Russian -Turkmen Gas Stalemate Continues

by Roman Kupchinsky

The Russian-Turkmenistan gas conflict, which began in April 2009, is far from over according to reports about Russian President Dmitri Medvedev’s meeting in Turkmenbashi, Turkmenistan on September 13 with Turkmen President Gurbanguly Berdumykhamedov.

RIA Novosti reported that although Berdumykhamedov stated that all questions relating to the resumption of gas sales to Russia had been solved,the key disagreements had not been addressed at the meeting and were left to negotiating teams between Russia’s Gazprom and Turkmengaz. The Turkmen president’s only comment on the controversial price of his country's gas to Russia was that it would it would be part of “a formula” yet to be decided.

Alexander Medvedev, the head of Gazprom Export, a fully owned subsidiary of Gazprom which is responsible for the contract with Turkmenistan, was reported as saying that Gazprom hopes that it will reach an agreement in the near future on the resumption of gas purchases from Turkmenistan. The volume of such purchases is approximately 50 billion cubic meters a year – almost all of which has traditionally been resold by Russia or by opaque intermediary companies such as the Swiss-based trader RosUkrEnergo which Gazprom partially controlled, to Ukraine.

Alexei Miller, the head of Gazprom, noted that his company is holding “substantial” talks with Turkmengaz about renegotiating the December 2008 contract signed by Russian Prime Minister Vladimir Putin. The key topic in these talks is to establish a new pricing formula which will be more favorable to Russia.

With Ukrainian President Viktor Yushchenko due to arrive in Turkmenistan on September 14 where he intends to present Berdumykhamedov with an offer to buy Turkmen gas directly, thereby avoiding Gazprom Export as an intermediary, the stakes for Russia will increase substantially and Alexander Medvedev’s Gazprom Export may stand to lose millions of dollars in fees it charges for its intermediary services.

If Yushchenko can convince the Turkmen leadership to sign a direct purchase contract for 2010 with Naftohaz Ukraine, the Ukrainian state gas monopoly, the Russian side would find it difficult to sabotage such a deal.

Turkmen gas to Ukraine is transported through the Central Asia-Center pipeline which is largely owned by Russia. If Gazprom refuses to allow Turkmen gas into the pipeline to transit to Ukraine, this might raise serious doubts in Europe as to Russia’s motives for doing so.

Yushchenko’s major challenge will be to negotiate a price for Turkmen gas which is lower than the current price scheme agreed to with Russia. If he can get a better deal he stands a chance to sign a contract. If, however, the Turkmen leadership is skeptical of Ukraine’s ability to pay for this gas, the deal with be scuttled.

It is no wonder then that Miller has questioned Ukraine’s ability to pay for gas in 2010.

The BBC reported that “When he [Miller] had asked officials at the Ukrainian gas company Naftohaz Ukraine how bills would be paid in 2010, they had answered by swearing broadly and saying they had no idea."

Miller confirmed that Ukraine had recently asked if it could use future transit fees from Russia to help pay Gazprom for gas supplies. The Gazprom CEO said he had informed the Russian government, but had been instructed to stick strictly to the contract.In fact Miller reported on this development to Dmitry Medvedev who forbade him from doing so, not to Vladimir Putin.

"I hope there will be no new catastrophe," Miller said ominously - apparently not ruling out a new Russia-Ukrainian winter gas crisis.”

Was this a warning to Turkmenistan not to sign a direct supply contract with a potentially insolvent Ukraine?

The other significant aspect of Medvedev’s visit to Turkmenistan is that the Russian President appears to be making an attempt to supplant his predecessor, Putin, as the man in charge of negotiating gas deals.

If Dmitri Medvedev cannot bring Turkmenistan back into the Russian fold he might be facing defeat in what some regard as a deadly power struggle among the Russian elites over control of Gazprom.

Speaking at the Valdai Club of foreign academics and journalists on September 11, Putin hinted that he is thinking of coming back in 2012 when President Dmitry Medvedev's current term expires. This apparently might be a plan to prevent Medvedev from running for a second term

The two leaders, according to Putin, would not compete, but "We'll reach an agreement."

Medvedev: Dissident Reformer or Team Player

by Yuri Zarakhovich

On Thursday, September 10, Russian President Dmitri Medvedev published a key-note article on web portal Gazeta.ru outlining his vision of Russia's future in the next decade. Reuters called it "his newest effort to distance himself from the legacy of his predecessor Vladimir Putin and build a power base of his own."

Medvedev summed up Russia's ills as "An ineffective economy, semi-Soviet social sphere, weak democracy, negative demographic trends and an unstable Caucasus," and cited his biggest challenges as modernizing the economy, fighting corruption and abolishing state paternalism.

Hitherto, only a handful of dissidents who have managed to survive Vladimir Putin’s purges in Russia allowed themselves such sweeping statements. The official line is that Putin’s successful reign for a decade, was viciously interrupted by the perfidious United States which launched its mortgage crisis as a long shot to hurt Russia.

But this does not negate the fact that Medvedev has also been a co-architect of Russia’s hydrocarbon-based Putinomics. Over the last decade Medvedev has served as Putin’s Chief of Staff, Gazprom’s Chair of the Board, First Deputy Prime-Minister and became his Heir-Designate. Is his bid for real power rather than a figurehead position to be taken seriously now? Can it succeed?

Since Medvedev formally stepped into Putin's presidential shoes, liberal wishful thinking both in and outside Russia has been portraying him as a closet liberal, set to correct Putin's rollback of democracy.

Medvedev retained his formal position as Head of the Institute of Contemporary Development's (INSOR) Board of Trustees as part of his carefully nurtured "closet liberal" image.

The Presidential visit to INSOR scholars on April 14 was carefully stage-managed with all the typical Kremlin royal pomp and massive media coverage. Medvedev discussed the increasingly alarming problem of unemployment, badly worsened by the current Russian economic crisis.

One of the April 14th INSOR report's presenters was Yevgeni Gontmakher, a prominent and authoritative Russian economist.

However, on August 25, Gontmakher published an article on the Osobaya bookva internet resource where he tersely stated that:

A: Russia is collapsing;
B: there will be a mass mutiny rather than a revolution; and
C: that only urgent modernization, led by Prime Minister Putin, can save the day.

"Let me explain why Putin," Gontmakher says. "Medvedev has been Head of state for the year and a half, and we see no attempt on his part to remove his predecessor from power...The Prime Minister is obsessed with repressing Khodorkovsky, shutting down the free media, destruction of civil society and an inadequate foreign policy. However, we don't have another person, capable of influencing the situation."

Andrei Piontkovsky, a prominent and authoritative Russian political analyst, made the following comment on Gontmakher's analysis: "For a year and a half… liberal public opinion has been hatching the absurd plan of Medvedev cutting off the branch under Putin...Like Khrushchev making his 20th Communist Party Congress report, with Stalin puffing on his pipe in the Presidium...Now, they realize the total unworthiness of Medvedev and the absurdity of pinning any hopes on him."

Piontkosvky charges that the liberals are unable to suggest any better course of action than to plead their case to the Czar.

The point is that such comments by prominent Russian analysts seem to underline the myth of Medvedev challenging Putin-or of Medvedev's ability to do so even if he chose to.

The Putin-Medvedev Brawl over Gazprom: Will Europe Suffer?

by Roman Kupchinsky

With the Fall/Winter heating season in Europe rapidly approaching, there are indications that a vicious fight has begun between the apparatus of Russian President Dmitri Medvedev and Prime Minister Vladimir Putin’s entrenched loyalists over control of Gazprom, the giant Russian state-owned gas company.

The victor will have a major say in determining Russia’s energy policy towards Europe in the coming years as well as gaining control over the financial resources of Gazprom, a vital asset in future political campaigns.

The first public indications that a fight had begun in Moscow came on September 1 when Putin met with Ukrainian Prime Minister Yulia Tymoshenko in Poland and agreed to release Ukraine from the key provision of the “take or pay” gas contract signed in January 2009 – that Ukraine would have to pay for the gas it had promised to buy but did not take from Gazprom.

Tymoshenko stated that in 2010, Naftohaz Ukraine, the state oil and gas monopoly, would only purchase 25 billion cubic meters of gas (bcm) from Russia instead of the 52 bcm contracted for under the long term contract. In 2009 Ukraine was obligated to buy 40 bcm but only needed 33 bcm for its domestic consumption.

Tymoshenko was reported by the Moscow Times as saying that “In my view, one can say we removed all gas problems, or at least are firmly on the way to having no problems about the issue,” she said. “I am always delighted to have our meetings and I know that they always result in real actions.”

As part of the agreement, Putin agreed to have Gazprom drop a law suit against Naftohaz by RosUkrEnergo, a Swiss gas trader 50 percent owned by Gazprom, for $600 million in late payment penalty charges.

Soon after the Putin-Tymoshenko agreement was announced, Ukraine raised the transit fee for Russian gas to Europe in 2010 from $1.7 per one thousand cubic meters/100 kilometers to $2.7 and asked that Gazprom pay this bill in advance.

On September 7 Medvedev met with Gazprom CEO Alexei Miller and instructed him not to make this payment. “We need to act in accordance with the agreement which was signed on January 19 (2009). We do not need to dream up anything new. We also face difficult times,” Medvedev stated.

Medvedev’s comment that Gazprom must act in accordance with the existing contract was a direct attack on Putin who a week earlier had pledged to by-pass its fundamental clauses.

As soon as the Putin-Miller meeting ended, Gazprom spokesmen were reported by Kommersant as saying that Ukraine had the right to ask for changes in the existing contract, but that this does not obligate Gazprom to act on them and Gazprom has the right to penalize Ukraine for breaking the contract. This response might indicate that Gazprom management is looking to break its umbilical cord to Putin and switch its loyalty to Medvedev.

Another event which could shed light on the Putin-Medvedev fight began on September 7 when a Moscow court began a new trial in the case of Vladimir Nekrasov, the owner of the now bankrupt chain of cosmetic stores Arbat Prestige and Semyon Mogilevich, an alleged Russian organized crime leader suspected of links to RosUkrEnergo. According to sources in Moscow, Medvedev’s supporters are anxious to show that Mogilevich and organized crime were linked to Gazprom in their efforts to discredit Alexei Miller and Vladimir Putin and take control of Gazprom.

To make matters worse, on August 31, the representative of the IMF in Ukraine, Max Alier, threatened to break off all cooperation with Ukraine if the government led by Prime Minister Yulia Tymoshenko reneged on meeting its commitment to raise domestic gas prices. The first price increase (20 percent) for household users was scheduled to go into effect on September 1, 2009; however, this apparently did not take place and the vast government subsidies for gas remain in place as European frustration with Ukraine grows.

Putin’s new willingness to suddenly meet Ukrainian gas needs is in direct contrast to Medvedev’s new anti-Ukrainian hard line and seems to be part of Putin’s counter-attack in order to preserve the Gazprom Empire for himself and his clan of siloviki.

This does not bode well for anyone. The Medvedev-Putin fight, which boils down to which camp will control billions of dollars of Gazprom's assets,is an internal Russian inter-clan battle with enormous consequences for European energy security.

The European Union could wind up the big loser in this battle. If the Ukrainian-Russian conflict over the future of the January 2009 contract is not resolved soon, Ukraine might be hard pressed to meet its transit commitments of Russian gas to the EU in early 2010.

The Tymoshenko-Putin Axis?

by Tammy Lynch

Ukraine announced yesterday that Prime Minister Yulia Tymoshenko will meet her Russian counterpart Vladimir Putin next month in Warsaw, Poland. The announcement came on the same day that Russian President Dmitry Medvedev brusquely denounced Ukraine’s “leadership” during a press event with German Chancellor Angela Merkel in Sochi. Medvedev also claimed that “normal relations” would not be possible until “new leadership” takes over in Ukraine.

Days earlier, Medvedev had released a harsh video blog criticizing everything from Ukraine’s treatment of Russian speakers to its “resistance” toward Russian business to its gas deals with the EU. (An English text of Medvedev’s video blog is here.)

Medvedev’s remarks have created numerous questions. The Putin-Tymoshenko meeting could begin to provide some answers.

The video blog appears to be an attempt to undermine Ukraine’s President Viktor Yushchenko in advance of the upcoming presidential election, while increasing support for “pro-Russian” candidate Viktor Yanukovych (and possibly others considered “pro-Kremlin”). However, Medvedev included harsh words for “Ukraine’s political leaders” who “do deals with the European Union on supplying gas.” The Russian president’s use of the plural in his video blog, as well as an ambiguous reference to Ukraine’s “leadership” during his recent press event, should not be overlooked.

In fact, it was Prime Minister Tymoshenko – not Yushchenko – who negotiated and signed the Joint EU-Ukraine Declaration on the Modernization of Ukraine’s Gas Transit System. The Declaration provided for a framework to modernize Ukraine’s transit pipelines in order to increase transit capacity for Russian gas to Europe. This has the potential to undermine competing transit pipelines planned by Russia that would bypass Ukraine and led to a loud, threatening – and effective – response from Moscow.

So, is Medvedev’s wording a sign that Moscow does not understand the diarchy of power in Ukraine? Or simply doesn’t care? The Russian President clearly is proceeding as if there is one unified power center in Ukraine – and suggesting that Russia will oppose anyone associated with that center.

Or, is Medvedev perhaps signaling that concessions will be necessary from Tymoshenko if Russia is to either back the Prime Minister in the election (assuming she wants this backing) or stay out of the election?

This last question in particular will undoubtedly come up at the Putin – Tymoshenko meeting on September 1st – a meeting which was initiated by Polish Prime Minister Donald Tusk.

Tymoshenko and Putin have maintained a cordial, if sometimes strained, working relationship. In fact, Tymoshenko first began working with Putin while he was president; at that time, he clearly showed an understanding of the significant power held by the prime minister’s position in Ukraine.

The implication by Tusk that a meeting between Putin and Tymoshenko may ease tensions is a significant repudiation of Medvedev’s claim that “normal relations” with Ukraine are not possible. And the fact that both prime ministers have agreed to take part is more interesting.

Given Tymoshenko’s strained relationship with Yushchenko, she is happy to appear statesmanlike and effective at his expense. But are Medvedev and Putin working together? Will Tymoshenko meet the good cop in Warsaw? Or, is Medvedev attempting to use Ukraine as a demonstration of his own power? If so, will he be allowed to succeed?
Stay tuned......

Dmitri Medvedev's Disinformation Blog

by Roman Kupchinsky

The Kremlin never fails to astonish its world-wide audience.

In what can best be described as an open letter to Ukrainian President Viktor Yushchenko posted on the Russian President's website on August 11, Dmitri Medvedev took the proverbial gloves off and lashed out at the democratically elected Ukrainian President.

The pretext of his letter was a directive he signed that day postponing the appointment of a new Russian ambassador to Ukraine.

By publicizing his private communication on his website and his video blog Medvedev turned what should have been a civil debate on differing views between him and Yushchenko on the nature of the Ukrainian-Russian relationship, into a new confrontation.

The Russian President did everything in his power to popularize his views in order to turn them into an instrument of anti-Ukrainian and anti-Western propaganda and prolong the ongoing anti-Ukrainian campaign that began in 2004.

The Kremlin's disinformation campaign that the Ukrainian Orange Revolution in 2004 was not a popular one, but was funded and organized by the government of the United States, remains alive and well in the imagination of many Russians. “Democratically elected” is a term which is still widely misunderstood on the streets of Russia.

The letter to Yushchenko appears to have been carefully crafted by the Kremlin’s spin- doctors in order to incite an anti-Ukrainian backlash among the Russian folk. Medvedev’s letter includes denunciations of Ukraine’s support of Georgia during last year’s Russian invasion of that country; Ukraine’s continued efforts to join NATO; and attempts to diversify gas supplies –denouncing Ukraine’s agreement to allow the European Union to have a say in the main Ukrainian pipeline which brings gas to Europe.

Medvedev did not fail to include historical issues such as the role of the Ukrainian Partisan Army and its struggle for Ukrainian independence against both the fascist invaders and the Red Army during World War Two, which he characterized as the “glorification of Nazi collaborators” and his rejection of the Stalinist man-made famine in Ukraine as “genocide.”

That same day, Medvedev met with veterans of the “Great Fatherland War” at a round table and went out of his way to praise Ukrainian Red Army veterans.

The Russian President’s video blog site received a number of comments by visitors to Medvedev's letter to Yushchenko on the site and they reveal a stark microcosmic view of Russian attitudes towards Ukraine.

“We can get a knife in the back from Ukraine anytime. History has not taught Russia anything.“

“Ukraine is an artificial state” (Vladimir Putin once whispered this same theory into the ear of former U.S. President George Bush) “something created by the Bolsheviks after their coming to power…”

“I am a Russian citizen unfortunate to be living in Odessa… I was against the collapse of the USSR and observed the era of Gorbachev – Yeltsin which was very strange…I am very grateful to you, Dmitri Anatolevich about what concerns Ukraine…”

Ukrainian acting Foreign Minister,Volodymyr Khandogiy's response to Medvedev’s letter was low-key: “I am not personally upset by this, but it does evoke a somewhat disappointing feeling.”

Budget Deficit to Devour Russia's Reserve Fund in 2010

by Alexander Melikishvili

On Monday, July 27, the Director of the Department of Budgetary Assessments of the Russian Ministry of Finances Alexei Lavrov held a press briefing in which he provided at least partial empirical confirmation of U.S. Vice President Joe Biden's remarks to the Wall Street Journal regarding the pitiful state of Russian economy. At the press briefing, which was organized on the eve of submission of the draft federal budget for 2010 for the approval of the Russian federal government scheduled for today, Mr. Lavrov presented the overview of the draft budget, which contained the following highlights:

- The Reserve Fund, one of the two Russian sovereign funds, is expected to be depleted by the end of 2010 because the government will use it to cover the growing budget deficit. It should be noted that as of July 1, 2009, the Reserve Fund amounted to 2.96 trillion rubles ($95.1 billion), but Prime Minister Vladimir Putin's decree issued on July 22 will decrease it by 1.36 trillion ($43.7 billion) to finance the state budget in the third quarter, and in 2010 the remaining 1.6 trillion rubles ($51.4 billion) will be spent for the same purpose. The Economist already called this measure "an astonishingly rapid depletion of a huge fiscal reserve."

- Russia's other sovereign wealth fund, the National Welfare Fund, which amounted to 2.8 trillion rubles ($90 billion) as of July 1, 2009, is expected to decrease to 2.3 trillion ($74 billion) by the end of 2010, and it will be further reduced to 1.6 trillion ($51.4 billion) in 2011, and to 940 billion ($30 billion) in 2012, according to the projections released by the Russian Finance Ministry.

- The state budget deficit this year will be equal to 9.4 percent of the gross domestic product, while in 2010 and 2011 it is expected to account for 7.5 and 4.3 respectively. As this exhaustive compilation of the Russian news reports of Lavrov's briefing indicates, the Russian Finance Ministry bases the aforementioned projections on a rather conservative estimate of oil prices, which are pegged at $55 per barrel in 2010, $56 in 2011 and $57 in 2012 (for comparison, on Wednesday the price was registered at $63.04 per barrel).

- Finally, for the first time since 1998, the Russian Finance Ministry will sell abroad 613.6 billion rubles ($20 billion) worth of Eurobonds in 2010 to finance the state budget shortfall. As Reuters reports, over the next three years the Russian government plans to borrow abroad $58.6 billion. As a result, by 2012 Russia's foreign debt will amount to 16.4 percent of the GDP.

Such a drastic reversal in the financial fortunes will invariably have an impact on Russia's foreign and, possibly, domestic policy over time. Undoubtedly much depends on the price of oil, but if the current trend continues, then the Kremlin may suddenly become more malleable and certainly more cooperative on the issues of importance to the United States and its Western allies, including strategic arms control, North Korea and Iran. While this does not necessarily mean the repeat of the 1990s, the more the Russian economy is dependent on Western financial infusions the more it is likely that the Kremlin will start to behave less as a spoiler on the international arena. In this regard, President Medvedev's surprisingly candid admission of Russia's inferiority in the strategically important area of supercomputers in his speech delivered at the National Security Council meeting on Tuesday, provides a rare glimpse at Kremlin's new found humility. However, as to whether this will force the Kremlin to abandon its idée fixe of the "sphere of privileged interests" (which the Russian officials repeatedly fail to define) in the post-Soviet space remains to be seen.

Russia Releases One of FBI’s Most Wanted Suspects

by Roman Kupchinsky

On July 27, Irina Dudukina, a spokeswoman for the Russian Interior Ministry’s Investigative Committee, announced that suspected organized crime boss Semyon Mogilevich, a man on the U.S. FBI’s most wanted list for fraud and racketeering had been released from prison. He and his co-defendant, Vladimir Nekrasov, had been released after signing statements that they would not flee the country.

Mogilevich was arrested in Moscow in late January 2008 along with Nekrasov, the owner of a chain of cosmetic stores, Arbat Prestige, on charges of tax evasion.

The FBI claims that Mogilevich headed a criminal organization based in Budapest in the 1990s which ran the so-called YBM Magnex scheme which defrauded U.S. citizens of hundreds of millions of dollars.

Mogilevich, and his co-conspirator, Igor Fisherman, fled to Moscow where they were safe from extradition to the U.S.

The Russian Constitution does not allow for the extradition of Russian citizens, even suspected organized crime bosses, and apparently insists on keeping them and their stolen wealth safe at home. The Kremlin, on the other hand, demands that indicted Russians living abroad be sent back to Russia from foreign countries to stand trial on often trumped up criminal charges.

In June 2009, a Moscow court refused to release Mogilevich on the largest bail ever offered in post-Soviet Russia – 120 million rubles per accused – on the basis that he might flee the country. However, on July 26, Dudukina said that the Interior Ministry had a sudden change of heart and decided that the charges “are not of a particularly grave nature so investigators had no particular reason to keep them imprisoned.”

The Mogilivich organization, according to the FBI director,was engaged in drug and weapons trafficking, prostitution, money laundering and stock fraud. He has been on the FBI’s wanted list since 2003. Ukrainian-born Mogilevich has denied U.S. allegations that he is a crime boss.

But,many experts believe that the real reason for Mogilevich’s arrest, has nothing to do with tax evasion for a chain of perfume outlets.

The WSJ reported on January 26, 2008: “In Washington, U.S. officials said they believe the arrest (of Mogilevich) is related to Kremlin intrigues involving the gas trade. The Justice Department's Organized Crime and Racketeering Section is investigating possible links between Mr. Mogilevich and a Ukrainian-Russian trading company that is central to the multibillion-dollar trade in Russian natural gas across Ukraine and on to Europe. His representatives and the companies involved have denied any ties.

“In Philadelphia, a federal court charged him in 2003 in a 45-count racketeering indictment and of masterminding a stock fraud using a web of shell companies in Europe. U.S. officials believe Mr. Mogilevich used $150 million of his winnings from the U.S. to invest in the gas business... "The arrest of someone this big had to come from the president himself or from the circle around the president," said Vladimir Ovchinsky, former director of Russia's Interpol bureau.”

The unnamed gas trader was RosUkrEnergo (RUE), the Swiss-based company which was 50 percent owned by Russia’s Gazprom and 50 percent by Ukrainian businessman Dmytro Firtash.

RUE, according to Ukrainian Prime Minister Yulia Tymoshenko, was linked to Mogilevich – thereby implicating Gazprom, Vladimir Putin, Dmitry Medvedev and others in the Kremlin of committing high crimes.

Who is Behind the Murder of Natalia Estemirova?

Kadyrov and Putin at Mosque in Grozny (Alexey Nikolsky/AFP/Getty Images)

by Roman Kupchinsky

After the July 15 murder of Natalia Estemirova, a Chechen human rights activist on a deserted rural road in the Russian region of Ingushetia, human rights organizations in Moscow began to point to Ramzen Kadyrov, the President of the Chechen region as the organizer of the crime.

The 32-year old Kadyrov reacted to these charges soon afterwards, telling the head of Russia’s Memorial Society, Oleg Orlov, where Estemirova worked, that he would take personal charge of the investigation and bitterly complained that he was offended that Memorial suspected him of complicity. "You are not a prosecutor or a judge therefore your claims about my guilt are not ethical, to put it mildly, and are insulting to me," Kadyrov told Orlov.

After news of Estemirova’s murder was made public, the investigative committee of the Russian Procuracy became involved in the investigation and Russia's chief investigator, Alexander Bastrykin, arrived in Ingushetia to head the investigation.

His first finding was that her kidnappers did not really intend to kill Estemirova, but were merely frightened by a sudden traffic jam on the isolated rural road and decided to kill her in order to escape. It is highly doubtful that any traffic jams have ever occurred in the past on this deserted road. Apparently the Russian cover-up had begun.

On July 16, barely a day after the murder, Russian President Dmitry Medvedev already seemed to posses vital information about the crime and stated in Munich during his meeting with German Chancellor Angela Merkel: "As for the theories, I believe that those who committed this crime expected that the theories most primitive and unacceptable to the authorities would be put forward immediately," meaning that any implication of Chechen President Ramzan Kadyrov in the murder of Estemirova was unfounded. How the President of Russia, a trained lawyer could have known this, is a matter for speculation.

Nonetheless Medvedev tried to pacify the West’s indignation by saying the right things. "Her professional activities are necessary for any normal state; she was doing very useful things. She was telling the truth, she has openly and sometimes maybe even harshly evaluated certain processes in the country and that is why defenders of human rights are so valuable even if they are uncomforting and unpleasant for the authorities."

But the main question remains unanswered – did Kadyrov consult with his guru and protector in Moscow, Prime Minister Vladimir Putin, about Estemirova’s fate before her murder?

"If it were not for Putin, Chechnya would not exist," the 32-year-old Chechen leader said in an interview in the Rossiiskaya Gazeta government daily.

"He saved our people with his strong-willed decisions," Kadyrov said. "I know this history - I personally participated in it. If it were not for Putin, we would not be here."

Putin appointed Kadyrov president in 2007, after the assassination of his father in 2004, Since then he has managed to create a state within a state, a phenomenon that, not long ago, was inconceivable and to which Moscow prefers to turn a blind eye.

One example of Kadyrov’s alleged corruption, a fact most likely known to Putin who has always been understanding of such matters, is Kadyrov’s collection of expensive automobiles said to be worth over $1 million and a stable of horses.



Kadyrov could well be implicated in ordering the killing of Estemerova, but the real masterminds of the murder are those who made him President of Chechnya and who protect his brutal regime to this day.

Medvedev Visits South Ossetia

[Photo Credit: President Dmitry Medvedev is greeted by traditionally dressed Ossetians in Tskhinvali, the capital of Georgia's breakaway region of South Ossetia, July 13, 2009. Photo courtesy of Ezhednevniy Zhurnal, www.ej.ru]

by Alexander Melikishvili

Russian President Dmitry Medvedev's stealthy visit to Tskhinvali, the capital of Georgia's breakaway region of South Ossetia, on Monday, July 13, was significant in many ways. Occurring a week after U.S. President Barack Obama's historic "reset" visit to Moscow, it was firstly intended to demonstrate to Washington the importance Russian leadership (read Putin) attaches to the idea of "spheres of influence" in the post-Soviet space in general and in South Caucasus in particular. Secondly, as Russian investigative journalist Yulia Latynina correctly points out, it was an exercise in public humiliation of President Medvedev, who was dispatched to that forsaken landlocked enclave by Prime Minister Vladimir Putin. After all, what better way to dispel the speculations about who is in charge in the aftermath of the U.S.-Russian summit? Thirdly, undoubtedly it was a petty swipe at U.S. and the West as a whole for the three seemingly unrelated events (in no particular order of importance): the July 20-24 visit by U.S. Vice President Joe Biden to Georgia and Ukraine; the arrival of the U.S.S. Stout in Batumi on July 14 in preparation for the joint U.S.-Georgian naval exercises in maritime security scheduled for July 15; and the signing of the intergovernmental agreement for the construction of the strategically important Nabucco gas pipeline, which took place in Ankara on July 13.

Flown to South Ossetia on a helicopter from the military airport in Mozdok, North Ossetia, Medvedev spent some time touring the newly built 4th Russian military base in Tskhinvali. At the base, which is a part of Russia's 58th Army, the commander of the North Caucasus Military District Colonel-General Sergei Makarov, who commanded the Russian troops during last year's war with Georgia, showed Medvedev the tank hangar, barracks and dining area and boasted that, "At present our base is capable of fulfilling all tasks that are assigned to it." Indeed, the military component was prominent throughout Medvedev's visit as he was accompanied by the Russian Minister of Defense Anatoly Serdyukov. Mimicking the secrecy that usually shrouds the trips of Western leaders to conflict areas such as Iraq and Afghanistan, President Medvedev's visit to Tskhinvali was also kept secret until the very last moment. According to Kommersant, the separatist leader Eduard Kokoity was informed about the high guest less than an hour before his arrival.

Although no agreements were signed in the course of this very brief visit, its symbolic importance was manifold. The Russian government defiantly demonstrated to the West and the U.S. that it intends to honor its commitments to Georgia's secessionist areas. President Medvedev emphasized in Tskhinvali that Russia will continue to fund the reconstruction of the enclave even though he could clearly see that Russian taxpayers' money has been disappearing into thin air as much of the town still lies in ruins. The level of socio-economic deprivation and impoverishment in South Ossetia was even reflected in Medvedev's comments, when he could not help but notice that, "They [South Ossetians] live in very poor and difficult conditions, but to be honest, they are very grateful to Russia for the difficult decisions that were made in August 2008." Thus, utterly dependent on Russia in everything and with the economy at a virtual standstill, South Ossetia has been effectively turned into a military bridgehead whose sole purpose is to intimidate Tbilisi by its sheer proximity.

Putin’s Mentor Elected to Gazprom’s BOD

by Roman Kupchinsky

The June 26, 2009 shareholders meeting of OAO Gazprom, the Russian state-owned gas monopoly, did not produce many surprises. Management received large bonuses while shareholders complained that they were being victimized by the company as their dividends shrank.

One of the most interesting developments was the election of Valery Musin to the company’s board of directors as an independent director. Musin, head of the Civil Procedure Department at St Petersburg University Law Faculty, is the former research supervisor of Russian President Dmitry Medvedev and teacher of Prime Minister Vladimir Putin.

Musin received the second most votes from shareholders at the meeting after Alexei Miller, the company CEO.

Musin’s relationship with Putin solidified during their days together in the St. Petersburg Mayor’s office where Putin headed the department of foreign economic relations. Musin worked in this department as a legal expert. Other employees in the section were Alexei Miller, the present CEO of Gazprom, Valery Golubev, a former KGB officer who is now a deputy CEO of Gazprom, and Igor Sechin, the Deputy Prime Minister responsible for energy policy in Putin’s cabinet who is also chairman of the board of directors of the state-owned oil company Rosneft.

At the time of this posting, the Gazprom website had not yet posted a full biography of Musin indicating only that he was head of the Civil Procedure Department.

While Musin might not have much clout on the Gazprom board, his election appears to be the result of Putin’s and Medvedev’s efforts on his behalf. According to an article in Kommersant Daily, "The Prime Minister cut the list (of candidates for the board) apart," our source in the Government said. However, another well-informed source claims that the amendments were made by President Dmitry Medvedev.”

Whatever role Musin is expected to play as an independent director, there is no doubt that his election to the board will only strengthen Putin’s hold over Gazprom. As a legal expert Musin will no doubt provide invaluable advice to Russia’s champion company, its managers and behind-the-scenes power brokers.

Russia Threatens to Cut Gas to Belarus

by Roman Kupchinsky

Russia’s Gazprom threatened to cut off gas deliveries to Belarus unless a debt of $244 million is repaid in July. The warning was issued by Gazprom CEO Alexei Miller who stated that “we have sent a letter demanding that the debt be paid, if not we shall act according to the terms of the contract. We can turn to the courts or we can reduce the volume of gas supplied.”

Gazprom officials told Kommersant Daily that Belarus owed $243 million for gas consumed from January-April and $10 million for late payment fines. Furthermore, Gazprom claims that Belarus received a total of $875 million for its sale of 12.5 percent of Beltransgaz, the owner of the Belarus gas pipeline, and for gas transit fees.

Belarus vice-premier Vladimir Semashko responded by saying that his country will only begin repaying the debt in July and will be able to pay the full amount by November. Semashko also noted that Belarus disputes the penalty charges of $10 million and will not pay them.

A large part of the misunderstanding stems from what was said and promised during a meeting between Belarus President Alexander Lukashenko and Russian President Dmitry Medvedev on April 10, 2009. Officials in Minsk claim that during the meeting, Medvedev promised that Belarus would be charged $150 per 1,000 cubic meters – that figure being the average yearly price for gas in 2009. This verbal agreement was then sent to Gazprom in the form of an addendum to the existing gas contract, however Gazprom never responded to the letter.

When asked about the conversation between the two presidents, Miller replied that there was in fact such a conversation but the agreed upon terms were not included in the addendum to the contract.

Gazprom has stated that it plans to charge Belarus “European prices” for gas beginning in 2011. What that might be is difficult to say and will depend upon the price of oil.

Viktor Chernomyrdin Removed as Russian Ambassador to Ukraine

by Roman Kupchinsky

Russia’s controversial envoy to Ukraine, the once head of Gazprom and former Russian Prime Minister, Viktor Chernomyrdin was, at long last, recalled to Moscow by Russian President Dmitry Medvedev and offered a position as a consultant to the president. His successor has not yet been named.

Chernomyrdin’s career spans a few decades working in the Russian gas industry. His was a highly controversial career. The 71-year old Chernomyrdin began working in the Orenburg gas fields as a driller in the rough and tumble Soviet gas industry. He worked his way up within the industry and in 1989 became the head of Gazprom. Earlier he had been appointed by Mikhail Gorbachev to be the U.S.S.R. Minister of Gas at which time it was renamed OAO Gazprom. In 2005 the Russian state became the owner of 51 % of the company. In 2001 newly elected Russian President Vladimir Putin appointed Chernomyrdin to become the Russian ambassador to Ukraine. This appointment revealed Putin’s strategy towards Ukraine – gas was the key in Russian-Ukrainian relations and the only person who could represent Russian policy had to be a senior official familiar with the intricacies of Russian gas politics.

Chernomyrdin, however, did not arrive in Ukraine with a clean slate. Earlier, as a member of the Gore-Chernomyrdin Commission, he was suspected of corruption by the U.S. C.I.A. In a report reputedly sent by the C.I.A. to then-U.S. Vice President Al Gore in 1995, the agency cautioned the Vice-President that Chernomyrdin was linked to a number of criminal schemes. Chernomyrdin's private assets accumulated in his official position, according to the alleged C.I.A. report, ran into the billions of dollars. When the secret report reached Vice President Gore, he refused to accept it. Instead, according to several C.I.A. sources, he sent it back to the agency with the word "bull***t" scrawled across it."

As Russia’s Ambassador to Ukraine, Chernomyrdin played a highly controversial role and there were a number of attempts by Ukrainian politicians to have him declared persona non grata for his comments on Ukrainian domestic affairs. Russian political scientist Stanislav Belkovsky told the Ukrainska Pravda website on June 12, that Chernomyrdin had initially been sent as envoy to influence then-Ukrainian President Leonid Kuchma. Once Kuchma left office and after the Kremlin’s unsuccessful attempt to support Viktor Yanukovych’s presidential bid in 2004, Chernomyrdin’s role changed. He became more involved in gas negotiations between Russia and Ukraine and on March 24, 2009, Chernomyrdin was awarded the highest Russian state decoration - the medal “For Services to the Fatherland” from Medvedev.

In February 2009 Chernomyrdin made a number of highly disparaging remarks about Ukrainian President Viktor Yushchenko in an interview for the media. He was summoned to the Ukrainian Foreign Ministry and warned that this type of behavior was incompatible with his status and if he persisted in doing so he would be expelled. According to various sources in Ukraine, the two most likely candidates to replace Chernomyrdin are Gregory Karasin, the Russian Deputy Minister for Foreign Affairs who is responsible for Russian relations with C.I.S. states and Dmitry Rogozin, the Russian representative to N.A.T.O. Whoever is appointed, the overall consensus is that the candidate will be someone with high level access to Medvedev and Putin and be willing to do whatever it takes to help bring Ukraine into the Russian orbit.

Russia Signs Border Defense Pacts with Georgia's Breakaway Regions

[Photo Credit: The separatist leaders of Abkhazia and South Ossetia, Sergei Bagapsh and Eduard Kokoity (left and right respectively) with the Russian President Dmitry Medvedev (center). The Kremlin, Moscow, April 30, 2009. Photo courtesy of the Presidential Press and Information Office/President of Russia Official Web Portal.]

On Thursday, April 30, the Russian President Dmitry Medvedev and separatist leaders of Georgia's breakaway regions of Abkhazia and South Ossetia - Sergei Bagapsh and Eduard Kokoity - signed bilateral agreements that, in effect, make the Russian border guard troops, which are under the jurisdiction of Russia's Federal Security Service (FSB), responsible for protecting the de facto borders of secessionist regions with Georgia proper. According to the Kremlin press release, Russia will assist the separatist authorities of Abkhazia and South Ossetia with personnel training and establishment of national border guard services. In addition, the agreements on cooperation and collaboration between FSB and Abkhazia's State Security Service and South Ossetia's State Security Committee were signed thereby confirming the status of Moscow's newly acquired satrapies as intelligence-gathering bridgeheads in the Transcaucasus. President Medvedev used the ceremony marking the signing of the security pacts in the Kremlin to attack the planned NATO exercises in Georgia calling them "a blatant provocation."

Russia's signing of border defense pacts with Abkhazia and South Ossetia drew rebukes of varying degrees of severity from the EU, US and NATO. EU Foreign Minister Karel Schwarzenberg accused Russia of violating last year's Sarkozy-Medvedev six-point ceasefire agreement and stated that Moscow's move destroyed any hope of trust. The US State Department statement expressed "serious concern" and charged Russia with violating Georgia's territorial integrity. NATO spokesperson James Appathurai echoed Schwarzenberg's comments when he characterized the signed border defense pacts as a "clear contravention" of the Medvedev-Sarkozy ceasefire agreements of August 12th and September 8th.

Meanwhile, unperturbed by the international outcry the Russian border guards assumed control over the de facto border between Georgia and Abkhazia and South Ossetia. The Head of the FSB's Department of Border Guards in the Southern Federal District, Colonel General Nikolai Lisinsky confirmed that Russian border guard units began patrolling the de facto border between South Ossetia and Georgia. Lisinsky revealed the plans to build 20 military compounds along the border perimeter, which will be monitored with modern equipment, including unmanned aerial vehicles (UAVs) (an obvious exaggeration considering that currently Russian UAV capabilities are still in their infancy; see the related past story here).

By deploying its border guards to protect the de facto borders of Georgia's separatist territories Russia is significantly upping the ante ahead of the NATO exercises planned for May 6-June 1. The Kremlin's belligerent rhetoric already scared Kazakhstan, Moldova and Serbia out of participating in the aforementioned exercises. Taking into account the volatile situation in the areas along the de facto border between the breakaway regions and Georgia proper, Tbilisi is now bracing for possible provocations timed to coincide with the NATO exercises. More specifically, the possibility of orchestrated harassment of the Georgian population in the Gali District of Abkhazia looms as particularly ominous contingency because it will force the Georgian government to react. Although the Georgian population of the Gali District fluctuates considerably it is estimated to be in the 30,000-40,000 range.

Medvedev Replaces Russian Military Intelligence Chief

On Friday, April 24, Russian President Dmitry Medvedev sent into retirement the head of the Chief Intelligence Directorate (GRU) General Valentin Korabelnikov. The 63-year-old Korabelnikov, who had been heading the GRU since 1997, is replaced with his deputy, Lieutenant General Alexander Shlyakhturov. The RIA Novosti reports that Korabelnikov consistently opposed the military reforms planned by the Russian Defense Minister Anatoly Serdyukov, who intends to abolish GRU's status as an independent federal agency. In particular, Korabelnikov protested the plans to disband GRU's three elite Special Forces brigades and to subordinate the regional GRU units to the regional army command. According to a GRU source, Korabelnikov submitted retirement requests on a number of occasions, but they were all turned down until now. In line with the protocol befitting such high-level reshuffling, President Medvedev awarded the retiring general with an honorary order and it had already been leaked that Korabelnikov will be retained as a civilian advisor to the Chief of General Staff. Nevertheless, the resignation of the member of the "old guard" in the Russian top brass clears the way for the implementation of Serdyukov's ambitious military reforms at least as they pertain to GRU. At the same time, Russian defense analyst Alexander Golts interprets Korabelnikov's dismissal as belated expression of Kremlin's anger at GRU's performance during the Russia-Georgia war in August 2008.

GRU is Russia's largest intelligence agency and its chief, who also holds the title of Deputy Chief of General Staff, is appointed by the President. GRU functions under the authority of the General Staff of Russian Armed Forces and it is directly subordinated to the Chief of General Staff. GRU collects and analyzes intelligence through its military satellites and vast network of operatives abroad. The strength of GRU's human intelligence collection can be judged by the fact that there are six times as many GRU agents in foreign countries as there are their colleagues from Foreign Intelligence Service (SVR), Russia's primary external spying agency. In the interview published in the Russian mainstream newspaper Izvestia in November 2006, General Korabelnikov stated, "If it is necessary we are ready to operate in any locale on the face of this planet. Our military intelligence convincingly and repeatedly demonstrated its effectiveness during the war in Vietnam, Cambodia, Arab-Israeli conflict, in Angola, Ethiopia, Afghanistan, Yugoslavia, Iraq and other crisis points and regions of the world."