N61 - September 13 2007 CO N T E N T S

P. 1-4

Published every two weeks / International Edition

Politics & Government

KREMLIN c Viktor Zubkov

KREMLIN c Viktor Zubkov : the Petersburg hard core takes over FOCUS c Yuri Chayka, a public prosecutor on a tight-rope DIPLOMACY c The new Russian priorities in Asia ALERT c Mikhail Margelov to head the Council of Europe parliamentary assembly? INTERVIEW c Alain Blum (EHESS)

: the Petersburg hard core takes over

P. 4-6

Business & Networks

ENERGY c Europe : a new challenge visible for Gazprom ALERT c Lukoil and Gazprom soon in Somalia ? FOCUS c Nuclear : the first steps toward reform BEHIND THE SCENE c Shtokman : Gazprom waits hand and foot on Yuri Kovalchuks friends

P. 7-8

Regions & CIS

FOCUS c Why Kamchatka is again becoming strategic CAUCASUS c Ingushetia, the weak link

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The serious business in anticipation of the succession of Vladimir Putin to the Kremlin has just begun in Moscow. September 12, the head of government, Mikhail Fradkov, submitted his resignation to the Russian president, who accepted it after having given a strong (and apparently sincere) homage. A few minutes later, the president of the state Duma, Boris Gryzlov, declared that the Kremlin had retained the candidature of the head of the Federal financial monitoring agency (Rosfinmonitoring), Viktor Zubkov, 65, to succeed Mikhail Fradkov. An announcement which was all the more surprising since the entire corps of Moscow observers took it for granted that in case of such a reshuffle, Sergey Ivanov would be the next Prime minister. Viktor Zubkov is not an unknown quantity for the readers of Russia Intelligence. In our edition of last March 2, we revealed his rise in Russian power circles. As a matter of fact, the future Prime minister (his candidature will be confirmed by the parliament September 14) is a part of the Putinist first circle. Born in 1941 in the Urals, he is a 1965 graduate of the Institute of agriculture in Leningrad. His rise began truly beginning in 1985 : he then found himself assigned responsibility within the Communist party. Viktor Zubkov in 1991 is the first secretary of the executive committee for the district of Priozersky of the Leningrad region. This is the time when became acquainted with Vladimir Putin and Boris Gryzlov. According to information gathered by Russia Intelligence, Viktor Zubkov would have facilitated the transfer of plots of land for construction by the well-known dacha cooperative Ozero. Located in Solovyovka on the banks of lake Komsolmoskoe, the latter included, it should be recalled, among its founding members Vladimir Putin (a the time in charge of external relations for the Saint Petersburg municipality), Vladimir Yakunin (head of the RZhD, the Russian railways), Vladimir Smirnov, (TENEX read also articles page 2 and 6), Nikolay Shamalov and Viktor Myachin, joint shareholders of the Rossia bank of Yuri Kovalchuk. From January 1992 to November 1993, Viktor Zubkov presented himself for the post of governor of the Leningrad region, but he collected only 8.5% of the votes (Boris Gryzlov was then his campaign manager). Vice minister of finance from 2001 to 2004, he assumed the leadership in 2004 of Rosfinmonitoring, the financial investigation squad, which he headed until his surprise nomination. Viktor Zubkov is therefore, as can be seen, a trusted associate of Vladimir Putin. He is in addition the father-in-law of the Defence minister, Anatoly Serdyukov, whose surprise nomination last February also follows the same pattern. Viktor Zubkov is also very close to Viktor Ivanov, the presidential assistant who has a controlling hand on nominations and who we had previously indicated had strengthened his position in the Kremlin (Russia Intelligence n49 of February 16 2007). The main question is certainly to know if the promotion of Viktor Zubkov makes of latter the long awaited successor to Vladimir Putin. His profile and also his age lead most Moscow sources for Russia Intelligence to doubt this scenario. Viktor Zubkov could remain Prime minister after March 2008, reproducing the trajectory of Mikhail Fradkov, who also came out of nowhere and was installed before the presidential vote of 2004. The other question concerns the reason that led Vladimir Putin to delay, or even to abandon, the Sergey Ivanov option. The first vice Prime minister, very much in view in the media at the side of the president since the beginning of summer, seemed well on the way. A veteran, like Vladimir Putin, of the KGB external intelligence services, he shares with him the same weltanschauung. But we also know that Sergey Ivanov arouses considerable fears within the numerous Kremlin clans, whom he is not obligated to and to whom he had given no guarantees for after 2008 (Igor Sechin who Sergey Ivanov, rightly or wrongly, suspects of having set a trap for him in the media during the Sychev affair, which involved this terribly mutilated draftee in a Ural barrack in late 2005 felt particularly targeted according to information we have gathered. The elevation of Viktor Zubkov also leaves open the scenario, long considered as emerging from science fiction but which could be unwise to exclude in view of the essentially Byzantine nature of the Russian political game : a faked departure for Vladimir Putin. The latter could leave the Kremlin in March 2008, as the constitution obligesto better return on the scene in place of a Viktor Zubkov who would have then fulfilled his ultimate mission in the service of his friend. d

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RUSSIA INTELLIGENCE
FOCUS c

Po l i t i c s & G ov e r n m e n t

Yuri Chayka, a public prosecutor on a tight-rope

against Sergey Vasilev, a businessman who unofficially controlled the oil terminal for the northern capital, an assets sought by Barsukov. This case must be followed with the utmost attention because it is likely to spill over against the core of the Putin networks in Saint Petersburg. Several close associates of the president had at one time or another business dealings with Barsukov. First of all, Vladimir Smirnov, the boss of TENEX, the state firm specialised in uranium enrichment (read page 6). In the mid-1990s Barsukov contolled, with Smirnov, the private security agency Rif Security, which was notably charged with the surveillances of the Ozero cooperative dachas. As a reminder, Vladimir Barsukov this very exclusive village hosted Smirnov himself, Andrey Fursenko, the Science minister, Vladimir Yakunin, the boss of the railways, and a certain Vladimir Putin. Smirnov and Barsukov, would find themselves a few years later at the Saint Petersburg Hydrocarbon company (PTK) : Smirnov was the president of the administrative council, while Barsukov occupied from 1998 to 2000 the post of assistant director general. Vladimir Barsukov also controlled a number of affiliates of Surgutneftegaz, including Kirishinefteorgsintez, specialised in refined products. And, readers of Russia Intelligence know since operation Baikal and the purchase of Yuganskneftegaz, of the importance and influence of the networks linked to Surgutneftegaz (n6 of February 11 2005 and n43 of November 10 2006). We need mention only Yuri Kovalchuk, the head of the Rossia bank, and Alexey Mordashov of Severstal. Finally, Vladimir Barsukov testified in 2004 before German investigators in the case of SPAG, a firm based in Hessen that invested in property in Saint Petersburg and which the German authorities suspected of money laundering for the Tambov group. Barsukov was the co-manager of one of the SPAG affiliates, Znamenskaya whose director was none other than Vladimir Smirnov. Markus Rese, at the time boss of SPAG, declared in 2001 to the weekly Newsweek that Vladimir Putin had been a consultant to his group, a function that according to him was unpaid and essentially honorary. The main question that arises is to know if those who requested the arrest of Barsukov want him to talk or remain silent. In the first instance, he should not leave the VIP cell of the famous Kresty prison in Saint Petersburg where he was taken after his arrest. Perhaps Barsukov will never be heard from again, but his presence behind bars by itself constitutes a sword of Damoclese over the head of persons numerous and influential as we have seen who had been in contact with him. The second possibility leads to the recollection of the fate of another noteworthy figure of the Petersburg mob, Roman Tsepov (Russia Intelligence n33 of May 18 2006. Close to certain Putin circles (in particular that of General Viktor Zolotov, the boss of the Federal protection service) and knowledgable (too) about the underside of the Yukos affair, he was mysteriously poisoned in the autumn of 2004. d www.russia-intelligence.fr

August 27 may seem in retrospect as the finest hour for Russias General prosecutor. In announcing to Vladimir Putin in the Kremlin that the investigation of the murder of journalist Anna Politkovskaya was concluded and that the godfather of the Tambov group - Saint Petersburgs principal mafia organisation had been locked up, Yuri Chayka thought he had established himself as the hero against all the dangers of this postvacation season, (Russia Intelligence n60 of August 30 2007). But the cards changed completely in the space of a few days.
The Politkovskaya case : an accusation that evaporates.

It was with obvious satisfaction that Yuri Chaika had told of the interrogation of ten suspects in the Politkovskaya case. Among those was found an FSB lieutenant-colonel, Pavel Ryaguzov, two agents of the Interior ministry research service, Dmitry Lebedev and Oleg Alimov, as well as an anti-gang squad member, Sergey Khadzhikurbanov, which seemed to indicate that the investigation had been thorough. Yuri Chayka had also established a link between the assassination of Anna Politkovskaya and the one of Paul Khlebnikoff, the editor in chief of the Russian edition of Forbes shot to death in 2004, and the former vice president of the Russian central bank, Andrey Kozlov (Russia Intelligence n41 of October 13 2006). The latter point was all the more surprising since the Kozlov case had been said to have been solved in the spring and the presumed killers jailed. Yuri Chayka in any case thought he had two winners. The solving of the Politkovskaya case, a few days from the first anniversary of the death of the Novaya gazeta journalist, was made to order to bolster the image of the Russian president in the West. It was also meant, for the public prosecutor, to underline the efficiency of his services on the eve of the creation of a Committee for investigation, a quasi-autonomous structure of the Prosecutors office whose presidency Vladimir Putin had assigned to Alexandre Bastyrkin, one of his former university classmates (Russia Intelligence n58 of June 28 2007). But by August 28, it seemed that Yuri Chayka had proclaimed victory prematurely. It was learned first of all that a first detainee had been cleared by the investigators and released. Lawyers for Sergey Khadzhiburbanov had themselves let it be known that their client had a solid alibi since he had been in detention on October 7 2006. The actions Pavel Ryaguzov was charged with dated back to 2004 and had no connection with the murder of Anna Politkovskaya. In the end, this case smacks so much of amateurism that one is left to wonder whether Yuri Chayka wasnt manipulated and sent into oblivion.
The strange Barsukov affair. Virtually unnoticed in the West, the arrest of Vladimir Barkusov (alias Kumarin) is however even as politically sensitive as the Politkovskaya case. The one presented as the godfather of the Tambov group was arrested on August 22 by units of the Interior ministry and Prosecutors office who had come from Moscow without the outposts in Saint Petersburg getting any advance warning of the operation. An apparently useful precaution since, according to Yuri Chayka, many well-placed persons had tried to derail the investigators. Vladimir Barsukov was wanted; among other reasons, for money laundering, extortion of funds, attempted murder and murder. He is notably accused of the attack in the spring of 2005

Russia Intelligence N61 j September 13 2007

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D I P LO M AC Y c

Po l i t i c s & G ov e r n m e n t

The new Russian priorities in Asia

signing of an intergovernmental nuclear accord. Australia, which holds 40% of world uranium reserves, will export a part to Russia. The amounts will be the subject of new discussions between Rosatom/AtomEnergoProm and the Australian authorities. The intergovernmental accord of September 7 in any case will facilitate the negotiations underway between TENEX and BHP Billiton concerning a participation in the development of the giant Olympic Dum reserves. It especially constitutes a major assurance of the long-term supplies of the Russian nuclear industry in uranium, while the cooperation with Kazakh and Ukrainian source is full of uncertainties. (UI n39 of August 30 2007 and CACI n15 of August 30 2007). Virtually unnoticed in the West, the visit of Vladimir Putin in the United Arab Emirates was nevertheless more than a simple courtesy visit. In inauguring in Abu-Dhabi an exposition on Arab, Persian and Turkish military trophies in the Kremlin museum, the Russian president hoped to symbolically recall the role and the historic influence of Russia in the Middle East. If we can believe certain elements filtering in Moscow, the main theme of the discussion between Vladimir Putin and Cheikh Khalifa ben Zayed al-Nahyane was Iran. The Emirates sought notably to obtain the mediation of Moscow on the coastal limit dispute involving the Abu-Musa and Tunb islands annexed by Tehran in 1971. Moscow again made Abu-Dhabi aware of the possible risks of an American military intervention in Iran and would like to see it play a role as moderator with Washington. It should be noted in passing that the issue of the Bushehr nuclear power station remains subject of differing evaluations in Tehran and Moscow. The secretary of the Iranian security council, Ali Larijani, declared September 6 that a good accord has been found with Russia and that the calendar of deliveries of fuel has been adopted. An announcement quickly denied by Sergey Novokov, the Rosatom spokesman. d

In the decade of the collapse of the Soviet union, Russian policy toward Asia rested essentially on strategic partnerships with India and the Peoples Republic of China. Vladimir Putins recent tour of the region on the occasion of the 15th APEC summit in Sidney illustrated the new geographic priorities of the Kremlin and confirmed the dominance of economic factors in Russian diplomacy. The first stopover of the Russian president, Indonesia is one of the new strong points of the Kremlin policy in southeast Asia. It was well known that for several months Moscow and Jakarta were discussing the details of new arms contracts. During the recent Moscow air show, Rosoboronexport and the Indian Defence minister had signed an accord on delivery, between 2008 and 2010, of 6 new Sukhoi fighter-bombers (3 Su-30SKM and 3 Su-30 MK2, for an amount evaluated at 335 million dollars). Another, more ambitious, accord was completed in Jakarta September 6. Russia and will in fact deliver to Indonesia ten Mi-17 and Mi-35 transport and attack helicopters, twenty BMP-3F armoured troop carriers, as well as two Kilo class conventional submarines. This transaction will be financed by a credit of a billion dollars from the Russian government, an arrangement that illustrates Moscows new financial flexibility, which had already been inaugurated during the summer of 2005 in the framework of a contract with Jordan. According to certain information, Indonesia would also be interested by the Kornet anti-tank systems from KBP Tula, unspecified anti-air arms, and also in civilian aircraft (the Sukhoi SuperJet-100 and the Be-200 and Be-103 amphibious aircraft. The successes of Russian industrialists in Indonesia were not limited to the armaments and aerospace sectors. Lukoil and the national company Petramina signed a cooperation accord concerning several off-shore deposits. Rusal and Antam also signed an accord on the construction by 2001, of a complex of a capacity of 5 Mt/yr that will be supplied by bauxite deposits from Munggu Pasir and Pantas. Oleg Deripaska s group represented in Jakarta by the former Finance minister Alexandr Livshits will hold 51% of a joint venture that will soon be created. Lastly, Altimo telecoms subsidiary of Alfa-Group is said to be prepared to buy, for 2 billion dollars, the share of ST Telemedia (Singapore) in the Indonesian mobile telephone operator Indosat. We should also point out that the president of Alpha-Bank, Pyotr Aven, accompanied Vladimir Putin on his Asian travels, as well as Sergey Kirienko (Rosatom), Vagit Alekperov (Lukoil), Vladimir Evtushenkov (AFK Systema), Vladimir Dmitriev (VneshEkonomBank), Leonid Reyman, the Communications minister, Sergey Stepashin, the president of the Court of accounts, and also the chief representative of Vladimir Putin in the Far-east federal district, the Tatar Kamil Iskhakov. The Australian phase for Vladimir Putin was also as fruitful. True, the discussions with George Bush led only to an invitation to a fishing date in Siberia, with no progress seen on the thorny problem of the WTO or the anti-missile defence. But Vladimir Putin obtained from his APEC partners that the organisations summit planned for 2012 take place in Russia. On the economic front, the major event was incontestably the Russia Intelligence N61 j September 13 2007

ALERT

3 A Russian to head the Council of Europe parliamentary assembly ?

Mikhail Margelov, the president of the Federation council Foreign relations commission, confirmed on October 10, that he would present his candidacy for the presidency of the Council of Europe Parliamentary assembly in the name of the European democrats group (EDG). Born in 1964 in Pskov, Mikhail Margelov is an Arab expert graduated from the Institute of African and Asian countries of the University of Moscow. He taught Arabic at the KGB school of advanced studies at the end of the 1980s before assuming the leadership of the Arab editorial team at the ITAR-TASS news agency. Charged with relations with the foreign press on the campaign staff of Vladimir Putin in 2000, he was appointed to the Senate a few months later. His grandfather a general decorated with the title of hero of the USSR was one of the founders of the Soviet airborne troops. His father, Vitaly Vasilevich made his career in the external intelligence service and was the aide to Yevgeny Primakov at the SVR in the early 1990s. d

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RUSSIA INTELLIGENCE
DEMOGRAPHY c Alain Blum

Po l i t i c s & G ov e r n m e n t

: Demographic policies are at the heart of Vladimir Putins public communication

child, while the oldest had already brought a child into the world. In general in Russia, we are passing, slowly, from the model of very precocious first coupling first marriage first birth, to a more European model where a succession of co-habitations precedes a couple giving birth to a child, and where, a couple waits to be integrated into the working world before giving birth to children. In effect, for several years, this effect led to an apparent decline in the birth rate higher than it was in reality.
What are the most realistic projections concerning the evolution of the Russian population for the medium and long-term?

An interview with Alain Blum, director of the Studies centre of the Russian world, the Caucasus and Central Europe (School of advanced social science studies and the CNRS national scientific research centre) and director of research at the National institute of demographic studies (INED) Author specifically of Birth, living and dying Alain Blum in Russia, Paris, Payot, 2004, and Bureaucratic anarchy statistics and power under Stalin, La Dcouverte, 2003, (with Martine Mespoulet).

The demographic situation was recently described by Vladimir Putin as one of the principal threats to national security for Russia. What are the profound causes?

The demographic situation and the demographic policies followed in Russia today, are the object of very extensive media attention, fostered by the entourage of Vladimir Putin. This is part of the general rhetoric concerning the promotion of the greatness and power of Russia, which translates here in terms of population, as well as the argument that an increase in births would be the direct expression of a hope and rediscovered confidence. The reform of the 1990s have been put forward as the causes of this demographic situation, inasmuch as the decline in population as well as the decline in fertility date back about to the collapse of the USSR. The growth rate turned negative in the early 1990s. Certain political or media figures had even accused Boris Yeltsin of being responsible for genocide of the Russian population and nationalist and conservative speeches adopted this accusing tone. But, when we examine closely the demographic trends, we can see that the reality is completely different. The most preoccupying, the extremely high level of mortality, (the male life expectancy at birth, the most preoccupying, reached 58.9 years in 2005, compared to 76.8 in France the same year. Russian men live on average close to 20 years less than French men!) is linked to a gradual, quasi-linear, degradation, that began in at the start of the 1970s decade. Nothing to do with the Yeltsin reforms. The cyclical, and very temporary, effect of the war on alcoholism in 1986 gave the impression of a counter-action of these reforms. If the latter existed at all, it was very limited compared to the long-term trends. The causes are complex, and closely linked to the lack of adaptation of the health-care system to the new health conditions, alcoholism which remains very preoccupying, important violent mortality, affecting in particular young men closely linked to alcoholism. In terms of fertility, there was certainly the effect of uncertainty about the future, leading many couples to delay the arrival of children. But that situation was only partially linked to the reforms. The current fertility rate corresponds to European levels, and, whats more, it has suffered from the delay of the age of the first birth, which had been extremely precocious in Russia. Young women delayed their first Russia Intelligence N61 j September 13 2007

Its impossible to furnish numbers since evolution is difficult to forecast, especially migratory terms. A realistic projection supposes, however, that mortality will begin to decline and that fertility will rise slightly (strongly for a while, and then return to an average level) and that immigration flows will develop, whatever policy is put in place. On this basis, we can probably foresee a population of 135 million inhabitants by a timeframe of 2015, a relatively high variant, rather than the 145 million imagined by Medvedev. Reaching such levels would presuppose very important migratory flows, which are not to be excluded but which remain unrealistic (while Medvedev counts only on a strong increase in births).
Demography is one of the national projects to the same extent as housing or education under the responsibility of vice Prime minister Dmitry Medvedev. What public policies have been put in effect by the government? Can they have a real impact, in your view?

Policies in demographic matters are at the heart of Vladimir Putins public communication. Two national projects, one on demography, the other on health, are developing. The first made considerable noise and consists primarily of a premium of 8500 euros (250 000 rubles)for the second birth, a considerable sum when compared with the average salary. This payment is placed in a pension fund, then available after a few years to finance housing or studies for the child. It represents a short-sighted policy, very much in line with certain Soviet policies : the impact will be rapid, without a doubt, since couples will anticipate the birth of their 2d child. But the effect will probably be temporary and will mark more the moment when couples have their 2d child. As a result, we risk having violent upheavals in the age pyramid, a difficult management for child care, education, follow-up health care. The age of maternity will again decline, which is hardly desirable. Fertility will probably rise slightly in the end but much less than it will seem in the years to come. At a high price, in terms of public child management. On the other hand, the health system is significantly below what it should be, even if we can hope that mortality will decline considerably in the years to come, given the incredibly high level of today. The government, apparently, is not developing a demographic policy, but a political fact, essentially to put forward successes which are in large part illusory. d www.russia-intelligence.fr

RUSSIA INTELLIGENCE
ENERGY c Europe

Business & Networks

: a new challenge visible for Gazprom

Stream reveals a climate that is increasingly hostile toward all energy projects originating in Russia . In this context, the attention of the Kremlin (and of its intelligence services) is more than always focused on Brussels. The Russians are anticipating notably new proposals from the European commission, expected September 19, on the demonopolisation of the energy sector. c Like in previous autumns, Gunter VerGazprom is readying to launch heugen let it be discussions with its clients on the known during a visit to Moscow price of gas for the coming year. in mid-July that certain provisions could affect Gazprom. It involves possible restrictions on the ownership of gas and electricity distribution networks, sectors we know to be precisely the new targets of the Russian group in Europe (Russia Intelligence n 54 of April 24 2007). Another reason for Gazprom and the Russian government to worry concern the preparation of a series of directives under the direction of Alejo Vidal-Quadras. In the aftermath of a vote in the Euopean parliament in early August, its vice president was charged with formulating a certain number of proposals aimed at encouraging respect for the principle of reciprocity concerning investments of third countries in the European energy sector. The aim is to limit access of public companies from countries where the local energy markets are subjected to restrictions. This measure is not specifically directed against Russia (Algeria, Saudi Arabia or Iran are potentially concerned), but we can imagine that they would seriously contradict the Gazprom ambitions if they were to be applied. d

If the discussions with Total, BP or E.On are proceeding and indicate some new and very promising cooperation (Russia Intelligence n60 of August 2007), Gazprom also nevertheless risks being confronted by new political obstacles from certain European governments and the European commission in Brussels. Like in previous autumns, Gazprom is readying to launch discussions with its clients on the price of gas for the coming year. Since world hydrocarbon prices remain particularly high (more than 70$ a barrel on average in August), a new re-evaluation remains the order of the day. The first to get excited were the Lithuanians. On August 29, the daily Lietvos rytas published an article reporting on a notification addressed by Gazprom to the two Lithuanian gas importers, Lietvos dujos and Dujotekana, warning of an increase of 40% beginning on January 1 2008 (or 280$/1000 m3 against 195 currently). The Lithuanian Prime minister, Gediminas Kirkilas, had for his part spoken of an even larger spread (312-320$/1000 m 3) during an interview with Reuters news agency a few days earlier. Comparable increases are also awaited in Estonia and Latvia. After having demonstrated a policy of relative restraint for three consecutive years on prices upon entry of the Baltic states into the European union a moderation which had found a counterpart in its entry into the capital of the national gas distributing companies Eesti Gaas (37.02%), Latvijas gaze (34%) and Lietuvos dujos (37.1%) Gazprom will now charge the normal European prices to repeat the expression of one of its managers. The Russian company is even less inclined to make concessions in the case of Lithuania since the parliament of that country this spring adopted a law forbidding Lietvos dujos to apply a margin higher than 8% of the price of Russian gas bought at the border. The discussions could continue until October 31, the date set by the Russian and Lithuanian parties. In order to avoid a head-to-head confrontation with Gazprom that promises to be dangerous, Vilnius announced that it hoped to associate other European union countries in the discussions. This is an initiative that has few chances of succeeding in the absence of a common European policy but which confirms the extreme politisation of energy questions in the new member states in the Baltic region. Gazprom is equally confronted with significant political resistance in the case of Nord Stream, the underwater gas pipeline linking the region of Vyborg to Germany. Poland has let it be known that it would ask Stockholm to conduct new environmental studies since the new path of the future pipeline was modified to the limits of Swedish and Danish territorial waters. This change had the object of distancing Nord Stream from zones where shells from the second world war lie, but all pretexts are valid as seen from Warsaw to try to delay the Gazprom project. The Russian group could also find some other difficulties coming from Estonia. If certain information drifting out of Tallinn are confirmed, the Reform party plans to submit to the parliament a draft law on maritime frontiers that foresees extension of territorial waters of 3 nautical miles. We recall that Finland and Estonia left a neutral corridor of 6 nautical miles between their respective waters, to permit Russia to have a free access to rest of the Baltic sea to the north of which a segment of the Nord Stream should pass. There again, the prospects of such an approach would seem, to say the least doubtful, so long as it is hard to see Helsinki headed toward a clash with Moscow in this matter. But the strategy of harassment by the opponents of Nord Russia Intelligence N61 j September 13 2007

ALERT

3 Lukoil and Gazprom soon in Somalia ?

The ambassador of Somalia to Moscow, Mohamed Handule, has become quite active in recent weeks to persuade Russian groups to invest his country. August 22, he declared during a press conference that his government is ready to cooperate with Russia in the uranium extraction sector (Somalia holds a bit more than 6000 tonnes of the mineral). If we believe certain information circulating in the Russian capital, he is ready to meet on September 19, Igor Gavrilov, the director general of Zarubezhgeoligia. This public organisation had conducted important exploration campaigns in Somalia before the split between the government in Mogadischio and the USSR in 1977. Somalian authorities would like to have access to the results of the research and invite Zarubezhgeoligia to undertake some new drilling. The Russian side remains discreet on this question, but it would seem that some very promising finds were made by the Soviet engineers in 1976. Certain generally well-informed consultants in Moscow even believe that the Somalian reserves could be in the same range as those in neighbouring Sudan. Mohamed Handule has in any case approached Lukoil and Gazprom in the past weeks. It remains to be seen if the evolution of the political and security situation of this country ravaged by 15 years of civil war will permit the fulfilment of these projects. d

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RUSSIA INTELLIGENCE
c cFOCUS

Business & Networks

BEHIND THE SCENE

Nuclear : the first steps toward reform

For several months, Russia Intelligence has regularly informed its readers of the reforms underway in the Russian civil nuclear sector. Carried out by former Prime minister Sergey Kirienko, named to head the Federal Rosatom agency at the end of 2005 by Vladimir Putin, they have as their objective the establishment of a national champion uniting the complex of the protagonists in the sector along the lines of the model recently put in place for the aeronautic (OAK) and naval construction (OSK) industries. In the end, it means competing with Areva and Westinghouse on the world market thanks to an integrated organisation present from the extraction of uranium up to the construction of turnkey nuclear reactors. The signal for the launch of this reform was given, we recall, at the end of April with the publication of a presidential decree for the creation of AtomEnergoProm. Since, several important announcements have been made by the government. July 7, the Prime minister Mikhail Fradkov, adopted its bylaws, as well as its administrative council, to be headed by Sergey Kirienko. Vladimir Travin will occupy the post of director of AtomEnergoProm. It is not strictly speaking a surprise to the extent that the latter is a confident of Sergey Kirienko. Born in 1960, educated as an engineer, Vladimiur Travin began his career at the prestigious Sarov nuclear research centre (formerly Arzamas-16). He converted to finance during the 1990s before becoming vice president of Norsi-Oil, Sergey Kirienkos company based in Nizhny-Novgorod, then vice president (in charge of finance) of the public operator Transneft. As soon as he was nominated to the head of Rosatom, Sergey Kirienko had summoned him to his side as counsellor. He then named him associate director, again charged with finance, January 26 2007. The pattern of integration and, especially, the allocation of spheres of influence within AtomEnergoProm between the four pillars of the Russia civil nuclear sector (TENEX uranium enrichment services , RosEnergoAtom operator of some of the 31 reactors in service in Russia and AtomStroyExport construction of power stations abroad), are far from being settled. At this stage, it is only known that Sergey Kirienko wants to create UGRK, an entity that will unite the mining assets of TVEL and TENEX. Its direction will be confided to the team of Alexandr Shkarovsky/Vadim Zhikov, respectively n2 of Priangarskoe Mining and Chemical Production Association (a complex located in the Chita region which extracts some 3300 tonnes of uranium mineral per year) and n2 of TENEX. The other major uncertainty concerns the role of the large private industrial groups in the civilian nuclear sector. Currently, several oligarchs have positioned themselves. Oleg Deripaska, the boss of United Rusal, concluded last April an accord on the construction in the Far east of an aluminium foundry and a nuclear power station of 2000 megawatts. Since Russian law prohibits private parties from being operators of nuclear power stations, the most likely outcome is that United Rusal would participate in the financing of the project in exchange for a longterm accord guaranteeing electricity supplies under privileged conditions. Interros, Vladimir Potanins holding company, signed on June 18 a cooperation framework agreement with Rosatom in the uranium extraction sector. Joint projects are under study, especially in Uzhbekistan. But the most active is undoubtedly Viktor Vekselberg. After having concluded a framework agreement with TENEX to cooperate in southern Africa (Russia Intelligence n50 of March 2 2007), the boss of Renova took over at the end of may a 25%+1 share in EMAlliance-Atom, a joint venture created between TVEL and EMAlliance, the partner of Alstom and parent company of JSC Machine-building Plant ZIO Podolsk, ZIOMAR (engineering),and Krasny-Kotelshchik (turbines). Lastly, Gazprombank. In June 2006, the group sold 4% of the 53.8% it held in AtomStroyExport to TVEL, thus allowing Rosatom to reclaim majority. But since then relations have become tense between Andrey Akimov and Sergey Kirienko. The latter has sought since the summer of 2006 to convince the boss of Gazprombank to sell him the activities of OMZ linked to the nuclear, especially Izhorskie zavody, the only Russian producer of nuclear reactor vats. Matters are apparently reaching a scale where Rosatom announced in early August that it was suspending orders from Izhorskie zavody. d Russia Intelligence N61 j September 13 2007

Shtokman : Gazprom waits hand and foot on Yuri Kovalchuks friends

In one of its previous editions, (n50 of March 2 2007), Russia Intelligence had analysed the reforms underway in the Russian naval construction and maritime transport sectors by underlining the interaction with large groups in the energy sector, called on to be a more important silent partner and even more affluent than the Defence ministry. Gazprom has just provided proof, twice within a few weeks, by taking important decisions on the Shtokman and Sakhalin-II projects. In mid-August, Valery Golubev, one of Alexey Millers assistants, revealed that the call for tender for the construction of two drilling platforms concerning the Shtokman project had been won by the Vyborg (VSZ) shipyards, preferred over Sevmash and an unspecified Korean firm. The choice was surprising at first glance since VSZ was moribund and had not won a contract since 1997, the date when it built the launch platform for a US-Russo-Ukrainian Sea launch space programme. Looking at it more closely, the VSZ victory owes nothing to chance. In September 2006, Ako Barss had in fact sold his (75.6%) stake in VSZ to several private investors linked to Yuri Kovalchuk, the major Saint Petersburg banker who is well-known to readers of Russia Intelligence. Included were, among others, Vasily Gorelov (son of Dmitry Gorelov, shareholder of up to 12.6% in the Rossia bank), or Sergey Kolesnikov, member of the board of Sogaz, an insurance company formerly affiliated to Gazprom which was bought by Yuri Kovalchuks bank in the summer of 2006. The entry of the Kovalchuk network into Gazprom (also illustrated by the presence of Boris Kovalchuk, Yuris son, near Dimiti Medvedev) has begun to bear its fruit. The call for tender won by VSZ is worth the handsome sum of 59 million rubles (2.3 billion dollars). We should also mention that Sakhalin Energy, the operator of the Sakhalin-II project in which Gazprom is now the majority holder, has announced that the Prigorodnoe terminal would be operated in partnership with Sovkomflot, the new Russian national champion in maritime transport matter led by Igor Shuvalov, the sherpa for Vladimir Putin, (Russia Intelligence n 39 of September 2006 and n52 of March 30 2997). d
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RUSSIA INTELLIGENCE
FOCUS c Why

Regions & CIS

Kamchatka is again becoming strategic

Masorin, no less than 9 billion rubles (about 300 million dollars) will be invested by 2010. The new base will host the first units of the Borey class nuclear missile launcher submarine (MLSM) the Yuri Dolgoruky ( launched last April), the Alexandr Nevsky and Vladimir Monomakh (under construction in the Sevmash shipyards in Severodvinsk). We also remind readers that up to now, most of the Russian MLSMs have been deployed with the Northern fleet and stationed on the Kola peninsula. According to naval experts consulted by Russia Intelligence, the choice by military authorities can be explained by configuration of the bay of Vilyuchinsk, that allows submarines to rapidly reach depths to enable them to avoid detection by American satellites. Last, Kamchatka has a vocation to become and import hydrocarbon production centre in the coming decade. The head of Rosneft, Sergey Bogdanchikov, created a stir by announcing, September 5, that no less than 24 billion dollars would be invested in exploration/production projects in the Okhotsk continental shelf. It should be recalled that Rosneft had signed in September 2004 a cooperation memorandum with the Korean National Oil Company (KNOC) then in February 2005 an intermediate financial accord. The two parties then created a joint-venture (West Kamchatka Holding BV), in which Rosneft holds a 60% interest. A first series of tests should be completed in 2008, but if the information revealed by Sergey Bogdanovich is borne out, the Kamchatka off-shore deposits would be larger than those of Sakhalin (3.8 billion TOE, without at this stage being able to detail the proportion of oil and gas). The cooperation accord negotiated with the Koreans is especially interesting since it foresees that KNOC finances the totality of the prospecting phase (300 million dollars for the year 2008 alone), but that Rosneft would begin to receive profits from the development of these deposits without waiting for its partner to reimburse its costs. We also underline that, like with the Sakhalin-III project, Rosneft risks finding Gazprom in the way. Valery Golubev, one of Alexey Millers most visible associates in recent weeks, declared during the meeting on the socio-economic development of Kamchatka that Vladimir Putin presided on September 5 that his group was prepared to substitute for the RAO EES of Anatoly Chubais in the construction of the 300-kilometre gas pipeline between Sobolevo and the regional capital, Petropavlovsk-Kamchatksy. Under certain conditions. One of them being that the Ministry of natural resources grant it an exploration permit for certain zones of the continental shelf near the Rosneft-KNOC deposits. d www.russia-intelligence.fr

The brief visit undertaken by Vladimir Putin on the way to Indonesia and then Australia (read article page 3) was once again the occasion for the president to demonstrate his proximity even a certain complicity with Sergey Ivanov, whose bowling prowess the Russian television viewer could admire (and learn at the same time that the new leisure centre built at Vilyuchinsk for the families of the crews from the Russian pacific fleets submarine force was financed by Surgutneftegaz). The third to date since 2000, it primarily served to confirm the priority afforded by the Russian state to the peninsula, which has been called on to play a new economic and military role in the coming years. Forbidden to foreigners during the Soviet era, Kamchatka, during the 1990s, experienced an economic collapse aggravated by its twin distinctions isolation and the strong military presence the major victims during the Yeltsin presidency. In order to boost the region, the Kremlin for a while imagined duplicating the model tested with a certain success in neighbouring Chukotka with Roman Abramovich (Russia Intelligence n53 of April 13 2007). In other terms, assign the province to an oligarch ready to invest his personal resources as a means of redeeming himself. Long considered, Viktor Vekselberg managed to escape the honour. As a result, the administration privileged another scenario. The re-establishment of management over the peninsula came in three phases. The Kremlin first of all dismissed in March 2005 Vladimir Logimov, the governor of the autonomous district of the Koryaks. It then initiated the merger between this area subject to Federation control with the Kamchatka region, actually approved by a referendum October 23 2005 and officially completed on July 1 2007. This administrative remodelling also had as a byproduct the removal of the governor of Kamchatka, Mikhail Mashkovtsev, elected in 2000 under the communist label. He was replaced last May by one of his assistants, Alexey Kuzmitsky, the governor of the autonomous district of the Koryaks. The latter studied and passed most of his career in Saint Petersburg. A graduate of the Electro-technical institute (1992) and the administration academy (2003), he was, among other posts, counsellor of the director of the institute of radio-navigation and then financial director of a firm linked to the national fisheries committee. It was his connections with this sector of activities highly important to Kamchatka that explains the rise of Alexey Kuzmitksy in the peninsula in May 2005. The other illustration of the renewed interest by the Kremlin for Kamchatka was the announcement in early July 2007 of a new submarine base in Vilyuchinsk. According the commander in chief of the Russian combat navy, Admiral Vladimir Russia Intelligence N61 j September 13 2007

RUSSIA INTELLIGENCE
C AU C A S U S c Ingushetia,

Regions & CIS

the weak link

truly influential clans in Ingushetia are led by two of Moscows hate figures : Ruslan Aushev, the ex-president (1993-2001) of the north Caucasus republic, and the Gutseriev brothers (Russia Intelligence n 56 of May 31 2007 and n60 of August 30 2007).
Ramzan Kadyrov as a white knight? While the Kremlin is in search of a strategy to avoid Ingushetia plunging into chaos, the Chechen president, Ramzan Kadyrov, has declared his readiness to lend assistance. We will re-establish order, as two and two make four. The republic (of Ingushetia) isnt large, he declared on September 10, adding that he would act only on the request of the supreme commander in chief, Vladimir Putin. These statements which are not made lightly and illustrate the state of grace that the Chechen president has enjoyed since his victorious showdown with his predecessor Alu Alkhanov (Russia Intelligence Special edition of February 16 2007). Ramzan Kadyrov has especially underlined the decline in armed incidents in Chechenya and the progress undeniable after all in the reconstruction of Grozny. He also undertook in August a new tour of the Middle east (Jordan and Saudi Arabia) supposedly aimed at reinforcing his religious and international legitimacy.

As in the autumn of 1999, the north Caucasus has invited itself into the heart of the Russian news on the eve of Russian legislative and presidential elections. This time, however, its Ingushetia and not Chechnya in the spotlight, and the federal power structure could have done without such attention. Attacks, special operations, and clashes are in fact virtually daily events, arousing fears of increasingly wider destabilisation.
Murat Zyazikov looses his footing. Elected in 2002 and extended in his post by the Kremlin in 2006, Murat Zyazykov an exFSB general is far from controlling with assurance the situation in the Republic, as recently affirmed with confidence Karim-Sultan Kokurkhaev, a senior Ingush official in charge of human rights. Since the beginning of summer, no less than 40 armed incidents have in fact taken place. June 26 the facilities of the presidential administration and the general direction of the FSB in Magas, the new capital, were the targets. June 16, a Russian teacher, Ludmilla Terekhina, was assassinated with her two children. Two days later, an explosion took place during her burial at the Ordzhonikidjevkaya village cemetery, making 11 victims. We should note in passing that the small Slavic minority seems to be systematically the target of terrorists: August 30; another teacher, Vera Draganchuk, was assassinated in Karabulak; September 7, Natalya Mudarova doctor in charge of the blood transfusion service in Nazran, who was married to a Chechen, met the same tragic end.

This multiplication of attacks led the federal authorities to reinforce the deployment of the Interior ministry in Ingushetia. No less than 2500 additional men were dispatched on August 10 to conduct a special prophylactic operation. With, up to now, mixed results. The battalion of Interior troops stationed in Malgobek, for example, was attacked on the night of September 9, leaving one dead and three wounded among the federal forces. The Russian press has in addition begun to give voice to the increasing disquiet of the Ingush population in the face of the often blind repression of the FSB. In Moscow, several top specialists of north Caucasus affairs contacted by Russia Intelligence fear a repetition of events on a scale similar to the raid on Nazran in the summer of 2004, or on Nalchik in October 2005. It should be recalled that combat in the region in the capital of Kabardino-Balkaria which had opposed members of the Yarmuk Jamaat and state security forces lasted more than three days and claimed more than one hundred lives. As a sign of increasing anxiety but also of a certain defiance vis--vis Murat Zyazikov the Duma commission on security affairs just announced that it would take up the matter. But the Kremlin does not seem inclined to drop soldier Zyazikov. Dmitry Kozak, the special representative of Vladimir Putin in the federal south district; has excluded any change at the head of the republic. It must be said that those in the Centre have no alternative solution. The two other One Year Subscription
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The objective of the Chechen president is to reconstitute the Chechnya-Ingush republic in its pre-1992 borders. At this stage, the federal authorities do not seem to be too enthusiastic at the idea of confiding the reins over Ingushetia to Ramzan Kadyrov, whom many especially in the military and within the FSB already find too powerful (the headquarters in fact currently support the military leader of the only pro-Russian unit the Zapad battalion still outside Kadyrovs control, Said Kakiev. We should note in passing that the test of strength between the latter and the Chechen president also includes a religious dimension since Kakiev is a representative of a Suffist brotherhood Naqshbandiya, while Kadyrov himself is a member of the Qadiriya brotherhood). It goes without saying that Murat Zyazykov and more generally, the Ingush elites have no desire to place their fate in the hand of the Chechen big brother. The events in Ingushetia pose the question of Vladimir Putins Caucasian political balance sheet. Certainly, the Kremlin has succeeded in finely tuning the thorny question of the successions (all the president of the north Caucasus republics have been replaced in recent years: in addition to Kadyrov and Zyazikov, Moscow has also installed Taymuraz Mamsurov in North Ossetia, Arsene Kanokov in Kabardino-Balkaria, Mukha Aliev in Dagestan, Aslan Tkhakushinov in the Adygea republic). Dmitry Kozak also mobilised the Russian oligarchs to invest in the region (Russia Intelligence n41 of October 13 2006), and not only in Sochi. But if the spectre of Chechen separatism is receding, the principal socio-economic challenges which the north Caucasus is confronting remain on the agenda. d

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Russia Intelligence N61 j September 13 2007

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