N°70 - January 31 2008 Published every two weeks / International Edition CONTENTS SPOTLIGHT P. 1-3 Politics & Government c Medvedev’s Last Battle Before Kremlin Debut SPOTLIGHT c Medvedev’s Last Battle The arrest of Semyon Mogilevich in on Jan. 23 is a considerable development on ’s cur- Before Kremlin Debut rent political landscape. His profile is altogether singular: linked to a crime gang known as “solntsevo” and PRESIDENTIAL ELECTIONS sought in the for money-laundering and fraud, Mogilevich lived an apparently peaceful exis- c Final Stretch for tence in Moscow in the renowned road residential neighborhood in which government figures « Operation Succession » and businessmen rub shoulders. In truth, however, he was involved in at least two types of business. One c Kirillov, Shestakov, was the sale of perfume and cosmetic goods through the firm Arbat Prestige, whose manager and leading Potekhin: the New St. “official” shareholder is Vladimir Nekrasov who was arrested at the same time as Mogilevich as the two left Petersburg Crew in Moscow a restaurant at which they had lunched. The charge that led to their incarceration was evading taxes worth DIPLOMACY around 1.5 million euros and involving companies linked to Arbat Prestige. c Balkans : Putin’s Gets His Revenge The other business to which Mogilevich’s name has been linked since at least 2003 concerns trading in P. 4-7 Business & Networks gas. As Russia Intelligence regularly reported in previous issues, Mogilevich was reportedly the driving force behind the creation of two commercial entities that played a leading role in gas relations between Russia, BEHIND THE SCENE Turkmenistan and : EuralTransGaz first and then RosUkrEnergo later. The first was officially set c Azerbaijan : Eyes Shakh Deniz Field up in December, 2002, the second in July, 2004.Their aims were identical: to ensure the sale of Turkmen and Russian gas to Ukraine and insinuate themselves as middle-men between Gazprom, its Turkmen supplier FOCUS c Yakunin Shines as Travelling and the Ukrainian customer, raking in the money resulting from the transactions in the process. The stake- Salesman holders in the two companies are virtually the same even though the offshore entities that hold their shares NUCLEAR ENERGY are numerous and the owners mere frontmen. Since 2006 it has been known that, apart from Gazprom, c Holds Out which owns 50% of RosUlkrEnergo, the other stakeholders are Dmitry Firtash and Ivan Fursin.Firtash was Against OMZ, Vekselberg also the mainstay of EuralTransGaz. And links between Firtash and Mogilevich have been proven even if Seeks Bigger Stake in Mogilevich denies being involved in the companies (regarding Firtash, read Ukraine Intelligence No. 13). EMAlliance-Atom c When Chemezov Steps on But how can Mogilevich’s arrest be tied to the succession process currently unfolding in Russia? Eural- Yakunin’s Turf TransGaz was set up at a time when was chairman of Gazprom but the venture was re- FOCUS ally under the authority of Alexandre Ryazanov who was deputy chairman and didn’t exactly form part of c Potanin’s Counter-Offensive, the Medvedev clan. Indeed, it was only when RosUkrEnergo was set up that Gazprom (through the inter- Deripaska Lies in Ambush mediary of entitles linked to Gazprombank) “officially” came into the picture. Medvedev and Alexey Miller OIL took matters in hand only gradually. Ryazanov was discreetly shown the door at Gazprom in November, 2006 c : Tokarev Drops (RI 44). One of Gazprom’s representatives in RosUkrEnergo is none other than , a Vaynshtok’s Old class-mate of Medvedev at the law faculty at the University of St. Petersburg (RI No. 68). Up to then, Mogile- c and Sibir vich had lain low. But with Firtash serving as a smokescreen he began handing out some of the money man- Energy Bury the Hatchet aged by RosUkrEnergo to certain hard-line security figures in Moscow. It can now easily be imagined the P. 8 Regions & CIS alarm his arrest has triggered in Moscow but also, naturally, in Kiev. (Ukraine Intelligence No. 49). FOCUS c Fresh Unrest in Northern It can also be noted that the police who collared Mogilevich belonged to neither the Investigation Com- Caucasus mittee of the prosecutor’s office nor the FSB, two organizations controlled by men linked to c The Russian-Moldavian but came from the interior ministry. The number two man at the ministry is the recently-appointed Yevgeny Love-Fest Shkolov, a former colleague of at the KGB outpost in Dresden and adviser to Medvedev at SUBSCRIPTION the presidential administration (RI No. 67).Shkolov has authority over the criminal police in his capacity Print Edition as deputy interior minister under Rachid Nurgaliev. In addition, limiting the charge against Mogilevich to (23 issues, airmailed overseas) tax evasion enables the ministry to keep him out of the hands of FSB or the prosecutor’s office and there- €770 TTC fore “protected” and under Medvedev’s control, at least for a time. The Web Pack (Print Edition Medvedev has thus responded to the intrigues by the Sechin clan that Russia Intelligence has largely + PDF + archives acess) analysed in previous issues. The final battle has been engaged and the future Russia president has chosen € 880 TTC the terms and can be counted upon to fight it as long as Putin remains in the Kremlin. The outcome of the The Premium battle depends largely on the amount of authority Medvedev will wield as president over those who opposed Subscription him so bitterly over the years within the walls of the Kremlin. d (Print Edition + PDF + access to all the website contents) Full reports on EuralTransGaz, RosUkrEnergo, Mogilevich and Firtash can be found on our site www. Russia-intelligence.fr € 1200 TTC (free of charge to subscribers) www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

PRESIDENTIAL ELECTIONS c Final Stretch for « Operation Succession » Dmitry Medvedev’s road to the Kremlin seems straight and litical leanings. A speech he made before the Civic Forum on clear of obstacles. A series of polls conducted around Jan. 20 by Jan. 22 didn’t make that clear and nor did another before the As- the Levada Center indicated that over 80% of the electorate sociation of Russian Jurists on Jan. 29. The future president would vote for him in the first round of the presidential ballot on confined himself to vague and even rather trivial language. (“On March 2. Medvedev’s arrangements for the campaign have been the whole, civilization is advancing in optimistic fashion. Our made: the director will be Sergey Sobyanin, head of the presi- chances in Russia are good”) dential administration. Assisting him will be , who is in charge of domestic policy in the Kremlin; Natalya Timakova, Tasked with deploying the “Putin Plan,” the famous slogan of director of the president’s press service; and Garry Minkh, chief the last legislative election, he identifies himself completely with of the legal department in the government’s secretary-general the outgoing president. Hence, for example, the pictures of service. Medvedev aboard an aircraft (civil) in Voronezh. Behind his claim to Putin’s heritage, however, a tiny note seems out of key: it’s not The order of the day is to spare Medvedev from the least chance strong as yet but neither does it fit in entirely with the main- of slipping up. He won’t take part in live television debates. The stream Putin philosophy. The tribute he paid to , Kremlin has also seen to it that former prime minister Mikhail whom he praised for saving the country from collapse, runs counter Kasyanov was disqualified from running. The central electoral to the line of the Kremlin and media concerning the 1990s. The committee refused to register his candidacy on grounds that too plan to disband the “Nashi” movement of pro-Putin youth is also many of the 2,000,067 names on his petition to register were an important symbol. There’s every reason to keep an eye on the forged. That could, indeed, be the case - certain liberals in Moscow new regional program concocted by , one of privately admit it – but the Kremlin wouldn’t have let Kasyanov Medvedev’s trusted associates who returned last autumn to Moscow stand in any event. Not that he had any chance of winning, but and could challenge the “top to bottom” power concept that has his stature and political stance might have thrown the scenario prevailed since 2000. of “Medvedev, the liberal successor” out of kilter. Other mysteries remain. Is Russia destined for dual-power Elsewhere, it’s interesting to note that a new agreement on a rule, with a prime minister enjoying more power than the pres- price freeze for “socially sensitive” staple foods (bread, milk, but- ident? Nobody knows the true intentions of Putin who is appar- ter, table oil) was scheduled to be signed on Jan. 31 between the ently weary of power. That makes it difficult to imagine him as government and the leading players in the food and drink indus- superintendent of Russia Inc. Nor can it be excluded that the try and retail sector. The freeze will prevail until the new presi- clans opposed to Medvedev view the Mogilevich affair (see Page dent takes office. A first agreement of the type was signed on Oct. 1) as confirmation of the threats weighing upon them and seek 24. to derail the presidential election by prompting, for example, , to withdraw from the race. Such a develop- With just a month to go before the ballot a number of ques- ment would certainly undermine the legitimacy of the new pres- tions still beg answers. The first pertains to Medvedev’s real po- ident. d

Kirillov, Shestakov, Potekhin: the New St. Petersburg Crew in Moscow

Although uncertainty hangs over the short and medium-term po- der when he was deputy governor. Nor did Kirillov’s promo- litical situation – in particular Vladimir Putin’s true role after tion please Oleg Mitvol, the fiery deputy of Say, who would March 2 and the nature of his future relations with Dmitry have liked to have succeeded his boss (see profile of Mitvol in Medvedev – one thing can be taken as certain: the predomi- Russia Intelligence No. 42). nance of St. Petersburg people in Russia’s ruling circles isn’t about Another St. Petersburg native destined for higher things is to end. Vasily Shestakov. A legislator elected on a Just Russia ticket, The latest example of appointments of prominent figures from St. Shestakov has just been offered the job of head of the National Vasily Shestakov Petersburg to powerful position was the nomination of Vladimir Information Center, a new entity that will work to burnish Rus- Kirillov as head of the federal environment surveillance agency, sia’s image abroad. Working out of premises with 1,000 sq.m. Rosprirodnadzor. The agency is far from being insignificant inasmuch as of floor space only a stone’s throw from the presidential administration, it played a key part in the campaign mounted by the Russian authorities the Center will focus its efforts on Western journalists and decision-mak- against Shell and TNK-BP at 2 and at Kovytka. ers. The top job fell vacant on Jan. 16 when its chief, Sergey Say, resigned after Some reports say the operation is being financed by Roman long-standing policy differences with the minister who oversees the Abramovich and Boris Khait, a former executive of Most Bank who agency, Yuri Trutnev. Kirillov, an adviser to the speaker in the Russian has headed the Spasskie Vorota insurance company since 1995. Shes- senate, Sergey Mironov, and former deputy governor of the Leningrad re- takov’s appointment as chief of the National Information Centre didn’t gion, is an old friend of prime minister . His appointment come about by accident: before taking up politics he happened to be was also backed by deputy prime minister , with whom Putin’s judo trainer (indeed, he co-signed two booklets on martial arts Kirillov worked between 2000-2004, and by Anatoly Ledovskykh, chief of with the Russian leader) the federal agency that governs the use of Russia’s sub-soil, Rosnedra. In his new incarnation, Shestakov will be assisted by Alexandre However, it did stir dismay among Russian ecologists who accuse Kirillov Potekhin, boss of the St. Petersburg edition of Komsomolskaya Pravda d 2 of giving his blessings to the illicit cutting of trees close to the Finnish bor- and a former deputy governor of Russia’s northern capital. Russia Intelligence N°70 j January 31 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

DIPLOMACY c Balkans : Putin’s Gets His Revenge With the Kosovo issue now entering a crucial phase, Russia has ity at Banatsky Dvor and the northern branch of the South Stream demonstrated in singular fashion to the West that it remains a force gas pipeline) and the privatisation of NIS, owner of two refineries to be reckoned with in the Balkans. In the space of a single week, at Panchevo and Novi Sad with an annual capacity of seven million Moscow signed highly important energy agreements with Bulgaria tons. and Serbia, re-asserting its traditional influence in the region since the treaty of San Stefano in 1878. The agreements were finalized with fanfare in the Kremlin on Jan. 25 in the presence of the Serbian president and prime minis- Triple Whammy in Bulgaria. Vladimir Putin’s visit to Sofia on ter, Vojislav Kostunica and Boris Tadic. The Belgrade government Jan 17-18 – perhaps a last foreign visit for the Russian president, ruled in favour of the accords on Jan. 22 despite the opposition of barring sudden developments in Libya – was officially motivated some of its members (including economy minister Mladjan Din- by the inaugurated Russia Year in Bulgaria and the 130th anniver- kic). sary of the victory of Russian troops over Ottoman empire forces. Gazprom neft will lay out 400 million neuros to acquire NIS and However, the trip was mainly devoted to economic questions. has pledged to invest a further half billion euros by 2012. Bearing Three issues were on the table: the South Stream gas pipeline, the in mind that bought out Beopetrol in 2003 (196 service sta- Burgas-Alexandroupolis oil pipeline and the nuclear power sta- tions, including 28 in Kosovo), Russian oil companies will have a tion at Belene. On the eve of the Russian leader’s arrival in Sofia, lock on over 90% of refined products in Serbia. With regards the there was some pessimism in Moscow on whether a deal could be gas part of the Russian agreements, a joint venture will shortly be cut on South Stream. The Bulgarian economy and energy minister, set up between Gazprom and Srbijagas. The venture, in which the Petar Dimitrov, had stated that talks on the matter were “com- Russian side will hold 51%, will be the operator of the Serb section plex.” But at 5 a.m. on the morning, aides of Viktor Khristenko and of the South Stream pipeline and the storage tanks at Banatsky Alexey Miller finally won a green light from the Bulgarian side. Dvor.

As a result, Dmitry Medvedev, who was campaigning in the Urals Moscow thus locked in the agreement before Serbia’s presiden- for the March 2 election – was able to fly to Sofia to take part in the tial election on Feb. 3. This means that a victory by the “pro-Euro- signing of a bilateral accord in his capacity as chairman of Gazprom’s pean” Tadic won’t overturn Gazprom’s projects, and specially be- supervisory board. The South Stream pipeline will link southern cause he needs the backing of the highly pro-Russian Kostunica. Russia directly to Bulgaria before dividing into two branches, one The ultra-nationalist candidate, Tomislav Nikolic, was apparently destined for Hungary and Austria and the other for and miffed over the Kremlin’s backing for his rival and showed it by call- southern Italy. Gazprom’s partner is Italy’s ENI, whose boss, Paolo ing off a visit to Moscow (he was to have appeared before the Duma’s Scaroni, was also on hand in Sofia on Jan. 18. With a capacity of 30 foreign affairs committee on Jan. 29 and be received by the speak- billion cu.m. per year, South Stream is theoretically due to begin ers of both houses, and Sergey Mironov). But it’s operating in 2013. Technical and financial studies are to be carried highly improbable he would turn his back on Moscow if he wins on out between now and the end of the year by South Stream AG, a Feb. 3. It can be noted that the Kremlin’s support for Tadic repre- Swiss-registered company. For the moment, the project is expected sents a significant change in Russian policy inasmuch as Moscow to cost $10 billion, of which $4 billion will be earmarked for a 900 has long preferred to put its money on anti-Western pariah govern- km underwater stretch between the Russian coast and Burgas. ments in order to retain its influence in eastern Europe (Meciar in Slovakia in the mid 1990s and then Milosevic in Serbia). But Putin’s visit to Sofia was also marked by the signing of an agreement concerning the company that will build the future Bur- Austria, Greece: Gazprom Turns the Screws. At the very gas-Alexandroupolis pipeline. An initial, tri-lateral agreement on moment the Serb delegation was penning oil and gas agreements the pipeline was penned on March 15 of last year in Athens (RI No with Miller in the Kremlin, the deputy boss of Gazprom who deals 52 of March 30 2007). On Dec. 18, the Russian, Greek and Bulgar- with its international relations, Alexandre Medvedev, was in Vi- ian partners officially set up a joint venture to operate the future enna to finalize another highly important deal with regards the pipeline (Transneft, and Gazprom neft will each own 17%, group’s central European strategy. Bulgargaz and Transexportstroy are to own 24.5% as will Hellenic Petroleum and Thraki). Under that agreement signed with OMV, Gazprom will acquire 50% of the Central European Gas Hub, one of the principle gas With regards construction of the Belene power station, Putin distribution hubs in Europe located at Baumgarten near the Slo- confirmed at a press conference at the end of his visit that the Russ- vak border. The next stage in Moscow’s gas “diplomacy” will be ian government was ready to finance the operation, which is ex- Greece, through which the southern branch of the South Stream pected to cost $4 billion. The announcement came just as the Bul- pipeline is to travel. garian press was reporting on the problems encountered by the state-owned utility NEC in raising finance for the project (only Talks are expected to be relatively complicated because Athens France’s BNP Paribas was reportedly ready to chip in 250 million is thinking of importing gas from Azerbaijan via Turkey and a euros). consortium formed by DEPA and Edison is promoting its own gas pipeline that would run southwards to Italy to deliver gas from Serbia: Moscow Keeps Two Irons in the Fire. In its Oct. 25 the Caspian region. According to our sources, Putin nonetheless issue, Russia Intelligence reported that Gazprom and its affiliate softened up the terrain for Gazprom during his talks with Greek Gazprom neft were on the point of making their debut in Serbia on prime minister Konstantin Karamanlis in Moscow in mid-De- two projects: the construction of gas infrastructure (storage capac- cember. d 3 Russia Intelligence N°70 j January 31 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

BEHIND THE SCENE cc FOCUS Azerbaijan : Gazprom Eyes Yakunin Shines as Travelling Salesman Shakh Deniz Field Partners on the Shtokman project since These are heady days for the boss of the Russian railway system RZhD. Vladimir last fall (RI No. 65), Gazprom and Statoil- Yakunin has just pulled off two major deals abroad in quick succession. On Jan. 21, Hydro are also in talks concerning the RZhD confirmed it had won a call to bids by the Saudi Arabian government for the Shakh Deniz field. That was recently con- construction of a 520 km line between Az Zabirah and the international airport at firmed by Peter Mellbye, executive vice Riyadh. The contract, named CTW-400 by the Saudi authorities, is worth roughly $800 president of the Norwegian group. Lying 70 million and is expected to be finalized this spring, according to several sources in km off , the Shakh Deniz field is being Moscow. It will be the first contract for the Russian railways outside of the CIS since worked by an international consortium the collapse of the . RZhD’s breakthrough in Saudi Arabia underscores made up of StatoilHydro (25.5%), BP the political and economic rapprochement that has taken place between Moscow and (25.5%), SOCAR (10%), Lukoil (10%), To- Riyadh since Sept. 11, 2001. The deal also owes a lot to president Vladimir Putin’s lob- tal (10%), Turkish Petroleum (9%) and bying efforts during his first visit to the Saudi capital last February (RI 49). Elsewhere, NICO (10%). the Saudi defence ministry and Rosoboronexport are known to be in advanced talks Production on the field, which began at on Russia supplying T-90 tanks and Mi-17 helicopters to the Saudi military (RI No. 66). the end of 2006, amounts to roughly 8 bil- lion cu.m. Output from Shakh Deniz has en- But RZhD is involved in a major play in as well. Yakunin announced at a abled Azerbaijan to stop importing gas press conference in Erevan on Jan. 17 that the Russian railways would shortly be given from Russia, and to indeed export it to a 30 year concession to run the Armenian rail network. ’s RITES, which had been Georgia and Turkey via the Baku-Tbilissi- in the running for the deal, threw in the towel a few days earlier. According to Yakunin, Erzurum pipeline. Gazprom is reportedly some $570 million will be invested in renovating Armenia’s rail infrastructure and examining the idea of importing Azerbai- rolling stock. The Armenian government’s choice was obviously political in nature. jan’s gas starting from 2013. That date cor- With only weeks to go before a presidential election that he is expected to win, prime responds to the launch of the second phase minister Serge Sarkisyan is again currying favour with Russia. Erevan would like to of the Shakh Deniz field but also – whether see RZhD use its influence in Moscow to help lift obstacles to rail traffic with Turkey coincidental or not – the commissioning of and Azerbaijan. Yakunin’s management team, for its part, is thinking of tying Arme- the future South Stream gas pipeline (see nia’s railway system into that of Iran. Indeed, RZhD’s arrival in Armenia could have article opposite). strong geopolitical implications. Russia is looking ahead to the prospect of an increase In eyeing Shakh Deniz, the are in freight and passenger travel in the Southern Caucasus the day that the conflict in pursuing a number of goals. First, they upper Karabakh ends. want to protect Russia against any unpleas- ant surprises from Turkmenistan or Kaza- Meanwhile, RZhD penned an agreement with North Korea on Jan. 24 to renovate khstan – which are being ardently wooed a 52 km section of line between Khasan on the Russian border and the port of Radjin. by – by securing access to gas from According to Oleg Toni, the RZhD official in charge of infrastructure, a joint venture Azerbaijan. If needs be, it could be carried will be formed with Pyongyang for the project. Feasibility studies are to begin shortly. to Russia by the Gadzhikabul-Mozdok gas RZhD would equally like to build a new container terminal at Radjin and win the con- pipeline before being diverted into the fu- tract to manage it. The moves in North Korea form part of a long-term strategy by RZhD ture South Stream line. to capture some of the traffic in goods that North East Asia currently exports to Europe But Gazprom also hopes to pull the rug and channel it towards the Trans-Siberian route. However, Russia’s success in doing so from under the feet of the Europeans by would depend largely on the re-establishment of rail links between the two Koreas. locking in some of the gas which could sup- ply Nabucco, the project that would carry Highly active abroad, Yakunin is no slouch when it comes to Russia, either. In early gas from the Caspian Sea basin to the Euro- December he fleshed out his management team by hiring Tatyana Paramonova, the pean Union via Turkey and the Balkans. In- former number two person at the Russian Central Bank. She will serve as Yakunin’s deed, along with Iran, Azerbaijan is now financial adviser, and keep a special eye on the Trankreditbank case as well as the the only potential supplier of Nabucco be- issue of Eurobonds worth $7 billion that was recently announced by Yakunin’s right- cause Turmenistan’s gas seems beyond the hand man, Fyodor Andreev. EU’s reach since an agreement with Moscow in late 2007 regarding a line that Lastly, Yakunin sprung a surprise by stating on Jan. 24 that RZhD could make its would circle around the Caspian Sea. (RI debut in the electricity-generating business. The Russian railway system is interested 69). in the territorial power generation firm OGK-1 which operates electricity stations at In addition, the Kremlin could legiti- Perm, Urengoy, Nizhnevartovsk and Verknetagilsk in the Urals. OGK-1 is presently con- mately hope that diverting part of Azerbai- trolled by the national power concern RAO EES Rossii but 74.8% of its equity will be jan’s gas to Russia would enable it to regain auctioned off in March. some of its political influence in Baku. How- ever, at this stage, neither the Azerbaijan Several foreign companies, including Electricite de France, the U.S. group AES, authorities nor SOCAR, the state-owned oil Finland’s Fortum and the German concern RWE, are already limbering up to bid company, have officially made mention of alongside Russian groups and Transnefteservice S (see Page 7. Russia Intel- Gazprom’s intentions. Another executive ligence’s sources in Moscow say RZhD could well take part in the OGK-1 privatisation from StatoilHydro, Kjersti Morstoel, said in proceeding in tandem with the Rusenergobyt trading company. This is a joint ven- mid-January that other European cus- ture between Maksim Beryozkin and Italy’s ENEL, which already supplies power to tomers could equally be interested in some RZhD affiliates. d 4 Shakh Deniz’s gas. d Russia Intelligence N°70 j January 31 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

NUCLEAR ENERGY c Gazprombank Holds Out Against OMZ, Vekselberg Seeks Bigger Stake in EMAlliance-Atom With most of the reforms in Russia’s nuclear energy sector The latter is a singular figure and no doubt the coming man at initiated by Sergey Kirienko now pretty well decided – Vladimir OMZ. Born in 1949, Kantserov began his career during the Soviet Putin signed a decree on Dec. 3 that created the Rosatom hold- era with the 4th principle directorate of the KGB (military counter- ing concern (RI No. 68) – attention has shifted to putting to- espionage) and continued in that line of work in after gether key mechanical engineering alliances, with the protag- 1991. Head of Belarus military counter-espionage and then chair- onists sparing no effort to bring that about. man of the coordinating committee of Russian and Belarus secret services, Kantserov joined the executive board of Gazprombank The main tug of war concerns OMZ (United Heavy Machin- in February of last year and was named to the supervisory boards ery). The group has positioned itself on the engineering, in- of Izhorski Zavody and Uralmash last autumn. dustrial services, production, sales and maintenance markets for five industries: electricity, oil, gas, mining and special steels. Kirienko’s circle doesn’t appear inclined to dramatize matters OMZ’s leading production assets are the Izhorsk and Uralmash after the snub to Shmatko and Komarov and says that talks are plants as well as Skoda Steel and Skoda JS. Altogether 95% continuing with Gazprombank. Given the closeness of its new of its equity is reportedly controlled by Gazprombank through shareholders, Kolvalchuk and Shamalov, to Dmitry Medvedev, Forpost Management, itself the owner of the Swiss equity fund there’s every reason to imagine the boss of Rosatom will have to Citadelle (Gazprombank 80%/ Vneshtorgbank 20%) make bigger concessions than he planned.

For some months Kirienko has been trying to talk Gazprom- The other major development in the specialized mechanical bank into handing its assets linked to nuclear energy over to a engineering branch could concern EMAlliance-Atom. EMAlliance- largely publicly-owned mechanical engineering entity built Atom is a joint venture set up in May 2006 between Atomenergo- along the lines of Atomstroyexport (a 50.2%-owned affiliate mash (an affiliate of the public TVEL group and a partner of of Rosatom, with the remainder being controlled by Gazprom- France’s Alstom on the project for a low speed Arabelle turbine) bank). The prime aim of Kirienko, boss of Rosatom, is to re- and EMAlliance, a private firm headed by businessman Yevgeny gain control of Izhorskie Zavody, a plant that holds a monop- Tugolukov. EMAlliance is the parent company of JSC Machine oly on the manufacture of reactor tanks. Building Plant ZIO Podolsk,the engineering plant ZIOMAR and of Krasny Kotelshchik, which specializes in the design and con- To put pressure on OMZ’s management, Kirienko announced struction of ordinary power stations. EMAlliance has also teamed a temporary freeze on orders from Rosatom last summer. Since up with Alstom, signing a strategic partnership with the group in then, however, an arrangement seems to have been reached. October, 2005. According to some reports circulating in Moscow, Kirienko has even stated that an agreement between Gazprom- the boss of Renova, , would like to increase the bank and Rosatom is imminent. 25%-plus one share he acquired in EMAlliance-Atom in May of last year to 49.9%. He is said to be in talks to that effect with Tugolukov, It appears, however, that Gazprombank – the new preserve who has just been elected to the federal Duma. of Nikolay Shamalov and Yuri Kovalchuk (RI No 69) - has no intention of letting its fingers be burned. An extraordinary gen- Regardless of whether Vekselberg succeeds in boosting his stake eral assembly of shareholders that was held on Jan. 18 made or not, a lot of changes are taking place in the electricity and nu- it clear Kirienko is far from being able to claim victory. The two clear energy industries. Two private Russian players – Renova and men he proposed to join Gazprombank’s board – Sergey Shmatko , which won control of Silovye Mashiny last fall – have and Kirill Komarov, respectively managing director of Atom- acquired strong positions. Alstom, which enjoyed a head-start, stroyexport and number two man at Atomenergoprom – were must now contend with Siemens which is firmly intent on getting rejected. The seats went instead of Yevgeny Borisov, adviser back into the race for orders from Rosatom thanks to its alliance to Gazprombank boss Andrey Akimov, and Farid Kantserov. with Alexei Mordashov (RI No. 65). d

When Chemezov Steps on Yakunin’s Turf Are two of the “new State oligarchs” of the Putin era who count among fect core of a future public holding company specializing in manufac- the president’s most trusted associates – and whose names were long cited turing armoured vehicles. That would appear logical since the plant as potential successors to him in the Kremlin – about to clash over the con- builds the heavy T-90 main battle tanks that Russia exports to Algeria, trol of industrial assets? Whether that’s the case or not, the boss of the Ros- India (under a contract worth over one billion dollars signed in late tekhnologii holding company, , and the president of the 2007) and no doubt to Saudi Arabia as well in the near future. Russian railway company RZhD, Vladimir Yakunin, will at least need to The only hitch is that 80% of Uralvagonzavod’s output is civil in na- find a compromise. ture (railway cars, water tanks, platforms) and that it generates two The interests of the two looks set to collide over the future of Ural- thirds of its revenue with RZhD. Would Yakunin accept seeing one of vagonzavod. Chemezov is in the processing of persuading the industry and his main suppliers fall into the hands of Rostekhnologii? That can’t be energy ministry (whose number two figure was previously one of his own excluded yet the example of Transmashholding (TMX) indicates that men, , ex-managing director of Oboronprom) to bring the Yakunin prefers to hold direct control over his suppliers: owned by company into the Rostekhnologii fold. , Transmashholding builds most of RZhD’s According to Chemezov’s staff, Uralvagonzavod would serve as the per- rolling stock, and RZhD bought a 25% stake in the firm in late 2007. d 5 Russia Intelligence N°70 j January 31 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

ALERTS cc FOCUS 3 Russia Rejects Ukraine’s Early Warning Radar Potanin’s Counter-Offensive, Deripaska Lies in Ambush On Jan. 25, the federal Duma abrogated the bilateral Russian-Ukrainian agreement A new chapter has opened in the stormy divorce between (Inter- signed in 1997 on the use of early warning ros) and (ONEXIM) that Russia Intelligence has regularly reported radar stations at Mukachevo and Se- on in its columns.Encountering hitches regarding (RI No. 69), Potanin bastopol. The Dnepr radar systems were is seeking to thwart an assault by his former partner on two assets in which they still put into service in 1979 to detect the launch share interests: Zoloto and KM Invest. According to our sources, the of ballistic missiles within a range of 4,000 chief is playing for time until the March presidential election in the hope that liberals km. It covered southern Europe, North could gain strong influence when Dimitry Medvedev takes over in the Kremlin. Africa and the Mediterranean area. Up to now Ukraine had transmitted data picked The main thrust of Potanin’s counter-offensive since mid-January concerns Polyus up at Mukachevo and Sebastopol to the Zoloto. The mining company came under Prokhorov’s control in October., when he in- headquarters of Russia’s space command at creased his stake in the group from 28 to 30%, as opposed to Potanin’s 22%. The two Solnenogorsk in return for a fee of $1.3 mil- each hold an additional 3.7% through KM Invest. Prokhorov managed to get one of his lion per year. The move confirmed that the close associates, Yevgeny Ivanov, appointed managing director of the group in the place Kremlin no longer wants to count on of Pavel Skitovich, who defended Potanin’s interests. Ukraine for its strategic security. Whether accidental or otherwise, the Duma’s vote Since then the new management team has sought to gut Polyus Zoloto by transfer- came 10 days after , ring its leading assets – including operating licenses on 13 mines – to one of its affili- Yulia Timoshenko and Arseny Yatsenyuk ates, Polyus Geologorazvedka (RI No. 68). And then, on Dec. 28, Ivanov took over as sent a letter to the NATO secretary-general general manager of ZAO Polyus, one of the chief affiliates of Polyus Zoloto, from Vladimir to confirm Ukraine’s wish to take part in the Sovmen who had dug in his heels against Prokhorov’s strategy. Membership Action Plan during the Atlantic Alliance’s forthcoming summit meeting in In that context, Potanin is seeking to strongly dig in his heels as well. On Jan. 17 he Bucharest. On the operational level, the dispatched a letter to Polyus Zoloto demanding an extraordinary general assembly of Russian defence ministry is now relying on shareholders be convened. He proposed that a sweeping change in the way the group the new generation Voronezh-D radar sys- operates to placed high on the agenda. That would involve restricting the powers of the tem built at Armavir for early warning. It managing director, changing the voting rules and calling for a two-thirds majority of was to have started operating at the end of the supervisory board for strategic decisions. There would also be an increase in the 2007. d number of independent directors from two to three (preferably foreigners, according to Interros managing director Sergey Batekhin). 3 Indian Contracts: Yantar Boss Carries the Can Ivanov said the call for an extraordinary general assembly was altogether legitimate but Prokhorov’s men won’t make life easy for Potanin. Whether coincidental or not, a The State Assets Fund (Rosimushch- lot of trading took place in Polyus Zoloto’s shares on the Moscow stock exchange be- estvo) has begun proceedings to fire the di- tween Jan. 21-23. No less than 10% of the group’s equity changed hands. rector of the state owned Yantar shipyard in Kalingrad, Nikolay Volov. The Federal The other front in the Prokhorov-Potanin battle concerns KM Invest. The fund, in Industry Agency (Rosprom), which has au- which each of the combatants hold 50%, owns 8.1% of Norilsk Nickel, 7.4% of Polyus thority over the shipyard, holds Yantar’s Zoloto, 39% of Rosbank, 25.4% of Russia Petroleum (a shareholder in the Kovytka gas management to blame for financial losses. field near Irkutsk) and 98.1% of Roza Khutor, a real estate company assigned to con- But other reasons seem to be involved as ducting various projects in the region in advance of the Winter Olympics in 2014. well. The yard has encountered problems in fulfilling a contract for three Project 11356 On Dec. 19 Prokhorov made an offer to buy out Potanin’s share in KM Invest, setting frigates for India. The Russian authorities, a one month deadline for a decision. If the bid was rejected, he said, a procedure to liq- who came under fire from New Delhi in the uidate KM Invest would be initiated. Prokhorov also got the courts to declare a mora- Admiral Gorshkov aircraft carrier affair (RI torium on any transaction concerning KM Invest’s assets. As Potanin didn’t respond to 60), realized that urgent action was Prokhorov’s offer a liquidation committee was scheduled to be set up on Jan. 21. But needed. According to our sources, the boss the managing director of KM Invest, Raphael Akopov, froze the procedure for an ad- of the OSK holding company, Yuri Yarov, ditional month (until Feb. 29, or the eve of the presidential election). has put forward the name of Igor Orlov, number two man at the Zvyozdochka re- Potanin has clearly thrown a spanner into Prokhorov’s plans but the respite might pair yard, to replace Orlov. Another reason be brief. On another front – that of Norilsk Nickel – new developments appear in the for the latter’s dismissal could be more po- offing. Viktor Vekselberg revealed on Jan. 22 that he had held an informal meeting with litical in nature. Indeed, he is the represen- Potanin in late December and proposed, on behalf of Rusal’s shareholders, to buy out tative of the MIB bank on Yantar’s board. his blocking minority in the group. According to Vekselberg, “Volodia saw the relevancy MIB owns a 32% stake in the yard and has of such a deal, from a global standpoint.” long controlled it. One of the bosses of MIB is Igor Kruglyakov who has been impli- It can easily be imagined will shortly find himself the lone master 6 cated in the Storchak affair. (RI 66). d at Norilsk Nickel. d Russia Intelligence N°70 j January 31 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

OIL c Transneft : Tokarev Drops Vaynshtok’s Old System Appointed boss of the state-run oil pipeline operator bank, now headed by German Gref). It can be noted that Transneft in October, Nikolay Tokarev, the former chief of Gazprom took a similar decision last autumn by closing its ac- Zarubezhneft, has taken his distance from the way his pred- counts at two private banks (National Reserve Bank owned ecessor, Semyon Vaynshtok, operated. Tokarev, who is spe- by Alexandre Lebedev and Alfa Bank). The gas behemoth’s cially known for once having been Vladimir Putin’s superior money is now being handled by Gazprombank, Sberbank, at the KGB outpost in Dresden in the mid 1980s (RI No. 46- Vneshtorgbank and Vneshekonombank. 47 and No. 63), announced two major decisions in recent weeks that alter the financial side of the company’s business. But Alf Bank wasn’t alone in suffering from changes dictated by Tokarev. In late November, Transneft decided to change its On Jan. 21, it was learned that Transneft had filed no less power supplier. Transneftservice S, whose contract ran until than five different suits against Alfa Bank, the establishment 2008, was replaced by Rusenergoresurs, an entity linked to which has housed part of the monopoly’s accounts until up to Rusenergobyt, a joint venture between Maksim Beryozkin and now, at the end of 2007. The reason cited for the action was Italy’s ENEL. Transneftservice S fell victim to its proximity with Alfa Bank’s foot dragging in returning 16 billion rubles ($650 Vaynshtok’s former management team. And the loss of the ac- million) to Transneft which wanted to transfer the funds to count was indeed a blow to the company: on Oct. 22, its gen- another bank. Reports in Moscow indicate that tempers have eral manager, Stanislav Ananey, admitted that deliveries to subsided and that an agreement has been reached between Transneft accounted for 80% of Transneftservice S’s. revenue. the two sides on the technical terms and timetable for the op- eration. Transneftservice S was formed in 2001 by Alexander Rubanov, a businessman said to be close to Alfred Kokh, a long-stand- Still, the transfer went down badly with Alfa Bank, the 5th- ing associate of . Operating in 36 regions in ranking Russian bank. And Transneft’s decision reportedly Russia, Transneftservice S supplied 17 billion Kwh to its cus- stemmed from personal considerations: Tokarev is said to har- tomers in 2006. Transneft’s decision to change suppliers was bour deep misgivings about , the leading obviously a godsend of sorts to Beryozkin and his Italian part- stakeholder in Alfa Bank. However, politics played a part as ners. To be sure, Rusnergobyt had lost its principle client – well. Transneft’s new management reportedly deems it wiser Gazprom – and was looking for new outlets. Since the spring to hand management of the group’s cash to public banks (in of 2007 it had been supplying electricity to some affiliates of the instance, the 16 billion rubles is being deposited with Sber- Russian’s national railway RZhD. d

c Gazprom neft and Sibir Energy Bury the Hatchet One of the oldest shareholder battles of the Putin period has that left him in control of the refinery. been resolved amicably. On Jan. 18, Gazprom neft and Sibir Energy, a company controlled by businessmen Shalva Shigirin- However, Luzhkov and Chigirinsky opposed the move. Al- sky and Igor Kesayev and in which Moscow’s mayor holds an though they held only 38.13% of the equity they had 50.84% of 18.3% stake, signed an agreement concerning management of voting rights on MNPZ’s board. Between 2002 and 2005, the the Moscow Refinery (MNPZ). The two shareholders, which Moscow mayor and his allies fought a tooth-and-nail war with each own roughly 38% of MNPZ’s equity, are to form a joint ven- Abramovich, and the conflict spread to another joint asset: ture and share out obligations and dividends in equal parts. Sibneft-Yugra. This joint venture held operating rights on the Priobskoe field in . In 2004, a rather dubious rights is- The saga of the Moscow refinery – which is a plum asset inas- sue left Sabir with just 1% of the equity. As a result, Chigirin- much as it boasts a capacity of 10 million tons, or 5% of the sky launched proceedings – still under way – against Abramovich Russian market – began in 2001-2002. At the time, the mayor and Boris Berezovsky. of Moscow, Yuri Luzhkov, decided to turn the chairmanship of MNGK – the Moscow Oil and Gas Company, to which the capi- The situation changed at the end of 2005. Abramovich sold tal’s refinery belongs - over to his friend Chigirinsky. The latter Sibneft to Gazprom, and it took the name Gazprom neft. But is an oligarch of Georgian origin whose friendship with Luzhkov Luzhkov and Chigirinsky still refused it seats on the Moscow enabled him to buy up the choicest property development proj- refinery’s board. It was only in 2007 that the two sides sat down ects in the capital, including that of the Rossia hotel (RI No. to talk turkey. In the end, Luzhkov and Chigirinsky did rather 42/48). well out of the settlement. The third stakeholder, , let it be known it would retain its share in MNPZ but not partic- In 2001 Luzhkov and Chigirinsky edged Yuri Shafranik, for- ipate in the firm’s management. The Tatars are to turn their mer energy minister under Boris Yeltsin who had run MNGK power of attorney over to Gazprom neft, with which they had since 1997, out of the business. Shafranik had given stakes in long formed a common front against Chigirinsky. d the Moscow refinery to the Tatar company Tatneft and to Lukoil in return for a guarantee of supplies. In 2002, Shalva Chigirinsky’s profile is available in the series from Sibneft acquired Lukoil’s share of roughly 35.11% and “ of Moscow.” Reserved for Premium formed an alliance with Tatneft, which held 17.97%, in a deal subscribers. 7 Russia Intelligence N°70 j January 31 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Regions & CIS

cc FOCUS Fresh Unrest in Northern Caucasus While Chechnya and its hot-headed president Ramzan Kady- bers of the “Sword of Allah” cell but its chief, Bammatkhan rov have dropped out of the news in recent times that hasn’t been Sheykhov, managed to escape even though the apartment where the case with other republics in the northern Caucasus. he took refuge with his followers was literally torched. “The Sword of Allah” came to public attention in the spring of last year by Ingushia: The Zyazikov-Style Anti Terrorism Fight. In a previous staging two attacks against Daghestan’s interior minister, Adil- issue, Russia Intelligence reported on the “I did not vote” cam- gerey Magomedtagirov, as well as several assaults on armoured paign organized by opponents of president Murad Zyazikov to vehicles carrying cash in the Buynaksk region. Some members denounce vote rigging in the legislative ballot on Dec. 2. The In- of the small group, and notably Khalil Omarov, were associates gush president clearly decided to pull out all the stops to muzzle of Rasul Makasharipov, former chief of the pro-Chechen Isla- local civil society. On the eve of a big demonstration due to take mic group Shariat who was killed by the security forces in July, place at Nazran, the local headquarters of the FSB decreed much 2005. of the republic to be “an anti-terrorist zone.” Was Patrushev Targeted at Nalchik? But the most striking The manoeuvre was aimed at blocking access to Ingushia’s event was the assassination of Anatoly Kyarov, chief of the po- biggest city to demonstrators. The 300 people who nonetheless lice commando squad in the republic of Kabardino-Balkaria, at braved the authorities and turned up on Jan. 26 at Nazran were Nalchik on Jan. 12. A prominent figure in the local police who manhandled and scattered by the police. As usual, several jour- was personally decorated by Vladimir Putin in November, 2006, nalists who arrived from Moscow to cover events were roughed Kyarov was killed in his car. Although he was hated by local Is- up and arrested. lamic radicals whom he hunted down mercilessly Kyarov may not have been the target of the attack that claimed his life. Accord- Makhashkala: Sheykhov Eludes His Pursuers. The situation is ing to the Kavkaz Tsentr web site, the assailants thought FSB di- even more worrisome in Daghestan. As president Mukhu Aliev rector Nikolay Patrushev was aboard the car they assaulted. The was describing his successes to Vladimir Putin in the Kremlin Russian security services made no comment about the presence on Jan. 9, units from the defense ministry, FSB and the local po- of Patrushev in Nalchik on Jan. 12 but the possibility is credible lice pressed ahead with an assault they had mounted 24 hours enough. To be sure, the FSB conducted extensive anti-terrorist previously against a group of Islamic radicals in the Tabasaransky exercises early this year in Kabardino-Balkaria and Patrushev area. A few days later, fighting erupted in the republic’s capital, had even personally supervised an airborne commando opera- Makhachkala. Commandos from the FSB eliminated three mem- tion at the center for special operations at Elbrous. d

c The Russian-Moldavian Love-Fest

With the independence of Kosovo now seeming just weeks away, Molda- pean Union, has re-geared the country’s foreign policy. One of the cru- vian president Vladimir Voronin dropped in on Moscow on Jan. 21-22 to cial factors in the process was a spectacular deterioration of Moldavia’s test the Kremlin’s intentions regarding . Nothing was officially relations with Bucharest. The Chisinau authorities were infuriated when said about the talks but it appears certain Russia has no intention of ap- Romania granted passports to Moldavia’s inhabitants (RI 50 of March 2 plying an eventual Balkans “precedent” to the breakaway province. 2007), denouncing the move as a step towards annexation of the coun- From Moscow’s standpoint the political context in Moldavia has evolved try. The ill-chosen words of Romanian president Basescu on re-attaching in a highly favourable manner in recent months. After a deep-freeze Moldavia to Romania didn’t exactly soothe tempers in Chisinau. Indeed, standoff lasting nearly three years, bilateral relations between Russia and tension between Bucharest and Chisinau climbed even further in late Moldavia have returned to normal. Russia lifted its embargo on Molda- 2007 when Voronin came out against the Romanian patriarcate creating vian wine – which it still hasn’t done with Georgia’s wine – while Chisinau three new dioceses (which led Voronin to being decorated by the patri- released Valery Passat, the former defence minister who worked as an arch of the Russian Orthodox church Alexis II on Jan. 21 for his “remark- adviser to Anatoly Chubais before he was clapped behind bars in March able contribution to reinforcing the unity of the Orthodox peoples”). 2005 (RI 59 of July 12 2007) Voronin put a certain number of proposals Russia Intelligence understands the Kremlin laid down three conditions to the Transnistria authorities last autumn with a view to reunification (in for a rapprochement with Chisinau: recognition (in writing) of the own- addition to creating a joint army and re-establishing rail links, they in- ership rights of Russian investors in Transnistria; Moldavia’s agreement cluded recognition of ownership rights in the breakaway province). More to Russia maintaining a military presence on its territory; and the adop- fundamentally, the Moldavian president, who was re-elected in March, tion of a legally binding document underscoring the neutral status of the 2005 on a platform that called for tighter ties with NATO and the Euro- country (that is, renouncing NATO membership). d

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