the discretion of the govern- It came as no surprise that the subject of energy was at the ment. According to our information, the teams of Alexey heart of the discussions. At the same time, as he sought to Miller are trying to convince Dmitry Medvedev in his capa- show he was above the tempest, the announced successor to city as vice Prime minister in charge of energy, to add Ki- Vladimir Putin provided a serious helping hand to Gazprom, rinsky, Vostochno-Odoptinsky and Ayashky to this list. to the chagrin of its rival Rosneft. Another issue over which the interests of Gazprom and Chayanda : a small gift between friends. It must be re- Rosneft clash and on which Dmitry Medvedev should arbi- called that Gazprom devoted considerable effort in 2006 and trate – Sakhalin-I. In our edition of January 17 2008, Rus- 2007 to establish itself in eastern Siberia, a promising region sia Intelligence outlined the main stakes. Gazprom has been where it was virtually absent up to now. The harvests were es- applying pressure on the project operator, ExxonMobil, for pecially fruitful since one after another Shell and TNK-BP it to sell all the volume of gas extracted. The object is to had to let ’s group enter into the Sakhalin-II prevent the consortium from exporting its gas directly, to- and Kovytka projects (Russia Intelligence n°46-47 of January ward China for example. There again, the Gazprom appe- 19 2007 and n°58 of june 28 2007). But Gazprom has no inten- tite upsets Rosneft, which owns 20% of the Sakhalin-I pro- tion of resting on its laurels. For several months, it has been ject. In this affair, Dmitry Medvedev has sought to display strenuously lobbying to obtain control of the reserves of the strictest neutrality between Gazprom and Rosneft. Rai- Chayanda and Iakoutia. Like 30 other natural gas reserves, sing his voice, he called on the two groups to lower the tone Chayanda in late November was included as a “federal reserve”. of their quarrel and work together to achieve the Sakhalin- This classification allows the state to award an exploitation li- gas pipeline by 2011. This apparent need for im- cense without having to organise public auctions. After having partiality – an important element in the presidential pos- heard a report from Alexandre Ananenkov, Alexey Miller’s ture of candidate Medvedev – should nevertheless not hide deputy in charge of production, Dmitry Medvedev gave ins- the fundamental. In supporting Gazprom in its struggle with tructions to the relevant ministers to accelerate procedures ExxonMobil and in promoting the delivery of the Sakhalin- concerning the entry of Gazprom in Chayanda. The matter I gas toward the internal Russian market, the announced should be concluded by late March. The deposits in Chayanda successor to Vladimir Putin has acted against the interests — whose reserves are estimated at 1200 billion m3 – have a of Rosneftd vocation, according to Gazprom, to supply the future gas pipe- line linking Iakoutia to Skovorodino (the hub where the first segment of the eastern Siberia-Pacific ocean oil pipeline will arrive) with an extension toward Khabarovsk, Vladivostok, ALERT as well as toward China (Moscow and Beijing have neverthe- 3 East-Siberia-Pacific ocean oil less not yet agreed on the prices of the exports). As icing on the cake, Gazprom obtained from the government the oil struc- pipeline (VSTO) : Nikolay Tokarev ture linked to the Chayanda deposit. The Natural resources under pressure and Industry ministers came out in favour of the separation of The interministerial meeting on development of the Far-east the lots and the public auctions awarded for the oil deposits. that took place February 7 in Khabarovsk gave rise to a serious Between 4 and 5 billion dollars should be invested in Chayanda explanation of texts between Dmitry Medvedev and the two with the objective of beginning production in the 2013-2015 main officers of the VSTO — Nikolay Tokarev, the boss of timeframe. Transneft, and Viktor Khristenko, the Energy and industry mi- nister. The subject was the major delay in entry into service of Gazprom-Rosneft : the battle for Sakhalin continues. the project. Nikolay Tokarev had to admit that the pipeline The second phase of the visit by Dmitry Medvedev focused on would not become operational until the very end of 2009 (the Khabarovsk. As he had the previous day, Alexandre Ananen- date initially foreseen was the last quarter of 2008).Viktor Khris- kov once again presented his complaints and demands. Gaz- tenko for his part conceded that the preliminary ecological stu- prom hopes to obtain control of three blocks in Sakhalin-III dies before construction of the oil terminal in Kuzmino, near which have not yet been awarded (Kirinsky, Vostochno-Odop- the port of Nakhodka, had still not been completed. In their de- tinsky and Ayashsky). As a reminder, these structures had been fence, the Transneft boss and the energy minister put forward granted in 1993 to ExxonMobil and Texaco, but the Russian important geological difficulties, the defects in some certain pi- government had cancelled its decision in January 2004 follo- pes ordered in China and the extension of the pipeline from its wing the entry into force of the new law on production sha- original route (to bypass ecologically sensitive zones near Lake ring. The fourth block in Sakhalin-III is exploited jointly by Si- Baikal). nopec and Rosneft. The public oil company, which is in a general But Dmitry Medvedev remained unmoved : he demanded that conflict with Gazprom since the Yuganskneftegaz affair in late the initial deadline be honoured. According to Russian sources 2004, also covets the Kirinsky, Vostochno-Odoptinsky and in agreement, the future president is not disturbed by the diffi- Ayashsky blocks. That’s what the regional director for Rosneft culties experienced by Nikolay Tokarev, who is reputed to be Lev Brodsky recalled on February 6 during a symposium on close to Rosneft interests.d 6 the promotion of the Russian continental shelf. On the Sakha- Russia Intelligence N°71 j February 14 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

ALUMINIUM c The Chinese temptation of Oleg Deripaska The major energy groups and Rosoboronexport are not the vious complementarity of interests. UC Rusal establishes it- only Russian industries to look enviously toward the Chinese mar- self on a market where its main competitor, Rio Tinto, is al- ket. UC Rusal has also just made announcements one after ano- ready present. The choice of CPI as partner is explained es- ther that outline the new geography of its interests and priori- sentially by the will to have access to inexpensive power (it ties outside Russia.February 4, Oleg Deripaska and China Power is well known that electricity is especially expensive in China Investment Corporation (CPI) signed a memorandum planning and accounts for close to 40% of the price of aluminium in cooperation on two major subjects. It concerns, on one hand, a the country). The Chinese for their part gain access to an construction project for an aluminium smelter of a capacity of important commodity for the industrial development of their more than 500 000 tonnes per year in the province of Qinghai. country. The plant will be supplied power by the plants belonging to CPI on the Huang He river. The other element of this The collaboration with China Power Investment Corpor- cooperation is located on the African continent. UC Rusal will tation is not the only indicator of Oleg Deripaska’s increa- grant CPI the right to join the development of a bauxite-alumina sing Asian interests. At the end of January, a senior execu- complex with a capacity reaching 2.8 million tonnes per year in tive of UC Rusal had revealed anonymously that his group . In the most likely plan, the complex should materialise was considering finally organising its near the Dian-Dian deposit, owned by the Russian group. Its out- in Hong Kong, no longer in London. The Chinese exchange put should be delivered by maritime transport toward China. represents, in the eyes of Oleg Deripaska, the advantage of being less demanding than its illustrious European counter- According to the director general of UC Rusal, Alexandre Bu- part. Diplomatic tensions between Moscow and London, but lygin, the partnership with CPI is aimed at creating a vertically also the various legal actions engaged against the main sha- integrated company for the production of aluminium. The Rus- reholder of Rusal by his former partner Mikhail Chernoy, sian firm would hold up to 49% of the capital of the future Gui- also enter into the picture. According to one of the Rusal nean complex. UC Rusal and CPI will create a working group char- spokesmen, no decision has been taken on the location of ged with beginning an audit of these projects and to prepare a the future IPO – still planned for 2010. feasibility study. The projects should be completed in 2009. At this stage, none of the parties has made any declaration on the As a reminder, in November 2007, insistent rumours had amount of investments, but Moscow sources close to the subject circulated in Moscow about a future introduction of Gaz- speak of 2 to 3 billion dollars.The cooperation illustrates an ob- prom on the Shanghai exchange. d

OIL c New movement around Russneft After several weeks of complete silence, the situation at Russ- ken”, but not necessarily by Rosneft. In this case, the major neft has evolved, even if it has not been completely clarified. Brie- public company would not be thinking of selling Russneft. fly, in its recent episodes : On July 30 2007, Mikhail Gutseriev One thing is certain in any case. At the end of 2007, the An- resigned as president of Russneft, the 7th leading Russian oil titrust commission still had not announced its ruling on the company (16Mt extracted in 2006); A few days earlier, Base Ele- pssible purchase of Russneft by Base Element. Officially, it ment, Oleg Deripaska’s holding company, addessed itself to the had not been furnished the required documents. Antitrust commission informing it of its intention to acquire 100% of Russneft; But the scenario became complicated on July As the presidential elections approach, the Russneft file 31 when a Moscow court announced the sequestration of the to- is again moving. Alexandre Korsick has installed a new team tality of the shares of the oil company at the request of the Inter- at the head of the group. In all logic, most of his assistants ior ministry and tax authorities, demanding payment of back taxes come from Itera. This is notably the case of Oleg Schlego- of 20 billion rubles (600 million dollars). The Sechin Bogdan lev, of Igor Marchenko and Andrey Shegimago, who was chikov clan is suspected to be at the origin of this unpleasant- named vice president in charge of the reserves in late Ja- ness. Russneft is in fact a made-to-order figurehead for Rosneft. nuary. It was nevertheless another nomination that captu- In the meantime, Mikhail Gutseriev – whose son was killed red attention – the one of Alexey Nikonov, to another post in a suspect automobile accident – leaves Russia. Rumours place of vice president. Aged 56, Alexey Nikonov, during the 1990s, him in London, where he is said to have requested political worked successively for the Moscow municipality then in the asylum. Russian government apparatus. From 1997 to 2000, he was the n°2 of the general affairs services at Sibneft. Then Alexey The continuation of this saga is even more confused. Septem- Nikonov joined Rusal, where he managed, among others, ber 19, the general assembly of shareholders elected a new di- group development, but also various Siberian assets (the fac- rectorate with Alexandre Korsik, 51, formerly with Sibneft and tories at Achinsk and Krasnoyarks in particularly). The no- Itera. Certain Moscow sources believe he is acting on behalf of mination of Nikonov with Russneft was not mentioned in any Oleg Deripaska. The latter is said to have transferred 3 billion official communiquéé. According to Russian sources, he be- dollars to Gutseriev, an amount advanced apparently by Sher- gan studying relevant files as early as December but only as- bank. But, by mid-November, the director of Base Element, Gulz- sumed his functions just recently. The appearance in the han Moldazhanova, declared that the discussions for the acqui- Russneft high management of an associate of Oleg Deripaska sition of Russneft would continue with “the new owners”, which lends special credence to the possibility of an imminent ta- leads to an assumption that Oleg Deripaska had been “overta- keover of the oil group by Base Element. d 7 Russia Intelligence N°71 j February 14 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Regions & CIS

ARMENIA c Moscow in search of continuity As presidential elections draw near on February 19, Moscow is nia. This implies the continuation of good relations with Georgia. displaying more and more ostentatiously its support for the “power Russia is also pushing for the creation of a rail connection between candidate”, the Prime minister Serge Sarkisyan. In late January, Armenia and Iran. Vladimir Yakunin, the boss of RZhD, said he the president of the , Boris Gryzlov, travelled to Yere- was ready to participate in the project. We recall that the Russian van, officially to strengthen bilateral interparliamentary coopera- national company in early 2008 was granted the operation of the tion. It was more an occasion to be seen next to the outgoing Pre- Armenian railways for 25 years. sident Robert Kocharyan and his “heir”. Then on February 6, it was the turn of the Prime minister Viktor Zubkov to undertake a Finally, Viktor Zubkov, during hsi visit to Yerevan, raised a pos- visit to Armenia. On the agenda were a number of cooperation pro- sible new area of economic cooperation. The Russian side would jects in the fields of energy and infrastucture. Anxious to maintain like Armenian construction and public works firms (especially sup- its ultimate strategic partner in the south Caucasus, Russia wants plier of construction materials) to take part in the preparation of to maintain its presence and visibily demonstrates its preferences. the . d In principle, the position is not as risky as in Ukraine in the au- tumn of 2004. The two main opposition candidates – the former head of state Levon Ter-Petrosyan and the former president of the ALERTS parliament Artur Bagdasaryan – have in fact little change of win- ning. The elite in power since 1998 – with its origins for the most 3 Alexandre Lukashenko in fear part in Nagorno-Karabakh – should retain the upper hand. In or- of polish irredentism der to intensify bilateral economic relations – the volume of trade Bilateral Polish-Belarus relations — relatively strained under the between Russia and Armenia, although on the rise by 62% last year government of Jaroslaw Kaczynski — don’t appear to be impro- does not exceed 700 million dollars – Moscow has put on the table ving appreciably with the arrival in power of Donald Tusk. The a number of major projects. First in the nuclear sector. The boss of latest controversy to date concerns the “card of Polish”, a docu- Rosatom, Sergey Kirienko, who accompanied Viktor Zubkov to ment to which ethnic Poles living outside the country can refer Yerevan, has proposed his services for the construction of a new and which bestows a certain number of advantages (free visas, nuclear power station in Armenia in order to replace – the ageing education in Poland, reduction of 37% on train tickets for desti- – one at Metzamor. An international call for tender should be or- nations in the “mother country”, etc.). This measure had been ganised, but in Moscow that is considered a mere formality since decided in September 2007 and should enter into law at the end the cards are stacked. Sergey Kirienko also signed on February an of March.But there was no consultation with Belarus, where some accord concerning a joint venture charged with uranium explora- 900 000 persons might be affected. Alexandre Lukashenko, who tion in Armenia. The country’s reserves amounted to close to 30 has always seen the Polish minority as a Trojan horse for 000 tonnes, if the preliminary results of a Russian prospecting mis- Warsaw, has denounced this new attempt to destabilise Belarus sion last year can be believed . by its NATO neighbour.

From trustworthy sources, another subject which Russia Intel- 3 Closure of the European ligence had drawn the attention of its readers to in its edition of university in Saint Petersburg february 2 2007 was also discussed by Viktor Zubkov and Serge Sar- The branches of the British Council in the “capital of the north” kisyan. It concerns the construction of a refinery near the munici- and in Ekaterinburg were not the only educational or cultural pality of Megri in the south of the country. This project, evaluated establishments to be confronted with administrative closure. It at amounting to 1.7 billion dollars is actively supported by Iran and has just been learned that the European university in Saint would be implemented by . It represents a form of Petersburg, founded in 1994 under the initiative of the then- compensation on the part of Moscow to Yerevan for its “construc- mayor Anatoly Sobchak and financed by private international tive” attitude on the subject of the Iran-Armenia gas pipeline . Ro- donors, had to shut its doors on February 8 for at least a week. bert Kocharyan had given the green light for the entry of Gazprom Officially, it involves a technical decision. The buildings no longer in this project which the Russian group feared would represent a conform to fire standards. An explanation that evidently did new supply axis to Europe and which it has since strictly guided. not convince the university administration. It believes that these current difficulties for their establishment are in reality linked to In the transport sector, the Russian minister Igor Levitin had the grant by the European union of 673000 in aid aimed suggested to include Armenia – whose isolation constitutes a ma- notably at financing a programme of preparation for election jor strategic challenge – in the “ ring” project. It consists observers. A deputy in the State Duma, Gadzhimet Safaraliev, of the establishment somewhere near 2010-2011 of a new network had expressed concern last June and had alerted the Prosecutor’s of maritime communications between coastal states. If so, the port office. d of Poti would be the transit point for shipment to or from Arme-

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