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Home , Alisher Usmanov, Anatoly Serdyukov, Andrey Vavilov, GRU, Ilya Klebanov, Oleg Deripaska

N°66 - November 22 2007 Published every two weeks / International Edition CONTENTS KREMLIN P. 1-4 Politics & Government c KREMLIN The highly-orchestrated launching into orbit cThe highly-orchestrated launching into orbit of of the «national leader» the «national leader» Only a few days away from the legislative elections, the political climate in grew particu- STORCHAK AFFAIR larly heavy with the announcement of the arrest of the assistant to the Finance minister Alexey Ku- c Kudrin in the line of fire of drin (read page 2). Sergey Storchak is accused of attempting to divert several dozen million dol- the Patrushev-Sechin clan lars in connection with the settlement of the Algerian debt to Russia. The clan wars in the close DUMA guard of which confront the /Nikolay Patrushev duo against a compet- cUnited Russia, electoral ing «Petersburg» group based around Viktor Cherkesov, overflows the limits of the «power struc- home for Russia’s big ture» where it was contained up until now to affect the entire Russian political power complex. business WAR OF THE SERVICES The electoral campaign itself is unfolding without too much tension, involving men, parties, fac- cThe KGB old guard appeals for calm tions that support President Putin. They are no longer legislative elections but a sort of plebicite campaign, to which the Russian president lends himself without excessive good humour. The objec- PROFILE cValentina Matvienko, the tive is not even to know if the presidential party will be victorious, but if the final score “czarina” of passes the 60% threshhold. To the extent that the United Russia programme has blended with the record of the President, these elections serve two objectives : to allow businessmen who have duly P. 5-8 Business & Networks paid their way on to the list to sit in the Duma; to serve as a basis for a political-constitutional ed- BEHIND THE SCENE ifice that permits Vladimir Putin to remain in power, in a form to be determined. c Middle east : Primakov resumes his service A fairly revealing document circulated these days on Russian internet sites. It concerned a letter FOCUS signed by a certain Dyudyaev, secretary of the political council of the United Russia branch in Ke- c Russia-India : accord on merovo addressed to the director general of the Siberian coal and energy company (the SUEK group, the MTA, nuclear cooperation whose owners are the young bankers Melnichenko and Popov) which stipulates that «I interpret on stand-by your refusal to extend financial aid to United Russia as a refusal to support Vladimir Putin and FOCUS his constructive line. I find myself obliged to inform the presidential administration and the gov- c De Beers close to an accord ernor of the region of Kemerovo». United Russia immediately claimed a fake and provocation, but on the Arkhangelsk diamonds? not very convincingly. At the large electoral rally of the party that took place November 21 in , ALERTS the programme was raised only in passing, but speakers of all shades paraded to the rostrum (in- c Shell c Lukoil cluding the indestructible Mikhail Kalashnikov, inventor of the eponymous weapon) to sing the SHIP BUILDING praise of the «national leader» Vladimir Vladimirovich Putin. c Moscow gives its green light to foreign investors ALERTS This stage-setting of a «call to the people» is in fact classic and in addition has served elsewhere c Chemezov c Pakistan as well as in Russia. But in Moscow it is the symbol of an major illness in the executive body. If the c Tupolev legislative elections are transformed into presidential elections, what will happen in March, when ELECTRICITY it will be time to elect a president of the federation? It is not certain that the Kremlin holds an an- c Gaz de France ready to swer to this question. invest in OIL, INSURANCE One thing is certain : the partisans of the continuation of Vladimir Putin in power are putting at c upset work enormous means. In the background, they finance an American-style campaign by United Rus- SUBSCRIPTION sia at the same time that they use their influence to erase from the media the liberal opposition lead- Print Edition ers against who the Kremlin zealots have been unleashed. On the touchline, they have triggered a (23 issues, airmailed overseas) clan war destined to combat all attempt to put into orbit a successor, even from within the entourage €770 TTC of President. Does Vladimir Putin dispose of the margin of manoeuvre and the necessary authority The Web Pack to extricate himself from the twin pressures of an opinion heated to a boil and of clans ready to de- (Print Edition stroy themselves in case of a power void ? No-one knows. + PDF + archives acess) € 880 TTC Basically, there is only consensus on one point : if a decision must be taken concerning the con- The Premium tinuation in power of Vladimir Putin, it must come rapidly after the legislative elections. And it will Subscription probaly not concern the post of Prime minister, since, as we have already said in this column, it as- (Print Edition + PDF + access sures its occupant neither a guarantee of longevity nor direct control over the power structures that to all the website contents) continue finally to play a key role in the political life of the country. d € 1200 TTC

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STORCHAK AFFAIR c Alexey Kudrin in the line of fire of the Patrushev-Sechin clan Despite the appeal for reason made in late October by the KGB idential guard) and Yevgeny Murov, the director of the old guard (read article page 2), the clan war that is shaking the en- FSO (service for the protection of senior personalities). tourage of President Poutine has shown no respite. The tempo has Patrushev and Sechin in fact hardly appreciated that Ku- even increased a notch with the opening of a new front. October 16, drin was re-instated in rank as vice Prime minister in the Sergey Storchak – vice minister of finance – was arrested at the «true-false» ministerial reshuffle in September. The restora- same time as two businessmen, Vladimir Volkov, the boss of the tion of influence for Kudrin is, in their MiB bank, and Viktor Zakharov, the director general of the Moscow eyes, disruptive since the Finance min- firm Sodexim. The objective of the remotely-guided manoeuvre by ister holds an intransigent position on the director of the FSB, Nikolay Patrushev, and carried out by a sensitive question – the management Alexandre Bastyrkin, the boss of the Investigations committee of of the stabilisaton funds, which amount the Prosecutor’s office (a team which had already displayed its skills to some 147 billion dollars on Novem- during the Kumarin and Bulbov affairs – Russia Intelligence n°61, ber 1. 63 and 64) is to weaken the vice Prime minister in charge of finance, Alexey Kudrin. Alexey Kudrin For several months, lobbyists of all types have agitated in the wings to losen Sergey Storchak and the Algerian debt. the pursestrings. The last example, a round table which was held November 15 in the Budgetary commitee of the According to the Investigations commitee of the Prosecutor’s federal council. Its president, Yevgeny Bushmin, and his office, Storchak, Volkov and Zakharov were preparing to divert 43.4 assistant, Vladimir Petrov (ex-Finance minister under million dollars from public funds. The affair is said to be linked to Yeltsin, emprisoned in 1999 for illegal transfers), made a the settling of the Algerian debts to Moscow, a matter that Stor- lengthy appeal in favour of investing a part of the Stabili- chak was charged with at the Finance ministry. In 1996, Sodexim sation fund into shares of Russian state companies. was authorised by the Russian government to resell the Algerian products delivered to Moscow in a barter agree- A few days earlier, another senator, also a former Fi- ment. As a guarantee, the Russian Finance min- nance minister, Andrey Vavilov (read his portrait in Rus- istry required that the amount involved – 26 mil- sia Intelligence n°46-47 of January 19 2007), had published lion dollars – be transferred by Sodexim to the a long article in the same sense in the magazine Profil. In Treasury, which had been done. But in late 1996, view of the debt of Rosneft and its deadlines in 2008 (about the Algerian side ceased to fulfill the contract, 9 billion dollars to reimburse), as well as some mammoth with the result that Sodexim could not deliver investment projects by the Railways (Russia Intelligence to the international markets the products it n°63 of October 11) we can imagine that the oil nest-egg Sergey Storchak should have received. Sodexim at first tried to arouses considerable attention. settle the problem with Algiers, but without suc- cess. Following the signature, in March 2006, of the Russo-Alger- Who sill stop the Sechin-Patrushev clan? ian intergovernmental accord settling the debt (converted into arms deliveries – Russia Intelligence n°37 of July 13 2006), The boss of the FSB and the leader of the Rosneft had Sodexim addressed itself to the Russian Finance ministry demand- therefore decided to broaden the field of battle. We note ing that the 26 million dollars in guarantees transferred in 1996 in passing that a first warning shot had been fired in Feb- be restituted, along with interest. Or 43.4 million dollars. The ruary in the direction of another Kudrin associate, Sergey Finance ministry, but also the Economic development ministry, Ignatev, the boss of the Central bank of Russia. Boris Gry- the Justice ministry and the Vneshekonombank examined the zlov, the president of the Duma and the pro-presidential subject and pronounced a favourable verdict to unblock the funds. party United Russia, had launched the idea of preventing The decision should have been formally authorised by a govern- the Central bank of its role in financial control in favour mental decree. Apparently the FSB had a different perception of of , the services di- the events. rected at the time by a certain . At the same time certain of its current power but anxious about the fu- Who is after Alexey Kudrin’s head? ture, the Sechin-Patrushev clan has decided to neutralise its foes one by one. It then succeeded in preventing the The arrest of Sergey Storchank caught Alexey Kudrin completely nomination of Sergey Ivanov to the post of Prime minister off-guard, when he was in South Africa to assist at a meeting of in September, and launched the offensive against Viktor G20 Finance ministers. But he immediately defended his assistant, Cherkesov in early October. The publicity surrounding the a position repeated November 20 in a communiqué by the ministry. dismissal for corruption of an auditor in the Court of ac- It must be said that Alexey Kudrin is no dupe in this matter and is counts was also a very clear signal sent to its president very conscious of the fact that he is the target of the Patrushev- Sergey Stepashin, an associate of Kudrin. Igor Sechin is Sechin clan. A series of elements point in that direction.First of also labouring in the wings against the interests of Oleg all, the closeness – discreet but real – of the Finance ministry with Deripaska in the Russneft affair (Russia Intelligence n°60 the bêtes noires of the FSB boss and the presidential administra- of 31 August and article page 6). tion, that is : Viktor Cherkesov (boss of the federal anti-narcotics service), (Gazmetall, GazpromInvestHolding For the time being, Vladimir Putin is leaving things alone, – read Russia Intelligence n°62 of September 27), Vladimir Kozhin apparently pleasing Sechin, Patrushev and (director of general services for the presidency, read profile in Rus- in their feeling of impunity. But waging war on so many 2 sia Intelligence n°60 of 30 August 30 2007), Viktor Zolotov (pres- fronts carries with it many risks. d Russia Intelligence N°66 j November 22 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

DUMA c United Russia, electoral home for Russia’s big business “Power and money should be separate”, Vladimir Putin de- sia in Chelyabinsk. His right-hand man, Andrey Morozov, is clared last October 1st to the congress of United Russia. But himself the n°°4. Oleg Deripaska, himself, is also counting on the composition of the list for the legislative elections display Valery Draganov, the former boss of Customs and ex-president the closeness of the links between the business world and the of the Duma economic affairs commission from 1999 to 2006, pro-presidential party. This observation turns as much on the recently recruited by Rusal (Russia Intelligence n°53 of April need for financing by United Russia – an eligible place costs, 13 2007). The leader of the Russian steel sector, Evraz, will no- according to certain sources, between 2 and 4 million dollars – tably be represented by Otari Arshba, 52, from Abkhazia who as the need for Russian businessmen to acquire the legal imu- made his career in the KGB in the Soviet era before joining nity and the protection that come with an association with the Abramov’s group in 1998 as vice president. The main partner powerful. The that will emerge from the ballot boxes for Alisher Usmanov (Gazmetall), Andrey Skoch, is himself on December 2 risks therefore being the sounding-board for dif- n°2 for United Russia in Belgorod, where he is campaigning at ferent lobbies more than the general interest. In all logic, it is the side of the Olympic figure skating champion Svetlana Khor- also the most powerful sectors of the Russian economy that are kina. the best represented on the lists of United Russia. The boss of Rosneft’s Daghestaini subsidiary, Adam Amirilaev, is n°4 of the Although dominant, the mining sector is not the only one re- United Russia list in the north caucasus republic. Lukoil should presented on the lists of United Russia. Vladislav Reznik, the also possess a number of connections with the next Chambre. ex-boss of the insurance firm Rosgostrakh and close friend to Among those that are mentioned are Lyudmila Maltseva, for- Yuri Kovalchuk, is n°5 in Saint Petersburg. The new boss of mer director of the economics & management department, stan- the Sevmash shipyards in Severodvinsk, Nikolay Kalistratov, ding for office in Astrakhan, as well as Valery Prozorovsky, figures in second position in the Nenets district. Yevgeny Tu- formerly in charge of public relations for ’s golukov, the director of the metal engineering group EMAlians group. Another close friend of the latter, Artur Chilingarov – – Alstom’s partner for the production of reactor turbines – is who had led the high-profile Russian expedition to the Arctic n°10 in Rostov. Finally the coming Duma should also host the last summer – is seeking a new term in the Nenets autonomous first Russian space tourist, Vladimir Gruzdev, a former intelli- district. The former vice president of TNK, Vyacheslav Tim- gence officer who in the 1990s founded the “7th continent” su- chenko (no relation to the governor of Gunvor, Gennady Tim- permarket chain. chenko), is himself the n°2 on the United Russia list in Tyumen. He is said to be close to , as is as the gover- It should be noted that two oligarchs, who were once expec- nor of Khanty-Maniysk, Alexandre Filipenko, who still sits on ted to figure in a prominent place on the United Russia list, fi- the TNK management board. nally dropped out : Sergey Bogdanchikov, the director gene- ral of Rosneft, who considered standing in Sakhalin, and The major players in the mining sector will also be present , the boss of Polimetall, who even had spe- in force in the 5th State Duma. The boss of the Magnitka steel- cifically resigned from the Liberal-democratic party of Vladi- works, Viktor Rashnikov, is the n°°2 on the list for United Rus- Zhirinovsky, with which he had been elected up to now.d

War of the services : the KGB old guard appeals for calm The Basmanny tribunal in Moscow confir- of this comment published in the ultra- It is known that, in this matter, Vladimir Pu- med on November 7 the legality of accusa- conservative weekly Zavtra – among whom is tin has decided not to get involved. The Pre- tions made against the n°2 of the federal Vladimir Kryuchkov, the n°1 of the KGB sident has nevertheless subtly called the Rus- anti-narcotics service (FSKN), Alexandre ousted from his post in the summer of 1991 sian intelligence community – and on the Bulbov, whose arrest by agents of the FSB because of his support to the putsch against same occasion the entire society – who in in early October had exposed to the public Gorbachev, and Vagif Guseynov, the former his view are the true heroes. November 3 he the warfare between the principal “power boss of the KGB in , for a while received at his residence at Novo-Ogarevo a structures” (Russia Intelligence n°°63 of Oc- close to AFK Systema and to Zarubezhneft GRU () delegation, a tober 11 2007 and n°°64 of October 25 (Russia Intelligence n°46-47 of January 19 neutral structure in the “war of the services”. 2007). The right-hand man of Viktor Cher- 2007) – underlined that the “contradictions The object of this brief ceremony was to kesov remains emprisoned, as well as Yuri betwen the different special services must not confer to general Valentin Karabelnikov Gelaev, the n°°2 for security of the FSKN. be used for dirty objectives by internal or ex- and to his aides the possession of the “hero The inquiry into the case should be closed ternal destructive forces”. Nothing indicates, of Russia” medal awarded to . by mid-December, according to the Investi- however, that the bosses of the Russian servi- This chemist born in a Jewish immigrant fa- gations committee of the prosecutor general. ces are ready to yield to the arguments of the mily in the before the Bolshe- The power struggle between Viktor Cherke- old guard of the KGB. New dirty tricks are vik revolution, had infiltrated American ins- sov, Nikolay Patrushev and their respective even probable. Especially after the discovery, tallations devoted to the nuclear programme allies is therefore still underway. However, in October 27 in Saint Petersburg, of the bo- during the second world war. Returned to late October, several former senior KGB offi- dies of two FSKN agents, apparently dead the USSR in 1949 without having been un- cials appealed for calm. “We address oursel- from poisoning. No links with the Bulbov af- masked by the FBI, he pursued his chemical ves to the parties in conflict : do not take any fair have been officially made, but, to use the career within the prestigious MKhTI institute steps against the others. Otherwise, trust our expression of the FSKN spokesman, General in Moscow, persistently expressing the wish experience, great misfortunate could result, Alexandre Mikhailov, “the circumstances that his secret be kept until his death, which d and it should not come to that.” The signers [of the deaths] are strange”. occurred recently. 3 Russia Intelligence N°66 j November 22 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

PROFILE c Valentina Matvienko, the “czarina” of Saint Petersburg For several weeks, Moscow has buzzed with rumours about pliagerism in the president’s university work (the “ghosts” a possible promotion for Valentina Matvienko to the presi- whom Litvinenko assigned to write the Putin thesis had omit- dency of the State Duma after the December 2 elections. Rus- ted to cite references for western university works which had sia Intelligence returns to the road travelled by the governor “inspired” them). The daughter of Vladimir Litvinenko, Olga, of Saint Petersburg, her networks in the northern capital and herself leads the “Victory” movement (the “Mironovite youth”) her links with the principal clans in the Kremlin. and was elected to the Saint Petersburg municipal assembly last March. Molchanov is the only current vice governor who The «protégé» of . has a chance of succeeding Valentina Matvienko, but one part of the regional economic elite fears his expansion. Valentina Matvienko owes the start of her rise to the ex- Prime minister Yevgeny Primakov, who had particularly ap- The clan of Yuri Kovalchuk, the president of the Rossia preciated her work in the Russian embassy in Athens in the bank (whose biography is available on the website of Russia middle of the 1990s. She was then recommended to Vladimir Intelligence) has important connections in the media (5th Putin by the former Health minister (1999-2004), Yuri Shev- channel, Oleg Rudnov’s Baltiyskaya mediagrupa). In the town chenko, a colleague of her husband, Vladimir Matvienko. We hall, it is Alla Manilova who is the link with Valentia Mat- recall that the latter is the personal doctor to Ludmila Pou- vienko. tina since 1994. Another influencial support for Valentina Mat- vienko – Vladimir Khodyrev, the former boss of the party in The last important influence group in Saint Petersburg is Leningrad (1983-1990), and today a prosperous businessman the one around Ilya Klebanov, the presidential high represen- (he manages the Tetrapolis ) and is close to tative and Vladimir Kogan, the n∞2 of the Rosstroy federal Vladimir Putin since the beginning of the 1990s. agency. Kogan has sold his banking assets (Promstroybank bank “Saint Petersburg”) to the son of Valentina Matvienko, When she stood in the municipal elections in the “northern Sergey, who has become in the meantime vice president of the capital” in 2003, Valentina had neither the team nor the net- Vneshtorgbank. The Klebanov-Kogan group is represented in work established. This is in fact still the case to the extent that the entourage of the governor by Mikhail Ovseevsky, the ex- the governor of Saint Petersburg has no real obligations : her boss of the Saint Petersburg petroleum product exchange (foun- entourage lived quite well under her predecessor, Vladimir Ya- ded by Putin). In the Kemlin, it is backed by , kovlev. Nevertheless, it remains that the administrative and the president’s sherpa. economic elites of the city are on the whole satisfied with the management of Valentina Matvienko. Valentina Matvienko’s relations in Moscow.

The four major clans of Saint Petersburg. Currently, Valentia Matvienko’s protectors are Viktor Iva- nov and Nikolay Patrushev. Relations between the governor of Currently four major political-economic interest groups are Saint Petersburg with Igor Sechin and Sergey Ivanov are neu- evident in the “northern capital”. The first is organised around tral. They are on the other hand more tense with Dimitry Med- the vice governor Viktor Lobko and the president of the mu- vedev, who would like to place one of his associates – Nikolay nicipal assembly, Vladimir Tyulpanov. It counts in its ranks Kropachev, the dean of the state university law faculty – at Oleg Virolaymen, who is in charge of municipal road infra- the head of the city. d structure. The Lobko-Tyulpanov group, at the federal level, de- pends on Viktor Ivanov and Nikolay Patrushev, the director of the FSB. Valentina Matvienko : biography Another influencial group – led by the vice governor Yuri 1949 Birth in Khmelnitsky region in Soviet Molchanov. Molchanov in1990 managed the department of in- Ukraine ternational cooperation at the state University of Leningrad. 1972 Graduated from the Institute of pharma- His assistant at the time was none other than Vladimir Putin. ceutical chemistry in Leningrad According to our information, Molchanov recommended that 1977-1984 Second then first secretary of the take Vladimir Putin, his former student, on Leningrad Communist youths his staff in the Saint Petersburg municipal administration. In 1989 Election to the Supreme soviet of the USSR the early 1990s, Yuri Molchanov also rode with Sergey Miro- 1990 Auditor at the diplomatic academy of the Foreign affairs nov, the current president of the Senate, by naming him di- ministry rector general of one of his companies (“Rennaissance of St 1991-1995 Ambassador to Malta Petersburg”) and in having him elected to the municipal as- 1997 Nominated ambassador to Greece sembly in 1994. Molchanov also sponsored the party of Sergey 1998-2003 Vice Prime minister in charge of social questions Mironov, Fair Russia, which he is the leader of in Saint Pe- 2003 (March) Named high representative of the president in tersburg. the north west federal district 2003 (October) Elected with 63% to the post of governor of It also should be noted that Yuri Molchanov is a friend of Saint Petersburg the rector of the school of mines of Saint Petersburg, Vladi- 2006 Re-appointed to the post by Vladimir Putin mir Litvinenko. Director of Vladimir Putin’s thesis, Vladimir Married to Vladimir Matvienko, retired army doctor. Her son, Litvinenko seemed destined for a ministerial future before the Sergey, 34, is vice president of the Vneshtorgbank (VTB). 4 western press disseminated the information of suspicion about Russia Intelligence N°66 j November 22 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

BEHIND THE SCENE cc FOCUS Middle east : Primakov Russia-India : accord on the MTA, nuclear resumes his service cooperation on stand-by Russian diplomatic activity in the Middle east has been stepped up on the eve of In its edition of last October 25, Russia Intelligence spread the news about the Israeli-Palestinian summit in Anna- uncertainties which have appeared recently in relations between Moscow and polis. In early November, former Prime New Delhi. The ambiguous results of the visit by Indian Prime minister Manmo- minister Yevgeny Primakov undertook a han Singh to Moscow on November 12 confirmed this diagnosis, even if each side confidential mission to Damascus, where is seeking to de-dramatise the situation. he presented the Syrian president Ba- char el-Assad with a message from Vla- It is true that three bilateral accords were signed on this occasion – on anti- dimir Putin. Then on November 15, it narcotics cooperation, conversion of the Indian debt to the USSR and on the MTA was the turn of Alexandre Saltanov and (Multirole Transport Aircraft). Developed by Ilyushin and Irkut – India’s long- Sergey Yakovlev – respectively vice mi- standing partner, which delivers its Su-30 MKI and whose boss, Oleg Demchenko, nister for foreign affairs and Russia’s spe- speaks Hindi fluently– the MTA is a miltiary transporter with a 20t capacity des- cial representative for the Middle east – tined to replace the An-12 in service with the Russian and Indian air forces. The to visit Tel-Aviv. They were received no- latter plan to order 45 and 100 units respectively, while Ilyushin hopes to sell tably by the foreign minister, Tsipi Livni, 400 aircraft in third countries. The document signed November 12 by the direc- and by the secretary of the national secu- tor of the federal service for military and technical cooperation, Mikhail Dmi- rity council, Ilan Mizrahi. triev, and the Indian ambassador to Moscow, Prabhat Shukla, opens the door Officially, it concerned the peace confe- for an official contract that Rosoboronexport and HAL should complete by the rence foressen for the end of the month end of the year. in the United states. Yevgeny Primakov may have convinced the Syrian president As much as we can know, and Indians will co-finance the MTA pro- to send a representative to Annapolis ject up to 300 million dollars each. An investment that should cover development and to abandon plans for a “counter- and production of prototypes, but not tests nor full production, according to Oleg summit” in Damascus in the presence of Demchenko. The unit price of the MTA should be between 55 and 70 million dol- Palestinian radical movements, Hamas in lars (in comparison the American C130J is proposed at around 160 million dol- the lead. lars). Certification is anticipated in 2013 if everything goes according to plan If certain information circulating in Mos- cow, can be believed, he would have The MTA accord represents an important victory for Russian aerospace, who also put on the table another peace ini- feared that the Indians would ultimately turn to Spain’s CASA or Brazil’s Em- tiative. The Kremlin would try to braer to carry out this project.This does not hide the failure to sign other antici- convince Syrians and Israelis to partici- pated documents. This involves especially a contract for the construction of 4 new pate in a bilateral summit to be held on reactors on the Kandakulam site, in addition to the two built by Atomstroyex- Russian territory that would be the occa- port. According to our information, Manmohan Singh believed the signature of sion to discuss, among other subjects, such a contract with Russia just a few weeks after the suspension of the highly- the Golan and . In this way, Vla- visible Indo-American nuclear agreement (Russia Intelligence n°°64 of October dimir Putin would hope to outshine the 25 2007) woould have constituted a wrong signal towards Washington. If certain United states by providing proof of the indiscretions in circles close to Sergey Shmatko, the boss of Atomstroyexport, ability of Russia to propose concrete so- this delay would not undermine the principle of a contract with New Delhi. This lutions in the region and not limit itself to is also the case for the leasing of a Nerpa (project 971) attack nuclear subma- a diplomacy based on “flash”. Two other rine to the Indian navy. factors are also at work in Moscow’s cal- culations. On the one hand, the recovery More astonishing, the absence of a joint political statement at the end of the of Russian influence in the Middle in Da- Singh-Putin meetings. The Indian press saw in this the confirmation of political mascus since the reactivation of military- difference which had surfaced between Moscow and New Delhi which were al- technical cooperation in 2005. On the ready visible in late October during the Russia-India-China summit in Harbin. other, the desire not to strengthen Sy- The communiqué published by the foreign ministries of the three countries no rian-Iranian axis, a preoccupation also longer carried the formula – consecrated ever since the first tripartite event of shared by . this type in Vladivostok in 2005 – according to which Russia, India and China In the meantime, Moscow is preparing to “shared the same approaches to major geopolitical trends of the XXIst century”. mark points in a country up to now It must be said that Moscow hardly appreciates New Delhi’s support for the Ame- considered as an American private hun- rican-Japanese project for a theatre anti-missile defence, no more than its inte- ting ground – Saudi Arabia. Rosoboro- rest in the creation – under the stimulus of Tokyo – of a union of Asia-Pacific de- nexport is completing with Riyad a mocracies in which is also a participant. contract for 2.2 billion dollars for deli- very of some 150 (Mi-17 and Mi-35) On the eve of the arrival of Manmohan Singh in Moscow, the Russian vice mi- transport and combat helicopters. The nister for foreign relations in charge of Asia, Alexandre Losyukov, had admitted historic visit by Vladimir Putin in the Wa- the existence of “bumps” in bilateral relations. They do not seem to cast doubt habi kingdom last winter (Russia Intelli- on the “strategic partnership”, but in Moscow and New Delhi no one really belie- gence n°°49 of February 16 2007) now ves in the return to the status quo ante.d seems to be bearing fruit.d 5 Russia Intelligence N°66 j November 22 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc FOCUS ALERTS De Beers close to an accord 3 Yamal, or Shell’s new Russian horizon on the Arkhangelsk diamonds ? Its disappointment over the Sakhalin In February 1996, the Canadian firm Archangel Diamond Corporation, a II project in early 2007 (Russia subsidiary of the De Beers group, discovered north of the city of Arkhangelks, Intelligence n°46-47 of January 19 in the Russian north-west, one of the most attractive diamond deposits in the 2007) has apparently not discoura- country, whose potential is estimated at 67 million carats, which in relation ged Shell from developing its activi- to the evaluations on the final price, places the value of the deposit between ties in Russia.On the margins of the 5 and 7 billion dollars. More than ten years later, not one carat has yet been recent visit by Prime minister Jan produced and the affair has become one of the most important disputes cur- Peter Balkenende to Moscow, the rently between Russia and foreign investors. boss of the Anglo-Dutch oil group, Jeroen van der Veer declared that Archangel Diamond had in fact concluded an accord with a Russian en- he visualised participation in a “giant tity, Arkhangelskgeodolbycha (AGD), which itself had in 1993 obtained an long-term project in liquified natural exploration permit for this deposit. At the start an administrative entity, this gas and oil” on the Yamal peninsula. It should be recalled that 26 deposits, enterprise was privatised to the benefit of two Russian businessmen of re- primarily controlled by , known, Vagit Alekperov, the boss of the oil group Lukoil, and Alisher Us- totalling gas reserves of 10 400 m3 manov, magnate in iron ore, finance and media. (or about three times the deposits at Shtokman and five times more than Archangel Diamond and AGD concluded an accord on the constitution of a those at Kovytka), are concentrated joint company to exploit the Verkhotina mine, in which the Canadian com- in this region. At this stage, nothing pany was a 40% shareholder. Archangel Diamond also accepted to take charge more is known concerning the choice of the first investments. But AGD never transferred the exploitation license of organisation or details of this ope- to the joint company and this point has become the subject of legal action, no- ration, but the statements made by tably before the arbitration court in Stockholm since 1999. Archangel demands Jeroen van der Veer seem to lend 1 billion dollars in damages and interest. It has passed by profits and losses, support to those in the Kremlin the 18 million already spent under exploration costs. In the meantime, it is and at Gazprom who believe difficult to know exactly how Alekperov and Usmanov have divided the shares that the Western majors are ready to in AGD. Several months ago Usmanov let it be known that he had transferred swallow a number of setbacks in his, which nothing has yet confirmed. Alekperov himself transferred the mat- order to maintain a foothold in ter apparently to Leonid Fedun, his associate in Lukoil. Russia. d

On the legal side, the matter was relaunched in 2006 before the Stockholm 3 : Lukoil holds arbitration court whose work should normally continue until next February. out hope And last May, Archangel Diamond announced that the NM Rothschild bank An important Iraqi delegation led by would thereafter be its financial adviser in this matter. Munqiz al-Bakr, adviser to the oil minister in Baghdad, travelled to Rus- Up until the last few days, the situation appeared frozen. Then in early No- sia in mid-November to prepare the vember, Archangel shares on the Toronto stock exchange (which were listed next session of the intergovernmental at 35 cents on October 31) became the subject of unusual transactions, par- commission on economic coopera- ticularly purchases, to the extent that Canadian market authorities suspended tion. According to our information, trading. De Beers holds more than 59% of the capital, with the rest apparently contacts were made notably with the in the hands of speculative funds such as Firebird in the United States and management of Lukoil concerning private investors. This movement in the stock could therefore indicate that a the West-Kurma 2 deposit (Russia conclusion is approaching. In the current atmosphere prevailing in Russia, it Intelligence n°51 of March 16 2007). is probable that Russian investors want to push De Beers to abandon the game. The Iraqis were said to have passed It is not certain, however, that this is for the benefit of Alekperov and Usmanov. on two messages. First, Baghdad will This deposit is sufficiently promising to attract the attention of federal and not reconsider the cancellation of regional authorities. Already in June 2005, the federal service for the protec- contracts signed by Saddam Hussein, tion of natural resources (Rosprirodnadzor), had threatened to withdraw the but Lukoil has all the chances to win Verkhotina license from AGD because of «numerous violations». The possi- the new call for tender on West-Kurma bily of an intervention by Alrosa in the case could materialise. The state min- 2. In addition, this matter can proceed ing group is seeking to develop the diamond deposit in Lomonosov which is independently of the adoption of the next to Verkhotina, and for which Alrosa has already spent several dozen mil- new Iraqi petroleum law. lions of dollars. The Moscow sources of Russia Intelli- gence also underline that Russia – taking With Verkhotina, Alrosa (whose administrative council president is the Fi- into consideration the fragmentation of nance minister Alexey Kudrin), would control virtually all the country’s dia- Iraq – is now increasingly seeking to deal mond deposits. But it would need a sufficiently attractive price for De Beers directly with the Kurdistan authorities. and especially Alekperov and Usmanov who have spent several million dollars By coincidence or not, the Foreign affairs in lawyers’ fees but who, especially, have preserved this asset from the out- ministry has just opened a consular of- d 6 siders for more than ten years. fice in Erbil. d Russia Intelligence N°66 j November 22 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc FOCUS ALERTS Ship building : Moscow gives its green 3 Defence ministry : procurement slips away light to foreign investors from Chemezov In its edition of October 25, Russia Intelli- In its editions of March 30 2007 and October 25 2007, Russia Intelligence gence spread the news about the lobbying had analysed the major points in the reform of the Russian shipbuilding sec- by Sergey Chemezov before the Prime tor and the priority objectives assigned by Prime minister Viktor Zubkov to his minister Viktor Zubkov in order to extend old friend Yuri Yarov, recently named at the head of the new OSK public hol- the contours of his future holding com- ding company. We now know a bit more on the means that the Russian govern- pany, Rostekhnologii to Rosoboron- ment intends to set in motion concerning the civilian side. November 8, the In- postavka, the Defence ministry agency dustry and energy minister, , presented a multiannual charged with acquisition of materiel. The development programme for civil naval equipment. Covering the 2009-2016 pe- Kremlin has finally decided to veto the riod, it foresees public financing amounting to 141 billion rubles (or a bit more idea. According to our information, than 4 billion euros), of which 91 billion will come from the federal budget. Un- Vladimir Putin was not insenstitive to the surprisingly, the gaps targeted as priorities by Russia are platforms for the anti-corruption arguments put forward by groups in the hydrocarbon sector, as well as icebreaking tankers with a capa- the Defence minister, . city superior to 140 000 tonnes. At the end, three new yards will dispose of in- Sergey Ivanov, the vice Prime minister and frastructure needed for the production of vessels of a very high tonnage in the president of the military-industrial com- Baltic, White sea and the Pacific coast (currently Russia cannot produce ships mission, also jumped into the breach to foil of a capacity above 70 000 tonnes). The development bank created by the go- the ambitions of Sergey Chemezov. In- vernment on the basis of the Vneshekonombank (Russia Intelligence n°59 of stantly, Rosoboronpostavka, which up until July 12 2007) will contribute. then had been an empty shell, should quickly set up its teams. Aware of the delay experienced by Russia and its medium- term prospects on the world markets, Viktor Khristenko 3 Beijing could re-export confirmed that the civilian shipbuilding would be open to Russian engines to Pakistan foreign investments.This opening should be contained in The director of the Federal service for mili- the law on foreign investment that the next Duma will adopt tary-technical cooperation (FSVTS), probably in the first half of 2008. It is nevertheless not cer- Mikhail Dmitriev, has finally given his ap- tain that this will be enough to achieve its objectives – ho- proval for China to re-export the RD-93 en- wever modest (2%of the world production of civilian ships Yuri Yarov, gines delivered to Beijing by Rosobornex- by 2015) – set by Russian authorities. Several Moscow ex- president of OSK port. The Chinese could then equip with perts consulted by Russia Intelligence called attention to (United Klimov engines the roughly 150 FC-1 fight- the fact that the main clients foreseen – Gazprom, Rosneft, Shipbuilding ers that they intend to supply to Pakistan. Lukoil – have not yet prepared their offshore development Corporation) We recall that this contract was at the ori- strategies and cannot therefore at this stage provide pre- gin of displeasure by the Indian defence cise indications on their order for tankers and other platforms. So much that ministry (Russia Intelligence n°43 of the figures indicated by Viktor Khristenko (30-50 units produced by 2012 for November 10 2006). about 20 billion dollars) are based on scenarios that are largely hypothetical. 3 Tupolev has While waiting, Russia registered a happy event in the military naval sector. a favourable wind On November 4, the combat fleet officially took delivery the corvette “Stere- The Russian aircraft manufacturer – hence- gushchy” (project 20380). Planned by the design bureau Almaz and built in forth an integral part of the OAK consor- the northern shipyards in Saint Petersburg, this multi-role vessel of 2000 ton- tium – has just registered one after another nes will be assigned to the Baltic fleet. Five other units of this series are cur- two good pieces of news. Vladimir rently under construction (three in the “northern capital” and one in the Amour Kozhin, the director of the presidency gen- yards in the Far-east, this latest craft aimed at integrating into the Pacific eral services, let it be known that the Krem- fleet). According to information that circulated in Moscow, the Russian com- lin had decided to pass an order for 6 bat fleet would nevertheless not receive them before 2011. The reason, the ab- Tu-334 regional aircraft. A choice a priori solute priority given by the Defence minister to the programme for a new ge- surprising since the Tu-334 project had up neration of rocket-launching nuclear submarines (project 955 class “Borey”). to now the greatest difficulty to convince of Construction of the first three of the series (Yuri Dolgoruky, Vladimir Mono- its industrial relevance, instead of being makh and Alexandre Nevsky) in Severodvinsk correspondingly reduces funds seen as a political choice. This aircraft was allocated to the surface fleet to a bare minimum. So, the northern shipyards – preferred to the SuperJet-100 from Sukhoi which, in addition to the corvette project 20380, are also the prime contrac- (too «westernised») and the An-148, la- tor for multi-mission ocean-going frigates project 22350 and the electronic belled as being «Ukrainian» although built surveillance ship project 18280 – should receive only 3 billion rubles in 2009, in the Voronezh factory. Elsewhere, the although double that amount would be needed to meet the deadlines origi- Tupolev management also signed a pre- nally foreseen. contract with the firm Iran Airtour for deliv- ery of some thirty Tu-204. The amount of Viktor Khristenko’s and Yuri Yarov’s mission will not be, as can be seen, easy.d the transaction is estimated at 1.3 billion dollars. d 7 Russia Intelligence N°66 j November 22 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

ELECTRICITY c Gaz de France ready to invest in Siberia Gaz de France is considering following the example of Italy’s EES executive, Artyom Bikov, supposedly in view of the acqui- ENEL and Germany’s E.On by taking part in the privatisation sition of TGK-10. In the meantime, the German group has in- of the Russian electricity sector, which Russia Intelligence vested close to 4 billion euro in the acquisition of OGK-4 (Rus- furnished the details and stake of in its previous edition (n°°65 sia Intelligence n°62 of September 27 2007), and might not be of November 8 2007). Already in October, Jean-Marie Dauger, in the running for TGK-10. An element that undoubtedly had a the deputy director general of the group, had declared to the role in the GDF decision. It remains that the French will be daily Les Echos, that in Russia, he was more interested in in- confronted with serious competitiion from the oil companies, vesting in the electricity sector than in gas. Then on Novem- Lukoil and Surgutneftegaz, as well as , also in- ber 13, in the margins of the 20th world energy congress be- terested in TGK-10. Nevertheless, sources close to the subject ing held in Rome, a GDF delegation met theRussian Industry have pointed out to Russia Intelligence that the Russian side and energy minister, Viktor Khristenko, as well as the boss seems particularly interested in the presence of GDF in the of RAO EES Rossii, . If we can believe cer- electricity generating sector. The decoration ceremoniously tain information circulating in Moscow, the meetings concerned awarded by the Russian Prime minister Viktor Zubkov to the TGK-10. Uniting several power stations from the Urals CEO of Gaz de France, Jean-François Cirelli, is a sign in the (Chelyabinsk) and western Siberia (Tobolsk, Tyumen), TGK- same direction. 10 represents an installed capacity of 2700 megawatts. Cur- rently controlled by RAO EES Rossii (81.5%), it should be pri- It should be noted in passing that another French energy group, vatised in March 2008. The Russian side would like to come EDF, might itself soon announce some major investments in Rus- away with more than 2 billion euros from this operation by sia. In early October, a senior official of Inter RAO EES – the in- favouring the entry into its capital by a strategic foreign ternational subsidiary of the national electricity company RAO investor.It should be recalled that at the beginning of the sum- EES Rossii – had declared to the Russian press that discussions mer, E.On had established a joint-venture with a former RAO were underway with the French on the sale of 25%of the group. d

OIL, INSURANCE cOleg Deripaska upset In its previous delivery, Russia Intelligence brought you the control of the old oil company belonging to Mikhail Gutseriev. news of the clash between Oleg Deripaska and the PPF In- We also wrote that he was colliding with the interests of Igor Se- vestment/Generali tandem for control of the Ingosstrakh in- chin and the Rosneft clan, which also seemed to be eyeing the surance firm. The operation has witnessed a number of deve- Russneft assets. Judicial decisions aiming at blocking movement lopments in recent days. November 12, the Moscow arbitration of Russneft shares were the proof (part of the assets of the oil tribunal prohibited the federal financial markets service from company being registered in offshore companies, it is neverthe- registering the increase in capital by Ingosstrakh decided on less difficult to know which are affected by the blocking action). October 8 by the majority shareholder Base Element. A blocking measure that contradicts plans by Oleg Deripaska, who wan- If we can believe the director general of Base Element, Gulz- ted to use this share increase to dilute the interests of Petr han Moldazhanova, the discussions aimed at the acquisition Kellner and his Italian partners in the capital of Ingosstrakh. of Russneft are being pursued with “its new owners”. A compli- But the boss of Base Element has not said his last word on the cated formula that lends us to believe that Oleg Deripaska let matter. On November 14, in fact it was learned that the anti- himself be “overtaken”, but not necessarily by Rosneft. If the monopoly service – requested by a deputy of the Duma, Valen- situation arose, the state company would certainly not consi- tin Bobryshev – declared it had not legalised the details of der selling Russneft. the purchase of 38.46% of Ingosstrakh by Alexandre Mamut by PPF in late 2006. A decision that could provide certain le- This mysterious episode can’t help but recall the notewor- gal arguments to Oleg Deripaska in view of his opposition to thy Prana deal (Russia Intelligence n°55 of May 16 2007 and to the transaction as such. Russia Intelligence n° 59 of July 12 2007). We recall that last spring, this unknown entity bought for close to 4 billion dollars, Things also seem to getting more complicated for the boss of the headquarters and some of its debts before reselling Base Element on another hot issue of the moment : the acqui- them at a hefty price to Rosneft. This type of transaction allows sition of Russneft. In our editions of August 30 and September some members of the Russian top administration to amass some 27, we indicated that Oleg Deripaska – strengthened by the impressive bankrolls during this period of major political uncer- backing of Vladimir Putin – was well-placed to take over the tainty. d

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