N°67 - December 6 2007 Published every two weeks / International Edition CONTENTS KREMLIN P. 1-3 Politics & Government c KREMLIN Half-tinted election triumph c Half-tinted election triumph Election No, it wasn’t a resounding victory... Taking into account the means deployed, the multitude LEGISLATIVE ELECTIONS Special of manipulations practice throughout the country abouty the level of participation and the c The Winers and losers of on the number of votes obtained by United , the score of 64% in favour of the presi- December 2 dential party (and therefore ), it could not be completely satisfactory for the Kremlin. It is ALERT far from the standard of 70% that many of those close to the President had announced as probable and so c Yevgeny Shkolov, or the it is natural that Vladimir Putin expressed his displeasure with these results and that he did not even see "Dresden connection" in the fit to visit the headquarters of Sunday night. Interior ministry FOCUS Also, this result does nothing to ease the embarassment that the Kremlin finds itself in concerning the c The strange confession by process of succession of Vladimir Putin. Even if it consecrates the pre-eminence of United Russia in the Oleg Shwartzman Duma (it passes from 305 to 315 seats), even if it confirms the popularity of Vladimir Putin with a majority BEHIND THE SCENE of Russians, this election changes nothing fundamental. It justifies the fact that Vladimir Putin can be des- c : the little secrets behind an elec- ignated as Prime minister (but we hardly had any doubts about the fact that this could be technically pos- tion list sible), it could provide a basis for the creation of a status of “national leader” but it cannot hide the inter- nal contradiction in which the elites still find themselves : that Putin leaves the Kremlin while still remaining P. 4-7 Business & Networks in control of the state. None of the plans envisaged is satisfactory : the function of Prime minister, without METALS, MINES a significant modification of the constitution, offers no guarantee of permanence. The status of national lea- c in the eye of der would require acrobatics backwards and forwards with the president, although nothing in the consti- the cyclone tution is foreseen for such a personality. This would establish a sort of bi-headed executive whose chances GAZ of success seem minimal in the current configuration of the powers and the clans in Russia. In the mean- c Kovytka : plays cat time, the struggle to establish power and influence continue unabated in the power circles. Which creates and mouse with TNK-BP sur-realistic situations. So, the vice Prime minister and Finance minister, Alexey Kudrin, is still not “au- TELECOMS thorised” by the Sechin/Patrushev/Ustinov clan to pay a visit to his deputy, Sergey Storchak, emprisoned c Fridman and Reyman bury in since some ten days (Russia Intelligence n°66 of november 22 2007) and about whom legal char- the hatchet ges are never ending. These days the Shwatzman affair has unleashed a tempest (read page 3) and is in- FOCUS terpreted as a retaliation by the Cherkesov/Kudrin clan. After having given a good blow to the presidential c Green light for the south- administration (where Sechin has his office), Shwartzman retracted his declarations (in which he affirmed European gas pipeline managing a vast business network around Sechin), in accusing the Kommersant newspaper (whose owner OIL is ), of having “invented” the statements the daily attributed to him. Late regrets which c Rosneft : the great loneliness of Sergey only lead to further degradation of the climate. Bogdanchikov From his side, the Prime minister Viktor Zubkov is profiting from the situation to confirm his mastery P. 8 Regions & CIS over the government and wants to name a certain number of close associates to key posts (read page 7). He CASPIAN is said to have activated the financial and tax files on a certain number of oligarchs in order to inspire them c Gazprom Yields to the to caution, or even obediance, since it affects financial and industrial operations underway (read page 5 on ultimatum by Gurbanguly the discussions surrounding the fate of Norilsk Nickel and ). At once, it is no longer sure Berdymukhammedov that he is this docile and manageable personality that he was described to be following his nomination. Among certain major bosses in the circle close to Vladimir Putin, there are attempts to accelerate all ope- SUBSCRIPTION rations underway in order to conclude them as quickly as possible. This is the case of Sergey Chemezov who Print Edition has just abandoned the leadership of Rosoboronexport (read page 7) to devote himself to the new state (23 issues, airmailed overseas) , Rostekhnologii. There is comparable agitation at RZhD, where Vladimir Yakunin has €770 TTC announced a strategic alliance with the Canadian group Bombadier, which the latter denied the imme- The Web Pack diacy just a few hours later. As to , he is playing a delicate but well engaged game with Mi- (Print Edition khail Prokhorov over control of Norilsk Nickel, which if successful, will bestow on him the honorary status + PDF + archives acess) of “national industrial leader”. € 880 TTC

The Premium We are also finally waiting a reshuffling in the energy sector, such as the “departure” of Alexey Miller Subscription from his post of director general of Gazprom, for example, or that of Sergey Bogdanchikov of Rosneft, (Print Edition + PDF + access where a wave of resignations has struck his closest collaborators in recent weeks. In brief, it is a strange to all the website contents) end-of-reign atmosphere which has taken hold in Moscow while no-one yet knows what tomorrow will € 1200 TTC hold... d www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

LEGISLATIVE ELECTIONS c The winners and losers of December 2 Election As this current edition goes to press, the partial But the atmosphere is far from being triumphant. It must be said results furnished by the election commission re- that the candidate Putin lost close to 7% (and 5 million votes) Special port apply to more than 95% of the votes and are between the presidential elections of March 2004 and the legis- not likely to change significantly. Four groups have crossed the lative vote of December 2. And this even though the totality of threshhold of 7% required to enter deputies in the parliament. “administrative resources” had been mobilised : media bombast United Russia (64.23%), the Communist party of the Russian fe- on the state television channels, very “organised” voting in the deration (11.63%), the liberal-democratic party of Vladimir Zhi- military and prisons, advice given to students and university ad- rinovsky (8.14%) and Just Russia of the Federation council pre- ministrations, etc... Anxious to avoid any unpleasant surprises sident, Sergey Mironov (7.75%). According to the president of and faithful to the Stalinian slogan according to which what the central election commission, Vladimir Churov, these groups counts more is less the way people vote than the way the votes obtained respectively 315, 57, 40 and 38 seats in the . are counted, the Kremlin even went so far as to create a special Officially, the participation in the vote of December 2 reached working group within the central Electoral commission in order close to 63%, was significantly more than during the legislative to supervise the conformity of the statistics published. This group elections of December 2003 (55%). was not inactive if we can believe numerous reports of opposi- tion monitors that claimed a systematic rewriting of the trans- cripts established by the voting offices.

A closer analysis of the official results of the vote leave the impression of certain unpleasant elements for Vladimir Putin. In some ten regions, United Russia obtained a score below 55%. This is particularly the case in (50.33%), but also in Moscow (54.15%), in Yaroslav (53.17%) or Smolensk (53.92%). The “Turkmen” results recorded in Chechnya (more Sergey Mironov Vladimir Zhirinovsky than 99% participation and an equivalent score for United Rus- The reactions of the principal competitors are, we can ima- sia) can not obscure the low turnout in North Ossetia, where gine, contrasted. The most virulant are the communists. Their the powers’ rhetoric on rediscovered stability still has trouble leader, Gennady Zyuganov, denounced the balloting as “the dir- passing three years after Beslan. tiest in Russia” for 15 years (even though the presidential elec- tion of 1996, where he had been beaten by Boris Yeltsin, had up The situation is, as can be seen, in greater contrast than could to now been a “reference point” in electoral fraud). It must be be said in Russia and the West. Has Vladimir Putin really won his said that the regional elections of the spring (Russia Intelligence bet? Has he emerged stronger from this vote, as the decisive bat- n°51 of March 16 2007) and the renewed inflation observed since tle for power in Moscow is being prepared? The congress of Uni- the start of autumn led them to hope for a score of close to 20%. ted Russia which will be held in mid-December will no doubt pro- The “historical” democratic parties — Yabloko and SPS — col- vide some indications on the intentions of Vladimir Putin and on lected respectively 1.60% and 0.96%. Failing for the second conse- his control over the scenario. d cutive time to enter into the parliament, these political forces must be considered as remnants of past political realities. The particularly rough treatment the SPS was subjected to during ALERT the last few weeks of the campaign — after for a time having 3 Yevgeny Shkolov, or the “Dresden nursed the hope of benefitting from sort of indulgence from the connection” in the Interior ministry presidential administration — confirms that the Kremlin no lon- The former colleagues of Vladimir Putin in the residence of the ger regards it as useful to allow a certain “display” of democracy KGB in Dresden decidedly have the winds in their favour. After hav- for western interlocutors. ing promoted his superior at the time, Nikolay Tokarev, to the head of the public operator Transneft, the Russian president has just The only ones to be truly satisfied at the end of the vote on named Yevgeny Shkolov — who shared his office in the GDR — to the December 2 are Vladimir Zhirinovsky and Sergey Mironov. The post of Interior vice minister in charge of the anti-crime police force. head of LDPR — who lends assistance to many persons in the Aged 52, Yevgeny Shkolov, like Vladimir Putin, left the active KGB world of the bureaucratic and economic elite (read sidebar page service in 1990. From 1992 to 1998, he was in charge of external eco- 3) — saw his political fortune extended at least for another term. nomic relations in the municipal administration of Ivanovo, the city The “soldier” Mironov has himself been saved in extremis by the where he did his university studies. He was called to Moscow in 2002. Kremlin : while the last opinion polls accorded only 5% vote for He was advisor to two bosses in the presidential administration — Just Russia, he may have, according to our information, obtai- Alexandre Voloshin and Dimitry Medvedev. In 2005, he became ned guarantees from the highest levels just ten days from the vice president of Transneft, then, in November 2006, he assumed the vote. By chance or not, the presidential administration dispat- head post of the — very sensitive — department of economic security ched one of its senior officials, Vadim Konovalov — as the fu- in the FSB. ture administrator of the parliamentary Just Russia group as of Yevgeny Skholov replaces , recently named as the November 28. special representative of the president in the Far-east federal district (Russia Intelligence n∞xxxx of xxxxxxxxxxx). Sources in Moscow agree United Russia and its list leader, Vladimir Putin, are the big that the old colleague from Dresden is well placed to succeed the In- winners of the elections. In appearance at least. With 315 seats, terior minister, Rashid Nurgaliev. d 2 the pro-presidential party has a constitutional majority of 2/3. Russia Intelligence N°67 j December 6 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

cc FOCUS BEHIND THE SCENE The strange confession by Oleg Shwartzman Vladimir Zhirinovsky : While the Kremlin ceaselessly hammers away about United Russia’s victory in the the little secrets behind legislative elections of December 2 as representing an example of political and eco- an election list nomic stability for the country, a few recent events indicate contradictory evidence Credited with a bit more than 8% of that the clan warfare that is ripping apart Vladimir Putin’s entourage is entering into the votes, according to the latest partial a new phase. results furnished by the central election commission, the Liberal-democratic Friday November 30, the prestigious Kommersant daily published a long interview party (LDPR) led by Vladimir Zhiri- with Oleg Shwatrzman. Aged 35, a gradute in biology, philosophy and public adminis- novsky should count some fourty tration, collaborator at the Sternberg institute of astronomy in Moscow, Oleg Schwartz- deputies in the Duma. Included are the man is a previously little-known businessman who presides an investment firm of sec- son of the leader — Igor Ledbedev, in ond rank (Financegroup). He was also known to have political activities — although 3d position on the national list —, modest — since he figured on the list of «Civic force», a party created out of whole his former personal photographer cloth by the Kremlin to undermine the traditional liberal parties (Yabloko, SPS), and — Alexey Ostrovsky — but also a num- which won 1.06% of the vote on December 2. The title of the interview set the tone : ber of «delegates» of the presidential «For us, the party is the incarnation of the ‘power structure’, whose top leader is Igor administration and the business world. Ivanovich Sechin». Schwartzman minutely details the true activities of his investment The economic interest groups best fund. He reveals notably that the beneficiaries of the different offshore structures af- represented on the LDPR list are those filiated with Financegroup are «related to the authorities of the presidential adminis- of the wife of the Mayor of Moscow, tration», but also representatives of the FSB and the SVR. Schwartzman follows up on Elena Buturina and ot Oleg Deri- the political side of the Financegroup activities.He claims to be in charge of finances Election paska. The first has inside an organisation named Union for Russian social justice. «This organisation was thus placed Arkady created in 2004 after President Putin said that big business should assume its social Special Svistunov, 42 and a responsibilities toward the state. A the time, our colleagues from the FSB decided that graduate of the KGB school of advanced an organisation should be created that would break [...] all the Khodorkosky». Schwartz- studies, bilingual in Swedish and long- man then describes a «collector of assets» to which all the large groups of the country time advisor to the wife of Moscow’s contributed. Among those named are , Alrosa and also Rosoboronexport. He mayor at the RZB bank, today the spe- points to Valentin Varennikov — a former 1991 putschist, aged 83, Duma deputy un- cial emissary of Elena Baturina in Sochi til November — as being the liaison agent between the Union for Russian social jus- in anticipation of major construction tice and Igor Sechin. contracts, Armen Shaginyan (boss of the BTP Krismar firm, which assures The reactions, it can be imagined, were not long in coming in Moscow. The most numerous contracts for the Moscow widely shared among observers of the Russian political scene was without a doubt in- municipality), and Mikhail Khesin credulity. Far from appearing like just the latest exposure that abounds in certain (boss of Grazhdanstroyproekt, a con- Moscow Internet sites, the interview appears all the more credible in that Schwartz- struction firm that is very active in the man claims this action and presents it with a candor that combines the role of Igor western districts of Moscow). The Sechin and his associates. Rosoboronexport denied «wallowing» in such a system. One candidates for Oleg Deripaska are of the foreign partnersof Financegroup, the Israeli businessman Eldad Shamir, marks Arkady Sarkisyan (48, ex-senator his distance, as does the head of «Civic force», Mikhail Barshevsky, who declares hav- from Khakassie, vice president of ing excluded Shwartzman from any responsibilities within his party. The director gen- Glavstroy) and Tatyana Dubrovskaya eral of Kommersant, Demyan Kudryavtsev, let it be known Sunday the 2d, the evening (ex-executive vice president of Base of the election, that he received a phone call from the owner of the newspaper, Alisher Element). Usmanov, «upset» according to him, by the publication of the interview with Shwartz- The oligarch of Daghestani origin man and its impact. The editors of Kommersant — anticipating suspicions about the Suleyman Kerimov (Polimetall), which «ordered» nature of the article — explained the interview was conducted sponta- had been elected on the LDPR list in neously on the margins of an conference in the in early November. 2003, has delegated Vasily Tarasyuk (ex-director general of a refinery owned Russia Intelligence sources in Moscow nevertheless suggest another explanation by Nafta-Moskva). Vladimir Zhiri- in this matter. Far from being neutral — neither in its content, nor its timing — the novsky has also opened his list to repre- Shwartzman interview would be an element in the counter-offensive by Viktor Cherkesov sentatives of regional elites : Denis and Alexey Kudrin, whose assistants — Alexandre Bulbov and Sergey Storchak — Davitashvili, 33, is none other than the remain in prison (Storchak must even face additional accusations connected with his son of the vice-governor of management of the debt of the USSR toward Kuwait. The spontaneous revelations by Arkhangelsk in charge of natural re- Shwartzman on the witches’ caldron of the Kremlin should discredit — subtly — Igor sources, while Mikhail Pitkevich is the Sechin. Alisher Usmanov — a close associate of against whom Sechin son of the Prime minister of the repub- has been actively plotting since the end of summer (Russia Intelligence n∞62 of Sep- lic of Udmurtia. Other candidates were tember 27) — should not be truly saddened by the outcome of events. directly imposed by the Kremlin. This is notably the case of Tatyana Volozhin- As of the latest news, the «hero» of the story, Oleg Shwartzman, should deny his skaya (the former wife of Oleg May- statements, distorted, according to him. Russia Intelligence will closely follow the un- orov (president of Alta-Bank, where he folding of this affair. d worked with between 1999 and 2001). d 3 Russia Intelligence N°67 j December 6 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

METALS, MINES c Norilsk Nickel in the eye of a cyclone

It has already been two years at least that the fate of the Whatever the outcome of this operation, a certain number of world’s top producer of nickel, Norilsk Nickel, has been in doubt. observations are in order : And we have followed the various episodes of this serial in our publications. It appears that we are on the verge of the final act. 1/ Concentration in the mining and metals industry will November 23, , the world’s leading aluminium producer, accelerate because the thirst for minerals is huge among the controlled by Oleg Deripaska, announced the conclusion of an large steel groups and the temptation to secure supplies will be- accord with Onexim Group, which unites the interests of Mi- come irresis oftable. But the advantage of many Russian groups khail Prokhorov, under the terms of which Rusal will acquire is precisely their upstream/downstream integration. We can al- 25%, plus one share, of Onexim’s holdings of the Norilsk Nickel ready see a titanic clash for control of Rio Tinto (one of the lea- capital. ding world producers of iron ore) for which the giant BHP Bil- liton has placed a takeover bid of 125 billion dollars. The boss The transaction would be concluded in part through an ex- of China’s Baosteel, Xu Leijiang, has confirmed that a Chinese change of shares (Onexim would hold 11% of the capital in Ru- counter-offer is probable, even suggesting the figure of 200 bil- sal) and in cash for an amount that the two signators have not lion dollars. At these levels, the Russians are small players if they revealed but that market sources put at between 14.7 and 16 bil- do not join forces... lion dollars. But this accord is conditional on one provision : that Vladimir Potanin, associated with in the No- 2/The extraordinarily concentrated structure of Russian rilsk group, renounces the acquisition of his 25% , plus one share capitalism lends its groups ultimately fairly easily destabilised. at a cost of 15.7 billion, a non-negotiable proposal by Just like the tale of the flutter of a butterfly’s wings, the fact that Prokhorov...And it seems that this offer is only valid until the end Mikhail Prokhorov was the subject, last winter, of a spectacular of this year. arrest in Courchevel and detention in Lyon, for allegedly procu- ring prostitutes (no charges were finally made against him, pro- The situation is therefore not normal : control of one of the voked a chain-reaction with devastating effects. The division of most flourishing businesses of the Russian mining and metals the economic interests of Potanin and Prokhorov (under discus- complex hangs between two pretenders, its founder, Valdimir Po- sion even before the Courchevel episode) allowed outsiders (the tanin, or the oligarch the most in the limelight at the moment, Kremlin, Deripaska) to get mixed up in their business in order Oled Deripaska, who we imagine would not be satisfied with only to destabilise a group over which they harboured ambitions. The a blocking minority in Norilsk. He is already considering the pos- political climate currently reigning in Russia can only contribute sibility of a merger with Rusal that would allow him “to set in to the hardening of the competition with Potanin since the ru- motion his development projects in the world mining and me- mour is current that Prime minister Viktor Zubkov had opened tals industry,” according to the terms of an official Rusal com- all the “files” of , which in fact explains heavily-me- muniquè. nacing comments by Vladimir Putin about the latter, a few days before the legislative elections. If there is to be a merger, it is already well-know to whose pro- fit it is expected to be... Except that the current value of Rusal 3/If the fate of Norilsk is settled, a certain number of unk- is set at around 30 billion dollars while the stock capitalisation nowns remain about the future of the group created by Potanin of Norilsk is more like 55 billion dollars...In Moscow market pla- and Prokhorov. They are still associated in , the Rus- ces, there are mixed feelings about the chances of one side or sian leader in gold, which operated a sort of “spin-off” of Norilsk the other to control Norilsk. in March 2006. Mikhail Prokhorov is president of the adminis- trative council of Polyus, re-established in his post on October Potanin could finance the acquisition of the share of his for- 16 although he had left in July. In addition an extraordinary ge- mer associate even if the “subprime” crisis pushes banks toward neral assembly of Norilsk Nickel is scheduled for December 14 more prudence. Deripaska is also engaged in a number of other in order to authorise another “spin-off”, of the group’s energy ac- operations of radical growth, but he has obtained from a num- tivities (notably the electricity production company OGK3, one ber of international banks, including BNP-Paribas, ABN AMRO, of the most important in Russia) around a new firm, EnergoPo- Crédit Suisse and Merrill Lynch, guarantees that they would lyus. The capital of this new entity will be distributed “to the help finance the cash portion of the accord with Prokhorov. shareholders of Norilsk, comensurate with their interest” states the invitation to the general assembly. But what will be the geo- In reality, the game will be won on another field : in which di- graphy of Norilsk’s new capital at this date, no-one can say... If rection will Russian authorities push ? If it can be guessed by fact Mikhail Prokhorov intends to oppose this operation which the popularity that Oleg Deripaska currently enjoys in Kremlin instantly results in a loss of value for Norilsk. offices, the issue would hardly be in doubt. Norilsk Nickel has been at the centre of Kremlin scenarios since at least 2005, when It should also be noted that a few days later, December 21, it was seriously a question of placing it under the influence of the shareholders of Norilsk are also invited to another extraor- Alrosa. dinary general assembly, to decide on the payment of an inter- mediate dividend for the first nine months of the 2007 accoun- This operation failed especially because of difficulties for Mos- ting year. It has been set at the equivalent of 4.38 dollars per cow to recover the direct control of this firm which had been pla- share, which will signify for Potanin and Prokhorov a pleasant ced by Yeltsin under the “protection” of Vyacheslav Shtyrov, pre- year-end gift of some 300 million dollars each. The dividend paid sident of the Republic of Sakha (Yakutia). in 2006 was 6 dollars per share, or a total of 1.14 billion dollars... d 4 Russia Intelligence N°67 j December 6 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

GAZ c Kovytka : Gazprom plays cat and mouse with TNK-BP The purchase by Gazprom of the (62.8%) TNK-BP interest in the 25%). The meetings Alexey Miller had with Viktor Veksel- giant Kovytka deposit has been delayed. This was the outcome of berg October 16 and then with Tony Hayward November 6 the meetings between Alexey Miller and Tony Hayward on Novem- after the Chelsea-Shalke 04 football match had added to the ber 29 in Moscow. We remind readers that the principles of this trans- rumours. Officially, such an operation is not on the agenda. action had been presented in a memorandum signed by the two The vice Prime minister and president of the Gazprom ad- groups last June (Russia Intelligence n°58 of June 28 2007). Like ministrative council, Dmitry Medvedev — in whose office Shell in Sakhalin II, TNK-BP had to yield to the combined pressu- the “surrender” of TNK-BP in the Kovytka affair was signed res of Gazprom and the authorities, which had begun proceedings last June 22 — declared in mid-November that Gazprom aimed at the withdrawal of its operating license. The details of the was not “ready to digest all energy assets, thank God”. Vik- sale of Kovytka should have been completed before December 1st, tor Vekselberg also regularly denies that the Russian sha- but the deadline has not been met. reholders of TNK-BP have any intent of selling their share. But rumours persist, and the news agencies and Moscow A number of factors were at play in this delay. On the one hand, economic dailies regularly spread these, which leads ob- the uncertainty concerning the entry into operation of this project. viously to the belief that there is indeed something cooking. The Natural resources ministry of Yuri Trutnev wants it to be laun- The expiration of the five-year moratorium on the resale by ched by 2011, while the Far-east gas programme prepared by the In- Russian shareholders of their stake — a clause in the TNK- dustry and energy ministry under Viktor Khristenko does not fore- BP marriage contract — also lends substance to this pos- see this until 2017. Other points still pending : the destinationof the sibility. It is in addition also known that Gazprom wants to Kovytka gas. Up to now, the preferred plan for the authorities had increase its oil involvement ( — ex-Sibneft) been to direct the output to the needs of the Russian domestic mar- in order to compete with Rosneft, the new Russian leader ket, with exports to China to be assured by the gas pumped in Yaku- in terms of production after the purchase of the last remai- tia and Sakhalin. Geographic realities argue in favour of exporting the ning assets of last spring (Russia Intelligence n°55 Kovytka gas to China. In this situation, Gazprom prefers not to rush of May 16 2007). in, especially since an accord has still not been found with Beijing on the details of future exports (gas pipeline routes and prices). It remains that the acquisition of 50% of TNK-BP would represent and investment of more than 20 billion dollars. The other reason that explains the obstacles observed on the Ko- Surely, the boss of Rosneft, Sergey Bogdanchikov, succee- vytka deal seem to be linked to the discussions being held by Gaz- ded in obtaining such a sum last spring from Western banks. prom in view of the acquisition of the interests of Russian sharehol- But the international financial crisis makes such an opera- ders in the TNK-BP group (’s Renova - 12.5%-, tion of this scale evidently more difficult to achieve, even Leonard Blavatnik’s - 12.5%- and Alfa-Group - for Gazprom. d TELECOMS c and Leonid Reyman bury the hatchet One of the fiercest shareholder conflicts of the Putin period has Telecominvest (58% through the Luxembourg just reached a peaceful outcome. November 29, the Bermuda Supreme firm First National Holding) and IPOC. Tele- court authorised a negotiated settlement between the protagonists cominvest and IPOC respectively have 31.3% in the Megaphone case, involving the 3d mobile telephone opera- and 8% stakes in Megaphone. The entry into the tor in Russia (32 million subscribers for a turnover of 3.7 billion dol- stage of Alisher Usmanov had the effect of eas- lars and net profit of 812 million dollars in 2006). Leonid ing the tension at Megaphone.IPOC, and Reyman Leonid Rozhetskin — who only a while before We remind our readers that Megaphone has been, for several had been demanding 500 million dollars in dam- years, the stake in a contest between certain of its official and nonof- ages and interest from Reyman for having forced him to sell ficial shareholders. The origin of the conflict dates back to 2003 : at his shares in 2003, committed himself to withdrawing their the time, Altimo — the telecoms subsidiary of Mikhail Fridman’s complaints.It was this agreement that was validated Novem- — purchased the (25.1%) interest belonging to the busi- ber 29 in Bermuda. nessman Leonid Rozhetskin. IPOC a firm registered in Bermuda and managed by Jeffrey Galmond, contested the transaction be- It is now likely that Alisher Usmanov in the term fore Russian and foreign courts, without success. The Zurich arbi- will succeed in acquiring Jeffrey Galmond’s shares in Mega- tration court, in a judgment rendered in May 2006, came to the con- phone (24.6%, to which should be added the 4.7% already clusion that IPOC was in reality controlled by Leonid Reyman, the held by Usmanov). He would then become the second lead- Russian Information technologies minister, and that it served as an ing shareholder after Norway’s Teliasonera (43.8%) in front offshore “laundry”. This conlusion was vehemently denied by the of Alfa-Group (25.1%). Leonid Reyman — who Russia In- party most directly concerned. Jeffrey Galmond also denied being a telligence revealed in late August that he was looking for a “straw man” but admited that Reyman helped him during the 1990s. residence in — is therefore retiring from busi- ness before his probable departure from government in early The case witnessed some new developments during the summer 2008. of 2007. Alisher Usmanov, the boss of Gazmetall, GazpromInvestHold and the publishing house Kommersant (biographic profile in Rus- The biographic profile of Leonid Reyman is available sia Intelligence n°39 of September 15 2006), entered into contact on Russia Intelligence’s internet site. Exclusively for Pre- with the Dane Jeffrey Galmond for the purchase of his interest in mium subscribers. d 5 Russia Intelligence N°67 j December 6 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

BEHIND THE SCENE cc FOCUS Rosneft : the great Green light for the south-European gas pipeline loneliness of Sergey After having advanced its chips in the Baltic by integrating the Dutch group Gasunie into the Nord Stream gas pipeline project (Russia Intelligence no65 of November 8 Bogdanchikov 2007), Gazprom has also marked points on the southern European front. In the mar- The rumours of an imminent «purge» gins of the recent visit to Moscow of the Italian Prime minister Romano Prodi, the at the heart of the directorate of the oil Russian gas giant signed with ENI a protocol to the memorandum of June 23 on the group have been multiplying. If we can construction of the South Stream gas pipeline (Russia Intelligence no58 of June 28 believe the Interfax news agency — which 2007). As a reminder, this pipeline of an annual capacity of 30 billion m3 should link, does not really have a reputation for tak- in the 2013 time frame, the Russian Black Sea coast to the port of Burgas in Bulgaria ing liberties with the Kremlin line — at before splitting into two routes – one northward in the direction of Austria, the other least five vice presidents of Rosneft should destined for southern Italy through Greek territory. The undersea segment of South be soon leaving their posts. Those men- Stream will extend nearly 900 km at depths reaching 2000m. tioned are Dimitry Bogdanov, Anatoly Baranovsky, Alexey Kuznetsov, Sergey Under the terms of the document signed November 22 by the boss of Gazprom, Karaganov and Ramil Valitov. The three Alexey Miller, and his ENI counterpart, Paolo Scaroni, the two companies commit last, respectively in charge of develop- themselves to create by January 15 2008 a joint venture that will be directed to un- ment, human resources and technical di- dertake technical and market studies (investments exceeding 14 billion dollars for rection, are old and close associates of the the entire South Stream project have been spoken about). This organisation would be director general of the firm, Sergey Bog- registered either in the Netherlands danchikov, whom they knew in Sakhalin or in the Swiss canton of Zug, the Nord Stream Project in the mid-1990s. A sixth vice president, home port of another firm linked Valery Borisenko (the brother Nikolay to Gazprom – RosUkrEnergo. Held Borisenko, who had left the group in the equally by the Russian and Italian spring before being named in the Far- parties, it would disappear an the eastern federal district — Russia Intelli- end of 2008 to be replaced by the gence no58 of June 28), was sent into re- consortium that will be charged tirement. The head of accounting services, with operating South Stream. At South Stream Kim Sun Ne, could be demoted. this stage, the only certainty is that Project According to our sources in Moscow, Gazprom will hold 51% of the cap- relations between Sergey Bogdanovich ital (as in Nord Stream). Among the Nabucco Project and the president of the board of supervi- possibilities raised in recent days sors, Igor Sechin, have become tense in Moscow is included the division of the exploitation of the future gas pipeline into since several months. Sechin would have several entities with distinct capital (a consortium for the underwater section, two decided to become more involved in the others for the north and south segments of the line). The vice president of ENI in management of Rosneft, which had al- charge of Russia, Marco Alvera, in any case ha indicated such an approach. ready been illustrated by his very active role during the shareholders’ general as- According to information gathered by Russia Intelligence, the Austrian company sembly in late June (Russia Intelligence OMV could be proposed part of the 49% destined for the Italian partner in the future no59 fo July 12 2007). Certain Russian oil joint venture. The Hungarian stream, however, seems less probable. It should be re- experts that we consulted estimate that called that in the autumn of 2006, Moscow had spent considerable energy to convince the movements announced should allow Prime minister Ferenc Gyurcsany to distance himself from the rival project to South Igor Sechin to clear the way and position Stream, Nabucco. Gazprom had even signed with MOL an accord under which the his men in preparation for a possible Hungarian company committed itself to studying a projected extension of the Russia- merger with Surgutneftgaz. We recall that Turkey Blue Stream toward the Balkans and central Europe. Last June, Russia nev- insistent rumours concerning absorption ertheless chose to avoid Turkish territory by making Bulgaria the landing point of the of the group belonging to Vladimir Bog- future South Stream, thereby abrogating the accord with MOL. As a result, Hungary danov had circulated in Moscow in recent changed its rhetoric on Nabucco : after having been denounced as Gazprom’s «Trojan months (Russia Intelligence no43 of No- horse», Budapest has pledged itself to Brussels. The Economy and transport minis- vember 10 2006 and no46-47 of January ter, Janos Kuka, issued such declarations in mid-November following meetings with 19 2007). his Azerbaijani counterpart, Natik Aliev, that Hungary supported the European proj- From all points of view, the position of ect and awaited the forthcoming arrival soon of gas from the Caspian on European Sergey Bodganchikov — whom Vladimir markets. Putin had decorated in August during the occasion of his 50th birthday for «services One of the principal uncertainties about the South Stream project concerns the rendered to the nation» — seem less sure path of the northern branch, which theoretically should be built before the Bulgaria- than at the beginning of the autumn. The Greece-Italy segment. Paolo Scaroni has cited Romania and Hungary as transit coun- boss of Rosneft had also abandoned plans tries. It is also known that on the other hand Gazprom has approached Serbia and to stand for election to the Duma fvrom that the Kremlin has tabled a vast energy cooperation project with Belgrade in ex- his district of Sakhalin at the request of change for its support on the thorny Kosovo negotiations (Russia Intelligence no64 the Kremlin, anxious to avoid that the list of October 25 2007). It is whispered also that the northern section of the future pipeline of United Russia give the appearance of could be extended up to German territory, where the «pincers» of Gazprom on the being too linked with Russian big busi- continent – Nord Stream and South Stream – would converge. d 6 ness. d Russia Intelligence N°67 j December 6 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc FOCUS ALERTS 3 Rosoboronexport to deliver Rostekhnologii : Serdyukov as a spoiler 347 T-90 tanks to India As no surprise, Sergey Chemezov was named November 24 to head the Ros- Indian and Russian sources both relate tekhnologii. This recently-created public entity founded on the base of the federal the signature, in the final days of November, agency Rosobornexport (Russia Intelligence no63 of October 11 2007) is aiming of a new arms contract between Moscow to contribute to the «development, the production and the export of high-technol- and New Delhi. It is said to concern the sale ogy industrial products» and to attract investments «including in the military-in- of 347 T-90S tanks for an amount evaluated dustrial complex». Formally, the new entity is a non-profit organisation, an ad hoc at 1.24 billion dollars. 124 units will be deliv- status that grants it exemption from certain accounting requirements. In fact, it ered in a period of 29 months after the first amounts to a public holding company in the midst of which subsidiaries (AvtoVaz payments by the Defence ministry and the in autobiles, VSMPO-Avisma in titanium, Oboronprom with helicopters and en- remainder should be delivered in the follow- gine manufacturers or Russpetsstal in special steels) will have considerable au- ing 11 months. We recall also that Moscow tonomy in terms of strategy. Its administrative council numbers 8 members, ap- and New Delhi had signed a first contract for pointed equally by the president and the Prime minister. Among those should be 310 T-90s in 2001. The Indian Defence min- noted, among others, , the Regional development minister, Mikhail istry hoped to procure in the medium term Dmitriev, the director of the federal Military-technical cooperation service (FSVTS), some 1657 tanks and discussions are under- Elvira Nabiullina, the Economic development and commerce minister, or Sergey way with Rosobornexport and Uralvagonza- Komissarov, the no2 in the legal service of the presidential administation. They vod for the production under license in India will appoint the 11 members of the directory of Rostekhnologii. Concerning of 1000 new tanks, according to information Rosoboronexport as such, Sergey Chemezov turned over the reins to Anatoly Isaykin. gathered by Russia Intelligence in Moscow. The native of Vladivostok aged 60 spent the better part of his career in the KGB then in the FSB, where he notably directed the Vympel commando (Isaykin him- 3 Lukoil under pressure self was wounded on the assault on the Parliament October 4 1993) and was then in Libya the no2 in the special operations directorate. Decorated with the order of the red Tension is rising on the eve of a public star (for combat in Afghanistan) and the medal of courage, Isaykin joined Rosoboronex- auction for some 12 gaz deposits of a sur- port in 2000. Responsible for exports of equipment for special forces, he has a rep- face of 72500 km2 that the Libyan govern- utation as person trusted by Sergey Chemezov, whom he recently replaced during ment wants to organise December 9. We his trips abroad. According to our information, Isaykin was ultimately chosen over have learned that the head of the Lukoil Igor Sevastyanov, in charge of land equipment at Rosoboronexport. representation in Tripoli, Anatoly Tsy- gankov, was questioned on November 25 Sergey Chemezov now faces the potentially troubled period during the succes- while the offices of the Russian oil group sion of Vladimir Putin in a very favourable position. He has in effect been named were searched and electronic material by presidential decree for a four-year term, which in principle shelters him from seized. As this number went to press, the uncertainties that other «state oligarchs» such as Sergey Bogdanchikov (Ros- Russian embassy had still not obtained his neft) or the members of the senior Russian bureaucracy. Sergey Chemezov will re- release. Libyan authorities were investigat- main – like the other old comrades from Dresden such as Andrey Belyaninov ing possible corruptioon in the midst of the (Customs) and Nikolay Tokarev (Transneft) – at the heart of the Russian power National oil company (NOC), where cer- system until 2011-2012. tain employees are suspected of having sold confidential information on the coming auc- Apparently because of his power, the new director general of Rostekhnologii has tions to anxious oil companies. for the last several weeks nevertheless been faced with a new factor – the recovery of influence by Anatoly Serdyukov. The very discreet Defence minister, who is also 3 RZhD : Yakunin places the son-in-law of the Prime minister Viktor Zubkov, had, it is known, succeeded in Abramov obtaining the withdrawal from the draft law establishing Rostekhnologii provisions It was a nomination that did not go unno- that would transfer to Sergey Chemezov all the management of equipment pro- ticed in Moscow. The boss of the Railways, grammes for his ministry (15 billion dollars in 2008, or nearly three times the amount Vladimir Yakunin, announced he had ap- of the Rosoboronexport turnover – Russia Intelligence no66 of November 22 2007). pointed Sergey Abramov to head the direc- But that is not all. Anatoly Serdyukov was also named as the head of the Rostekhnologii tion for RZhD stations. Prime minister of oversight board. This position does not give him operational functions, but it bestows Chechnya from March 2004 to November a sort of political-administrative watching brief on the activities of Sergey Cheme- 2005 — when he was victim of a strange auto- zov. Initially the presidency of the oversight board for Rostekhnologii was to have mobile accident in Moscow —, Sergey gone to Sergey Ivanov, the first vice Prime minister in charge of industry, who al- Abramov, 35, thereafter found refuge in the ready supervised the holding companies for aviation (OAK) and shipbuilding (OSK). Court of accounts in May 2006. He left there Another signal of hard times for the one long seen as the heir to Vladimir Putin. Ana- in fairly humiliating conditions : October 1 toly Serdyukov has in any case the wind in his sails and will have to be watched ever the council of the Court of accounts unanani- closely. Inasmuch as, if certain information filtering in Moscow can be believed, Vik- mously demanded his dismissal, authorised tor Zubkov and his principal link to the Kremlin, , would have sought 10 days later by the Duma. There were alle- to convince the president to name Anatoly Serdyukov to the post of director general gations of incompetence, a soft euphemism of Rostekhnologii and to «propose» Defence to Sergey Chemezov. The manoeuver to avoid pronouncing the word corruption. failed – it must be said that Chemezov has direct access to Vladimir Putin – but it The amazing ability of Sergey Abramov to re- says a lot about the fleeting autonomy of Viktor Zubkov. Another signal for the pres- bound confirms that he has powerful protec- ident to meditate on in the coming few weeks. d tors in the halls of the Kremlin d 7 Russia Intelligence N°67 j December 6 2007 www.russia-intelligence.fr RUSSIA INTELLIGENCE Regions & CIS

CASPIAN c Gazprom yields to the ultimatum by Gurbanguly Berdymukhammedov Relatively unnoticed in the European press, the gas accord signed ternational contacts in recent months, during which repre- November 27 between Gazprom and Turkmenistan constitutes ne- sentatives of the European commission and the American vertheless a major economic and political event. Its anticipated re- administration constantly backed the view that the price of percussions in fact concerns no more no less than the direction of Turkmen gas in the current contracts was very low in view natural gas exports from the Caspian, the Russian ability to honour of the evolution of the European price structure [...] It’s not its supply contracts and also the stability of Ukraine. surprising that during our meetings with our Turkmen part- ners the question of an increase of at least 30% in the pur- Zubkov, Naryshkin, Miller : a cold shower in Ashgabat. chase price as of 2008 came up”. According to our informa- The summit of CIS heads of state held on November 22 in the tion, the part that convinced Moscow of the reality of Turkmen capital had been highly awaited. Less for its agenda than Gurbanguly Berdymukhammedov’s intentions was a trans- for the bilateral contacts that should have involved the Russian au- cript of the session of the intergovernmental Turkmen-Kaz- thorities with the host of the proceedings, the president Gurbanguly hak commission on September 27. On that occasion Astana Berdymukhammedov. A clear signal had been awaited on the mat- and Ashgabat reached an accord to actively cooperate on ter of the transcaspian gas pipeline. It should be recalled that last transcaspian-China gas pipelines. This document was said May, Vladimir Putin and his Turkmen and Kazakh counterparts had to have reached the hands of Russian authorities by mid- signed a memorandum on the modernisation of the gas pipeline sys- October, according to our sources. tem between Central asia and the Centre inherited from the Soviet era and on the construction of new pipelines along the Caspian co- Under the terms of the accord reached November 27, Gaz- ast from Turkmenistan to reach Russian territory (Russia Intelli- prom will buy Turkmen gas at 130$/1000m3 beginning next Ja- gence n° 55 of 16 may 2007). This accord, presented by the Kremlin nuary, then at 150$/1000m3 beginning July 1 2008. From 2009, as a major diplomatic victory should have been concluded Septem- the prices will be indexed with world prices for hydrocarbons ber 1. But nothing of the sort took place. The Turkmen president had and this formula will be applicable until 2028, according to even recently given out some signals concerning his country’s readi- Alexey Miller. This last point indicates that Gazprom, in ex- ness for transcaspian pipeline projects toward China (Central Asia change for the increase in prices accepted in Ashgabat, ob- & Caspian Intelligence n° 21 of 22 november 2007). Some rather tained guarantees on respect for 25 years of the accords si- alarmist articles surfaced in the Moscow press during the autumn, gned in 2003 with Saparmurat Niazov. We remind readers that but Sergey Naryshkin, the vice Prime minister in charge of the CIS, this accord foresees that Turkmenistan will export to Russia sought nevertheless to be reassuring on the eve of the Ashgabat sum- 80 billion m3 beginning in 2009, which assures that Gazprom mit : according to him, the text on the transcapsian pipeline was pro- has a virtual monopoly (currently some 70 billion m3 are ex- gressing well. tracted from the country). While awaiting a possible increase in the Turkmen output (the government has announced 230 It was however not an accord but an ultimatum that Gurbanguly billion m3 for the 2030 timeframe) no amount would be avai- Berdymukhammendov presented on November 23 to the Russian de- lable to supply possible transcaspian pipelines or to China. legation. Turkmenistan demanded in effect an immediate increase of 30% on the gas delivered to Gazprom. It should be recalled that The inevitable chain-reaction. the Russian group buys Turkmen gas at the moment at 130$/1000m?≥. Gazprom therefore accepted to pay a high price to pre- This rate was set in September 2006 following lengthy discussions serve its dominant position on the Central Asian gas market. between Alexey Miller and the late Saparmurat Niazov. They should The repercussions of the November 27 accord will of course have in principle remained in effect until January 1 2009. be plentiful and are already being felt. Uzbekistan — where the first vice Prime minister Sergey Ivanov on November 29 Why did Gazprom capitulate? inaugurated the Lukoil project on the Khauzak deposit — On November 20, the boss of GazExport, Alexandre Medvedev, also let it be known that it would demand an increase in the had declared that he saw no reason to revise upward the price of gas price of its gas on January 1 2008. It’s a bet that Kazakhstan bought from Turkmenistan. But a week earlier, Alexey Miller went will do the same in the coming days. urgently to Ashgabat to sign an addition to the November 2006 ac- cord under which Gazprom accepted the totality of the demands for- In this affair, the principal victim will be Ukraine. It is well mulated November 23 by Gurbanguly Berdymukhammedov. Several known in effect that the approximately 56 billion m3 that it factors were involved in this reversal, but the fundamental reason imports annually through RosUkrEnergo originates in Cen- was that Moscow had taken very seriously the threats by the Turk- tral Asia. While Kiev was counting on a gas costing 160$/1000m3 men president to develop export pipelines toward Europe and China. for 2008 (against 135$ currently), the new scenarios seem clo- The boss of Gazprom went so far as to admit publicly, not without a ser to 190 or even 200$/1000m3 by mid-2008. A colossal chal- certain bitterness : “Our Turkmen colleagues informed us of their in- lenge for the future Ukrainian president, whoever it is. d

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