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Home , Ilya Klebanov, Konstantin Chuychenko, Pavel Krasheninnikov, Sergey Chemezov, Sergey Sobyanin, Suleyman Kerimov

N°73 - March 13 2008 Published every two weeks / International Edition CONTENTS KREMLIN P. 1-3 Politics & Government c KREMLIN A change of course in ? c A change of course in Elected to the presidency on March 2 with 70,28% of the votes, will have to wait Moscow ? until May 7 to officially take over the office of head of state. will then leave the Krem- JUSTICE lin for the White house, the seat of the Russian government, for a co-habitation that will be at the same c When the long arm of the time unprecedented and surrounded by numerous uncertainties (read notably the editorial of Russian law reaches to Latin Intelligence n°72 of February 28 2008). But without waiting this changeover, the major political ma- America noeuvers have already begun in Moscow. And, as we already indicated in our previous dispatches, some FOCUS surprises are awaited. There was one insight in the long interview between Vladimir Putin and the head c Some lessons to be drawn from the “ Forbes” listing of the Yabloko party, Grigory Yavlinsky, a historical figure in the Russian opposition, March 11 in the Kremlin. According to information collected by Russia Intelligence in Moscow, Vladimir Putin may have ALERTS c Kadyrov c New Governors the intention to take inspiration from the “opening” of Nicolas Sarkozy in by inviting into the government certain opponents who are known and credible to Western eyes. In this context, we offer to our readers a rapid overview of the networks of Dmitry Medvedev and the centres of power to be espe- P. 4-7 Business & Networks cially watched in anticipation of the new nominations. OLIGARCHS c The battle intensifies for control of Norilsk and The new Russian president’s networks. As we underlined in our edition of December 20, Dmitry ALERT Medvedev, beneath his guise of the ideal son-in-law, is in reality not the “newborn bird in the nest”. From c OAK-EADS the law faculty in Leningrad to the municipality, then the presidential administra- ENERGY tion, the government and with – where he has managed the supervisory council since 2002 – c Gazprom again strengthens the future tenant of the Kremlin has known how to patiently weave his networks. They should provide its presence in the European the base for the teams the new president will seek to install during the coming months. electricity sector ALERTS A lawyer by training, Dmitry Medvedev has naturally set up a “hard-core” of relations in these cir- c Fortum c Bogdanchikov cles. His first circle includes notably Anton Ivanov, whom he had named to the presidency of the Supreme DEFENCE INDUSTIES Court of arbitration in early 2005. Nikolay Vinnichenko, who has managed since 2004 the Federal ju- c Chemezov and Ivanov dicial services and provides the liaison between Dmitry Medvedev and the boss of the Federal anti-nar- cross swords again cotics service Viktor Cherkesov, but also Oleg Kutafin, the president of the Moscow legal academy. ALERT Nikolay Egorov – the boss of the law firm of Egorov, Puginsky, Afanasev & co– Mikhail Krotov who rep- c Yakunin/TGK-14 resents the president before the Constitutional court – and Yuri Petrov, the chief of the Federal state FOCUS property fund (RFFI),complete the picture. Dmitry Medvedev also disposes of solid support in the busi- c Is Tupolev’s escape ness world. Among others, should be mentioned, Yuri Kovalchuk, the boss of the Rossia bank, whose hatch ? son Boris works close to the “president-elect” since March 2006, as well as . The boss BEHIND THE SCENE of GazpromInvestHolding, of the Kommersant publishing house and of Gazmetall especially has the c India hot and cold wind in his sails since he plays – with the assent of Dmitry Medvedev – the role of the “white knight” in P. 8 Regions & CIS the delicate affair (read article page 4). Concerning the “power structure”, Dmitry Medvedev knows he can count on the support of Generals Yevgeny Murov and Viktor Zolotov, respec- c President Kirsan tively director of the federal protection service (FSO) and chief of the personal guard of Vladimir Putin. Ilyumzhinov challenged The “president-elect” is also close to the new vice Interior minister, Yevgeny Shkolov (Russia Intelli- ABKHAZIA gence n°67 of December 8), the Prosector general Yuri Chayka and the n°2 of the federal customs serv- c A first reply from Moscow ice, Igor Zavrazhnov. Finally, Sergey Stepashin, the president of the court of accounts, should be men- tioned. SUBSCRIPTION Print Edition (23 issues, airmailed overseas) Matters are, however, less clear concerning the governors since up to now Dmitry Medvedev was not €770 TTC in a position to appoint his men. We know, however, that the special representative of the president in the district of Volga-Urals, Alexandre Konovalov, should soon gain in rank. Various sources also indi- The Web Pack (Print Edition cate that it will be through the capital, Moscow, that Dmitry Medvedev could begin his conquest of power + PDF + archives acess) at the regional level. In our edition of February 14, we indicated that Sergey Sobyanin, the boss of the € 880 TTC presidential administration and ex-director of Dmitry Medvedev’s campaign, could see himself replac- ing Yuri Luzhkov, who seems certain not to continue to the end of his term in office in 2011. He is not The Premium the only one in line : the names of Vladimir Kozhin, the boss of the Kremlin general services (biographic Subscription (Print Edition + PDF + access profile in Russia Intelligence n°60 of August 30 2007), , and more surprising, Sergey to all the website contents) Ivanov, are actively circulating in the corridors of power. € 1200 TTC d d d Continue page 2 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

d d d From page 1 Presidential administration, government, of adviser to Vladimir Putin. According to our information, Dmitry Gazprom : the nominations to come. It will be the nominations Medvedev and Vladimir Putin would have reached agreement to that Dmitry Medvedev and Vladimir Putin will make by next sum- renew quite substantially the government. , mer that will provide the most precious indications about the true another close associate of Medvedev, should be named to the Jus- balance of power, as well as the strategy decided by the two heads tice ministry in place of . There is also hardly of the executive. According to information obtained by Russia In- any doubt that Alexandre Voloshin – very much in view in re- telligence, Vladimir Putin would have proposed an economic min- cent times, as well in Moscow and in Western capitals – will find istry to Grigory Yavlinksy during their interview on March 11. More an important post. Especially since the national electricity com- surprising, he would also have sounded out the boss of Yabloko pany RAO EES Rossii, where he presides the supervisory coun- about a possible nomination for Alexey Arbatov to the Foreign af- cil, will disappear next July 1 in the framework of the major re- fairs ministry. Son of the diplomatic council to Leonid Brezhnev, form of the electricity sector. According to our sources, Nikolay Georgy Arbatov, Alexey – who is a specialist in military nuclear Patrushev, the boss of the FSB, as well as Alexandre Bastyrkin matters and international security – has long been a deputy in the – the boss of the Investigations committe of the Prosecutor’s of- before joining the Carnegie centre in Moscow then fice, in repeated conflicts with Yuri Chayka – has received per- the Institute of world economy and international relations (IMEMO), sonal guarantees fromPutin. where he would have been associated with a certain Yevgeny Pri- makov in the early 1980s. From worthy sources, Vladimir Putin Finally, we will have to follow with lots of attention the energy would have implicitly linked the liberation of Maksim Reznik – sector. Concerning Gazprom, it is known that the Prime minister head of Yabloko in Saint Petersburg arrested last weekend for of- will take over the supervisory council, replacing fense to a policeman – to the acceptance by Yavlinksy to enter the Dmitry Medvedev. This appointment is seen positively by the other government. It is not known what the latter’s reply will be, since actors in the energy sector (notably ), since the current he has refused on numerous occasions all “compromise” with power, head of government is reputed to be “neutral” in these matters. but the approach by Vladimir Potine seems quite clever. It cuts the The main question concerns the executive presidency of Gazprom. grass from under the feet of Westerners by removing arguments The health problems of in the summer of 2007 fed about the “authoritarian drift in Russian power”. In parallel, the a number of rumours about his departure, that seem less current outgoing president also takes the lead over his successor. In fact, today. It remains that , a former class- from a good source, it was Dmitry Medvedev who a few weeks ago mate of Medvedev, member of the directorate at Gazprom and had suggested a “Russian-style opening”. Concerning power cir- administrator of RosUkrEnergo, hopes certaintly to have a pro- cles in Moscow, it is the presidential administation, the govern- motion. In this light, the Energy and Natural resources ministries ment, but also the energy sector which arouse the most questions – today occupied respectively by and Yuri and desires. strongly hopes that Sergey Sobyanin Trutnev – could be sought after. On the other hand, it is unlikely will be “shifted” to the Moscow mayor’s office to at last take over that these realignments affect the interests of the state oligarchs the reigns of the presidential administation. Nothing says, how- who have prospered during the second term of Vladimir Putin : ever, that Dmitry Medvedev will not want to place one of his lawyer neither Vladimir Yakunin (RZhD), nor Sergey Chemezov (Ros- friends there. It is on the other certain that will leave tekhnologii) are threatened, even if the arrival of Dmitry Medvedev the Kremlin. For him, two possibilities emerge: the presidency of to the Kremlin undoubtedly announces the end of the “golden the Rosneft executive, replacing Sergey Bogdanchikov, or a post age” for them. d

When the long arm of the Russian law reaches to Latin America

The affair had created a lot of attention. In LIK (a Ladoga investment firm) — and tional arrest warrant. Having learned where early June 2003, Igor Klimov, the director Stanislav Tyurin, who assured the liaison their “client” was, agents of the police in the general of Almaz-Antey, the large defence with Mankov’s group. Questioned, Bratchikov “capital of the north” discreetly travelled to group specialised in the production of anti-air admitted the facts but presented a different Quito. From their Ecuadorian colleagues, they systems, had been assassinated while leaving version of these facts. He said he had learned obtained a total and full cooperation. home in the centre of Moscow. The very sen- that Klimov — with whom he was in a legal Bratchikov was “picked up” on February 29 sitive nature of his post, but also his closeness dispute — intended to have him eliminated. when he was preparing to collect his visa from to Viktor Ivanov of the presidential adminis- He said he then confided to Tyurin, who had the consulate of the . Three days tration had quickly established a very special promised to “resolve the problem” without, later he was unceremoniously put on a plane status over the investigation. Since Igor however, entering into details about the destined for Moscow, where he has since Klimov, before dying, had been able to grab means. been inprisoned. The speed of the extradition the pistol which killed him from his assassin’s The trial of Bratchikov and Tyurin, judged especially surprised the Bratchikov lawyers hands, this led police quickly to the attackers in a high criminal court in the summer of and family, inasmuch as no extradition treaty and also to establish a link to the murder of 2007, ended dramatically. The two men were exists to date between Russia and Ecuador. Elena Neshcheret, a Saint Petersburg busi- in effect freed by the jury and were allowed to According to information gathered by Rus- nesswoman. In October 2004, Yevgeny leave the court-room. The Prosecutor’s office sia Intelligence, this operation owes a lot to Mankov and his six accomplices were con- appealed and a second trial was opened in Anatoly Safonov, the special representative demned to terms of between 22 years in de- December 2007. In absentia since by then the of Vladimir Putin for international coopera- tention to life inprisonment. Mankov later re- two accused had time to leave the country. In tion against terrorism and transnational or- vealed to the investigators the name of those late January the Saint Petersburg crime squad ganised crime, who had established good con- who ordered the crime, Konstantin transmitted to the file on Bratchikov, tacts with Ecuadorian services during his first d 2 Bratchikov — the ex-partner of Igor Klimov in who since has been the subject of an interna- visit to Quito in June 2005. Russia Intelligence N°73 j March 13 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

cc FOCUS ALERTS 3 The ephemeral Some lessons to be drawn from journalistic career of the “ Forbes” listing There is a brawl underway within the It is not not known if Dmitry Medvedev commented in private on the last rank- Union of Russian journalists. Most of the ings of world fortunes by Forbes magazine, which allowed Russia to display a sort affiliated members of its Chechen section of record. Sixteen years after the collapse of the USSR, the country numbers the have just, in fact, resigned, after having largest number of billionaires after the United States, before . Such rank- demonstrated, Sunday March 9, in the ings must be seen with some circumspection, since they are partly based on the centre of Grozny. The cause was the deci- stock market capitalisation of the companies these billionaires own, since share sion of the union’s central governing body prices can experience major fluctuations and since certain markets, such as Rus- to refuse the entry of Ramzan Kadyrov sia and China are known for their highly-speculative nature and the relatively few shares really traded. Concerning Russia, a supplementary element of caution must into its ranks. The latter had, in fact, on be added in the measure that it is not possible to know the actual percentage of March 5 been granted a press card during the capital that those who are presented as the owners really hold for themselves. a meeting with local journalists. The It is a good bet that there are major absentees in these lists and that we will prob- Chechen Information minister, Khamzat ably never know their identity. Yunusov, had even had the good taste to underline that this decision had been Concerning Russia, this list of 87 billionaires tells us or confirms nevertheless taken in view of the “the inestimable a certain number of things : contribution [of Ramzan Kadyrov] to the development of journalism in ”. 1/ To be reputed in phase with Vladimir Putin or to be part of his intimate cir- In reaction, Dmitry Muratov, the editor in cle is not contrary with the reality of a growing fortune. The ascendency of Oleg chief of the Novaya Gazeta — where Anna Deripaska, is, in this regard, particularly remarkable. He has never been found to Politkovskaya had long worked — decla- be taking any risks vis ‡ vis Vladimir Putin. He has always taken great care to con- red the next day that he did not want “to firm that his industrial ambitions did not run counter to the projects or the plans be in the same union with cannibals”. of the Kremlin, in a way that today he is the most powerful oligarch of the country Finally, the secretary general of the Union with a fortune estimated at 30 billion dollars. A situation that is at the same time of journalists, Igor Yakovenko, annulled envied and dangerous. He seems on the verge of failing to assume control of No- the decision. According to him, “president rilsk Nickel (read page 4) although a few weeks ago this enterprise seemed prom- of Chechnya is not a branch of journa- ised to him with the consent of the Kremlin. It is impossible to measure the part lism”. And he added that a “military dicta- that political intervention plays in this affair, but observers highlight that the tide torship” reigned in the North Caucasus turned in favour of after a visit by the latter to the presidential republic. It’s a good bet that Igor dacha in in February. It should also be noted that two members of the “first Yakovenko would have a difficult time to circle” of Vladimir Putin appear in the Forbes listing, (Gun- be accredited. vor) and Yuri Kovalchuk (Rossia bank) who are not unknown to the readers of Russia Intelligence. They are the true products of “putinism” and the services they 3 may have supplied him have been amply rewarded. New Governors in Ryazan and Archangeslk 2/ More than ever, the wealth of Russia springs from below its earth. Some fifty Before leaving the Kremlin, Vladimir of the Russian billionaires identified operate directly in the energy, mining and Putin is making some last-minute nomina- metals sectors or owe their revenues to them, as shareholders or bankers. The ex- tions at the regional level. Georgy Shpak, traordinary upturn in the business cycle which reigns since two or three years in formerly head of airborne forces who these sectors also naturally explains the explosion of the fortunes of those who occupied since 2004 the post of governor control the country’s principal energy or mining groups. But this concentration of of the region of Ryazan, has not been wealth in these sectors is also a sign of the imbalance in the Russian economic extended at his post. He is being replaced structure. by Oleg Kovalyov, a deputy in the Duma, where he was in 3/ The majority of the Russian billionaires are not creators of enterprises but charge of bylaws. In Arkhangelsk, it will the actors or the heirs of privatisation operations that took place beginning in the be Ilya Mikhalchuk — former mayor of middle of 1990s. It is one of the structural facts of the Russian economy that it has Yakutsk — who will replace Nikolay not yet generated a class of new entrepreneurs operating in industries of the fu- Kiselyov. The latter hoped to be prolon- ture. The newcomers to the “club” belong especially to the financial sector, con- ged in the post, especially since he benefit- struction, or property, symbolised by Yury Zhukov or Kirill Pisarev, co-proprietors ted until recently of the support of the spe- of the property group PIK, listed on the stock exchange last year. cial representative of the president in the north-east federal district, . If we can trust the Forbes figures, the Russian money-making machine turned 4/ The appearance, on the internet site of the at full speed between 2007 and 2008. In the listing of last year, the accumulated Arkhangelsk municipality, of a compromi- wealth amassed by the Russian billionaires was 282 billion dollars. This year, the sing video (a man resembling Kiselyov figure climbed to 470 billion, or a bit more than half the current Russian GDP, which shows quite well in what sense operated the distribution of wealth between the accepting a bribe was seen), seemed to d private sector and the state in the course of the last decade... d ruin his chances. 3 Russia Intelligence N°73 j March 13 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

OLIGARCHS c The battle intensifies for control of Norilsk and Polyus The mining industry has been in the midst of an unprece- Deripaska 25 to 29%, without taking into account the acqui- dented effervescence for several months, with two giant sitions on the open market that one side or the other may contests underway at opposite ends of the globe. The first is have made in recent weeks (rumour has it that Usmanov would unfolding in Australia, where two of the world’s most impor- have so acquired 3 or 4% of Norilsk). The general assembly of tant mining companies, BHP Billiton and Rio Tinto, are en- shareholders which will be held April 8 promises to be ani- gaged in a radical test of strength since BHP Billiton has plan- mated since, in any case, the majority will probably be very ned the launching of a hostile takeover of Rio Tinto, which close for Potanin and his new friends. should become concrete through an official document by the end of this year. If it succeeds, the operation would be the As for Polyus , Potanin and Prokhorov, who still share largest of this type ever undertaken (following the Vodafone a majority of the capital, are on the verge of court action. We bid for Mannesmann in 1999), and would create the world have related in these columns, how had leader in iron ore (among others) with a share capitalisation tried, through his close associates who at the time managed of over 300 billion dollars, at a rank similar to Gazprom, China Polyus, to arrange transfers of assets in favour of off-shore or- Mobile or BP. ganisations (Russia Intelligence n°68 of December 20). In December 2007, Prokhorov and the director general of Polyus In Moscow, this operation is, of course, being closely fol- Gold, Yevgeny Ivanov, created in the British Virgin Islands, lowed. First, because supplies in iron ore for the world steel Polyus Exploration Ltd, itself held by another organisation industry constitute an enormous problem, notably at this mo- of the same nationality in which in February they transfer- ment because of the storms of recent weeks in China and red the property of the Russian mining company Magadans- Australia. Then, because Russia is the theatre of a similar, koye (an indirect subsidiary of Polyus Gold) for 35 million but even more brutal, confrontation, for control of one of the dollars. But this company holds the exploration licenses on most important mining companies of the country, Norilsk the most important deposits of Polyus Gold which represents Nickel, and of its gold-mining subsidiary, Polyus Gold, a sub- 80% of its reserves and is valued, in current gold markets, at ject that we have kept our readers informed about in recent 8 or 9 billion dollars. This transfer has the effect of conside- weeks (Russia Intelligencen°68 of December 20, n°69 of Ja- rably diminishing the mining portfolio of Polyus Gold to the nuary 17 and n°°70 of January 31). benefit of an off-shore organisation whose control is not the most transparent. Even if the director general of Polyus Gold Concerning Norilsk Nickel, its administrative council on held, apparently, the power to conclude this operation wi- February 29 gave the green light to the collaboration begun thout alerting shareholders, the City of London exchange au- with Alisher Usmanov and which manages the thority (where Polyus Gold is listed) has decided to investi- assets of the Gazmetall . UBS advises No- gate this deal. In December it had already aroused a firm rilsk and Dresdner Kleinwort accompanies Usmanov. A de- opposition by Vlaidmir Potanin and the management of his licate negotiation will be conducted as of now : Vladimir Po- holding company. One of the administrators of Po- tanin will have to negotiate the value of the assets brought lyus Gold, Serguey Batekhin, representing Interros, has just by Alisher Usmanov in a way that he holds a significant bloc published in the last few days an open letter to minority sha- of Norilsk shares, without him becoming a threat to his inte- reholders of Polyus bringing to their attention the hardly flat- rests. For the time being, the two men appear to be getting tering results of Prokhorov when he was in charge of this ac- along against , who is on the way to comple- tivity and criticises the organisation of Polyus, which allows ting the acquisition of the 25% to 29% that Mikhail Prokho- its managers to take unilateral decisions without informing rov holds in Norilsk (this depends on how the shares held the shareholders. The investigation of the FAS, therefore is jointly by Prokhorov and Potanin in the KM Invest organisa- scheduled to be a complex one, which Russia Intelligence tion are evaluated). But in this kind of conflict, all scenarios will follow most closely. are possible. According to financial analysts who follow these discussions very closely, the evaluation of Metalloinvest is on This is probably the most costly financial battle of the young the order of 15 to 19 billion dollars in view of the results of history of Russian capitalism which is currently unfolding bet- the year 2007. But the with business cycle in iron ore as it is ween Vladimir Potanin, Mikhail Prokhorov and Oleg Deri- (the world’s leading exporter, Brazil’s Vale, has just announ- paska. d ced price increases of 65%...), Usmanov would put it closer to 22 billion dollars, or even 25 to 30 if the current increase in prices is maintained (compared to the value of Norilsk which ALERT is in the order of 56 billion dollars). But the fact that Metal- loinvest is not listed ( therefore has no liquid holdings) and 3 OAK-EADS : cooperation in sight that Usmanov’s associates, Andrey Skoch (30%) and Vasily on the A-350 Anisimov (20%) are anxious to conclude the deal, pushes the The teams under Alexey Fyodorov and Marwan Lahoud, the experts to evaluate the possible assets of Usmanov at 20 bil- boss of EADS international, are currently concuding the draft co- lion dollars. operation accord on the future long-range A-350. By summer, a joint working group will establish a list of the elements the of air- If this figure is accepted, and in view of the possibility that craft destined to be produced in Russia (in all likelihood in Irkutsk Potanin has readied a “war chest” of Norilsk shares following on the site of NPK, where elements of the A-320 are already being somewhat complicated plans, Potanin could control 33 to 36% produced). d 4 of Norilsk, Usmanov and his associates 15 to 20% and Oleg Russia Intelligence N°73 j March 13 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc FOCUS ALERTS Gazprom again strengthens its presence in the 3 Fortum buys TGK-10 The Finnish company on February 28 European electricity sector purchased the 55,29% of the territorial It’s with a feeling of having accomplished a good job that Burkhard Bergmann, power generating company TGK-10, up to the president of the supervisory council of E.ON Ruhrgaz (and member of the board then held by the state, for 28.6 billion of directors of Gazprom), left his posts on February 29. That day, Gazprom and E.ON rubles, or about 1,2 billion dollars. The ra- announced having reached an agreement to build and operate jointly a gas power sta- tio of 767$ per kW of installed capacity tion in Lubmin on the German Baltic coast. The capacity foreseen for this facility, represents a new record (the previous which will be supplied by the future Nord Stream gas pipeline, is of 1200 megawatts. was 753$, reached on the occasion of the The investment is evaluated at 1,8 billion dollars. It will be allocated equally in the sale of OGK-4 to E.ON last September). framework of a joint venture. It should be recalled that, Lubmin was the location, in Fortum should soon increase its holding the GDR, of a nuclear power station that was closed after German reunification. The to a bit more than 75% through a re- announcement by Gazprom and E.ON intervenes after the two groups had negotiated stricted share flotation. In total, the for two years in view of an exchange of assets. E.ON, which hopes to obtain 25% of the Finnish company is preparing to spend 75 Yuzhko-russkoe deposit on the Yamal peninsula, made a series of proposals last au- billion rubles, or 3,1 billion dollars. It tumn, nevertheless judged to be insufficient by Gazprom. should be recalled that TGK-10 is com- posed of power plants located in the re- The Lubmin project is the last element to date in the Gazprom strategy aiming at gions of Tyumen, , as well as developing its presence in the European electricity sector. We recall that in the spring in the autonomous district of Khantis- of 2007, Alexey Miller’s group had announced wanting to build, in partnership with Mansis. In a first phase, E.ON (associated Luxembourg’s Soteg, a power station of 800 megawatts at Eisenhüüttenstadt in Bran- with the businessman Artem Bikov), denburg (Russia Intelligence n°54 of April 27 2007). Then, last November, the boss and Gaz de France had showed of Gazexport, Alexandre Medvedev, announced that the constitution of a joint ven- their interest, but Fortum was the last re- ture in the electricity sector with ’s Verbund AG was under study. maining in the end. The purchase of TGK- 10 was certainly a good deal for Fortum, Electricity is also at the heart of the Gazprom priorities in Russia as well. At the which compensated for its failure in Saint end of February, at the end of more than a year of discussions, Gazprom and SUEK Petersburg. After having acquired a block- reached an accord on the outlines of their collaboration. Next September 1 is the date ing minority in TGK-1, the Finnish group when the joint venture between the two groups should officially see the day. To be had finally yielded under the pressure transferred to its capital will be the total assets of SUEK — in the coal sector and in- brought to bear in favour of Gazprom terests in electricity generating companies TGK-12 (48%) and TGK-13 (45%) — and and had withdrawn from the electricity part of the assets of Gazprom in the power sector (notably its holdings in OGK-2 and generator of the “northern capital”. OGK-6, but not the “jewels in the crown” represented by Mosenergo and TGK-1). The installed capacity of the future complex will be of about 30,500 megawatts, or close to 3 Sergey Bogdanchikov 12% of the country’s electricity market. The value of the joint venture has finally been loses his last friend at estimated at 16 billion dollars. Rosneft In its edition of December 6, Russia In- From a technical viewpoint, it will be on the basis of SUEK that the transaction telligence had disseminated the news will be established. Gazprom, through its subsidiaries, will take 50%+1 share of the about the wave of resignations at the top new structure with the help of a new share issue. The operational direction will be as- echelons of management at Rosneft, sured by Vladimir Rashevsky, the current director general of SUEK, while the super- moves that were significant since they in- visory board (which will consist of 11 members, including 2 independent administra- volved “fellow travellers” of the director tors) will be directed by Kirill Seleznyov, the boss of Mezhregiongaz, who managed general of the group, Sergey Bog- the deal for Gazprom and is seen as a “rising star” in the group. SUEK and Gazprom danchikov. The process continued siince will soon present documents to the Antitrust committee (FAS). It should be remem- Sergey Khotochkin, the director of the bered that at the end of 2007, the n°2 of that institution, Anatoly Golomolzin, had de- “Acquisitions and asset restructuring” de- clared that a preliminary analysis of the SUEK-Gazprom dossier had been conducted partment, has just left his post in early and that, at first glance, the proposed project could be carried out. Earlier, the boss March. A long-time friend of Sergey Bog- of FAS, Igor Artemev, had, however, publicly issued reservations about the coopera- danchikov, with whom he had worked in tion between Gazprom and SUEK . An IPO for 25% of the capital of the future SUEK- Sakhalin duriing the 1990s, Sergey Kho- Gazprom joint venture will be organised in late 2008 - early 2009. This was confirmed tochkin had the trust of the boss of Ros- by Dmitry Medvedev, February 26, in his capacity as president of the supervisory coun- neft. In September 2005 he had in fact cil of Gazprom. been named at the head of Baikalfi- nancegroup, the famous shell company Finally, there is advancement on another major important project for Gazprom - which, just a few months earlier, had Shtokman. Last February 21, Gazprom, Total and StatoilHydro, officially created bought, for little more than 9 billion dol- Shtokman Development AG, a company under Swiss law registered in the canton of lars, Yuganskneftegaz. Khotochkin on his Zug that will be charged with the entry into force of the first phase of the project (25 own officially owned 0,001% of the Ros- years). The president ot Total, Chistophe de Margerie, has already declared the in- neft capital, just like Sergey Bogdanchikov. terest of his company to participate in phases II and III of the operation of Shtokman This new departure confirms the spectacu- which Gazprom can theoretically conduct alone under the terms of the contract si- lar weakening of the Rosneft director-gen- gned in July 2007 (Russia Intelligence special edition of July 12 2007). d eral’s position. d 5 Russia Intelligence N°73 j March 13 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

DEFENCE c Sergey Chemezov and Sergey Ivanov cross swords again for control of defence industries

Is the wind beginning to turn for Sergey Chemezov ? It would Udokan. Located in the region of Chita in the far east, Udo- be very hazardous to declare so at this stage, but it is hard to kan would hold close 20 Mt of copper, which in fact makes it escape the insatiable appetite of Rostekhnologii’s boss for as- the 3d deposit in the world.The last few years, several Rus- sets, which Russia Intelligence has regularly analysed the sta- sian investors (, Alisher Usmanov, Iskan- kes of in its previous dispatches, is arousing some increased re- der Makhmudov, Vladimir Potanin) and foreigners (BHP, sistance in Moscow. As for Oleg Deripaska (read article page Rio Tinto) demonstrated their interests, but the privatisa- 4), the arrival of Dmitry Medvedev to the Kremlin carries with tion of Udokan has been delayed on several occasions. Accor- it portions of uncertainty that are not totally dispelled by the ding to various Russian sources, it could finally take place future nomination of Vladimir Putin at the head of government. during the second half of 2008, according to plans that re- main to be settled on. On this issue, Rostekhnologii foresees Rostekhnologii and the military-industrial complex. The a partnership with the Railways (RZhD) as well as with an interest of Sergey Chemezov for defence industries is not new. “historic” actor in the Russian mining sector. Norilsk Nickel We recall that in the autumn of 2005, initia- would still be in the ranks, even if we can imagine that Vla- ted, through its subsidiary, the cooperation bet- dimir Potanin has other priorities (read article page 4). ween helicopter manufacturers Mil and Kamov. Then in the spring of 2006, Sergey Chemezov really tried to convince the se- According to information gathered by Russia Intelligence, nator from , Sergey Pugachev, to sell him his interests in , the boss UGMK, has placed a lot of the major Saint Petersburg shipyards, Baltiysky zavod and Se- hope on the lobbying of Vladimir Yakunin to enter into the vernaya verf. Rosoboronexport also intends to participate in Udokan project. We recall that the two men are partners on the restructuration of the engine manufacturers — despite the another hot topic of the moment, Transmashholding (TMX), reticence of NPO Saturn (Russia Intelligence n°71 of February the major Russian manufacturer of locomotives. Other than 14 2008) - and wants KBP Tula (Russia Intelligence n°72 of Fe- Norilsk Nickel and UGMK, Renova could also be interested bruary 21 2008). But Sergey Chemezov wants to go much fur- in Udokan. This lead is all the more credible that Viktor Vek- ther. On behalf of the establishment of Rostekhnologii, he would selberg and Sergey Chemezov announced in early February like the state to contribute to the capital of the new public hol- the creation of Rosinvestpartner, a joint-venture specifically ding company the interest it holds in some 250 companies, in- dedicated to cooperation in the mining sector. (Russia In- cluding many in the military-industrial complex. But not eve- telligence n°71 of February 14). ryone is of the same opinion in Moscow. To begin with Sergey Ivanov, the 1st vice Prime minister who is also the president of Sergey Chemezov wants to compete with . the military-technical commission. If we can believe certain in- A little more is also known about the intentions of Sergey formation circulating in Moscow, its services have developed a Chemezov in the air transport sector. There also, the boss of counter-project going against the plans of Sergey Chemezov. This Rostekhnologii has rising ambitions. As of the latest news, text, presented by Sergey Ivanov’s deputy, Vladislav Putilin, du- it would not be satisfied with the participation of the state ring an interministerial meeting on February 28, foresees no in the AirUnion company (Russia Intelligence n°71 of Fe- transferring of the shares of the state to Rostekhnologii, but a bruary 14 2008). He also has designs on the public compa- two-stage plan, with the creation of specialised holding compa- nies GTK Rossia, Vladivostok Avia, Kavminvodavia and nies within which the state would retain 25% of the capital in other lesser companies. In which case, Sergey Chemezov could any case (the rest could be transferred to Rostekhnologii). then find himself at the head of the second air company in Russia and exceed the national carrier Aeroflot on internal According to information gathered by Russia Intelligence in flights.d Moscow, the prospects of passing under the direct control of Sergey Chemezov gathers little enthusiasm along the bosses of the public companies involved. The Defence minister Anatoly Serdyukov, is also said to have intervened with the Prime mi- ALERT nister Viktor Zubkov (who is also his father-in-law), so that he would assure that no decision is made during the course of the 3 TGK-14 : Vladimir Yakunin enters coming weeks. According to him in fact, too large a concentra- into the picture tion within the MIC is the type that would favour an increase in In its edition of January 31, Russia Intelligence revealed that the materiel prices. national railway company (RZhD) intended to participate in the last wave of privatisations of Russia’s power stations in partner- Towards Chemezov-Yakunin “tickets for the Udokan ship with the organisation of businessman Maksim Beryozkin. project. The resistence from one part of the state aparatus has After having planned to make an offer for OGK-1, Vladimir not, however; prevented the boss of Rostekhnologii from formu- Yakunin set his sights on TGK-14. This territorial power genera- lating some new ambitions, notably in the mining sector. In its ting company includes stations located in the Far-east, in the edition of February 14, Russia Intelligence indicated that Ser- regions of Chita and in Buryatya, Norilsk Nickel was up to now gey Chemezov was seeking Erdenet, the largest copper deposit the main private shareholder (27,69%) and had aimed at taking in Asia operational since 1972 under a Russo-Mongolian joint over full control until Vladimir Potanin and Mikhail Prokhorov venture. He clearly does not intend to remain there. The boss decided to sell their activities in the energy sector.d 6 of Rostekhnologii would in fact be aligned to take an interest in Russia Intelligence N°73 j March 13 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc FOCUS BEHIND THE SCENE Is Iran Tupolev’s escape hatch? Armaments : India hot It was certainly good news for the Russian aerospace industry. On February 28, and cold the president of OAK, Aleksey Fyodorov, signed with his counterpart from the Ae- In its previous editions (n°70 of Janu- rospace Industries Organization Mahmoudreza Hedayat a letter of intent invol- ary 31 2008, n°66 of November 27 2007 ving the acquisition by the Iranian side, of a hundred mid-range Tu 204/214 during and n°°64 of October 25 2007), Russia In- the decade to come. According to sources close to the deal, discussions will continue telligence has analysed the trajectory , for in an effort to reach an accord by the end of May on a full and legal contract. The de- the most part tortuous in recent times, of tails, especially financial ones, of this transaction which could amount to 2,5 billion Russo-Indian cooperation in the field of ar- dollars, will have to be negotiated, but the general direction is already known. maments. New Delhi continues to send out contradictory signals about its inten- Russia will deliver in a first phase a number of turn-key aircraft. These, it should tions. So, the PTI news agency announced be recalled that the Tu-204 and Tu-214, 210-seat capacity aircraft, are produced on February 29 that the Indian Defence respectively in Ulyanovsk (Aviastar) and Kazan (KAPO Gorbunov factory). Then ministry and Rosoboronexport had in a second phase, the planes will be assembled at the site of an aeospace plant in signed a contract of about 1 billion dollars Ispahan, with a regular increase in the capacity for complex work to be carried out involving the modernisation to SMT stan- by the Iranian industry. As much as we can tell, OAK would have proposed to deli- dard of 66 Mig-29 fighters, as well as the ver, between 2008 and 2010, 5 “finished” planes, complete with the elements re- construction of an important maintenance quired for assembly of 26 planes. For its part, AIO would be ready to buy 7 Tu-204/214 centre. News that the officials of the Russ- in the course of the second phase of the project and to assemble 9 others, before ian aircraft manufacturer chose not to quickly ramping up the production in Ispahan beginning in 2010. The memoran- comment but which was confirmed to Rus- dum signed on February 28 by Alexey Fyodorov and Mahmoudreza Hedayat also fo- sia Intelligence by sound sources in resees the creation in Iran of a maintenance facility. Finally, the management of Moscow. Aerospace Industries Organization were said to have expressed their interest for This new Indian contract is an impor- the Tu-334 regional aircraft, which they would like to 5 units of by 2011 before, per- tant signal in more than one way. On one haps; beginning production under license if the operational of the liner proves to side, it dispells the fears of MiG about the be persuasive. We underline that the Tu-334 for long gave the appearance of being possible harmful commercial repercus- a “still-born” project. It was indeed the third choice of Russian authorities for the sions of the disturbing episode of the Al- regional aircraft market after the RRS — rebaptised the SuperJet-100 — by Su- gerian MiG-29 (Russia Intelligence n°72 of khoi and the Antonov-148. Its industrial prospects seemed all the more uncertain February 28 2008). On the other, it inter- until the Russian presidency general services in November confirmed the order for venes only afew weeks about the signa- 6 planes for the governmental air group (a highly political choice since the Tu-334 ture of another contract of 1,6 billion dol- was selected over the SuperJet-100 — judged too “westernised” in the eyes of the lars concerning the delivery by NPK Irkut Kremlin — and over the An-148, labelled as “Ukrainian”, although assembled at of 40 Su-30MKI, which makes the Russian the VASO factory in Voronezh. The intense lobbying exercised by the Tatar presi- aircraft producers more optimistic in their dent Mintimer Shaymiev also played a role, according to our informants). prospects for the long-awaited call for ten- der of the Indian government for 126 fight- Would the contracts expected at the end of May allow Tupolev, the “weak link”, ers officially launched last autumn and on with Ilyushin, of the OAK consortium, to lift its head above water ? It is far from which MiG is competing with Dassault certain. Certain members of the delegation that accompanied Alexey Fyodorov to and Lockheed Martin. But matters are Tehran seriously doubted the capacity of the Iranian side to assure production un- still complicated between Rosoboronex- der license of the Tu-204/214 at the announced pace, a feeling shared by Moscow port and the Indian military. The teams of aeronautical experts consulted by Russia Intelligence. We recall that in 1995, Iran Anatoly Isaykin, who replaced Sergey had signed with a Ukrainian industrial consortium (the Antonov plant in Kharkov, Chemezov at the head of the arms export Motor Sych and the Progres design bureau) an accord that strongly resembled the agency in November (Russia Intelligence one under discussion between OAK and AIO. A hundred An-140 would have been n°67 of December 6 2007), are in the assembled in Ispahan. A decade later, only 3 units have left the factory. Russia In- process of negotiating the level of penal- telligence’s sources in Moscow underline also that the Iranians have a reputation ties tied to the late deliveries of 3 of the 5 as bad payers and that the conclusion of the accords signed on February 28 is lin- Il-38SD maritime patrol aircraft. The In- ked to a bilateral political context. But Russia has tended to harden its positions dian military had rejected them because of in the UN on the Iranian nuclear question. It therefore voted on March 3 resolu- technical problems in the Sea Dragon sys- tion 1803 to strengthen economic sanctions toward Iran. tems of the component manufacturer Leninets. This segment of the bilateral During its administrative council of February 12, OAK repeated its objective to military-technical cooperation is lost for hold 15% of the world market in civil aviation in the 2025 time horizon (Russia In- Moscow, since it is toward the Lockheed telligence n°71 of February 28 2008). The accords with Tehran will obviously not Martin’s P-8A Poseidon that the Indian be enough to achieve this. They will certainly breath new life into Tupolev during military are expected to turn for the pur- the coming years, but they could also paradoxically have certain perverse effects chase of 8 aircraft (a contract of 2 billion on the Russian aeronautical sector. The launching of programmes of dubious com- dollars is being spoken of). Russia also mercial viability such as the Tu-334, will clearly be running against the objectives proposed the Il-114 as well (as it did to of concentration and rationalisation of resources that was at the origin of the crea- Venezuela), but this plane is not opera- tion of OAK. d tional and the Russian Defence ministry does not intend to order it until 2020. d 7 Russia Intelligence N°73 j March 13 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Regions & CIS

KALMYKIA ALERTS c President Kirsan Ilyumzhinov challenged The tiny North Caucasian republic, the only territory of Bud- begun to establish connections in Moscow. He had negotiated dhist tradition on the European continent, is hardly ever talked directly with United Russia the election of Konstantin Tsitsin, about, unless it is for the visit of the Dalai Lama in 2004 or the until then president of , to the federal council escapades of its very authoritarian President, Kirsan Ilyumzhi- as the representative of the legislative branch of Kalmykia. nov. In his post since 1993, the latter indeed made himself famous for having made Elsita “the world chess capital”. A quite logical Finally, Kirsan Ilyumzhinov awaited to “crown” this mini- intiative for this former champion who has presided the interna- purge by obtaining the resignation of the mayor of the capi- tional federation (ICF) since 1995, but who also unmistakeably re- tal, Radiy Burulov. Ordered to the presidential palace on De- minds all Russians of the tribulations of Ostap Bender, the well- cember 31, the latter nevertheless refused to obey. A disturbing known hero of the novels by Ilf and Petrov (“the golder calf” and decision for Kirsan Ilyumzhinov. Burulov in fact was obligated “12 chairs”).In a more sombre vein, the murder in 1998 of Larisa to him. Especially, the mayor of Elista had placed his men Yudina, the editor-in-chief of Sovetskaya Segodnya, the only op- (originating like himself from the Turgut tribe) to numerous position journal, or, more recently, the arrest for corruption of the key posts in the capital, which houses more than one-third of senator Levon Chakhmakhchyan, who represented the Kalmykian the population of the republic and the large part of its eco- parliament in the federation council, had somewhat tarnished the nomic potential. All at once, the outcome of the elections to image of Kirsan Ilyumzhinov in Moscow, but the situation appeared the local parliament, planned for March, was regarded as under control. The latest development in Elista indicate that this riskier than expected for Kiran Ilyumzhinov. could change in rapid order. Extended in his capacity by Vladimir Putin in 2005, Kirsan Ilyumzhinov decided, at the end of last year, Finally the Kalmyk president came out fairly well. The to completely renovate the local political landscape. Officially in United Russia list, which contained his candidates, in fact view of a needed “rejuvenation of the cadres”. In reality to try to obtained 55% of the seats, against 22% for those of the com- get rid of rivals with disturbing ambitions. The first phase was the munist party, under whose banner most of the opponents to dismissal of the government led by Anatoly Kozachko. In the Ilyumzhinov had lined up. But the victory was a bitter one, wake, he also began, through one of his close associates, Alexan- since in Elista, the president’s partisans had only a dre Dekalov — the auto-dissolution of the “Narodny Khural”, the advantage over the CP. According to a sound source, it was republic’s parliament. It must be said that for several months, its only thanks to “administrative resources” activated by the president, Igor Kichikov — who in 2005 had defeated the candi- rector of Elista university and the commander of the battal- date backed by Ilyumzhinov, Lev Mukhalaev — had been display- ion of Interior ministry troops based in the Kalmyk capital ing inclinations toward autonomy. An even more disturbing phe- that United Russia managed to beat the opposition to Kir- nomenon for the Kalmykian president since Igor Kichikov had san Ilyumzhinov. d

Abkhazia : a first reply from Moscow While the immense majority of Western ob- gnise the independence of the secessionist tain information, the Kremlin could — in res- servers and officials had not taken very se- province. The reactions in Tbilissi were, as ponse to a joint letter from Presidents Ba- riously the warnings of the Kremlin on the can be imagined, especially lively. The presi- gapsh and Kokoyty — open a representation “precedent” that the independence of Ko- dent of the parliament, Nino Burdzhanadze in Sukhumi (but which would not have the sovo would constitute, Russia has just provi- spoke of a “provocation” and hoped for an status of an embassy) and appoint a political ded the first elements of a reply about its po- “adequate reaction from the United States counsellor to the commander in chief of the licy toward certain secessionist provinces of and Europe”. The Reintegration minister, Te- interposition forces in South Ossetia. A few the ex-USSR. March 6, the Foreign affairs mi- muri Yakobashvili also spoke of “economic weeks from the NATO summit in Bucharest, nistry announced the unilateral suspension annexation”. Washington believes, in the the message addressed by Moscow to Tbilissi of the economic sanctions adopted in 1996 words of Daniel Fried, the deputy State se- is therefore clear : NATO or territorial inte- by the CIS against Abkhazia. According to cretary for European and Eurasian affairs, grity. It should be noted that the Moldovan Moscow, Sukhumi had fulfilled its obliga- that the Russian decision “will not contribute president Vladimir Voronin for his part tions concerning the return of Georgian refu- to the normalisation of Russo-Georgian rela- chose the second option as we let it be un- gees and there was no reason to “condemn tions or the resolution of the Abkhazian derstood in our edition of January 31. The the Abkhazian people to injustified suffe- conflict. document on the resolution of the conflict in ring”. A coincidence or not, the next day the But matters may not remain there. Hearings Transnistria, whose signature should be im- Abkhazian parliament adopted a resolution on Abkhazia and South Ossetia are schedu- minent, establishes the status of neutrality asking the international community to reco- led for the Duma March 13. According to cer- for Moldova. d

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