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Home , Alexey Gordeyev, Anatoly Serdyukov, Dmitry Kozak, Igor Shuvalov, Konstantin Chuychenko, Sergey Naryshkin

N°77 - May 13 2008 Published every two weeks / International Edition CONTENTS GOVERNMENT P. 1-5 Politics & Government c GOVERNMENT The « condominium » c The Saint Petersburg « condominium » suceeds itself… suceeds itself… Contrary to an opinion widely circulated abroad, is not a man who brutally and de- GOVERNMENT, KREMLIN, cisively resolves confrontations and conflicts of interests between the senior “cadres” of the regime. SERVICES The composition of the government and the new Presidential administration (which we analyse in c The new strong men of Russian power detail in the following pages) has just provided a striking illustration. The months that preceded the c Bulbov affair : Yuri Chayka adoption of a definite solution to resolve the problem of Vladimir Putin’s succession furnished episo- score points des of rare violence, such as the assassination of Vladimir Litvinenko and Anna Politkovskaya that involves former “service” members and which put the Russian President in an almost humiliating si- P. 6-7 Business & Networks tuation vis à vis the international community. INDUSTRY c Yuri Kovalchuk’s good deal But we also were witnesses to spectacular scenes of political vaudeville such as the public brawls at the Vyborg ship yards between the heads of the power structures, Nikolay Patrushev of the FSB and Viktor Cherkesov of FOCUS the anti-narcotics service, which we have extensively related in these columns. The confusion of res- c South Stream : Serbian doubts ponsibilities among certain eminent members of the Presidential administration, at the same time ALERTS managers of considerable economic and strategic interests, such as , has also given rise c and share to extremely hard confrontations for control of certain assets, at the very heart of the governmental the continental shelf apparatus. In brief, and in all logic, taking into account the public statements made by Vladimir Pu- c Natural gas price : liberalisa- tin on these subjects all during the legislative and presidential election campaigns, when he denoun- tion delayed ced on multiple occasions corruption in the public scene, we might have expected a serious spring house-cleaning in the governmental team. It would have been the occasion for the new Prime minis- P. 8 Regions & CIS ter to give himself some elbow-room, to “elevate” some new faces in the power system and free him- CAUCASUS self once and for all from the oppressive influence wielded by some of the men who have accompa- c Abkhazia : the first lessons nied him since 2000. from the crisis READ ALSO… But we are forced to observe that nothing of the such has taken place. The team which, under the joint authority of and Vladimir Putin, will manage is strictly the same, with In “Ukrainia Intelligence” some marginal corrections to real disgraces and very light reprimands in the form of changing of posts. Last Issue No new personalities have appeared on the horizon, except perhaps the ambassador of Russia in Pa- GOVERNMENT cThe constitution, as much ris, Alexandre Avdeev, appointed Culture minister. But no regional governor, for example, has made of powder keg as ever in an entry into the governmental team, while Putin and Medvedev have decided to accelerate financial Ukrainian politics transfers, in various forms, toward the most disadvantaged Russian regions. Looking hard, we can DIPLOMACY nevertheless uncover some subtle modifications in the balance between the different clans who di- cTimoshenko-Zubkov : A vide the favours of Dmitry Medvedev and Vladimir Putin. promising meeting ALERT d Relative strengthening of the “liberal economists” with the /Igor Sechin “cou- cPolls : Support for NATO ple”, the former becoming head of the Presidential administration, and the latter first vice Prime mi- membership declining nister, to which must be added Alexey Kudrin who retains the Finance portfolio. steadily d Loss of influence on the organs of power of the Nikolay Patrushev/Igor Setchin/ Vladimir Usti- SUBSCRIPTION Print Edition nov axis, whose “exploits” we have related last autumn and winter. Ustinov, former general prosecu- (23 issues, airmailed overseas) tor turned Justice minister, who saw himself as a bit too early and in a somewhat €770 TTC too noisy way, purely and simply disappears from the “picture”, while his acolyte Patrushev abandons the reins of the FSB for the pomp and dachas that generally improve the function of president of the The Web Pack (Print Edition National security council. But Igor Sechin once again has slipped through the raindrops. True, he lea- + PDF + archives acess) ves his duties of deputy head of the Presidential administation, but he wins in visibility and in econo- € 880 TTC mic responsibilities with the title of vice Prime minister, in charge of the vast domain of industry and energy, also with the presidency of the public holding company charged with naval construction whose The Premium recovery has just been elevated to the rank of national priority by Vladimir Putin. It is useful to note Subscription (Print Edition + PDF + access that the FSB and the Justice ministry are now in the hands of Alexandre Bortnikov (who was Pa- to all the website contents) trushev’s deputy) and Alexandre Konovalov, the latter being a faithful to Dmitry Medvedev, while € 1200 TTC Bortnikov was able to keep his distance from Patrushev and Sechin. The d d d Continue page 2 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

d d d From page 1 President in fact completes his team in power. The first is that the group was formed, in its broad “control” capacity with the nomination of his friend Konstantin lines, now some twenty years ago in Saint Petersburg. It conso- Chuychenko to the direction of Kremlin control. Chuychenko lidated itself since 1999 and established itself fully at the Rus- had been up to now member of the direction committee at Gaz- sian commands following 2003/2004. Outside of a few conflicts prom, in charge notably of relations with and we had an- that were particularly spectacular between Medvedev and Se- nounced a few weeks ago that he would undoubtedly accompany chin at the time of the division of the assets, this group, Medvedev in his new responsibilities (Russia Intelligence n°68 composed of economlists, lawyers, tchekists, businessmen, civil of December 20 2007). Those who had been anticipating a clash servants, almost all originally from the northern capital, have between the associates of Medvedev and Putin must be disap- been able to preserve a sort of coherence over the years. The se- pointed. In the Kremlin, Medvedev will work with former Putin cond reason is that the group has proceeded in recent years to collaborators, such as , the inventor of the a redistribution of part of the industrial and energy assets of Rus- “Nashi” and other discoveries or Alexandre Beglov or Alexey sia, in official forms (in the image of the rise to power of Sergey Gromov. In reality, it really seems that overall the nominations Chemezov) or unofficially. One of the problems raised by the suc- to the government and the Presidential administration were not cession of Vladimir Putin was precisely the durability of this sys- the subject of negotiations but rather “discussions” which indi- tem of stability within the condominium. The latter succeeds it- cates the willingness of the President and Prime minister was, self. It is no guarantee of a peaceful existence nor the disappearance for the time being, to assure stability and continuity. of conflicts and confrontations. But it is the assured that the dirty laundry will continue to be washed within the family and that At least two essential reasons explain the preservation of the “outsiders” will only rarely have access to the gaming table. d

The new Russian government d Vladimir Putin – Prime minister (Finance) d Igor Levitin – Transportation d – Economic develop- d Igor Shchyogolev – Telecommunications d – 1st vice Prime minister ment d – Foreign affairs (Agriculture, fisheries) d Yuri Trutnev – Natural resources d – Industry d – 1st vice Prime minister d Alexey Gordeev – Agriculture d Alexandre Avdeev – Culture (External trade) d Alexandre Konovalov – Justice d Sergey Shmatko – Energy d Sergey Ivanov, vice-Prime minister (De- d – Sports Other nominations : fence industries) d – Health and social af- d Sergey Naryshkin – head of the Presi- d , vice-Prime minister fairs dential administration (Government general secretariat) d – Regional development d Nikolay Patrushev – secretary of the na- d Igor Sechin, vice-Prime minister (Energy d Rashid Nurgaliev – Interior tional security council and industry – other than defence) d – Defence d Alexandre Bortnikov – director of the d Alexandre Zhukov, vice-Prime minister d Andrey Fursenko – Education and FSB (National projects, WO 2014) science d Viktor Cherkesov – director of federal d Alexey Kudrin, vice-Prime minister d – Emergency situations arms procurement.

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2 Want to know more : Nadia Balatchev [email protected] Russia Intelligence N°77 j May 13 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

GOVERNMENT, KREMLIN, SERVICES c The new strong men of Russian power The series of nominations presented by Dmitry Medvedev from the President and the Prime minister, whom he knows and Vladimir Putin on May 12 already provides an insight into since the early 1990s. According to our sources, he owes his the new balance inside Russian power, a balance that should nomination to his marked discretion during the “clan wars”. be seen as obviously temporary and will be called on to evolve Alexandre Bortnikov is a member of the supervisory council during the course of the coming months of the cohabitation of Sovkomflot, the new “national champion” in maritime trans- between the two men. Contrary to what most commentators port, and belongs to the intergovernmental commission on the in the Western media would have led us to expect, the new integration of aerospace firms in the OAK (two issues that President immediately succeeded in naming some of his close drew the boss of the FSB to Igor Shuvalov, the new 1st vice associates to key posts (or to neutralise others seen as hos- Prime minister, who presides Sovkomflot and who supervises tile to him). The scenario of a ´ President under control ª is the strategic commitee close to the administrative council of already seen as having been cast into doubt. OAK.

Dmitry Medvedev also succeeded in placing one of his very close friends, Alexandre Konovalov, at the Justice ministry, Organs of power : Medvedev begins to position his to replace , who is said to be on the way to men. Taking into account the true geography of power in Mos- Stavropol (read boxes on page 4 and page 8). On the other cow, but also the “clan war” which has literally hand, it’s the status quo at Interior : Rashid Nurgaliev — his- ripped into Vladimir Putin’s entourage in recent torically close to Patrushev, under whose orders he worked in months, the possible movements at the top of the the KGB in Karelia in the early 1980s — maintains his post. power structure were especially awaited. What He is, however, closely surrounded by Mikhail Sukhodolsky, can be said at this stage, is that the new president 1st vice minister named in March, and by Alexey Anichkin, Alexandre has succeeded in considerably weakening the Pa- the director of the investigation committee, two who are re- Bortnikov trushev-Ustinov-Sechin clan, but that the reallo- puted to be close to Dmitry Medvedev. The retention of Nur- cation of the spheres of influence has not been galiev at a federal ministerial post also confirms that the Krem- achieved to the benefit of its enemies. Dmitry Medvedev and lin is still counting on him to succeed, when the time comes, Vladimir Putin put the principal protagonists in the “clan war” Mintimer Shaymiev, the President of . back-to-back by allowing more neutral figures to emerge. Ac- cording to the information obtained by Russia Intelligence, the General prosecutor’s office and Interior were spared by the wave of reorganisation due to a lack of consensus on the At the general prosecutor’s office, the co-habitation with cast.The departure of Nikolay Patrushev from the FSB and his daggers drawn between Yuri Chaika and the boss of the In- replacement by Alexandre Bortnikov are without doubt the vestigation committee Alexandre Bastyrkin continues. Mat- major elements of the May 12 reshuffle. Many in doub- ters should be decided by autumn according to information ted that the new President would dispose of the sufficient mar- gathered by Russia Intelligence (Yuri Chaika is mentioned for gin of manoeuvre to evict immediately the strong man of Lu- the Supreme court).The latest developments in the Bulbov byanka. Nikolay Patrushev is shunted to the national security case ( read box below) nevertheless raise doubt about pros- council, an organ that fills the role of “golden closet” for silo- pects for Alexandre Bastyrkin. vik in disgrace.He is replaced by one of his deputies, Alexan- dre Bortnikov.

The native of Perm, 57, has spent all his career in the KGB Naryshkin, Shuvalov : the rising stars of and then the FSB. He was the one who replaced Yuri Zaos- the Moscow scene. The composition of the new trovtsev — Ustinov’s and Sechin’s man at the FSB, compro- Presidential administration — also concerned by mised in contraband deals (Russia Intelligence n°63 of octo- the reshuffle of May 12 — was consisdered as the ber 11 2007)— at the head of the economic security department. Igor other major test in the capacity of Vladimir Med- Alexandre Bortnikov has a reputation for being “equidistant” Shuvalov vedev to prevail in his d d d Continue page 4

Bulbov affair : Yuri Chayka score points

A virtual barometre of the balance of forces quiry (Russia Intelligence n°75 of April 10 respective deputies. Will Bulbov and Storchak in the power struggle between the clans cur- 2008). Two days later, it was learned that Va- be freed after the entry into office of Dmitry rently being waged in Moscow since last lery Khomitsky — the investigator in charge Medvedev on May 7? Nothing is less sure. summer, the Bulbov affair witnessed some of the Storchak case — was dismissed from The former vice minister of Finance saw his important developments in recent weeks. On the case. It represented a stunning blow for preventive detention extended until July 9. April 21, the head of the Investigations com- the Sechin clan and as much of an encoura- Searches were also conducted by the FSB on mitte of the general prosecutor’s office, ging sign for the Finance minister Alexey Ku- April 22 in a travel agency controlled by Ge- Alexandre Bastyrkin, was forced to drop his drin and the boss of the Federal Anti-narco- neral Bulbov’s wife, Galina Bulbova. On the right-hand man, Dmitry Dovgy, accused of tics service Viktor Cherkesov, who were defensive, Igor Sechin and his friends will d corruption and the subject of an internal in- targeted through the intermediaries of their not give up easily. 3 Russia Intelligence N°77 j May 13 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

Konovalov, Avdeev, Shchyogolev : the news faces of the Putin government

If the Putin cabinet numbers plenty of new mi- held the post of deputy prosecutor of Saint Pe- Chirac and the election of Nico- nisters, most of them are in reality veterans of tersburg. The nomination of Alexandre Kono- las Sarkozy) apparently were the power circles or even heavyweights of the valov takes on a particularly symbolic role credited to him. Russian political system. From this point of since this associate of Medvedev replaces Vla- Another French-speaker origi- view, the nominations of dimir Ustinov, a figurehead of the Sechin-Pa- nally from Ukraine — Igor Igor Alexandre Konovalov, Alexan- trushev clan. Shchyogolev. A graduate of the Shchyogolev dre Avdeev and Igor Shchyo- The appearance of Alexandre Maurice Thorez foreign lan- goloev to Justice, Culture and Avdeev in the government guage school in Moscow and the university of Telecommunications ministries constitutes without a doubt the Leipzig (in the late 1980s, which could account Alexandre rise above the others. main surprise of the cast selec- for a hypothetical meeting with Vladimir Putin Avdeev Alexandre Konovalov, 40, is not ted on May 12. This career di- during that period), Igor Shchyogolev joined Alexandre unknown to readers of Russia Intelligence. In plomat native of Kremenchuk the TASS agency, a traditional cover for Soviet Konovalov our edition of December 20 2007, we indicated in Ukraine is a graduate of and then Russian external intelligence. He was that this law graduate of the university of Saint MGIMO, who spent most of his career in its correspondent in from 1993 to 1997 Petersburg belonged to the first circle of the French-speaking countries. Posted to Algeria, before rejoining the pool in the Kremlin. In the Medvedev network and numbered among the then France and Luxembourg during the So- fall of 1998, he became the press attaché for potential powerful ministers. Alexandre Kono- viet era, he was named ambassador to Sofia and then director of the valov up to now was involved as the special re- in 1992, before rejoining, in 1996, the central government information department. Vladimir presentative of the President in the Federal dis- administration as vice minister (then 1st vice Putin took him in tow to the Kremlin, where he trict of Volga-Urals. Before that, he had been minister) of Foreign affairs. Alexandre Avdeev was named in January 2000 to the press ser- the prosecutor of the Republic of Bashkor- had been named ambassador to Paris in the vice. As a sign of confidence accorded to him torstan where he had crossed swords — with spring of 2002. The closer relations witnessed by the President, Igor Shchyogolev was pro- varying results — with the Rakhimov clan. afterwards (and especially the continuation of moted in late 2001 to the head of the presti- From 2001 to 2005, the new Justice minister good relations after the departure of Jacques gious protocol service of the Kremlin. d

d d d From page 3 choices and to emancipate himself Shuvalov will be assisted by Vladimir Surkov, from the control of Vladimir Putin. From this point of view, who keeps the Kremlin internal policy desk. Given the nomination of Sergey Naryshkin is a compromise. Up to the ambition of this interested party who fancies now vice Prime minister in charge of the CIS, this veteran of himself in the place of Sergey Sobyanin — we can- the Saint Petersburg town hall (of the PGU according to some) not speak of a promotion. The other striking nomi- maintains equal relations with the two heads of the executive. Sergey nations in the Presidential administration concern Sergey Naryshkin is said to be excellent in conflict resolution Shmatko Alexandre Beglov, Alexey Gromov and Konstan- in the system, a quality that might be required in the close fu- tin Chuychenko. Beglov, who will celebrate his 52d birthday ture (the new boss of the Presidential administration recently May 19, managed since early May 2004 the principal direction worked for the reconciliation of the n°2 at Gazprom, Alexan- of control in the Kremlin (a position held by Vladimir Putin in dre Medvedev, and Vladislav Tretyak, the boss of the ice the late 1990s). hockey federation, who both claimed the personal support of Vladimir Putin for competing championships). He is replaced by . The latter is one of Dmitry Medvedev’s closest friends, whom he knows since Naryshkin was not the first choice of Dmitry Medvedev, who their law studies. A member of the Gazprom directorate, he was said to have preferred Igor Shuvalov. The latter was na- is especially, since January 2006, one of the three administors med 1st vice Prime minister in charge of external trade and of RosUkrEnergo. This nomination is important since the di- will be the second figure in the government (Viktor Zubkov, rection of the control is a sensitive structure, often used in the the other 1st vice Prime minister, returns to his first love since past to gather compromising information. he will be responsible for agriculture and fisheries). It there- fore involves a new promotion for Igor Shuvalov : first close to Alexey Gromov continues to care for the press service of the Alexandre Mamut, one of the Yeltsin faimily financiers, then head of state with the rank of n°2 in the presidential adminis- to , the new 1st vice Prime minister also tration. Finally at the time we go to press, the future Viktor posesses additional merit in that he is neither from Saint Pe- Ivanov “aide” to President Putin in the old organisation — is tersburg or a former gebist. undecided.

At his post of president of the administrative council of Sovkomflot (Russia Intelligence n°39 of September 2006), Igor Shuvalov nevertheless knitted priviledged ties with the Energy : bonus for the nuclear, Sechin remains on the Kovalchuk networks (read article page 6). In his new post, scene. Another eminently sensitive sector —energy. Viktor Shuvalov will notably charged with the thorny issue of the Khristenko, who was the titleholder of the portfolio, main- WTO. In all likelihood, it will be the young Arkady Dvorko- tains only Industry in the Putin cabinet. The Energy ministry vich – who up to now has directed the experts’ division - who is assigned to Sergey Shmatko. This former submariner, 41, will replace Shuvalov as the President’s sherpa for the G8. was since June 2005, the boss of Atomstroyexport, d d d 4 Russia Intelligence N°77 j May 13 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

d d d the public firm specialised in turnkey nu- remained until now an empty shell (Russia Intelligence n°64 clear power stations abroad. Before that, Sergey of October 24 2007). Shmatko had worked has councillor to Andrey Akimov, the boss of . The nomina- Is Viktor Cherkesov the big loser in the reshuffle as proc- tion of Sergey Shmatko is one of the additional il- claimed by the chorus of Moscox commentators? It’s clear that lustrations of the importance accorded by the Rus- Viktor the still-embryonic Russian equivalent, of the DGA is in no sian government to the nuclear sector. The other Cherkesov way comparable to the FSB, whose presidency was known to ministers in charge of energy affairs are Yuri Trut- be Cherkesov’s objective since at least 2004. The commentary nev and Igor Sechin. The first retains the portfolio for natu- published in the daily Kommersant last October, which had ral resources, despite hiccups (notably on the projected sub- brought into the light of day the “war of the services” was jud- soil law). Having followed Vladimir Putin from the Kremlin to ged severely by Vladimir Putin, who has always considered the the White house, Igor Sechin will supervise the industrial com- tchekists, or secret agents, should wash their linen within the plex (except for defence) and energy. family and not involve journalists, for whom he has little sym- pathy. In addition, responsibility for Defence ministry procu- In order to compensate somewhat the loss of his friends Pa- rement is an honourable task. Modernisation of the armed for- trushev and Ustinov and reassure Rosneft, where he keeps – ces is a priority objective, and Cherkesov will once again have for now in any case – the presidency of its supervisory council. the occasion to display his skills.

Defence and the military-industrial complex : Cher- Kudrin keeps the strings of the purse. Finally, most of kesov in support of Serdyukov. Downgraded to the rank of the “technical” ministers in the government were retained at “simple” vice Prime minister in the new government, Sergey their posts. Keeper of the vault (in this case the Stabilisation Ivanov will still be in charge of the military-industrial com- fund and the National prosperity fund), Alexey Kudrin can plex, but with less influence. Close attention should be paid look to the future with serenity. Alexey Gordeev and Igor Le- to the decisions to be made public in the coming weeks concer- vitin, whose contrasting record at Agriculture and Transport, ning the outlines of Sergey Chemesov’s Rostekhnologii hol- also remain in the government, the same for Elvira Nabiul- ding company, which he hopes will take control of a number lina (who loses commerce) and Tatyana Golikova. firms in the defence sector. The transfer of Sergey Sobyanin from the Presidential ad- Contested by a number of generals (Russia Intelligence ministration to the post of vice Prime minister in charge of n°74 of March 27 2008), Anatoly Serdyukov retains the ar- the governmental apparatus (a position sought by Igor Sechin, med forces porfolio. He has the mandate to pursue the ratio- but which had been refused to him after a request in that di- nalisation of the financial flows within the Defence ministry, rection by Dmitry Medvedev to Vladimir Putin) in effect nul- notably concerning procurement. In this matter, Anatoly Ser- lifies the prospect of seeing him succeed Yuri Luzhkov as Mos- dyukov can count on weighty support in the person of Viktor cow mayor. As a result, Vladimir Kozhin – still superintendent Cherkesov. The latter was in fact named May 12 at the head of the Kremlin (Russia Intelligence n°60 of August 30 2007 ) of the agency charged with acquisition of material for the De- – is more than ever favourite for the succession apparently fence ministry, an organisation created last May which had delayed until the spring of 2009.d

Sergey Yastrzhembsky, the new Russo-Italian business banker

In its edition of April 10, Russia Intelligence career in journalism and diplomacy. During For several months, Sergey Zastrzhembsky spread the news concerning the visit of an the decade of the 1990s, he was in succes- was seen as leaving the Kremlin, where his impressive delegation of Italian businessmen sion spokesman for the Foreign affairs minis- influence was quite limited. The supervision and their meetings with Vladimir Putin and try and ambassador to Slovakia (Yas- of the projected Russo-Italian investment Dmitry Medvedev. It was announced on trzhembsky played a major role in the bank represents an honourable exit for him. that occasion the creation of a Russo-Italian improvement of relations between Moscow This “golden parachute” is not particularly investment bank with the objective of opera- and Bratislava in the Meciar era), spokes- surprising since Sergey Yastrzhembsky chai- ting in the former USSR, but also in India man for , and as n°2 in the pre- red the bilateral forum on civil society dialo- and China. More information has now be- sidential administration. In 1998, he develo- gue and had carefully nurtured his networks come available about the project. Sergey ped close ties with the Yuri in Rome recently. Yastrzhembsky, who since 2004 has occu- Luzhkov — who actively prepared the post- pied the post of special presidential repre- Yeltsin period with Yevgeny Primakov — and According to information filtering from Mos- sentative for development of relations with became n°2 of the capital’s government. This cow, the capital of the future Russo-Italian the , will be charged with pi- “split” was nevertheless quickly forgiven since bank (about 500 million euros, according to loting the operation. he was recalled in the spring of 2000 to the Moscow sources) will be allocated between Kremlin as advisor to Vladimir Putin. The the Intesa-San Paolo and the Vnesheko- Aged 54, a graduate of MGIMO — where he Russian president notably assigned him all nombank. Rome was designated as the seat studied with a certain — communication tasks linked to the “anti-ter- for the group, which should officially see the Sergey Yastrzhembsky has spent most of his rorist operation” in . day by the end of the year. d 5 Russia Intelligence N°77 j May 13 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

INDUSTRY c Yuri Kovalchuk’s good deal at the Vyborg ship yards

The closer Russo-Norwegian relations in the naval construc- In its edition of August 31 2007, Russia Intelligence indicated tion sector, which Russia Intelligence spread the news about in that it has received a contract for 2 billion dollars from Gaz- its edition of April 10, has experienced some new developments. prom (construction of two drilling platforms for the Shtokman Aker Yards and FLC West (a Luxembourg FLK leasing subsidiary deposit). In early April it was also learned that VSZ had just si- which recently took over the Ocean shipyards in Nikolaev in Ukraine gned a framework agreement with Sovkomflot, the new Rus- and those of Wismar and Warnemuende in the former GDR) an- sian national champion in maritime transport. This document nounced in late April their readiness to invest several million dol- which must be transformed into a proper and legal contract by lars in the project for a super shipyard in Vyborg and that they had the end of the year, foresees the construction of chemical and engaged in discussions in that direction with local partners. methane tankers as well as new platforms for Shtokman. The connection of Gazprom-Kovalchuk-Shuvalov, (who is the pre- As a reminder, the ambitious reform of naval shipbuilding in- sident of the supervisory council of Sovkomflot and presiden- dustries adopted by the Russian government in 2007 (Russia In- tial sherpa) is proceding at full steam. telligence n°52 of March 30 2007 and n°64 of October 25 2007) an- nounced the creation of new capacity for vessels of 100 000 to 150 After having taken control of Gazprombank (Russia Intel- 000 tonnes, a niche in which Russia is absent today. The Industry ligence n°68 of January 20 2008) and major media assets (Rus- and energy minister is piloting this project. Te services of Viktor sia Intelligence n°67 of December 20 2007), Yuri Kovalchuk Kristenko have received two offers from private groups. One from and his friends have taken strong positions in a priority indus- Summa Capital an organisation held equally by the businessman trial sector in the view of the Kremlin which will benefit from Zyavudin Magomedov and . Summa Capital controls important transfers of petro-rubles. A possible partnership with the commercial port of Primorsk and has important property de- Aker Yards would allow VSZ to cross a technological thresh- velopments in this sector. hold.

The other offer was put forward by VSZ, the Vyborg shipyards. According to our information, the Kremlin would see in a Virtually moribund in the early 2000 years, VSZ has seen a specta- favourable light the pursuit of the Russo-Norwegian romance cular recovery since the arrival of new shareholders in 2006. It begun last autumn with the entry of Statoil in the Shtokman must be said that they have serious support. Vasily Gorelov is none project. It has already led to results judged to be positive at the other than the son of Dmitry Gorelov, co-founder with a 12.6% political level. Moscow registered with satisfaction that the very share of the Bank Rossia led by Yuri Kovalchuk. The other part- Atlanticist Norway did not join the six founding member of the ners are also diretly connected to the banker of the Putin network. European communities to oppose the granting to Ukraine of Sergey Kolesnikov is a member of the supervisory council of the the status in the action plan in view of membership at the re- insurer Sogaz (a subsidiary of Rossia AB), while Alexandre Ula- cent NATO summit in Bucharest. d nov is the n°2 at Sovex, a firm charged with supplying the Pulkovo airport in Saint Petersburg with kerosene. An updated biographical note on Yuri Kovalchuk is avai- While waiting for the Industry and energy ministry to decide on lable on the website of Russia Intelligence. Reserved for Pre- the matter of the super shipyard, VSZ has all the chance on its side. mium subscribers.

Sakhalin-III : Gazprom versus Rosneft Whether a sign of a new era or a simple appli- viously been awarded to a consortium headed cording to practices comparable to the Shtok- cation of actions to develop the continental by ExxonMobil then reclaimed by the Russian man deposit. Japanese, Chinese and, especially, shelf (read alert page 6) ? The last decision by state in 2004 following a new law of Production- Korea (Kogas) are said to be interested. Viktor Zubkov as Prime minister, on May 6, sharing agreements (PSA), have not yet been The Sakhalin-III deal should be followed closely was, however, far from being anodine. Accor- awarded. Containing reserves evaluated at because of its possible political implications. It is ding to information gathered by Russia Intelli- 453Mt of crude and 930 billion cubic metres, Ki- known, for example, that the Far-east has for gence, the former head of government — who is rinsky was sought by Rosneft — which highligh- the past few months being the subject of increa- known to be a favourite to succeed Dmitry ted the possible synergy with the development sing tension between Rosneft and Gazprom. Medvedev at the head of the supervisory board of Veninsky — and by Gazprom — anxious to The latter is especially seeking to enter into the of Gazprom — decided to award unconditionally pursue its expansion in Far-east offshore follo- Sakhalin-I project and to prevent the projects ai- the call for tender on the Kirinsky bloc of Sa- wing its conquest of Sakhalin-II (Russia Intelli- ming to export gas from these deposits to China khalin-III to Gazprom instead of Rosneft. gence n°46-47 of january 19 2007 ). (Russia Intelligence n°71 of february 14 2008 ). We remind readers that Sakhalin-III is compo- Development of the Verinsky bloc of Sakhalin-III In this context, the decision of May 6 is a worri- sed of 4 blocs : Veninsky, Kirinsky, Ayashsky should begin in about 2014. The natural gas ex- some signal for Rosneft. On the other hand, and Vostochno-Odoptinsky. Veninsky is control- tracted will supply the domestic Russian market, Gazprom — which had already been awarded led by Rosneft (74.9%), associated with China’s notably the region of Kamchatka, the object of without a call for tender the deposit of the Sinopec and perhaps soon with ONGC (discus- sustained attention by Russian authorities for Chayandinskoe and Iakoutia deposits in mid- sions are underway for the sale of 23% of the the past few months (Russia Intelligence n°61 of April — woulk like to see it as a confirmation project to the Indian public group). Ayashky september 13 2007 ).According to reliable sour- that the Medvedev era will be even more rewar- d 6 and Vostochno-Odoptinsky, which had pre- ces, Gazprom could turn to foreign groups ac- ding than the Putin years. Russia Intelligence N°77 j May 13 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc FOCUS ALERTS South Stream : Serbian doubts 3 Gazprom and Rosneft share the continental shelf It was on the subject of the planned South Stream gas pipeline that Vladimir They were tailor-made amendments for Putin devoted his last international contacts as head of State. On April 29 he re- Gazprom and Rosneft that the Natural re- ceived in the Kremlin the Greek Prime minister Konstantinos Karamanlis, who sources minister, Yuri Trutnev, won a vote came to officiate the participation of his country in the project. Under the terms on April 16 in the Federation Council. Only of the intergovernmental accord signed the same day by the Russian Energy mi- Russian groups in which the State holds at nister, Viktor Khristenko, and his counterpart, Christos Folias, a joint venture least 51% of and which have had at least 5 will soon be created in order to build the Greek segment — with a capacity of 10 years of experience on the national terri- billion cubic metres — of South Stream. tory will be permitted to explore and deve- lop the continental shelf reserves (which This progress takes place at the same time that Gazprom has encountered exclude Zarubezhneft, whose offshore ac- unexpected difficulties with another participant in South Stream — Serbia. We tivities are located in Vietnam). The zones recall that on January 22, the Serbian government had approved two major agree- believed to hold natural gas will be alloca- ments with Gazprom, one on the privatisation of NIS, the other on participation ted to Gazprom and those where oil domi- in the southern European gas pipeline project (Russia Intelligence n°70 of Ja- nates to Rosneft. According to Sergey Bog- nuary 31 2008). The documents had been signed with great ceremony in the pre- danchikov, who addressed the Maritime sence of the Serb Prime minister and President Vojislav Kostunica and Boris college on April 18, the level of investments Tadic. It concerned the economic counterpart to Moscow’s support to Belgrade required to develop the Russian continen- on the issue, but also a gesture in favour of the “democratic” candidate : tal shelf amount to 2640 billion dollars to the pagentry at the Kremlin had in fact been staged between the two rounds of 2050. The amount is far superior to the the presidential elections, and the presence of Boris Tadic at the side of Vladi- numbers figuring for example in the pro- mir Putin undoubtedly helped him claim an additional few thousand votes from gramme for updating the renewing reser- the nationalist candidate Tomislav Nikolic. ves adopted last October by the services of Yuri Trutnev ( this document mentions 3 In the meantime, the political environment has changed in Belgrade since the billion dollars by 2020, only 6.8% of which parliament has been dissolved and early legislative elections have been slated for would be borne by the State). We also re- May 11. As a result, the ratification procedure for the bilateral accord has been mind that only 2.7% of Russian oil produc- delayed. This situation worries the Kremlin at the highest level and Sergey Shoygu, tion is currently extracted from the conti- the minister for emergency matters, was dispatched on April 18 to Belgrade to nental shelf. d inquire into the situation. Almost at the same time, Alexandre Medvedev, the n°2 at Gazprom in charge of international relations, expressed the desire that 3 Natural gas price : libera- Serbia live up to its commitments. Such messages appeared to be a waste of time lisation delayed since the Serb cabinet on April 24 finally rejected the idea — promoted by the In 2006, the Russian government had intro- ardent Russophile Kostunica and his infrastructure minister Velimir Ilic — to duced the principle of a liberalisation on transmit the texts for ratification to the dissolved parliament. The Russian au- the natural gas price for industrial clients thorities had been ready to make important concessions to take the prize. Accor- for the 2011 time-frame. It was foreseen ding to information communicated by the vecernje novosti daily, Moscow was ex- that by that deadline, prices would be cal- pected to offer Serbia exemptions on customs for export of petroleum products culated on the basis of European rates with currently in practice with Belarus and Kazakhstan. It is therefore up to the par- a reduction for export taxes and transpor- liament that emerges from the ballot boxes May 11 to decide on the Serb-Russian tation costs. At the time the measure was accords of January 25. Keen observers of the Belgrade political scene estimate decided on, authorities from the Economic that an eventual ratification would not take place before September. development ministry were expecting 125$/100m3≥. But because of the increase On this issue, the Kremlin suspects Boris Tadic is playing a double game to do in world prices for hydrocarbons, the “libe- all he can to compromise South Stream. From this standpoint, the signature on ralised” price of natural gas would today April 29, of an association accord between Serbia and the European union would be 173$/100 m3≥. To this day, Russian in- not quiet Moscow’s fears. Another target for the Russians and their extensions in dustrial clients pay 76$/100m3≥. According Belgrade — Mladjan Djinkic, the Economics minister, a fierce opponent of the to the Vice minister for Economic develop- Gazprom projects. In recent days he has been the subject of a virtual destabili- ment in charge of this activity, Andrey Kle- sation campaign, with a spokesman for Vojislav Kostunica even declaring that he pach, the liberalisation could now be gra- was in the pay of the Austrian group OMV. dually spread out over several additional years, a measure which would not be Austria constitutes the other uncertainty linked to the southern route for South good news for Gazprom. The regulated ra- Stream. The signature in late January of a cooperation accord between OMV and tes for their part will increase significantly Gazprom (Russia Intelligence n°70 of January 31 2008) seemed to have sealed in the coming years (25% in 2008 and the participation of the Austrian group in the project, but its relations with its 2009, 30% in 2010 and 40% in 2011). It Russian partner quickly deteriorated due to the absence of an agreement on the should be mentioned in passing that the sharing of the local market for gas distribution. As a result, Gazprom is seriously price of electricity should also experience a considering to divert the northern tier of South Stream toward Slovenia. Alexey comparable development (25% in the co- Miller was in fact in Ljubljana April 11 to raise the subject of the projects with ming years according to the document the President Danilo Turk. d adopted adopted on May 6). d 7 Russia Intelligence N°77 j May 13 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Regions & CIS

CAUCASUS c Abkhazia : the first lessons from the crisis Announcement by Vladimir Putin of a strengthening of coope- litary capacity in Abkhazia. The eminently subjective nature of ration between Russia and the secessionist entities of Abkhazia the last point leaves the door open to all possibilities. For now, and South Ossetia (April 16), destruction of a Georgian surveil- the Georgian authorities nevertheless place the emphasis on lance drone near Sukhumi (April 20), declaration by the special diplomatic efforts. They are trying to persuade Europeans to Russian representative for the CIS counties Valery Kenyaykin about adopt a series of sanctions (notably an interdiction of visas) to- a possible military retaliation by Moscow to all Georgian operations ward Abkhazian officials, but also against Russian businessmen against Abkhazia and South Ossetia (April 27), increase in the Rus- investing in Abkhazia and all “locals” holding a Russian pass- sian peacekeeping contingent (April 29)...the contest between port. The WTO card — where Georgia blocks multilateral dis- Moscow and Tbilisi has increased in tone since the NATO summit cussions with Russia — will also be exploited to the maximum. in Bucharest in early April and is considered in Western chancel- leries as more disturbing than the bilateral crisis of Autumn 2006 3/ Westerners support Tbilisi but are not prepared to risk a (Russia Intelligence n°41 of october 13 2007). At this stage seve- clash with Moscow on the Abkhazian situation. Certainly France ral conclusions are emerging: and Germany — who are trying to make amends to Tbilisi af- ter their refusal to grant the MAP in Bucharest — teamed up 1/ Moscow has decided to apply to Abkhazia, not the well-no- on April 24 in the UN with the Americans and British to call ted “Kosovo precedent”, but the American approach vis-‡-vis Tai- on Russia to cancel its decisions on April 16 or not to apply them. wan. In other words, no de jure recognition of the secessionist en- A high French official who follows the situation nevertheless tity but a complete cooperation with Sukhumi. The promise made told Russia Intelligence of “resistance of the technostructure” by NATO in Bucharest to one day integrate Georgia in its ranks and and the difficutly to mobilise the Elysée’s diplomatic cell concer- the new phase represented by the meeting of Alliance Foreign mi- ning the Georgian issue. According to this same source, the Ger- nisters in December strengthens the conviction in the Kremlin that man position increasingly echoes elements of the language “whis- the moment of truth is approaching in its Russo-Western “great pered” by the Russians. game” in the ex-USSR. The result are initiatives that are not limi- ted to simple declarations or gestures, as was frequently the case 4/ Rarely raised publicly, the factor of the winter Olypics in the past. which will be held in Sochi in 2014 is ever-present in the thoughts of Russian and Georgian authorities. Officials close to the Krem- 2/ The use of force by the Georgian side can not be excluded lin suggest in private they hold astonishingly pessimistic views from the start. A Georgian minister close to the problem confided — in vew of the Tibetan protests — that incidents will inevita- to Russia Intelligence in early May that the “war party” was visibly bly take place and that Tbilisi holds a considerable means of building up inside the government in Tbilisi. According to him, three pressure (not to say blackmail). Georgian interlocutors to Rus- eventualities would justify resorting to arms : a Russian military of- sia Intelligence consider that such a view can lead the Russians fensive in Abkhazia, the massive expulsion of ethnic Georgians from to “securitise” Abkhazia, in other words to annex it and to es- the district of Gali, a significant re-enforcement of the Russian mi- tablish ample military infrastructure well before 2014. d

ALERT 3 Stavropol : Chernogorov is shoved to the exit The governors’ ball continues in full swing. On the eve of the transfer of that the latter paid heavily for his crime of disloyalty since the Prosecu- power between Vladimir Putin and Dmitry Medvedev, Alexandre tor’s office opened two criminal investigations last November and even Chernogorov — who was at the helm of the Stavropol region since launched an international arrest warrant against him). In recent November 1996 — has handed his resignation to the Kemlin. Officially, months, the boss of had on several occa- Chernogorov is leaving his post because of the death of his father and sions asked Alexandre Chernogorov to retire, but the Governor had his mother’s illness. In reality, the matter is highly political. For several dragged his feet. Several names have circulated as possile replace- months already, the Governor of Stavropol was in the eye of hurricane. ments. Nicolay Goncharov, regional police director, is given a good He was especially reproached for the calamitous results of the regional chance. Unless the Kremlin decides to transfer a Zubkov government elections in March 2007. The head of the United Russia list, Chernogo- minister to Stavropol. Sources close to the Presidential administration rov — a defector from the Communist party to which he belonged until confided to Russia Intelligence in early May that the candidacy of Vla- the end of 2006 — had been edged out by the list of Fair Russia led by dimir Ustinov, the Justice minister and former Prosecutor general, was the mayor of Stavropol, Dmitry Kuzmin (it should be noted in passing being examined. d

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