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Home , AiRUnion, Alisher Usmanov, Arkady Rotenberg, KrasAir, Mikhail Prokhorov, Oleg Mitvol

N°83 - September 11 2008 Published every two weeks / International Edition CONTENTS /GEORGIA P. 1-4 Politics & Government c RUSSIA/GEORGIA A Conflict Closely Tied to the Kremlin’s c A Conflict Closely Tied to the Kremlin’s Energy Energy Strategy Strategy One month, give or take a few days, after the start of the armed conflict between Georgia and c Russian Generals at the “Georgian Front” Russia leading to the recognition by of South Ossetia and Abkhazia as independent nations (Russia Intelligence n° 82 of 28 August), the following conclusions can be drawn: c Irakly Okruashvili: “The military option in Tskhinvali was injustified 1/ On the ground, Moscow remains in control of the timetable and of operations. The agreement PROFILE obtained by Nicolas Sarkozy in Moscow on September 8 represents but a minor thaw in rela- c , A New tions between Russia and the European Union. The only positive point is that a deadline was set Rising Star in the Putin for the removal of Russian troops from Georgian soil, which should be completed by mid-Octo- Network ber. Meanwhile, check-points, notably around Poti are being disassembled as we go to press. The ALERT fate of the “security zones” established by the Russian military along the Georgian sides of the c Fetisov Leaps into Ossetia and Abkhaz borders appears settled as Russia will leave them under the surveillance of European observers as of October 1. As for the rest, clearly spelled out to Nico- las Sarkozy, Jose Manuel Barroso and Javier Solana that recognizing the independence of South P. 5-7 Business & Networks Ossetia and Abkhazia is an irrevocable decision and that it is up to international institutions to OIL treat the two territories as sovereign nations. Furthermore, the long-term commitment of Russ- c TNK-BP: What is Behind the Compromise ian troops in Abkhazia and South Ossetia has been de facto established. The Russian defense minister Anatoly Serdyukov, said that 3 800 troops and officers will be stationed in South Osse- ALERT c Sets its Sights on tia (versus fewer than 600 peacekeeping forces in place before August 7) and an equal number Nigeria in Abkhazia. Although the withdrawal of Russian troops from Georgian soil is a victory for French AIR CARRIERS and EU diplomacy, the main objective (a return to pre-conflict positions) has not been and will c Chemezov, Luzhkov and not be achieved in the -term. Usmanov Outwit ALERT Elsewhere on the ground, the media war between Russia and Georgia continues. Russ- c Is Oleg Mitvol Teaming up ian television is replete with reports, investigations and “revelations” on the secret participation with ? of U.S. advisors and secret agents in the “Fascist aggression” of Georgian forces in South Osse- PIPELINES tia. Recently returned from Vladikavkaz (capital of North Ossetia) and Tskhinvali, (capital of c South Stream vs Nabucco : South Ossetia) Russia Intelligence can vouch to the significant destruction wrought by the Geor- Moscow Scores Some gian forces on sometimes surprisingly non-military targets including schools, the university, the Points parliament building and residential districts. The Georgian districts of Tskhinvali are empty of BEHIND THE SCENE their inhabitants and all the private homes, service stations or shops in these districts are de- c Udokan: High Stakes Win stroyed or burned. Graffiti visible on the soot-covered walls leave little doubt as to those respon- for sible for the damage. It’s clear that “territorial continuity” between North Ossetia and it’s sister state, South Ossetia, is a reality despite the presence of an authentic border checkpoint. In Tskhin- P. 8 Regions & CIS vali, letters are carried by the Russian postal service. Between Vladikavkaz and the border, along CAUCASUS the single, mountain road that climbs toward the border with South Ossetia, there is evidence of c Ingushetia on the Brink progress being made on the gas pipeline that straddles the two republics. Work is moving ahead on the road widening project of the main access artery between the two capitals. It may not be SUBSCRIPTION Print Edition discussed officially, but integration between North and South Ossetia has begun and is wished (23 issues, airmailed overseas) for by most officials met in Vladikavkaz who cite reasons of “security” and “reunification”. €770 TTC

The Web Pack 2/Georgia is facing a difficult re-armament problem. For Mikheil Saakashvili, seeing Russian (Print Edition troops leave Georgian soil offers short-lived relief. Faced with Moscow’s refusal to discuss issues + PDF + archives acess) of respect for the integrity of Georgia’s territory, the European Union appears to have accepted € 880 TTC the losses of South Ossetia and Abkhazia. Georgia finds itself in a very difficult position. Presi- The Premium dent Saakashvili faces domestic opposition that will become more and more vocal in coming Subscription weeks (see page 3; interview with former Georgian foreign minister Irakli Okruashvili and the (Print Edition + PDF + access last issue of Central and Caspian Intelligence). Efforts by the president and his faithful to all the website contents) followers to hold the Russian Army responsible for the August 7 attack on Tskhinvali ddd € 1200 TTC

www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

ddd have failed to convince due to a lack of hard, ver- 3/The Kremlin has comforted its regional energy stra- ifiable evidence. The unease within the ranks of the Geor- tegy. Diplomatically, the international community has not gian Army is palpable, both because of the high price in hu- finished with Russia and the latter will have to tread softly man life (treated as a state secret) and because of the severity in order to avoid threatening, once again, the current “sta- of the destruction inflicted on buildings and infrastructure bilization”. Nonetheless the Kremlin can claim to have as well as the manner in which combat occurred. Mikheil scored some tangible points towards consolidating its dom- Saakashvili was forced to undertake some brutal sackings in inant position in the Caspian and Central Asian energy recent days. The deputy chief of staff, Alexiy Osepaishvili, sectors. From this perspective, U.S. vice-president, Dick was replaced by artillery commander Devi Chankoladze, Cheney’s, visit to on September 3 was a notable dis- while infantry commander, Mamuka Balakhadze, was sent aster. Dick Cheney and president Ilham Alyiev, to for training and replaced with Zurab Agladze. are old acquaintances since both have worked in the oil Furthermore, the commander-in-chief of the National Guard, and oil derivatives industry. Yet, Aliev sent a mere first vice- David Aptsiauri, responsible for the preparation and mobi- minister, Yagub Eyubov, to head the welcoming commit- lization of reserve troops was removed from his post thus pay- tee which greeted the US vice-president upon arrival. Later ing the price for the disastrous manner in which the reserves in the day, discussions stalled between Cheney and Aliev were deployed against the Russian forces. Georgia is loudly on topics such as gas pipelines linking the Caspian Sea to demanding that NATO and the provide aid for while by-passing Russia (Nabucco, for example). new weaponry. For the moment, the West has remained pru- The Azerbaijan president wanted to do nothing that would dent. A NATO technical mission was recently dispatched on displease Moscow, to the point that Cheney decided not to site to evaluate the magnitude of the destruction to which attend the dinner offered in his honor. Cheney had barely the Georgian Army was subjected. It’s urgent to restore the left before Medvedev picked up the phone to Aliev, to set country’s Air Force but there is also a need to replace the up a meeting in the near future. The two met as recently thousands of automatic weapons and the dozens of armored as July in Baku to discuss potential gas sales by Gazprom vehicles that the “recuperated”. But Russia has al- at “European” rates. Add to this recent Gazprom accords ready submitted a proposed resolution to the United Nations with Turkmenistan (Russia Intelligence n°82 of 28 Au- Security Council placing an embargo on arms sales to Geor- gust), discussions launched with on the con- gia. This is bound to become a bone of contention between struction of a new gas pipeline (see & Caspian the U.S. and Russia in coming weeks. In Russia, some of the Intelligence), it’s clear that Russia wants to impress on its military hierarchy is very critical of Georgia’s re-armament Western partners that it holds the key to access to the en- projects and has warned that it will be keeping a vigilant eye ergy resources of the Caspian and Central Asia region. But on events. The next episode could be played out at the NATO more than anything it wants to prove that, as far as Europe meeting (ambassador level) scheduled in Tbilissi on Septem- is concerned, Georgia has now become a liability rather ber 15 and 16. than an asset. d

Russian Generals at the “Georgian Front”

Nearly unanimously declared a brilliant military success, the well-coordinated and led by General Viktor Astapov and Admi- “Five Day War” brought to the fore the crucial role played by a ral Sergey Menyaylo. For the Navy, the commander of the dozen high-ranking officers in the field and in Moscow. Black Sea Fleet’s flagship (the missile-launching cruiser, One of the most visible was Vyacheslav Borisov. The deputy Moskva), Igor Smolyak, commanded the group which des- commander for airborne training, a rotund man with a rich vo- troyed most of the Georgian Navy in Poti. cabulary, commanded operations around Gori. This could be In Moscow, the crisis was managed directly by the head of mili- seen as revenge for the former head of the Batumi Base, eva- tary intelligence (GRU), Valentin Korabelnikov, one of the few cuated in 2007. In the early 2000s, Vyacheslav Borisov develo- high-ranking Russians to have survived intact the Yeltsin and Pu- ped close ties to former Adjarian president Aslan Abashidze. tin years (he was appointed in 1997). No doubt the Kremlin is Following several declarations to the Western press considered not regretting its decision to favor the GRU by installing it in unfortunate by the ministry of defense, Vyacheslav Borisov was brand-new headquarters, in 2006, on Khoroshevskoe Street, in quickly removed from the media limelight. As for the comman- northern Moscow. der of the 58th Army, engaged in South Ossetia, General Khru- Communication was ensured by the deputy chief of staff, Gene- lyov left the theater of operations when wounded by a Georgian ral Anatoly Novogitsyn. He too was gratified by a small perso- sniper. nal revenge because although short-listed in 2005 to replace The spearhead of the Russian counter offensive, the 76th Pskov General Mikhailov to command the Air Force, he was ultima- Parachute Division, was led by General Kolpachenko. Units ba- tely passed over (the post finally fell to General Zelin. Russia In- sed in Novorossiysk (7th Guards Airborne Division and a de- telligence n°55 of 18 May 2007). Anatoly Novogitsyn is schedu- tachment from the Black Sea Fleet) were deployed on the oppo- led to meet with members of the Valday Club in order to brief site, Abkhazia front. Inter-army operations were them on the military aspects of the Georgian conflict. d 2 Russia Intelligence N°83 j September 11 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

c Irakly Okruashvili: “The military option in Tskhinvali was injustified” As former defense minister, do you approve of the actions of the other than the unresolved conflicts of Abkhazia and South Ossetia Georgian government in South Ossetia? and the “Russian factor”, were the internal problems – problems To answer this question, we simply need to list all the con- linked to the non-respect of human rights, restrictions in freedom sequences of the Georgian government’s decision. Hundreds of expression, the lack of an independent judiciary, problems linked of soldiers and civilians are dead, official figures say there are to fair and transparent elections, and so forth. However, the situ- over one hundred thousand refugees on both sides, military ation could change radically today, and the procedure for Georgia’s and civilian infrastructure has been destroyed, the economy membership to NATO could speed up. This would be the response has been greatly harmed. And most important of all, the of the West to Russia’s actions. prospect of Abkhazia and South Ossetia returning to Georgia has been pushed back15 to 20 years. The Georgian govern- Are negotiations possible between Russia and Georgia concerning ment’s action proves that a military settlement to the conflict the future of their relations? It is clear that any dialogue between the current leaders of Rus- is totally unjustified. It will take a long time before trust is sia and Georgia is out of the question, on the presidential level as reestablished between Ossetians, Abkhazians and Georgians. well as on a lower level. It would be impossible to achieve any re- sult at all without European mediators. This is especially true since Do you think Russia went too far by recognizing the independ- the two governments have broken off diplomatic ties. The world ence of Abkhazia and South Ossetia? nearly found itself at the threshold of a cold war, and a cold war I share the opinion that the Russians went too far not only does in fact truly exist in Georgian and Russian relations. in recognizing the independence of Abkhazia and South Ossetia, but also by intervening in Georgia. Sooner or later, the What attitude do you believe the EU should adopt towards Russia? military intervention will come to an end, but the recognition It is difficult to tell if one sanction or another against Russia of the independence of these two territories could bring about will be effective, but what is clear is that the lack of action on the negative consequences for Russia itself in the future. All this part of Europe would encourage Russia to engage in this type of is partly the result of the recognition of the independence of behavior. Europe must, without a doubt, show Russia through var- Kosovo. After these events, the Russian authorities will have a ious methods (European politicians do it often by intervening in very difficult time working efficiently with Georgia - and not public) that such practices are totally unacceptable within the Eu- only with the current regime. ropean family and that anyone who engages in such practices can- not claim to be a member of this family. Europe’s appropriate re- Do you believe that Georgia should keep up its bid to join sponse to Russia’s behavior is to provide efficient aid to Georgia. d NATO? In Georgia, NATO is associated with the country’s security *Former defense minister under Mikheil and close ties with the West. This has always been an important Saakashvili. Since 2008 he has been living factor in our country’s history. I think that before this summer’s in , where he has been granted conflict, Georgia’s chances of joining NATO (and being granted political asylum. MAP status in December) were not great. The main reason,

Australia, Latin America, , Scandinavia: Echoes of a Distant Georgian War

The diplomatic repercussions of the Caucasus war are not limited to services of the Israeli agriculture ministry since the rupture of Russo-European or Russo-U.S. relations. The affair is having more diplomatic relations between Moscow and Tel-Aviv in 1967. Retro- unexpected ramifications in regions far distant from the theater of cession talks began after ’s spring 2005 visit to Israel. operations. On September 1st, Australian foreign affairs minister, John McCain, the Republican candidate for the U.S. presidency is Stephen Smith, said that Canberra would take into account “recent reportedly also against returning the hermitage to Russia’s jurisdic- events in Georgia” when it comes time to ratify a bilateral accord to tion, according to Israeli media. supply uranium signed last fall by Vladimir Putin and former prime In Latin America, the echoes of the Georgian crisis are both politi- minister John Howard (Russia Intelligence n°61 of 13 September cal and military. Nicaragua became the first state, after Russia, to 2007). recognize the independence of Abkhazia and South Ossetia. The A parliamentary commission is currently examining the document decision is hardly surprising given the ties that bound Daniel Or- and some comments (such as those of Labour MP Kelvin Thomp- tega to the KGB in the 1970-1980s (in fact, Nikolay Leonov, head son) suggest that it could be problematic. The issue is taken very se- of the “reports and analysis” department of the 1st principal direc- riously in Moscow. Russia’s ambassador to Australia, Alexandre tion of the KGB and the “Center’s” top Latin America specialist, Blokhin, warned against reneging on the 2007 agreement. Such a was the first Soviet official to visit Managua after the Sandinistas decision would constitute a “partisan political choice that could took power in the autumn of 1979). In another domain, Russia con- harm Australia’s economic interests,” he said. Sergey Kirienko, the firmed that it will hold joint maneuvers with Venezuela from No- head of Rosatom, has yet to comment on the issue. In Israel, mem- vember 10 to 14. They will include attack nuclear submarines and bers of a Knesset commission on government control, reporting to strategic Tu-95 bombers which will be making a stop-over in Cara- prime minister Ehud Olmert, recommended to halt the retroces- cas. sion to Russia of the Hermitage of the Sage Serge in Jerusalem. Finally, events in the Caucasus could raise the question in Built at the end of the 19th century by the Imperial Orthodox Society of the country’s neutrality, a subject already debated in the presi- of Palestine, founded in 1882 by Alexander III, it has housed the dential election of 2006. d 3 Russia Intelligence N°83 j September 11 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

PROFILE c Arkady Rotenberg, A New Rising Star in the Putin Network Among the discrete but influential men in Putin’s inner cir- the Rotenberg’s bank disposed of assets of €500 million, rank- cle, the most prominent are Yuri Kovalchuk, the majority share- ing it 116 among Russian firms. holder in , and , who heads, out of Geneva, the Gunvor oil trading firm (see Russia Intelli- Gazprom dismembered yet again. The acquisition of Gazprom’s gence n°78 of 30 May 2008 as well as the updated biography of construction sector by the Rotenberg brothers is interesting in Yuri Kovalchuk on our web site). A new name, Arkady Roten- and of itself but also because it confirms a trend that we have berg, must now be added to the list. A former sparring partner regularly analyzed in these pages, i.e. the discrete distribution of Vladimir Putin on St. Petersburg’s judo mats, to whom we al- of the gas company’s subsidiaries to Vladimir Putin’s cronies. ready called attention in our 28 April edition when he was poised Until now those best served were affiliated to the Rossiya Bank. to take over 10% of the commercial , Roten- The Sogaz insurance firm, followed by the Gazfond pension berg has just pulled off a major deal. If information circulating fund, Gazprom-Media and finally , have all been these last few days in Moscow is to be believed, over the sum- carved out of Gazprom to the benefit of Yuri Kovalchuk and his mer Arkady Rotenberg gained control of five Gazprom subsidiaries friends (Russia Intelligence n°38 of 31 August 2006 and n°69 specializing in construction and infrastructure (Lengazspetsstroy, of 17 January 2008). Last April, it was Gazprom’s chemical com- Spetsgazremstroy, Volgogaz, Krasnodargazstroy, Vol- ponent, SIBUR’s, turn to become the object of a rather odd gogazneftemash). The operation, managed through -based transaction. It’s president Dmitry Konov, and four other top shell companies, would allow Arkady Rotenberg and his younger managers announced that they had reached an agreement with brother Boris to gain control of a large chunk of Gazprom’s $20 Gazprombank to buy its 70% stake in SIBUR. The operation is billion investment program in which infrastructure development based on an evaluation of SIBUR’s worth at $3.8 billion (while is a priority. most Moscow-based analysts estimate its worth at double that amount) and which would be almost entirely financed by... At the heart of the “judo connection”. Born in Leningrad in Gazprombank. 1951, Arkady Rotenberg has known Vladimir Putin since the mid- 1960s. They both frequented the same judo club and studied un- Although consolidating Gazprom and wresting it from the der the same master, Anatoly Rakhlin (as did Duma member Vyakhirev clan in 2001 is a founding moment of the “Putin Saga”, Vasily Shestakov – Russia Intelligence n°70 of 31 January 2008). it’s clear that two mandates later the gas giant has once again In the early 1990s, Arkady Rotenberg founded, in St. Petersburg, been discretely pruned for the greater benefit of Vladimir several companies specialized in trade and security. In June Vladimirovich’s friends. d 1998, he became director-general of the foundation which man- ages the Javara-Neva judo club. The foundation was initially ALERT created by the co-founders of KINEX, Gennady Timchenko and his old friend Andrey Katkov (Russia Intelligence n°6 of 11 Jan- 3 Fetisov Leaps into Vladivostok uary 2005). In other words, Arkady Rotenberg has been, for at least the past ten years, a member of the Kiishi network, named The director of the federal sports agency, Vyacheslav Fetisov, is after the refinery in northern Russia which served as a spring tipped to soon join the Federation Council as a senator from Vladi- board for a number of businessmen tied to the Surgutneftegaz vostok. The operation was apparently initiated by Dmitry oil firm (Vladimir Bogdanov) and Rossiya Bank (Yuri Kovalchuk). Medvedev himself and will allow the Kremlin to kill two birds with a According to our sources, Arkady Rotenberg met Viktor Zolo- single stone. On the one hand, it will settle relations – which were tov, Vladimir Putin’s head of security, as early as the late 1990s. becoming increasingly complex – between Vyacheslav Fetisov and Arkady Rotenberg’s other source of access to the inner circle of two other pillars of the Russian sports scene, minister Vitaly Mutko Russian power is Alexey Gordeev, the Minister of Agriculture. and the head of the Russian Olympic Committee, Leonid He is allegedly responsible for having businessman Oleg Shus- Tyagachev. On the other, it provides a minder for the troublesome ter, reputed close to Vladimir Barsukov-Kumarin, the “god-fa- governor of Primorsky District, Sergey Darkin. ther” of St. Petersburg’s so-called Tambov mafia who was ar- The governor managed to save his post despite some trouble with rested in the fall of 2007 (Russia Intelligence n° 61 of 13 September the law last spring (Russia Intelligence n°78 of 30 May), but he re- 2007), appointed to his cabinet. Due to his privileged ties to mains on Moscow’s blacklist. During a September 1st visit to Vladi- Alexey Gordeev, Arkady Rotenberg placed two of his friends in vostok, Vladimir Putin ostensibly ignored his host. The Russian prime particularly lucrative positions — Sergey Zevenko at the head minister also showed his impatience with the delays in the construc- of Rosspirtprom, the state-run spirits monopoly, and Alexan- tion of several large infrastructure projects needed to prepare for the der Tugushev as president of Goskomrybolovstvo, the State 2012 APEC summit (the decision to call on a construction company Fisheries Committee (Tugushev was relieved of his functions in that is virtually unknown but that is close to Darkin to build the sus- 2004 and condemned in 2007 to a seven year jail term for cor- pended bridge to Russky Island is particularly criticized because it ruption). could derail the entire project). Vladimir Putin has had to admit that Russia may not be able to host the APEC summit, a cancellation that The financial component of the Rotenberg brothers activities would reflect badly on the country. Vice-prime minister Igor Shu- is the SMP-Bank (Northern Maritime Passage Bank) which they valov has been appointed to monitor the large sums of public fi- created in 2001. In November 2006, SMP-Bank acquired a block- nancing which will pour into Primorsky District in the next few years ing minority stake in Latvia’s Multibanka. As of 1 January 2008, (€8 billion for Vladivostok alone). d 4 Russia Intelligence N°83 j September 11 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

OIL c TNK-BP: What is Behind the Compromise

The TNK-BP saga appears to be coming to an end. On Sep- The Kremlin and the Russian government are satisfied tember 4, following several months of a conflict on which we with the BP/AAR accord. Several hours after it was announced, have regularly reported in these pages, the British sharehold- Arkady Dvorkovich, economic advisor to Dmitry Medvedev, ers (British Petroleum) as well as the Russian ones reiterated that Russia is interested in implementing major (Alfa/Access/Renova – AAR consortium) signed a memoran- projects through partnerships with foreigners, a message that dum setting out the principals of a compromise. Taking into got somewhat drowned out in recent weeks by the belliger- account most of the demands of and his ent rhetoric of the Russian authorities. Igor Sechin, vice- partners while allowing BP to retain the essentials, i.e. prop- prime minister responsible for Energy, also expressed satis- erty rights, this agreement arrives spot on for the Kremlin. faction over the September 4 memorandum. Let it be said in In effect, it sends a strong signal to foreign investors at time passing, that Dvorkovich’s and Sechin’s communiqués were when the Moscow stock market is, at the very least, volatile. publicized by Mikhailov & Partners, which defends AAR’s On the political front, the accord should ease tensions in bi- interests. It was apparently important to show that both the lateral relations with London, which is at the forefront of an Kremlin and Vladimir Putin’s entourage approved of the com- anti-Russian coalition in the wake of the war in Georgia. promise.

Sacrificing Robert Dudley. The memorandum signed on But the TNK-BP affair is not quite closed yet. The agree- September 4 includes several points discussed in late July in ment achieved between Hayword and Fridman opens the pos- London between Tony Hayword and (Rus- sibility of an IPO on 20% of the company’s capital (taken, in sia Intelligence n°82 of 28 August 2008). A target of the Russ- equal parts, from the Russian and British stakes) probably ian shareholders, who claimed he managed the company for towards the end of 2009. Gazprom, which has long sought a the sole benefit of the British, TNK-BP president, Robert foothold in TNK-BP, could thus achieve its goal. This would Dudley, will resign his position by the end of the year. Keep provide a conflict-free solution to the question of the huge in mind that he had to leave Russia in mid-summer and was Kovytka deposit in the region? d managing from afar, a lopsided solution that could obviously not endure. ALERT Under the compromise reached by BP and AAR, Robert Dudley will be replaced by a manager endowed with a “rich 3 Gazprom Sets its Sights on Nigeria experience” in Russia and who speaks Russian. The new pres- ident must be approved unanimously by the board. Tony Hay- In its 3 July 2008 edition Russia Intelligence pointed out ward said on September 4 that six candidacies have already Gazprom’s growing interest in Nigeria. Events were propelled for- been received. The September 4 memorandum modifies some- ward when Abubacar Yar’Adua, president of NNPC, Nigeria’s na- what TNK-BP’s mode of operation. The board will be com- tional gas and oil company, recently visited Moscow. On Septem- prised of eleven members (4 representing the Russian share- ber 3, he and Alexey Miller, head of Gazprom, signed a holders, 4 representing the British and 3 independent board framework agreement to create a joint-venture to develop com- members). The directorate will be reduced to 4-6 members, mon projects in the exploration, production and transport of natu- down from fourteen currently. The new head of TNK-BP will ral gas as well as the optimization of “associated gas” in oil de- have less power than his predecessor: he will not be allowed posits, a major preoccupation of Nigerian authorities (to date, 40% to name the board members of the group’s subsidiaries. of this gas is burned in the country). Cooperation in the generation of electricity is also included in the accord. Note also that the September 4 memorandum does not It’s easily conceivable that the future Nigerian-Algerian trans-sahar- ban competition between BP and TNK-BP (it’s known that ian gas pipeline is among the projects to which Gazprom might be Robert Dudley vetoed several projects abroad promoted by associated. The 4300 kilometer pipeline with a drawing board ca- the Russian shareholders, particularly in Irak, and that this pacity of 30 billion cubic meters/year, is expected to increase sup- cause discontent). The board will be able to approve invest- plies to southern Europe via Italy. It represents an investment esti- ments in Russia up to $2 billion by a simple majority (previ- mated at $13 billion and is scheduled to be operational in 2015. ously, unanimous consent was required for all operations over Miller and Yar’Adua had previously discussed this project in June $50 million). during the Economic Forum and Gazprombank experts are said to be working on feasibility studies already. Some Relief at the Kremlin, Gazprom on the lookout. The Sep- deposits in Ogoniland, in the Niger delta could also be of interest tember 4 memorandum satisfies BP, who feared losing all or to the Russians but security in the region is poor and Shell prefered part of its stake in the joint-venture and whose share price to pull out in the mid-1990s. fell in recent weeks due to uncertainties about its reserves After Europe, Africa is more than ever a priority for Gazprom. By in Russia. AAR, for its part, considers that it won the power looking to establish itself in Nigeria, Gazprom is seeking to com- struggle. The only glitch, and it’s a major one, is that neither pensate for its failure in Algeria and for the slow pace of develop- Viktor Vekselberg nor should continue to hold ment of Russian projects in Libya (Russia Intelligence n°76 of 24 the posts of executive-directors (the British do not favor fill- April 2008). d ing these posts with TNK-BP shareholders). 5 Russia Intelligence N°83 j September 11 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

AIR CARRIERS c Chemezov, Luzhkov and Usmanov Outwit Aeroflot Russia’s air transport sector recently underwent what industrial solution finally adopted goes far beyond simply put- might be classified as a “Big Bang”. A top flight industrial op- ting the company afloat and transferring it to Rostekhnologii. eration was pulled off in the air carrier sector, in just a few A new public carrier has been created which includes along short days. The crisis at AiRUnion, the consortium of private with AiRUnion, GTK Rossia, (specialized in and public companies that was poised on the brink of bank- flights to the north Caucasus), Vladivostok Avia (coveted by ruptcy in early September, has spawned a new player that, in Aeroflot) and especially Atlant-Soyuz. terms of number of passengers, will lead the sector, out-dis- tancing state-run Aeroflot. The difficult birth was ushered Ranked Russia’s eighth carrier, the latter is controlled by in by the government to the satisfaction of two oligarchs close the city of Moscow through its mayor. The decision to include to the center of power. Equally gleeful are Moscow’s mayor, Atlant-Soyuz in the new company was taken on September 3 at and to a lesser degree, the governor of district. a meeting between Sergey Ivanov and Yuri Luzhkov. The new The AiRUnion crisis began in mid-August when dozens of company’s hubs will be Krasnoyarsk and Vnukovo, also owned flights were delayed in several Russian airports (Domode- by Moscow city-hall (according to several sources, one of the dovo, Krasnoyarsk, , , Yuzhno-Sakhalinsk) due main investors financing the modernization of the airport is Al- to unpaid fuel bills. On August 21, the federal civil aviation isher Usmanov, head of and of GazpromIn- board, Rosaviatsiya, ordered the companies that make up vestHolding). AiRUnion to stop issuing tickets, an apparent prelude to end- ing all activity in the short-term. On the 25th, a creditor, leas- Within a few months, Rostekhnologii will own the top do- ing firm IFK, began legal proceedings against AiRUnion’s ma- mestic carrier with over 10 million passengers per year (versus jor subsidiary, KrasAir. At the same time, thousands of 8 million for Aeroflot). The operation is another master stroke passengers were stranded all over Russia. The affair became for Sergey Chemezov and his partners. The future of AiRUnion’s more political on the 26th when Vladimir Putin instructed former directors seems, on the other hand, far less brilliant. Rosrezerv, the agency that manages strategic stock reserves, Some statements by authorities of the transport ministry and to supply fuel to AiRUnion planes. Simultaneously, a flurry of Rostekhnologii management tend to suggest that quite a few activity was going on backstage. people prefer to place the blame for this summer’s crisis on Boris Abramovich and to pick up, at bargain prices, his shares This isn’t the first time AiRUnion makes the headlines. In in KrasAir and other AiRUnion companies. d our 15 December 2006 edition, Russia Intelligence analyzed the power struggle between businessman Boris Abramovich ALERT (no relation to Roman, former governor of Chukotka) and Aeroflot. At the time, the national carrier and its supporters 3 Is Oleg Mitvol Teaming up with Oleg (including Viktor Ivanov) opposed the creation of the AiRUnion Deripaska? holding with KrasAir at its core, seeing it as a potential com- petitor. In the spring of 2007, Vladimir Putin nonetheless gave The oft-in-the-news deputy head of Rosprirodnadzor, the fed- the green light to Boris Abramovich’s project with the under- eral environmental protection agency, is about to be shown the standing that the state would retain a 45% stake in the new door, as RI predicted back in February (Russia Intelligence n°72 group. At the time, Boris Abramovich was in favor with then- of 28 February 2008). On September 9, Oleg Mitvol received president Putin. The buyout by an AiRUnion subsidiary of the official notification of his sacking. He was scheduled to meet Hungarian carrier Malev was seen as an example of “eco- with his supervising minister, Yuri Trutnev, once the latter re- nomic patriotism” and endorsed by the Kremlin (Russia In- turned from the Irkutsk Economic Forum. telligence n°48 of 2 February 2007). His departure comes as no surprise. The new head of Rosprirodnadzor, Vladimir Kirillov, a St. Petersburg native Yet, over the past few months, storm clouds gathered on close to Viktor Zubkov and (Russia Intelli- the AiRUnion horizon. The director-general of Rostekhnologii, gence n°70 of 31 January), saw no need to maintain a maverick Sergey Chemezov, who wants to expand in the air carrier sec- such as Oleg Mitvol on his team. Oleg Mitvol has drawn the tor, convinced the Kremlin to include the state’s stake in spotlight over the past few years for his role in several highly- AiRUnion’s affiliated companies in his chaebol (Russia In- publicized events. He was in charge, in the autumn of 2006, of telligence n°75 of 14 April 2008 and n°81 of 17 July 2008). the governmental expertise which led to Shell’s failure in the When the crisis exploded in August, it was understood that -II project. He also attacked the owners of dachas built Boris Abramovich would relinquish operational control of in green zones around Moscow. AiRUnion to Rostekhnologii, but the details and the timetable According to some sources, Oleg Mitvol could join . If this of the operation remained fuzzy. Sergey Chemezov indubitably information is confirmed, it would indicate, as reported in these wants to takeover AiRUnion but does not want to assume its columns in our 28 August edition, that Oleg Deripaska does debts (about $1 billion). Hence, the future shareholder was have the intention of making respect for the environment a rally- in no hurry to advance fuel to AiRUnion when its planes be- ing point in his struggle against Vladimir gan to be grounded. Potanin at . d

Holding back at first, the authorities didn’t begin manag- A biography of Oleg Lvovich Mitvol is availa- ing the AiRUnion bailout until early September. Vice-prime ble in Russia Intelligence n°42. minister Sergey Ivanov was put in charge of the case. The 6 Oleg Mitvol Russia Intelligence N°83 j September 11 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

PIPELINES c South Stream vs Nabucco : Moscow Scores Some Points

European Union officials are constantly emphasizing the need tor is Mladjan Dinkic, minister of the economy and of re- for an approach coordinated with Russia for dealing with energy gional development. At his request, Deloitte & Touche this issues, yet Gazprom continues to march on to its own distinct summer conducted an audit of NIS. It showed that the Ser- drummer. On September 2, in the wake of the EU extraordinary bian firm –which owns two refineries at Panchevo and Novi summit on the Georgian crisis and just before the “Gymnich”, Sad and which controls 72% of the domestic raffinats market an informal meeting of EU foreign affairs ministers held in Avi- – is worth €2.2 billion. Based on this estimate, the Serbian gnon on September 5-6, the Greek parliament ratified, by 264 government decided to raise the stakes. On the eve of the Ser- votes out of a possible 300, a bilateral agreement signed in bian parliamentary vote, Gazprom lobbyists such as Predrag Moscow at the end of April. The accord provided for Greek par- Stanoevich, remained confident but, for Russia, the end re- ticipation in the South Stream gas pipeline, a project proposed sult was bittersweet. The accord was ratified by 214 votes out by Gazprom and the Italian ENI. Next, on September 9, the Serb of 250 and Serbia will participate in the South Stream proj- parliament approved a gas cooperation accord initially signed ect. However, the supplemental protocol to cede a stake in at the beginning of the year between Boris Tadic and Vladimir NIS remains suspended. Gazprom will have to re-open nego- Putin (Russia Intelligence n°70 of January 31 2008). tiations in order to close the transaction by December 31. Ser- bian officials are expected to ask for an additional €150 to 200 The January 25 bi-lateral agreement is comprised of two com- million. To date, Gazprom representatives have rejected the ponents. It includes a 400 km portion of the future South Stream idea of paying more but are open to the hypothesis of increased gas pipeline. Gazprom has also committed to finishing the con- investments. struction of the Banatsky Dvor stock reservoirs. A supplemen- tal protocol details the acquisition of Naftna Industrija Srbija Russia’s progress on the South Stream project offers a sharp (NIS), the national gas and oil company, by . The contrast to the bleak prospects of its European competitor, Russian firm is set to pay out €400 million to pick up 51% of NIS Nabucco. U.S. vice-president Dick Cheney, visiting Baku on and has committed to investments of a further €500 million. Con- September 4 in order to bolster, in the southern Caucasus, a cluded between the two stages of the Serbian presidential elec- U.S. position somewhat shaken by the Georgian war, was, it tion, the agreements are the economic counterpart to Russian seems, coldly received by the Azerbaijani head of state Ilham diplomatic support for Belgrade over the issue of Kosovo’s in- Aliev. The president was reputedly very vague in regard to his dependence. Although officially signed by Boris Tadic, the agree- support for Nabucco. Meanwhile, the entourage of the head ment is first and foremost the result of pro-Russian lobbying by of SOCAR, the national gas and oil company, hinted that Baku then-prime minister, Vojislav Kostunica. The former prime min- had “not said no” to propositions made in the early summer ister’s defeat in early elections held last May raised fears in by Dmitry Medvedev (Russia Intelligence n°81 of 17 July 2008). Moscow that the Gazprom/NIS accord would not be implemented At the time, the Russian president put an enticing offer on (Russia Intelligence n°77 of May 13 2008). the table – Gazprom proposed to buy Azerbaijani gas at mar- ket prices (about $300/cubic meter, while the Turks and the The main opponent to tighter Russo-Serb ties in the gas sec- Georgians currently pay half as much). d

Udokan: High Stakes Win for Alisher Usmanov

The Russian mining sector has just undergone a major transforma- the Rosnedra news fell. For his part, Alisher Usmanov had seen the presi- tion. On September 10, the Rosnedra federal agency announced dent the previous day. It’s a small step to supposing that the speed up in that the Udokan copper deposit – the world’s third largest with re- the attribution process was not entirely fortuitous... serves estimated at close to 20 million tonnes – will be attributed to The Russian state has been looking to privatize Udokan for the past fif- Alisher Usmanov’s Metalloinvest. Alisher will expend 15 billion teen years but hesitations over the best way to manage the operation rubles (about €400 million) for a 20-year exploitation license. More combined with rivalries between the major groups of oligarchs poten- importantly, Metalloinvest has commited to investing nearly €3 bil- tially interested (, , etc…) lion to upgrade Udokan in order to begin production by 2014. As in- brought the operation to a grinding halt. Western mining interests such dicated in our 30 May edition, Usmanov formed an alliance with as BHP, Rio Tinto, Phelps Dodge or Codelco also sought to wrangle a Sergey Chemezov’s Rostekhnologii which will piece of the pie but, in these days of “economic patriotism” fervor in contribute its Mongolian mining interests, (notably the Erdenet joint- Moscow, their chances of success remained slim. On September 9, venture) to the project. Strikeforce Mining & Resources a subsidiary of Oleg Deripaska’s Base The Rosnedra announcement came as a surprise because the results Element pulled out of the race. In August, two other candidates also of the tender bid were scheduled to be unveiled a week later, on threw in the towel, ’s Onexim and especially, mining September 17. The decision comes as a defeat for Alisher Usmanov’s giant, . Norilsk had, nonetheless, expressed interest in competitor, , head of the Russian Railroads. He’d teaming up with the successful bidder. Discussions are now expected to formed a consortium composed of Vneshekonombank and Russian open between , Alisher Usmanov and Sergey Cheme- Copper, belonging to , his partner in Trans- zov. Yet, it’s difficult to imagine that the September 10 victors can do with- mashholding. To add insult to injury, Vladimir Yakunin was in the out Vladimir Yakunin since the Udokan site, located in a distant eastern Kremlin pleading his case before president Dmitry Medvedev when province, is not currently linked to the rail network. d 7 Russia Intelligence N°83 j September 11 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Regions & CIS

CAUCASUS c Ingushetia on the Brink

The Ossetia situation is far from settled, yet December 2007 were a source of further dissent. In early 2008, Moscow may soon face another Caucasus opponents to Murat Zyazikov, led by Evloev, attempted to demon- crisis, this time in Ingushetia. Tensions flared strate in the streets of Nazran (Russia Intelligence n°70 of in this tiny republic, a neighbor to Chech- January 31 2008). They denounced what they said was massive nya and North Ossetia, following the death, electoral fraud and launched the “I didn’t vote” campaign (in on August 31, of journalist Magomed Evloev, contrast to the electoral commission’s claim of participation Murat a major opponent of Ingush president Mu- close to 100%). Local authorities responded in their usual man- Zyazikov rat Zyazikov. ner – repression. Legal proceedings were launched against Evloev and his web site Ingushetia.ru (whose editor in chief, To re-cap briefly, Magomed Evloev, who Roza Malgasova, requested political asylum in France this had been living in France for the past sev- summer). In early August, the Ingush opposition presented the eral months for security reasons, decided Kremlin with 80,000 signatures calling for the removal of Mu- at the end of August to go to Ingushetia to rat Zyazikov and the return to power of former president, Rus- visit his parents. After a short layover in lan Aushev (Russia Intelligence n°81 of 17 July 2008). Ruslan Moscow, he boarded the plane for Manas Aushev around noon on Sunday, August 31. As luck The course of events in Ingushetia depends in large part on would have it, Magomed Evloev was on the the position Moscow will adopt. Over the past few years, de- same flight as Murat Zyazikov and his escort. The Ingush pres- spite the continued deterioration of security in the region, the ident was the first to disembark at about 1:30pm and his mo- federal government has blindly supported Murat Zyazikov, a torcade quickly left the airport. But the family and friends of former FSB general. Last August 26, Dmitry Medvedev met Magomed Evloev were astounded when several police cars with the Ingush president in . But, according to informa- (apparently including one belonging to Musa Medov, minis- tion gathered by Russia Intelligence in Moscow the Evloev Af- ter of internal affairs) rapidly pulled up to the plane. Magomed fair could be the straw that breaks the camel’s back. This would Evloev was then forcibly taken away in one of the cars. His be especially true if supporters of the deceased journalist suc- supporters tried to intervene but they were kept at bay by au- cessfully mobilize within the republic and if the tension does- tomatic weapons fired into the ground. They later managed n’t wane. The Kremlin might, after a “decent interval” that to catch up with the convoy, to stop it and to pull several po- would not suggest that it was giving in to pressure, do as it did lice officers from their vehicles. They failed to release Magomed in North Ossetia after Beslan and in Karatchaevo-Tcherkessie Evloev, however, who was in another car. Several minutes following the sacking of government headquarters in 2005 – later, Magomed Evloev was found with a head wound near appoint new officials. That they would choose Aushev, how- the central hospital of Nazran. He died on the operating ever, seems improbable as federal officials remain wary of his table. In late afternoon on August 31, the authorities said charisma and strong popular appeal in Ingushetia. d that he’d been the victim of an “accidental” shooting. Accord- ing to the official version, Magomed Evloev was on his way to ALERT the public prosecutor’s office to make a deposition regard- ing several criminal investigations. On the way, he tried to 3 U.S Belarus Thaw take the weapon of one of the police officers in the police es- cort. The shot was fired in the ensuing struggle. This version As Russia Intelligence indicated in its last edition, relations between is contested by Magomed Evloev’s family and friends, who Minsk and Washinton are evolving rapidly. The U.S. Treasury Secre- call it a political assassination. Several hundred persons as- tary recently announced an end to sanctions against two sub- sisted the funeral of Murat Zyazikov’s opponent on Septem- sidiaries of the Belarus chemical firm Belneftekhim. The move ber 1st. Calls for a vendetta against interior affairs minister comes after Alexandre Lukashenko agreed to release several po- Musa Medov and his body guards were launched. litical prisoners at the end of August. The European Union is ex- pected to follow suit. The Belarus question is on the agenda of the This tragic affair happens at a time when the situation is “Gymnich”, an informal gathering of EU foreign ministers sched- already very tense in Ingushetia. Several murders were per- uled to be held in Avignon on October 5-6. There is even a chance petrated in the summer of 2007 against the last representa- that Belarus’ foreign minister Sergey Martynov, with whom Javier tives of the slav community (including a grade school teacher). Solana had a long phone conversation in early September, will be Attacks against the police and local authorities have multi- invited to join them. d plied, forcing Moscow to re-deploy nearly 2000 internal af- fairs ministry troops in Ingushetia. Legislative elections in

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