N°69 - January 17 2008 Published every two weeks / International Edition CONTENTS KREMLIN P. 1-3 Politics & Government c Dmitry Medvedev, or how to manufacture a « président » KREMLIN cMedvedev, or how to By the end of the January “truce”, Dmitry Medvedev, the candidate of United Russia (and of Vladimir manufacture a « président » Putin) for the presidency of Russia, launched his campaign. But in reality the “presidential manu- WAROFCLANS facturing machine” has been in operation since December. On slick paper or on television, the “story” cIgor Sechin and Nikolay that the Kremlin “spin doctors” produce surrounding Dmitry Medvedev is quickly evident : a young Patrushev have not let up man, modern, a believer, serious, who got his start in professional life at the same time as Pere- ALERT stroyka, not from the ranks of the KGB or other organs of power that followed it...The perfect sym- c Duma elections : Ingush bol of the New Russia. Everyone has noticed the vibrant hommage from the patriarch Alexis II to denounce voting fraud the candidate January 7 during the new year ceremony in the cathedral of Christ the Saviour in STATE DUMA Moscow. Vladimir Putin was not there and no one knows whether this represents one of the collat- c Yuri Luzhkov's friends eral effects of the report by Andrew Kuchins, the director of Russia and Eurasia programmes at the marginalised Center for Strategic and International Studies (CSIS) in Washington. He crafted, in his latest pa- c Belkovsky, Putin’s 40 billion and the war of the per on Russia, a political fiction scenario in which Putin was the victim of an assasination on Janu- « compromats » ary 7 2008 in Moscow... In fact, Putin went to a small church 650 kilometres north of Moscow, Veliky Ustyug, which is very unremarkable, except in Russian legend, since it is the native village of Ded P. 4-7 Business & Networks Morow, father Christmas... ALERTS cGazprom cIreland On the election campaign trail the first few days of January 2008, all journalists and political sci- FOCUS entists dissected the first declarations by Dmitry Medvedev. One scene seems especially significant cExxonMobil, the next target in the Medvedev “dialectic” for consumtion by the voters, but also the Russian and international me- for Gazprom dia. The scene takes place in Murmansk. He climbs aboard a trawler and, recorded by the eye of the FOCUS cameras, begins a dialogue with the captain and his crew. “My health is deteriorating but I can’t af- cMaghreb : Moscow worries ford to retire”, a sailor throws out. “On board, I make on average 40 000 rubles a month (the equiva- about French activism lent of a bit more than 1 000 euros), while my pension won’t be more than 6 000 (about 200 euros), ALERTS how do you want me to live on that” asks the sailor. Without hesitation, Medvedev announces a pro- cIgor Zavyalov c Be-200s found reform of the retirement system, a project that President Putin had made one of his priorities BEHIND THE SCENE but which has not concretely advanced much. But the conversation shifts to another sensitive subject cNorilsk Nickel : Deripaska : the Norwegians. The Barents Sea is a zone of conflict between Russian and Norway, which have ar- goes on the offensive gued for years over the line of their joint maritime frontier. It happens that Russian trawlers fishing FOCUS in contested zones are escorted uneremoniously into Russian waters by the Norwegian navy. “The Nor- c Investments : “a French wegian navy is applying intolerable pressure on us” says a member of the crew. “Our boats are pre- spring” in Moscow vented from working” interjects another who then elaborates, “in fact, under the USSR we were pro- FOCUS tected by the Soviet navy, which doesn’t exist anymore”. “During the Soviet Union, our boats were also cGazprombank, the Shamalov/Kovalchuk tandem's challenged?” inquires a theatricly candid Dmitry Medvedev. “Certainly not”, replies the captain, “at new asset the time we were protected by the Soviet navy, in contested zones, but also on the high seas. Today nobody is afraid of us or respects us”. Medvedev notes that fear is not a sentiment that Russia wants P. 8 Regions & CIS to inspire in its neighbours and repeats the word respect. He throws out another promise : the Russ- CASPIAN ian navy will rapidly again be operational. “I hope you understand why it doesn’t protect you today...We c Moscow-Astana : gas don’t have any ships...” This exchange was instructive because it gives an idea of the presidential rhet- for oil oric that Medvedev will repeat all during the campaign until March. Prority for social matters, and SUBSCRIPTION for improvement of living conditions for the public, like Vladimir Putin recalled before the Federa- Print Edition tion Council January 15. More should be known January 29, on the occasion of the speech pronounced (23 issues, airmailed overseas) by Medvedev before the Russian lawyers association, managed by his friend Pavel Krasheninnikov. €770 TTC

The Web Pack But one “detail” nevertheless remains to be clarified : what is the nature of the contract concluded (Print Edition between Vladimir Putin and Dmitry Medvedev? No-one knows, except for those involved and even + PDF + archives acess) then, given their lack of appetite for confidence, it’s likely that there exists between them a certain € 880 TTC dose of “unspoken” understandings. Without the support of Vladimir Putin, Medvedev is nothing. An The Premium opinion poll, published January 15 2008 in Moscow, indicated that 42% of persons questioned had con- Subscription fidence in Dmitry Medvedev because Vladimir Putin supported him.Only 4% of those polled gave any (Print Edition + PDF + access credit to the personal qualities of the presidential candidate. This is low and indicates that the con- to all the website contents) struction proposed to the voters will only hold the road if Dmitry Medvedev gives proof of flawless loy- € 1200 TTC alty and sticks without reservations to the priorities set for him by his “Prime minister”. d www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

WAR OF CLANS c Igor Sechin and Nikolay Patrushev have not let up One might have been led to believe that the designation by inplausible position in view of the fact that Kommersant had Vladimir Putin of Dmitry Medvedev to succeed him in the recordings and copies of the interviews targetted by Shwartzman Kremlin next March might have been enough to clear the – the latter took a different aim. Today, he has acknowledged his already-charged atmosphere which had reigned over the position on the «velvet reprivatisation». This was the outcome of Kremlin since the beginning of autumn. In the hours that fol- an interview accorded to the Financial Times in late December. lowed the annointing of the heir on December 10, it is true He even announced the launching of a foundation baptised that the dissaray of Igor Sechin, Nikolay Patrushev or «Transparent Russia». Shwartzman now poses as a defender of Vladimir Ustinov and their allies had been profound. After the public defrauded by the oligarchs during the 1990s. It is not having vainly pushed the president to seek a third term, they known whether he foresees a political career, but his foothold believed they had reclaimed the upper hand by having secu- could be promising. An opinion poll conducted in late December red the selection of one of theirs, Viktor Zubkov, to head the by the very serious Levada centre indicated that 46% of the popu- government in September.In contrast, the clan «on the other lation supported, in varying levels, the idea of a «velvet reprivati- side» did not hide its satisfaction. Alisher Usmanov, Viktor sation». We wish to underline anecdotally that the co-founder of Cherkesov or Alexey Kudrin – to name only them – believed «Transparent Russia» is none other than Alexey Mitrofanov, the they had won «the mother of all battles» and hoped that this former right-hand man of Vladimir Zhirinovsky, who had drawn would christalise in a a rapid and visible way. But a month closer to the president of the Federal Council Sergey Mironov in later, it seemed as if matters were much less obvious.True, the 2007. «casting» by Vladimir Putin had been a defeat for the move- ment gravitating around Igor Sechin and Nikolay Patrushev. A high-risk trial. In this context, it is possible that the weeks Nevertheless no spectacular reversal in the balance of power between now and the presidential vote of March 2 risk being fairly has taken place in Moscow. Far from letting up, the losers of agitated in the wings. Even more so since a subject at the direct December 10 have organised a counter-attack and let it be origin of the clans war – the «Tri kita» affair – will experience new understood that their interests would have to be taken into developments. It is known that this affair of contraband in equip- consideration beyond the presidential elections this coming ment is particularly sensitive since it implicates high FSB officials March 2. (Russia Intelligence n°63 of October 11 2007). In the spring of 2006, it had even cost Vladimir Ustinov his post as prosecutor The manoeuvers by Alexandre Bastyrkin. The first stri- general, when he sought to muffle the case to protect his accom- king news of the year in Russia was the decision by the plice Patrushev. But the «Tri kita» preliminary inquiry is officially Basmannyi court in Moscow to extend the temporary deten- closed and it has been transmitted by the investigating official, tion of the vice-minister of Finance, Sergey Storchak until Vladimir Loskutov, to the general prosecutor’s office. The date of April 9. The court satisfied the request by the Prosecutor the trial is not known; but it can be imagined that any official general’s Committee on investigations, which worried about summoning of those charged – especially on the part of Sergey possible pressure on witnesses or even a flight abroad if the Zuev, the «appointee» of the former FSB n°2 Yuri Zaostrovstsev right-hand man of Alexey Kudrin was released. This decision – could be full of consequences. d obviously is not by chance since it was known that the head of the Committee on investigations, Alexandre Bastyrkin, an old class-mate of Vladimir Putin (Russia Intelligence n°58 of ALERT June 28 and n°62 of September 27), works hand-in-hand with the Sechin-Patrushev duo. 3 Duma elections : Ingush denounce voting fraud It had also been disclosed December 21 that verification of We recall that the authorities of the Republic of Ingushetia had dis- the activities of the Committee on investigations announced tinguished themselves December 2 by proudly highlighting a 98% publicly by the Prosecutor general, Yuri Chayka, been rate of participation in the legislative elections. No serious observer delayed indefinitely. Officially it involved a technical decision. of the political scene had accorded any kind of credit to this figure Yuri Chayka – an ally of Kudrin and Cherkesov in their strug- (in fact roughly comparable to the one proclaimed in neighbouring gle with Sechin and Patrushev – even seriously denied the Chechnya), but the essential issue lay elsewhere. The Ingush presi- existence of differences with Alexandre Bastyrkin during a dent Murat Zyazikov, who has more and more difficulty in maintai- press conference December 25. Signals are nevertheless quite ning the situation in his republic under control despite (or perhaps clear : far from being routed, Igor Sechin, Nikolay Patrushev because of) a very repressive policy applied by FSB operational and their allies still control powerful forces. groups, had announced his gratitude and loyalty to the Kremlin. But this did not take into account Ingush civil society. In the after- Oleg Shwartzman launches «Transparent Russia». It math of the elections, a large-scale action named “I did not vote” must be recalled that the impromptu revelations of the busi- was launched. January 9 at 19:00 hours, no fewer than 87340 signa- nessman Oleg Shwartzman in the daily Kommersant in late tures had been registered below a petition, representing close to November had a resounding impact all over Moscow (Russia 55% of the electoral rolls of the small North Caucasus republic. The Intelligence n°67 of December 6). The description of the organisers of this action announced they had addressed a Moscow menu of the «velvet reprivatisation» – another name for the law firm in view of filing a complaint before the general prosecutor’s state racket – and especially the mention of Igor Sechin, pre- office. Without judging on the outcome of this initiative, the “I did not sented in all candor by Shwartzman as the «godfather» of this vote” action confirms the fragility of the Zyazikov regime and illustra- system, had damaged the n°2 of the presidential administra- tes the vitality of an Ingush society exasperated by the policies of the tion at a crucial moment in the Kremlin political conflict. local authorities. d 2 After having awkwardly made an attempt at denial – an Russia Intelligence N°69 j January 17 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Politics & Government

STATE DUMA c Yuri Luzhkov's friends marginalised Pressured by Vladimir Putin – who announced on Decem- be the president of the Culture commission. The Mayor of ber 17 at the United Russia congress an increase in civil ser- Moscow – whom many observers predict will withdraw in vice and military pay, demanded by a number of amendments late 2008/early 2009 – is probably paying for the low score to the 2008 budget – the parliamentarians who emerged from of United Russia in the capital (54.15%, hardly more than the ballot on December 2 gathered for their inaugural session the regions of Yaroslav and Smolensk, whose governors on December 24. They first of all elected the presidium of the were dismissed in late December). Duma and allocated commission assignments. It took no-one by surprise that Boris Gryzlov was reappointed to head the The sociology of the new Russian parliament is also mar- State Duma. ked by a strong presence of ex-military or KGB. Some of them already had seats in the previous Duma. This is par- He will have nine deputies, including only one 1st vice pre- ticularly the case of the “Afghans” Frantz Klintsevich and sident, Oleg Morozov, and three opposition representatives, Valery Vostrotin, General Arkady Baskaev, the former Ivan Melnikov (communist party), Vladimir Zhirinovsky and commander of the Moscow military region, or again Gene- Alexandre Babakov (Fair Russia). Among the deputies assi- ral Zavarzin (reappointed to head the Defence commis- gned to Boris Gryzlov by United Russia should be noted Valery sion), of Nikolay Kovalev (former FSB director) or Vladi- Yazev, considered as the main lobbyist for Gazprom in the lo- mir Vasilev (ex-Interior minister, president of the Security wer Chambre, or Svetlana Zhurova, the Olympic figure ska- commission). Also on the benches of the new State Duma, ting champion. Alexandre Korzhakov, formerly head of security for Boris Yeltsin, or Vladimir Komoedov, the former commander of Contrary to the previous legislature, where United Russia the Russian Black Sea fleet at the end of 90’s, elected from took over all the commissions, the opposition – or rather the the Communist Party list. official one – obtained a few posts. The Communists will pre- side the commissions for Industry (Yuri Maslyukov, ex vice Others are newly-arrived, such as Igor Puzanov, ex-boss Prime minister in the Primakov cabinet in 1998-1999) and Na- of the Leningrad military district. Formerly foreseen as a tionalities (Yuri Kuptsov). Just Russia obtained the seats to possible Defence minister, Puzanov should soon climb in Regional affairs and Women’s affairs. The Liberal-democratic rank since, it is widely believed, the mobilisation of “his” party of Vladimir Zhirinovsky found itself assigned the com- electorat in Saint Petersburg allowed United Russia to avoid missions for the CIS and Youth. The 26 other commission were passing under the symbolic floor – humiliating in Kremlin allocated to United Russia leaders. eyes – of 50% of the votes (United Russia finally collected 50.33%). As a sign of restored influence for men in uniform, A closer analyses of the balance of forces in the new State the sought-after post of director of Duma services – who ma- Duma seems to reveal a significant decline in the presence of nages the budget of 90 million dollars and 1500 staff under friends of Moscow mayor, Yuri Luzhkov. Alexandre Chilinga- his orders – goes to General Alexey Sigutkin, a former pa- rov – “hero” of the Russian Arctic expedition in the summer rachute trooper who was vice president of the Defence com- of 2007 – lost his post as vice president. Iosif Kobzon will not mission in the previous Duma. d

Belkovsky, Putin’s 40 billion and the war of the « compromats » The «clan war» which has agitated Russian elites is developing with a also has his Siloviki» (alluding to secret and particular intensity in the realm of information (and of disinforma- defence agents), published on-line December 26 tion). Moscow has been swinging a lot in recent weeks, especially on on the site presse-attache.ru. He described at the internet. The likely future Russian president, Dmitry Medvedev, length the activities of Medvedev and points to a and the current tenant of the Kremlin, Vladimir Putin, are the prin- certain Anton Surikov, a young former soldier cipal targets of «compromats» (negative rumours) and other ‘leaks» Stanislav converted to journalism and consulting, whom he more or less judiciuously organised. When they are not unmasked Belkovsky presents as the candidate of Medvedev for the attacks, as was the case December 21 with the stupefying declara- post of director of GRU, military intelligence.Is tions by the political scientist Stanislav Belkovsky to the Guardian. Belkovsky a mouthpiece for someone? Hard to say, In an article titled «Putin, the struggle for power in the Kremlin and all the more so that the party in question is hard to pin down and the 40 billion), British journalist has a habit of changing alliances. Born in Riga of a Polish father Luke Harding reported the statements by Belkovsky that the Russian and Jewish mother, he worked for a long time for Boris president is the richest man in Europe. According to him, Vladimir Berezovsky. In the autumn of 1999, he is, along with Sergey Putin in fact controlled 37% of Surgutneftegaz, personally held Dorenko, the spearhead of a smear campaign against Yuri 4.5% of Gazprom shares, as well as a «minimum» of 75% of the Luzhkov and Yevgeny Primakov. He is against soken about in the trading firm Gunvor, situated in Geneva and managed by Gennady spring of 2003 with the publication of his widely-noted report Timchenko. Replying to a question from his interogator on the size about the preparation of a «oligarchs’ coup d’etat», a sort of prac- of the Russian president’s personal fortune, Belkovsky answers «a tice of ideological artillery announcing the Yukos affair. Following minimum of 40 billion. We can’t know the maximum. I suspect there the «orange revolution», he is for a while a consultant to Yulia are companies that I don’t know the existence of». Belkovsky persists Timeshenko. In the fall of 2006, he published a number of articles a few days later in an interview on a Kazakh information website. — especially on his website apn-ru — in which he denounced the According to sources in agreement, he is also the author — under the witch-hunt against Igor Sechin after the murder of Anna d pseudonym of David Stringer — of a long article entitled «Medvedev Politkovskaya. 3 Russia Intelligence N°69 j January 17 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

ALERTS cc FOCUS 3 Electricity : Gazprom ExxonMobil, the next target for Gazprom pursues its discussions with E.On and ENEL We can remember that the last few months were particularly successful for At the same time as the official inaugura- Gazprom’s strategy of Siberian conquest. After having forced Shell and Japan’s tion of the Yuznho-russkoe deposit (in Mitsui and Mitsubishi to turn over 50% plus one share in Sakhalin-II (Russia In- which E. On should participate at a level of telligence n°46-47 of January 19 2007), the Russian group January 22 2007 signed 25% - 1 share under the terms of an ac- an accord with TNK-BP that foresaw the sale by the latter of the about 63% it held cord signed in July 2006), it was learned in the projected development of the giant deposit of Kovytka in the Irkutsk re- that Gazprom would obtain a certain gion. Gazprom, however, still does not seem satisfied with these two achievements. number of assets in the electricity sector, Its latest target is the Sakhalin-I consortium. Passing relatively unnoticed in the as well capacity to store gas. Several Mos- West, the declaration December 26 by one of the vice presidents of Gazprom, Alexan- cow sources indicated that this would in- dre Ananenkov, set the tone : “We believe that the entry of foreign companies in volve power stations and reservoirs in production projects in the Far-East is very negative. The result is that the inter- Germany, Great Britain and also in the ests of Russia were overtly neglected, the control of the projects were carried out Czech republic. A list was transmitted by by foreigners and the Russian consumer became the poor relations of these proj- E.On to Gazprom and discussions are ects, since the gas produced on their soil is inaccessible”. It should be recalled continuing on the financial value of these that the Sakhalin consortiium involves four shareholders. ExxonMobil (30%), which assets. Progress has also been registered is also the operator of the project, Japan’s Sodeco (30%), Rosneft (20%) and the with ENEL. The boss of the Italian group, Indian public group ONGC (20%). The project, which produced the signature of a Fulvio Conti, declared on December 11 production sharing accord with the Russian government in 1996, foresees the de- having issued a number of new proposals velopment of the Chayvo, Odoptu and Arkutun-Dagi deposits, whose reserves to Gazprom concerning possible sales of amount to a bit more than 300Mt of oil and 485 billion m3 of gas. The first output assets in the Italian electricity sector. These has been extracted from the Chayvo deposit in October 2005. At this stage, the gaz assets — which were not identified — re- is delivered from Sakhalin to the region of Khabarovsk via an underwater gas presented a value of 200 million euros. pipeline. But ExxonMobil and its partners make no secret of the fact that they wish According to certain Russian sources, it to export a part of the production, especially to China. October 23 2006, they had could concern a minority interest in one even signed a preliminary accord with the public company CNPC in view of the de- or a number of ENEL power stations on livery of 8 billion m3 per year. the peninsula. The question had already been raised between Fulvio Conti and The prospects of seeing gas extracted in Russia exported directly by foreign com- Alexandre Medvedev in November in panies to China obviously aroused the hostility of Gazprom. Even more so since the Rome at the World energy congress. d group has been engaged in complex negotiations for years with CNPC in view of de- livering gas from the Iakoutia and Eastern Siberian deposits. The initiatives of the 3 Ireland, a new haven Sakhalin-II consortium are seen by Gazprom as a harmful interference in its Asian for Gazprom strategy, as an unacceptable strike at its status as the exclusive exporter but also It was an announcement that confirms as a provocation. As if the “lesson” of Sakhalin-II had not been heeded by Exxon- that no European Union country can es- Mobil. Consequently, a retaliation was organised. In June 2007, Alexandre Medvedev, cape Gazprom’s attention. Jon Feingold, the vice president of Gazprom in charge of exports, proposed to the Sakhalin-II an executive of Gazprom Marketing & consortium to buy its gas at an “acceptable” price. The 8 billion m3 would have been Trading — a London-based subsidiary of destined either for the internal Russian market, or transferred toward liquifaction the Russian group — declared January 11 units of the Sakhamin-II consortium to be eventually exported to Asia or the United having obtained a license to operate in States. ExxonMobil had at the time indicated its refusal to Gazprom. the Russian Ireland. Gazprom will deliver gas to its authorities and Gazprom have obviously decided to raise the tone with the Sakhalin- power stations and industrial clients.Its I shareholders. In late December, the UGO, the entity that regroups representa- objective is to occupy bewteen 10 and tives of the Energy, Finance and Natural resources ministries and the Sakhalin re- 15% of the Irish market within 5 years. gional administration – replied on the investment plan for 2008 submitted by The Russian group would be in competi- ExxonMobil. From 1.84 billion dollars, it was scaled down to 1.2 billion. Notably ex- tion with Bord Gais, as well as with other cluded were expenses linked to a study of the feasibility of a possible pipeline to- lesser organisations (Viridian’s Energia, ward China. A few days later, Alexandre Ananenkov made his declaration on the Flogas and Vayu ) — which Gazprom had negative character of the production sharing. approached in view of cooperation in the summer of 2006. To this day, Ireland im- The evolution of the Sakhalin-I dossier will depend to a large extent on the at- ports 90% of the about 5 billion cubic me- titude that ExxonMobil and its partners will adopt. The most probable option is tres that it consumes annually. As a remin- that a compromise will be found. In fact, it is hard to imagine that the members of der, it should be said that another Russian the consortium can reasonably expect to hold out against Gazprom. This matter energy group — Lukoil — had envisaged will undoubtedly have diplomatic repercussions; whether with the United States, in 2007 to establish itself in Ireland by China or India and Japan. The Sakhalin-II precedent shows that the Russian side buying the Whitegate refinery held by its is relatively insensitive to this type of argument. It should especially give rise to a partner ConocoPhillips (Russia Intelli- new contest with Rosneft, which sees in a new light the intrusions of Gazprom into gence n°52 of March 30 2007). Ultimately, one of its bastions (Sergey Bogdanchikov, the director general of Rosneft, spent the latter had nevertheless preferred to most of his career on the island and even considered standing from there in the keep its operation. d last legislative elections. d 4 Russia Intelligence N°69 j January 17 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc FOCUS ALERTS 3 Igor Zavyalov, Sergey Maghreb : Moscow worries about Chemezov’s new financier French activism Sergey Chemezov continues to expand its complex. The boss of Rostekhnologii If Vladimir Putin has good reasons to be satisfied with the progress of Nico- — the new public holding company crea- las Sarkozy’s rhetoric about Russia (questioned during his Elysée press confe- ted by presidential decree this autumn rence January 8 about the congratulations addressed to his Russian counterpart which regroups the industrial assets of after the legislative elections December 2, the French President had underlined Rosoboronexport (Russia Intelligence that it was “perfectly ridiculous to reproach Mr Putin for an election which the n°67 of December 6) — has just recruited entirity of the international observers would say was that he was the most popu- one of his old friends, Igor Zavyalov. lar man in Russia and independently of the problems he had at the time of the This engineering graduate of the presti- elections, he was nevertheless elected”), there is, however, one aspect of French gious Moscow aviation institute is a qua- diplomacy that worries him. Not on Kosovo or Iran – even if Paris’ position on lity reinforcement. From 2002 to 2007, he the last subject does not cease to surprise the Kremlin – but the Maghreb. We was in fact n°2 at the Vneshtorgbank, remind our readers that for several years, Russian diplomacy has given proof of where he held responsibility for the en- a remarkable dynamism in this region, which it had largely neglected during the tire corporate sector. Before that, Igor Za- decade of the 1990s. The historic visit by Vladimir Putin to Algiers in March 2006 vyalov had been deputy director general had been marked by the signature of the most important arms contracts since of another public bank, Vneshekonom- the downfall of the USSR. This transaction of 7.4 billion dollars, which included bank (1999-2002) and the National re- particularly powerful and high-performance systems (Su-30 fighter-bombers and serve bank (1998-1999). S-300 long-range anti-air systems among others – Russia Intelligence n°33 of The candidacy of Zavyalov to the post of May 19 2006) had been concluded thanks to the conversion of the Algerian pu- n°2 of Rostekhnologii in charge of fi- blic debt toward Moscow inherited from the Soviet era. Vladimir Putin had also nance was adopted at the end of Decem- travelled to Morocco in the context of his African journey in September 2006. ber. In view of the value of the holding The Russian President had proposed a partnership in the civilian nuclear sector. company’s assets (about 25 billion dol- Rosobornexport had in addition resumed its discussion with a traditional client lars) this make him undoubtedly one of of the Russian military-industrial complex – Libya. In May 2007, information the most influencial men in Russia. Za- about the imminent conclusion of contracts amounting to 2.2 billion dollars had vyalov will be particulalry charged with filtered in Moscow. Valdimir Putin had even been announced in Tripoli for au- preparing the IPO of certain of the Roso- tumn 2007. Generally well-informed Moscow sources reported at about the same boronexport subsidairies (VSMPO- time to Russia Intelligence that the Egyptian Defence ministry wanted to pur- Avisma, Avto-VAZ and Oboronprom). chase some thirty MiG-29SMT. Russia seemed to be consolidating a return to the He will follow most specifically the activi- Maghreb and, more generally, to the Arab world, where it seeks to expand the ties of Russpetsstal, the steel pole of the traditional geography of its diplomacy to states that were considered out of reach group, where he presides the administra- before (Jordan, Saudi Arabia, United Arab Emirates). tive council. d

But since the autumn, the wind seems to have shifted. Or at least the return 3 Greece will buy Be-200s of Russia to North Africa has experienced a number of failures. Contrary to what The Russian minister for emergency seemed settled, Vladimir Putin was not received by Mouammar Kadhafi. It is situations (MTchS), Sergey Shoyku, also recalled that the Lukoil representative in Tripoli, Alexandre Tsygankov, declared on December 26 that the Be- was imprisoned in late November (Russia Intelligence n°67 of December 6 2007). 200 amphibious aircraft had notched up It was also learned in mid-December that gas lines had become clogged between its first export contract. No precision was Moscow and Algiers. If the rupture in discussions between Sonatrach and Gaz- provided, but the country involved, prom, officialised in early December by the boss of the Algerian group, Moha- according to several Russian sources, med Meziane, did not amount to a great surprise, this was not the case for the would be Greece. The document would announcement of the freeze in the conclusion of the arms deals. It seems that have been prepared during the visit to since December 2006 no materiel was delivered by Rosoboronexport to the Al- Moscow of the Greek Prime minister Konstantin Karamanlis in mid- gerian Defence ministry. The latter was said to have complained of certain tech- December. nical problems concerning the first Mig-29UBs received in 2006 and had then The Be-200, built in the Taganrog suspended all deliveries. The explanation was hardly convincing to Moscow, where (TANTK Beriev) aeronautical factory, is more political motives are suspected. The fact the Russian ambassador to Algiers, an aircraft devoted to firefighting mis- Alexandre Egorov, was unable to present to President Abdelaziz Bouteflika a sions (a maritime patrol version is also message written in early November by Vladimir Putin until after the visit to the proposed for exports, notably to China). Algierian capital December 3 to 5 by Nicolas Sarkozy is not mere coincidence, Seven units were ordered by the MTchS according to the Kremlin. in 2001. In recent years, the Be-200 was regularly placed at the disposal of sou- In the face of these setbacks, Vladimir Putin is preparing his reply. He sent thern European countries confronted his Foreign minister, Sergey Lavrov, to Tripoli December 23 and 24. He especially with significant forest fires (Portugal, put the emphasis on civilian nuclear prospects and laid the groundwork for the Spain, Greece, Italy, Serbia, Bulgaria). visit of Vladimir Putin to Libya, which should finally take place in the spring. The aircraft was also proposed to Concerning Algeria, Vladimir Putin hopes to resolve the situation during the forth- France’s civilian security, with no follow- coming visit by Abdelaziz Bouteflika expected in late January. d up. The unit price of the Be-200 is eva- luated at 40 to 50 million dollars. d 5 Russia Intelligence N°69 j January 17 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

BEHIND THE SCENE cc FOCUS Norilsk Nickel : Deripaska Investments : “a French spring” in Moscow goes on the offensive In its edition of December 20, Russia Intelli- Reputed to be less adventurous than their German, Italian or even Dutch coun- gence had analysed the stakes of the terparts, French industrialists have nevertheless been at the centre of Russian fi- contest between Mikhail Prokhorov and nancial news in late 2007. Several large-scale investments were in fact announced. Vladimir Potanin, notably concerning No- Some of them had been anticipated : this was especially the case of Société géné- rilsk Nickel. Since then, the topic has expe- rale and of PSA Peugeot Citroën. In its edition of December 19, Russia Intelli- rienced important developments. As might gence had spread the information about hesitation by the French bank concerning have been expected, it was Oleg Deripaska the exercising of its option on 30% plus 2 shares of Rosbank and to bring its inte- who recuperated the 25% plus one share of rest to 50% plus one share. The efforts by Sergey Chemezov, the boss of Rostekh- Norilsk Nickel which Mikhail Prokhorov an- nologii, directed at the n°2 of the Russian central Bank, Alexey Ulyukaev, in or- nounced the sale of. It should be recalled der that the responsible authorities exercise their veto over the takeover of control that the latter had set a sort of ultimatum to of the bank by the French, as well as uncertainties about the global prospects fol- his former partner Vladimir Potanin, who lowing the subprime crisis were involved in the calculations. Finally the teams un- had until December 21 to reply to his offer der Daniel Bouton came down in favour of taking control of Rosbank. Société gé- (15.7 billion dollars payable in cash).At the nérale will therefore transfer 1.7 billion dollars to Vladimir Potanin and Mikhail same time, Mikhail Prokhorov had reached Prokhorov, whose tumultuous divorce is proceeding in parallel (read article oppo- an understanding with Oleg Deripaska to site). The transaction should be concluded by mid-February. The French group sell him his interest in case Potanin did not might not stop there. The communiqué published December 20 by Société géné- follow up.The conditions proposed by the rale and Interros mentioned a threshhold of 57.8% by a timeframe of summer 2008, boss of Rusal were significantly more ad- without bringing any precision about the origin of the shares involved. Prokhorov vantageous (14.7 billion dollars, in part in a and Potanin could themsleves exchange the remainder of their interest in Rosbank share exchange — 11% or Rusal would wind (39%) in shares of Société générale. Discussions on this subject are being pursued, up with Prokhorov —, the other in cash — according to our information. 4.43 billion dollars, including 2.7 billion dol- lars in “delayed payments”). Another major announcement – the construction by PSA of a production unit Anxious not to let the wolf in with the in Kaluga. In its last number, Russia Intelligence had outlined the major manoeu- sheep, Potanin asked Citigroup to syndi- vres underway in the Russian automobile sector and indicated that the French ma- cate a loan of 10 billion dollars. But the nufacturer was still hesitating between the regions of Nizhny-Novgorod and Ka- American bank had to throw in the towel, luga to establish its first industrial site in Russia. In the end, the French opted for since the current situation is hardly favou- Kaluga. The fact that Volkswagen recently inaugurated its factory and that Volvo rable for operations of that scale. On the trucks/Renault Trucks are also in the process of building an assembly plant wei- spot, the way was cleared for Oleg Deri- ghed fully in the French choice. In accordance with the memorandum signed in paska. As early as the 21st, Rusal addressed the summer of 2006 by PSA and the Economic development and commerce minis- the anti-trust services of 8 unspecified try, production will clmb to 70 000 units a year in phase I before rising to 140 000 countries to inquire about the operation units in a second phase.Startup of the assembly plant is foreseen for 2010. Accor- under way. Then on December 25, Oleg ding to certain information, the models involved are the C4 and the 308. It should Deripaska announced his intention to buy, be recalled that sales of PSA in Russia for the first 11 months of the year 2007 rea- for about 1 billion dollars, the 2% of Norilsk ched 33 000 vehicles. Nickel put up fo sale by KM Invest, the hol- ding company held jointly by Potanin and Another French firm steaming into Moscow – Auchan. December 18 it signed Prokhorov. And it is a good bet that Rusal an important accord with Enka of Turkey, owner of the Ramstore hypermarket will not stop there when the going is so chain. The French will take over 14 establishments held up to now by Enka (9 of good. Viktor Vekselberg, one of the mino- which are located in Moscow), which will bring Auchan, which already own 17 hy- rity shareholders in the group (22%), decla- permarkets in Russia, to a sales surface of 85 000 cubic square metres. The trans- red in late December that the sale of Pro- actions will amount to between 500 and 600 million dollars according to evalua- khorov’s shares represented “the starting tions by Russian experts. In this deal, Auchan was competing with Carrefour, as point for the constitution of a Russian mi- well as X5 Retail Group and Korea’s Lotte Group. ning company capable of holding its own against Rio Tinto, CVRD and BHP Billi- Lastly, two other major French groups were spoken about in Moscow in late 2007 ton”. – AXA and Accor. December 21, a communiqué by the French insurer indicated In this context, Potanin’s future is very un- it had taken 36.7% of the capital of RESO-Garantii for 810 million euros. Under certain. A peaceful co-existence between the terms of the transaction, AXA should continue to acquire RESO-Garantii capi- equals with Deripaska, as was the case with tal to take over control in 2011. Before then, AXA will open a line of credit of one Prokhorov before their conflict erupted, is billion dollars to RESO-Garantii to finance its development. According to Henri de hardly credible. The co-founder of Interros Castries, the purchase of RESO-Garantii is “a tremendous opportunity to enter is perhaps betting on quite mediocre rela- fully on the Russian market”. tions between Dmitry Medvedev and Oleg Deripaska (who were in conflict at the end The Accor group is planning to open a Sofitel with a 150-room capacity in the of the 1990s for the control of certain forest heart of the future business centre Moscow-City. It will notably join Hyatt Inter- assets in Bratsk) to limit the damages, but national, which has already signed an accord in that direction with the Mirax Group the more likely possibility for him is still the of Sergey Polonsky, which is building the “Federation” tower. d 6 withdrawal from the mining sector. d Russia Intelligence N°69 j January 17 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Business & Networks

cc FOCUS ALERTS Gazprombank, the Shamalov/Kovalchuk 3 Sukhoi : Putin gives tandem's new asset the nod to Alenia The year 2007 was a pivotal year for Gazprombank. Long regarded as the “strong The Russian President on January 14 arm” of Gazprom, Russia’s leading private bank in fact has liberated itself from its signed a decree authorising Alenia traditional shareholder to enter into the fold of Gazfond, the Gazprom pension fund, Aeronautica to take a stake of 25% plus itself controlled by the investment firm Leader, one of the most active poles of the one share of Sukhoi Civil Aircraft, which is notably developing the SuperJet 100 Kovalchuk galaxy (Russia Intelligence n°38 of August 31 2006). In parallel, Gaz- regional aircraft. It doesn’t represent a prombank has defined its industrial strategy on media and chemicals (Sibur), and surprise since an accord in principle had the group is on the other hand gradually disengaging from the nuclear (Atomstroyex- been approved in the summer of 2006 by port and OMZ – Russia Intelligence n°68 of December 28 2007). A feudal link that Vladimir Putin and Romano Prodi. The was already very autonomous from the headquarters for several years — a situation transaction, which should be concluded at the root of recurring tension between Alexey Miller and the president of the di- this spring, should amount to close to 250 rectorate, Andrey Akimov – Gazprombank should in the coming months, benefit million dollars. To refresh our readers’ fully from the proximity of its new shareholders with the (probable) future Presi- memories, Sukhoi and Alenia had signed dent, Dmitry Medvedev. an accord, during the MAKS-2007 air show last August, an accord creating a Andrey Akimov, the most discreet of Russian bankers. The president of the joint venture based in Venice, that will be Gazprombank directorate, Andrey Akimov, at his post since November 21 2002 and devoted to marketing the SuperJet 100 in who has just been extended for 5 years, is highly secretive.There is no photograph Europe, the United States, Africa and of him available. His imposing security service is constantly on watch to keep jour- Australia. Officially presented last nalists at bay. Born in Leningrad in 1953, Akimov is a graduate of the Moscow Fi- September, the SuperJet 100 should undertake its first flight tests before the nance academy. He is especially close to Vladimir Dmitriev, the current president end of the year. They nevertheless have of the Vneshekonombank, and Sergey Lykov, n°2 of the Vneshtorgbank (VTB). been delayed to February, according to From 1974 to 1987, Akimov worked at VTB, which at the time was the Soviet exter- our information. Aeroflot, Sukhoi Civil nal trade bank. He was named deputy director general of its Swiss subsidiary in 1985, Aircraft’s main client, expects delivery of before taking over the head of Danaubank — another VTB affiliate — in Vienna in its first SuperJet 100 in November 2008. 1987. There he became acquainted with a certain Alexandre Medvedev. A decisive It should also be underlined that a main- meeting since the latter — once projected to the leadership of Gazexport in August tenance centre for the SuperJet 100 2002 — had Akimov named to Gazprombank a few weeks later. Before that Medve- should be installed in Hungary on the dev worked in Vienna from 1991 to 2002 within the financial firm IMAG, an organi- base operated for Aeroplex, a subsidiary sation specialised in Russian crude oil trade. It should also be noted that from 1991 of Malev, the former national airline pur- to 2002 Akimov was an advisor to Andrey Kostin, the boss of Vneshtorgbank. chased in 2007 by Boris Abramovich’s AiRUnion. d Certain Russian sources maintain that Akimov holds the rank of reserve general in the SVR, declarations which are of course difficult to confirm.One thing is certain 3 Ka-32 helicopters for Iran in any case : he has excellent relations with KGB veterans. He had Yevgeny Plyus- As Russia Intelligence announced in its last hin named to the post of director of human resources at Gazprombank and he is an previous dispatch, the last session of the associate of Sergey Ushakov, the former boss of Gazprom security, who was recently Russo-Iranian military-technical cooperation named by Vladimir Putin in the Far-East (Russia Intelligence n°60 of August 30 commission held in mid-December gave the 2007). light to some important advances. Two pro- jects were the centre of discussions : the de- A bastion of Chernomyrdin/Vyakhirev Networks. Created in 1990 by what livery of the RD-33 motor for the Iranian- was at the time the Soviet Industry and gas ministry, Gazprombank was for a long manufactured Azarakhsh fighter and the time the protectorate of Viktor Chernomyrdin and his successor, Rem Vyakhirev. production under license of the Ka-32. During the Yeltsin decade, it was Viktor Tarasov – formerly with RRK Energia – Conceived as a surveillance, research and who had the controls. In September 2001, Tarasov yielded the way for Yuri Lvov, a all-weather rescue platform, the Ka-32 is a close associate of Alexey Kudrin and Vladimir Kogan, with whom he founded the de-militarised extension of the of the anti- “Saint Peterburg” bank. Lvov was nevertheless unceremoniously fired in late 2002 submarine warfare Ka-27 helicopter. by Alexey Miller. Akimov against all expectations was named thanks to the support Another hot issue — the S-300 anti-air sys- of Alexandre Medvedev (at the time the post of president of the Gazprombank di- tems. The Iranian Defence minister, Mos- rectorate was sought by Sergey Veremeenko, the boss of MIB, pushed to the front tafa Mohammad Najjar, announced De- by Sergey Pugachev and by Vladimir Stolyarenko, the boss of Eurofinance). cember 27 that Russia would deliver a batch to Iran.The announcement was denied later Akimov’s priority was to diversify the activities of Gazprombank and to shake free by Russian authorities and the Iranian Fo- from the control of Gazprom. The objective was reached in April 2007. Gazfond then reign affairs ministry. Several Russian Intelli- became the majority stakeholder (50% plus one share), Gazprom maintaining only gence sources in Moscow confirmed never- 41%. This transaction shifted the balance for Gazprombank into the influence of Yuri theless that Rosoboronexport has Kovalchuk. The boss of Gazfond, Yuri Shamalov, is the son of Nikolay Shamalov, prepared a “key-in-hand” accord visualising one of the co-founders of the Rossia bank. In view of the closeness between Yuri Ko- the dispatching of Russian specialists to valchuk and Dmitry Medvedev – beside whom his son Boris works – Gazprombank Iran, but that it has not up to now not recei- seems to a glorious future promised. d ved the Kremlin green light. d 7 Russia Intelligence N°69 j January 17 2008 www.russia-intelligence.fr RUSSIA INTELLIGENCE Regions & CIS

CASPIAN c Moscow-Astana : gas for oil It was with a certain nervousness that Russian leaders were to Gazprom «up to 60-70 billion m3». In reality, the amount awaiting the visit to Moscow on Deceùber 20 of the Kazakh should not exceed 42-44 billion m3 in 2007). The Kremlin in president, Nursultan Nazarbayev. Since autumn, in fact, the any case estimated that it had repulsed the spector of the trans- bilateral dialogue had shown worrying signs of losing momen- caspian gas pipelines promoted by the Westerners with this tum. Following in the footsteps of Turkmenistan which had trilateral accord to which Gurbanguly Berdymukhammedov demanded – and received – a significant rise in the price of was symbolically associated with (the Turkmen president had gas delivered to Gazprom (Russia Intelligence n°67 of Decem- refused to travel for the occasion to Moscow, but he exchan- ber 6, 2007), Kazakhstan had itself made known its price de- ged a few word by telephone with Vladimir Putin and Nursul- mands to Russia (between $165 and $190/1000m3). November tan Nazarbaev in front of the cameras of journalists accredi- 29, during a council of Foreign ministers of the OSCE, the Ka- ted to the Kremlin). For a while, in any case, the «great game» zakh delegation had «disconnected» from Russia: Moscow – for gas in Cent ral Asia will be symbolised by a get-together which had been the most faithful advocate of the Kazakh pre- between Russians and Chinese, ready by all bids to capture a sidency for the organisation in 2009 – had the unpleasant sur- share of the hydrocarbons flowing out of the region. prise to discover that Astana had found an accord directly with the West and had chosen not to be associated with the Russian The price for Moscow to pay to obtain the approval of As- resolution criticising the functioning of the OSCE. Then in mid- tana for its plans for a peri-Caspian gas pipeline was to make December, during the press conference closing the official vi- concessions in the oil sector. In previous editions (n°46-47 of sit of the Turkish president Abdullah Gül, Nursultan Nazar- January 19 2007 and n°62 of September 27 2007), Russia In- baev had warned that «If Russia does not create conditions telligence hihghlighted the contest being waged between the for the transit of oil, then Kazakhstan will be forced to export Kazakh government and Transneft concerning the CPC, the its hydrocarbons via the Caspian and then the Baku-Tbilisi- oil pipeline linking the Tengiz deposit to the Russian port of Ceyhan pipeline». Novorossiysk. Considering this project as not sufficiently com- mercially viable, Russia had systematicallty opposed the de- In this context, the meeting betwen Vladimir Putin and mands of the consortium aiming at increasing the capacity of Nursultan Nazarbaev – the 8th in 2007 – allowed a chance to the pipeline of 32Mt/yr to 67Mt/yr. In this deal, the government re-establish a dialogue. Its main result was the signature of an had been the advocate of the operator Transneft, which had acord on the construction of the Caspian peripheral gas pipe- never really accepted the existance of this pipeline which it line. We recall that the objective of this pipeline to permit the did not control, a unique case in the ex-USSR. The final offer delivery of an additional 30 billion m3 of gas from Central Asia proposed by the Russians to the Kazakh was the following : we toward Russia had been adopted May 12 by Presidents Berdy- are ready to accept an increase in the capacity of the CPC if mukhammedov, Nazarbaev and Putin. A formal and legal in- you commit yourself to furnishing 17Mt/yr to the future Bur- tergovernmental accord should have been signed on Septem- gas-Alexandroupolis oil pipeline, whose construction should ber 1, but nothing happened at the appointed time. Turkmen begin this year (Russia Intelligence n°52 of March 30, 2007). and Kazakhs had linked the conclusion of the accord – whose The Kazakh side was all the more irritated that these guaran- importance to Russia they had fully measured – to an increase tees at the highest level had apparently been given as early as in the price of gas. Astana had also put on the table other de- last spring on the enlargement of the CPC. But this issue is of mands in the oil sector.Finally the Kremlin relaxed its posi- critical importance for Astana. Its exports – which it hopes tion and obtained approval for the peri-caspian pipeline. will reach 130Mt/yr by 2015 – risks being squeezed by inade- quate infrastructure. This was the reason for the barely-veiled The document signed by the Russian Industry and Energy warnings toward Moscow which envisaged enhanced coopera- minister, Viktor Khristenko, his Kazakh counterpart, Galym tion with Azerbaijan for a spectacular increase by tanker to Orazbakov, and the director of the agency for hydrocarbon Baku (20Mt/yr were being talked about). management close to the Turkmen presidency, Bayrammyrat Myradov, foresees the pipeline – whose capacity was finally The Putin-Nazarkayev meeting therefore permitted some set at 20 billion m3/annually – will enter into service in 2010. serious progress : the peri-Caspian gaz pipeline is adopted, Turkmenistan and Kazakstan were charged with implemen- while Kazakhstan got its way for the CPC, which as a result ting the project on their respective territories. They commit- makes the commercial prospects of the Burgas-Alexandroupo- ted themselves each to provide «up to 10 billion m3 per year», lis oil pipeline more credible. Russia should also increase the a formula that leads certain Moscow observers to predict that capacity of the Atyrau-Samara oil pipeline (from 15Mt/yr to this could be below the final needs ( the Russo-Turkmen gas 25Mt/yr). d acords signed in 2003 indeed provided that Ashgabat deliver

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