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Home , Robert Kocharyan, Serik Akhmetov, United Group of Forces

N°26 - February 14 2008 Published every two weeks / International Edition

CONTENTS P. 1 ARMENIA c Presidential election in Presidential election in Armenia : remaining a vassal Armenia : remaining a vassal of or opting for of Russia or opting for emancipation? emancipation? Following Georgia’s election, and taking place before ’s, Armenia will be electing a new pres- P. 2 ident on February 19 as President ends his second terms in office. Nine candidates hoping to compete with are vying for the top post in a contest marked, according to observers, by a duel between the outgoing Prime Atyrau Minister, Serge Sarkisyan, and former President Levon Ter Petrosyan. Although polls give Sarkisyan the P. 3 ENERGY advantage, Ter Petrosyan’s return has refocused politics on four main issues. Washington pulls out all the stops in Turkmenistan The first issue deals with stability and democracy, in the name of which the Kocharyan-Sarkisyan tan- dem did everything to ensure that the May 2007 legislative election took place according to western stan- dards and in such a way as to avoid any “colored revolutions” and to prevent any international criticism. READ ALSO… Although in 2007 the OSCE saluted a distinct progress in democracy, one year later European observers have expressed concern over the aggressive tone of the campaign and the unstable climate: the arrest of RUSSIA INTELLIGENCE demonstrators for breach of the peace, shots directed at Sarkisyan’s headquarters in , and Molo- www.russia-intelligence.fr tov cocktails thrown at Ter Petrosyan’s campaign headquarters in Vanadzor. Ter Petrosyan has denounced KREMLIN c Medvedev vs Sechin : “cleptocracy” within the leadership dating back to 1998 and nicknamed Sarkisyan the Armenian “Beria”, the Khodorkovsky test claiming he was responsible for the October 27, 1999 parliament massacre. Even though his chances are limited, Ter Petrosyan is trying to destabilize the regime by forcing the prime minister into a second round BEHIND THE SCENE c Kurile islands: progress in order to better launch a post-electoral protest against election conditions. A native of Nagorno-Karabakh, in sight ? Serge Sarkisyan rose through the ranks of the Armenian leadership. He headed various power ministries FOCUS from1993 till the present (security services, interior and defense ministries). He worked closely with An- c Medvedev : is another drey Rapoport, the vice president of Russia’s RAU-UES, which has a monopoly on electric power in Arme- foreign policy possible? nia. Serge’s brother, Alexandre “Sachig” Sarkisyan lives in the United States, earned his fortune in real es- ECONOMY tate in Los Angeles and travels back and forth between California and Armenia for his business. If he wins c Russian elites over come the presidential election, Sarkisyan may appoint Robert Kocharyan as prime minister, a key post in Armen- with anxiety ian politics since the constitutional reform of November 2005. Vartan Oskanyan, the current foreign af- MINES, ENERGY... fairs minister who has been at the post since 1998 could become head of the Millennium Challenge Cor- c The Chemezov steamroller poration in Armenia, a fund of the US State Department which rewards democratic and economic progress ALUMINIUM in countries in transition. Those best placed to replace him include Edward Nalbandyan, the Armenian c The Chinese temptation ambassador to , who has close ties to Russian oligarchs, and Tatul Markaryan, Armenian ambas- of Oleg Deripaska sador to the United States. For the post of minister of defense, the names most often mentioned are and Samuel Babayan. Both are natives of Nagorno-Karabakh. The former is the “defense min- UKRAINE INTELLIGENCE ister of Nagorno-Karabakh” and the latter joined the Ramgavar party (liberal democratic - conservative) www.ukraine-intelligence.fr after having spent several years in prison for threatening state security. Before his arrest he was defense DIPLOMACY minister of Nagorno-Karabakh. Thus Armenia’s leadership continues its Karabakhization policy, testify- c Russia-Ukraine : Why ing to Russia’s control over this South state. nothing is really settled NETWORKS Indeed, peace in Nagorno-Karabakh is another issue Armenian politics is refocusing on. The OSCE has c Yanukovich-Akhmetov been put in charge of resolving the conflict, which has been suspended since 1994. During previous elec- tandem losing Followers tions, the Nagorno-Karabakh issue was never an issue in the campaign. This year, Ter Petrosyan has put it FOCUS back on the agenda. He believes that the longer the status quo goes on, the higher the risk of a new war c Oleg Deripaska, the erupting. He recommends giving Nagorno-Karabakh wide-ranging autonomy as part of Azerbaijan. Sark- Timoshenko Government’s isyan, backed by other candidates, hopes that the recognition of the independence of Kosovo will have a New Target positive influence in helping resolve the conflict in Nagorno-Karabakh. The leadership of the Minsk Group SUBSCRIPTION (Russia – The United States – France) is expecting Yerevan and Baku to make a declaration of principles Electronic Edition before the Armenian election. But Kocharyan is opposed to this and has derided the remark made by Ter (PDF, published every two weeks, Petrosyan that “Azerbaijan is the country that links Armenia to the outer world”. 23 issues per year) SPECIAL OFFER Then there is the issue of ending Armenia’s isolation: its economy has been growing by double digits Discount 15 % for the past six years (13.4% in 2007) and the World Bank has called it the “Caucasian Tiger’. But Ter Pet- €600 rosyan accuses the outgoing leadership of having sold off the country’s wealth to Russia. He is of the opin- € 510 per year ion that all the key sectors of the economy have fallen into the hands of Russian d d d Continue page 2

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KAZAKHSTAN c Aktau hoping to compete with Atyrau The members of the elite class of Aktau, the administrative at least a half dozen tankers take the Aktau-Baku and Ak- capital of the Mangystau region, located in western Kazakhstan tau-Makhachkala routes, going back and forth 7 or 8 times along the banks of the , all share one and the same per month with oil from Tengiz or Buzachi on board, amount- goal: to become “a second Atyrau” and emulate the develop- ing to over a million tons per ship annually. Apart from its ment of the country’s oil capital. Oil production does indeed cooperation with Azerbaijan within the context of the BTC, amount to 95% of the region’s activity, but the hydrocarbons pro- Aktau also has great hopes for its swap operations with Iran cessing industries (one in Aktau itself, another in the small and is planning to increase deliveries to the port to Neka, town of Janaozen) are still rare. The region is considered to which is linked by a pipeline to the Tehran refinery. The port be one of the richest in the country, with oil reserves estimated charges are far less than the exorbitant amounts charged in at 3 billion tons and gas reserves at 2.5 billion cubic meters. Russia and Azerbaijan. However, unlike oil production, which is increasing regularly, gas production dropped by 25% between 2006 and 2007. There Just like the central government, the local admin- are 13 oil companies in the region, the three main ones being istration in Aktau tries to apply maximum pressure on for- OzenMunaiGaz, the subsidiary of KazMunaiGaz which devel- eign companies in the region in order to guarantee itself a ops the Uzen fields, the Russian-Kazakh joint venture Mangis- piece of the pie. But Aktau must also wage battle against As- tauMunaiGaz, and the North Buzachi joint venture between tana in order to get a part of the revenue from the oil wind- the Chinese company CNPC (50%), Lukoil (25%) and Mittal fall spent on improving the conditions of the local population. (25%). There are other, more modest joint ventures working on The situation has been particularly difficult since the nuclear the peninsula such as KarakudukMunai, which belongs to plant, which supplied electricity to the 200,000 thousand res- Lukoil Overseas, and Tasbolat, a subsidiary of Romania’s Petrom, idents in the city and was used to desalinated water for drink- which is involved in developing three small fields. ing, closed in 1999. In September 2007, in a bid to regain con- trol of the city’s development, the authorities launched the The region’s second source of wealth is its port. Ak- construction of a huge real estate project measuring over 4 tau, known as Shevtchenko during the Soviet era, is located at million square meters, called Aktau-City. The aim is to make the tip of the Mangyshlak peninsula. It is in fact the port in it into a great tourist and business center in the Mangytau re- Kazakhstan that is furthest out on the Caspian Sea. It has been gion. Several oil companies are helping to finance it. Lukoil, operational since the 1960s. Unlike Atyrau, which is further for example, has put in one million dollars. Kazemir Hold- north, Aktau’s waters are free of ice in the winter. The port has ing, a construction company comprised in part by the United a multi-purpose terminal and its capacity is set to increase with Arab Emirates, manages the complex. Mangystau has thus the construction of five new oil and merchandise terminals – become one of the pivotal regions in Kazakhstan – a fact that an initiative launched by Transport and Communications Min- was confirmed by the nomination in 2006 of Krymbek ister Serik Akhmetov in 2006. Like Azerbaijan, Kazakhstan is Kucherbaev to the post of governor. Kucherbaev, the former counting more and more openly on the development of a com- director of Nursultan Nazarbaev’s press service, several times mercial fleet in order to get around the geopolitical difficulties minister, a former ambassador of Kazakhstan to Russia and caused by the pipelines. Since 2002, two subsidiaries of Kaz- a close ally of the president, chose a post for himself that is MunaiGaz - Kazmortransflot and Mobilex – have been order- commensurate with his ambitions. He intends to make Ak- ing tankers from the Vympel plant in Nijnyi-Novgorod. Today, tau into one of Kazakhstan’s most influential cities. d

d d d From page 1 giants such as Gazprom, Alrosa, RAU-UES, Finally, there is the issue of security. Armenia is consid- Sibir and Vneshtorgbank. The last Russian acquisition was the Ar- ered Moscow’s “advanced post” in the region and is at the menian railway network (CJSC) bought by RZD, the company headed heart of Russian-Iranian cooperation. Yerevan, a member of by Vladimir Yakunin. Given the country’s potential integration within the CSTO, the armed wing of the CIS, has placed its security the region, Russia’s aim is to control all of Armenia’s channels of under the Russian umbrella. The close links between Serge communication through three means: through Georgia, with the Sarkisyan, Sergey Ivanov and Boris Gryzlov symbolize this opening of the Russia-Georgian railway line; through Iran, with con- strategic alliance. Armenian forces take part in all collective trol over the Iranian-Armenian gas pipeline; and through , if maneuvers in this multilateral organization. Part of the next the two countries normalize relations. As a condition for reopening “Rubezh 2008”, announced in January, will take place this their borders with Yerevan, Ankara and Baku are demanding the summer in Armenia. Armenia is also expected to receive the withdrawal of Armenian forces from Azeri territory and an end to first models of the Sukhoi superjet-100, as announced in Yere- the campaign to get parliaments around the world to recognize the van by Russian Transport Minister Igor Levitin, who was part 1915 genocide. Sarkisyan has imposed no condition for dialogue with of a large Russian delegation led by Prime Minister Viktor Ankara and says he favors the entry of a democratic Turkey into the Zubkov. Russia also says it is planning to exceed the figure of European Union. But he rejects the Turkish proposal of setting up one billion dollars in trading with Armenia in 2008. With the a joint commission of historians to shed light on the events of 1915. election only days away, these announcements were a way of Meanwhile Ankara and Baku appreciate Ter Petrosyan’s moderate helping Serge Sarkisyan’s bid. position on Nagorno-Karabakh and his recommendations for an Ar- menian-Turkish dialogue directed towards the future and the end of Concerning Iran, Armenia signed a military cooperation Armenia’s isolation. agreement with it after the visit of Iranian president Ahmadine- 2 jad to Armenia in October 2007. As for Iran’s nuclear drive, & Caspian Intelligence N°26 February 14 2008 CENTRAL ASIA & CASPIAN INTELLIGENCE

ENERGYcc c Washington pulls out all the stops in Turkmenistan Washington is trying to retake the reins in the great energy con- more intensive diplomatic activism since the nomination of the a test being played out in Central Asia. At the end of January, Admi- new ambassador, Richard Norland. ral William Fallon, head of the US Central Command, went on a large tour that included Pakistan, Tajikistan, Uzbekistan, While Russia still controls the export routes for hydrocarbons, and Turkmenistan. Preceding him by a few days was Senator Richard its control over the price of gas is clearly eroding. The main ob- Lugar, who stopped in Ashgabat, Astana and Baku. These two vis- jective of the visit to Moscow of Uzbek president Islam Karimov its had several objectives: to inject new vigor into relations with at the end of January - apart from meeting Dmitry Medvedev, the these nations as the November 2008 US presidential election ap- presumed successor of - was to renegotiate an in- proaches, and to continue to influence negotiations in favor of the crease in the price of gas. Indeed, in December 2007, Turkmenistan Transcaspian project. In order to show its interest in the region, got Gazprom to agree to the price of $130 per 1,000 cubic meters the US administration has just created a new post: Coordinator for for the first half of 2008, followed by $150 for the second half, while Eurasian Energy Diplomacy. The first to hold this title is Steven KazTransGaz announced for its part a 27% increase in the cost Mann, former deputy assistant secretary of state for South and Cen- of transit rights, that is, $1.40 per 1,000 cubic meters. Not want- tral Asian affairs and former ambassador to Turkmenistan. ing to be left behind, Tashkent has succeeded in setting the price of the gas it sells to Gazprom at $160 per 1,000 cubic meters for Following the visit of Richard Lugar, Turkmen President Gurban- the first half of 2008, but is counting on a higher price in the sec- guly Berdymukhammedov announced that an audit would take ond half, although Moscow is weighing up its political support of place on the country’s gas and oil reserves. Large international firms Islam Karimov’s regime and Gazprom and Lukoil’s heavy invest- have been awaiting this move for years. However, the Turkmen gov- ments in developing Uzbekistan’s energy sector. ernment will alone decide which fields to examine, and it is likely that they will chose the sites on the right bank of the Amu Darya While Russia and the United States plan their strategies, China that are to feed into the Chinese gas pipeline. Despite US efforts, a is consolidating its presence in the region’s energy sector. On Jan- conclusive victory of the Transcaspian project is still not in the off- uary 28, PetroChina and the China National Oil and Gas Explo- ing, even though rumor has it that Kazakh president Nursultan ration and Development Corp. (CNODC), both subsidiaries of Nazarbaev has discretely agreed to provide 20 billion cubic meters the China National Petroleum Corporation (CNPC), reaffirmed annually if Turkmenistan commits itself in its turn to the Transcaspian that they planned to invest over one billion dollars to build a Sino- project. Turkmen gas pipeline. Measuring over 1,800 km, the pipeline will cross Uzbekistan and Kazakhstan conveying up to 30 billion cu- Faced with the activism of the United States, Moscow’s anxiety bic meters of gas per year as of the end of 2009. The cost remains is showing. It also appears to be nursing serious doubts about Ash- substantial however: over $7 billion - proof, if need be, that Bei- gabat’s loyalty. The announcement of a visit by the Turkmen presi- jing will not hesitate to outbid when it comes to energy matters. dent to Azerbaijan by the summer, the first such visit in over a Meanwhile, PetroChina outstripped its competitors when it an- decade, is worrying Russia. It is also concerned over a possible re- nounced it had come to an agreement with the Turkmen govern- versal in Uzbekistan’s ever-opaque foreign policy. Tashkent’s rela- ment on the thorny issue of price: $195 per 1000 cubic meters. tions with the United States and the European Union appear to be China has thus asserted itself as the uncontested second place warming somewhat: Islam Karimov welcomed European Union rep- leader in the game, just behind Moscow, and well ahead of the resentative Pierre Morel, and meanwhile Washington has displayed United States and the European Union. d

d d d Armenia declared that it would refuse to open its air space of this synergy policy, seeing it more as a technique of submis- to any project aimed at striking Iran and rejects all new sanctions sion to Russia. The former president is calling for a professional against Tehran, its only economic market in the south. In January army of 15,000 to 18,000 men instead of the current 50,000 con- 2008, Armenia provided itself with a security doctrine that is based scripts, in order to put a stop to the arms race between the three on a strategy of synergy involving consolidation of its partnership South Caucasus states. with Russia and establishing good relations with NATO. Armenia signed an IPAP with the Atlantic Alliance in 2006 but rejects mem- LAST MINUTE. Levon Ter Petrosyan, former Armenian president bership to NATO. When visiting the United States last October, Serge and candidate for the February 19 presidential election was in Moscow Sarkisyan was given only a half-hearted show of support by the Bush on February 11 where he met with Vladimir Putin and Dmitry administration, which prefers Ter Petrosyan, who has been critical Medvedev. d

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c Ukraine Intelligence is published by Eurasian Intelligence SAS Capital euros 37,000. j CEO : François Roche j RCS Paris B 479 124 943 j Eurasian Intelligence Headquarter : 115 rue Saint-Dominique - 75007 PARIS 3 Central Asia & Caspian Intelligence N°26 February 14 2008