Wednesday, September 30, 2009

Putin Reaffirms Gazprom as Sole Exporter of Russian Gas –“For years to come”

by Roman Kupchinsky

Speaking at the forum "Russia Calls" organized by Russia’s VTB Bank on September 29, Prime Minister Vladimir Putin told the audience that Gazprom, the state-owned gas monopoly, will continue to be the sole exporter of Russian gas for years to come.

According to western analysts, "VTB Capital can expect to be informally crowned Russia’s investment banking state champion by Prime Minister Vladimir Putin at its inaugural investor forum starting tomorrow in Moscow. It will be the first time the Russian leader has appeared at a brokerage event, underlining the rise of VTB Capital, which has become pivotal in managing the state’s interests since its launch a little over a year ago. Its parent, VTB Bank, is 77% owned by the Russian Government."

The unexpected pronouncement came a day prior to an important meeting of Gazprom’s Board of Directors during which the chairman of Gazprom Export, Alexander Medvedev, is due to discuss the future pricing mechanism for Russian gas – will it remain tied to the price of oil or will it adopt a new model, closer to the Henry Hub supply and demand system used in the United States.

Medvedev will also address the possibility of adjusting the upper and lower limits of gas procurement called for in the existing long term “take or pay” contracts with European consumers. As was reported recently on this blog, most European energy companies are unhappy with the current arrangement and are refusing to pay for gas which they contracted for but did not take in 2009.

The significance of Putin’s projection however, is that it is a sign of his continued role as the curator of Gazprom and that a great deal of his political power has been built above all by ensuring that Gazprom and its subsidiary company Gazprom Export maintain a monopoly on exporting Russian gas abroad.

By maintaining Gazprom as the sole exporter, Putin is able to dictate prices and not be bothered with competition from other Russian exporters. The monopoly on exports also insures that Gazprom will remain a loyal tool used by Putin in his policy of “gas diplomacy” towards the EU, a policy which is meant to remain in place for the indefinite future.

The continuance of this export monopoly is certain to displease Russian oil companies who produce vast quantities of associated gas and are forced to sell this to Gazprom –which also maintains a monopoly on all gas pipelines inside Russia – which then resells their gas to foreign buyers at a much higher price.

And while Putin noted in his talk at the VTB forum that the pipelines should be accessible to all gas producers since this increases gas production, he failed to satisfy the basic demand of the Russian oil industry that they be fully compensated for the gas they are forced to sell to Gazprom.

Last but not least is the recent surge of activity by Putin in gas related events. His recent meeting with Western energy company directors welcoming them to take part in the development of the giant Yamal gas fields –under certain conditions- is a case in point.

Some Russian experts however, believe that this latest round of activity has more to do with Putin reasserting his control over Gazprom prior to the 2012 presidential elections in order to prevent President Dmitri Medvedev from wresting control of Gazprom away from Putin and his hard core siloviki.

Both Putin and Medvedev believe that Gazprom should remain the export monopoly, the real fight is over who will control Gazprom.

Tuesday, September 29, 2009

Unconstrained, Russia Eyes More Georgian Territories

by Giorgi Kvelashvili

On September 23 the pro- Kremlin news agency Regnum published an interview with Gairbek Salbiev, who allegedly leads an organization called Darial Public Movement. According to Regnum, the prime objective of the newly created organization is “uniting 33 Ossetian villages of the Truso, Kobi and Guda Valleys of Georgia’s Kazbegi region,” in order to “bring back to South Ossetia the lands taken from it by Georgian Bolsheviks in 1921.”

Salbiev claims that “after the breakup of the Soviet Union local Ossetians adopted Russian citizenship” and have since been trying to unite with “South Ossetia.”

He also told Regnum that his organization had recently sent a delegation to Eduard Kokoity – the pro- Kremlin leader in Tskhinvali, a Russian occupied Georgian region –requesting “South Ossetian citizenship for the 1,500 [Ossetian] residents,” allegedly living in the abovementioned villages.

Regnum’s major message, though, was not only to reveal the “problem” of ethnic Ossetians residing in villages adjacent to “South Ossetia” but also to talk about the “dire necessity to bring Ossetian lands back to South Ossetia,” of which Kokoity had already informed “the head of the Russian state.”

Regnum and other Russian media outlets have been persistently writing about “the Ossetian – in fact, Russian – territorial claims” at least since the spring 2009.

Kokoity first mentioned the issue during an interview with the Russian news agency RIA-Novosti on July 30 in which he said that he has “very serious territorial issues that will have to be raised…First of all, it is the question of the Truso Valley, currently within the boundaries of Georgia…It is historically an Ossetian land…Today we must raise the issue of its return to South Ossetia”.

The Russian language version of the popular online encyclopedia Wikipedia, echoing Russian media outlets, mentions “65 Ossetian familial clans of whom the Truso Valley is ancestral home.”

On May 23 yet another Russian website,, published the transcript of “the first news conference by the Russian ambassador to South Ossetia Elbrus Kargiev” who said that “We repeatedly receive appeals from residents of the Kazbegi district of Georgia, the Truso Valley…to solve the issue of the Kazbegi district as we have already solved the issue of South Ossetia.” Kargiev, nonetheless, pointed out that “at this stage it would be impossible to annex the district from the standpoint of international law.”

The Kazbegi district, of which the Truso Valley is part, is located in a strategically important northeastern segment of Georgia bordering the Russian Federation across the Caucasus Ridge. The Truso Valley, with picturesque alpine meadows, pristine spring and mineral water deposits flows into the Georgian Military Highway along the Tergi (Terek) River, connecting the occupied Tskhinvali region, Russia’s own North Ossetia and the major Georgian regional town of Kazbegi. Control over the Truso Valley almost automatically means control over the town of Kazbegi to the north and the Georgian Military Highway leading to the Georgian Capital of Tbilisi to the south.

By occupying the Tskhinvali region and Abkhazia, Russia already controls some of the most important heights and mountain passes in central and western Georgia. However, the highest peak in eastern Georgia, Mount Mkinvartsveri and its vicinity near Kazbegi remain in Georgia’s hands.

One year after its military aggression against Georgia, Russia, is apparently trying to not only secure the already impressive territorial gains it has made but to explore the feasibility of more expansion. As was the recent case with navigation in Georgia’s territorial waters along the Abkhazia coast, local adjutants’ claims nearly always precede Russian “concrete” and “decisive” measures, all in the absence of unequivocal international condemnation of the Russian moves.

Arguably, an occupation and annexation of the Truso Valley, let alone of the entire Kazbegi district, is more difficult to justify than the naval control of Georgia’s Abkhazia coast, but given the all-powerful “ethnic” and “humanitarian” nature of the “problem” – as portrayed by the Kremlin – in the Kazbegi district, it would not be impossible for the Russians “to come to the rescue of ethnic Ossetians” once again.

Russia is apparently creating advantageous international conditions to overthrow the pro-Western Saakashvili government in order to complete the process of Georgia’s disintegration.

Monday, September 28, 2009

Europe Balking at Paying Gazprom

by Roman Kupchinsky

Europe’s three largest purchasers of Russian gas – German E.ON, Italian ENI and Turkish Botas – have all challenged Gazprom over paying for deliveries of gas that they contracted for but did not take due to reduced demand in 2009.

These three, along with other European companies, all have long term “take or pay” contracts with Gazprom. According to Kommersant Daily
the total amount due to the Russian concern is approximately $2.8 billion.

The European’s point out that Russia made a deal with Ukraine that released the later from paying the full sum of contracted gas earlier this year and they insist on the same treatment. The companies also point out that Russia did not pay Turkmenistan any compensation whatsoever after it ceased taking delivery of Turkmen gas in April.

According to recent media reports, Turkey has already indicated that it will negotiate with Russia on reducing the terms and volumes of gas deliveries and will seek to abandon the “take or pay” clause which has been the standard for almost all long term contracts signed between Gazprom and its European customers.
During the first 6 months of 2009, EU customers have reduced their imports of Russian gas by 29 percent.

Furthermore, prices for gas traded on European exchanges are currently half of what Russian gas is sold for under existing contracts. This had led to wide scale dumping of Russian gas into the spot market forcing major European energy companies such as ENI and E.ON to lose industrial customers who are turning to the far cheaper gas spot market for their supplies.

Currently 1,000 cubic meters of gas on the spot market sells for $116 while the price for Russian gas, which is linked to the price of oil, under long term contract is $287.

According to Kommersant, Gazprom plans to sell 13 billion cubic meters (bcm) on the spot market in 2009.

Another point of contention is pricing policy. The Gazprom contracts call for the price of gas to be linked to the price of oil and are adjusted after a lag time of 8-9 months.

On Wednesday Gazprom Deputy CEO Alexander Medvedev is scheduled to address the Board of Directors of Gazprom on “The Principles and Structure of Gas Exports by Gazprom during Lowered Demand by foreign buyers.” According to informed sources, Medvedev will discuss the possibility of unlinking gas prices to oil prices and lowering the minimal amount that buyers could receive under take or pay contracts.

In the United States, spot and futures gas prices are set by the Henry Hub, a natural gas pipeline located in Erath, Louisiana that serves as the official delivery location for futures contracts on the NYMEX. Prices are denominated in $/mmbtu (millions of British thermal units) and are generally seen to be the primary price set for the North American natural gas market.

Friday, September 25, 2009

Kasyanov Recalls How Putin Came to Power

by Yuri Zakharovich

Earlier this month, the New Times, a Moscow-based weekly magazine, ran highlights of “Without Putin”, a new book by Mikhail Kasyanov.

Once Boris Yeltsin’s confidant and Vladimir Putin’s Prime Minister, Kasyanov was abruptly fired in February 2004 for disagreeing with Putin on the Khodorkovsky case. Kasyanov now aspires to emerge as Russia’s opposition leader. Usually close-mouthed, as becomes a key member of the establishment, opposition or not, he has chosen to open up somewhat, in what is likely a long shot at running in the 2012 Presidential election.

The leitmotif of the abstracts in The New Times is Yeltsin’s mistake in selecting his heir.

Kasyanov describes how Putin had Yeltsin isolated at his dacha on account of his frail health. (Same as Stalin had Lenin isolated—ironically, in the same Moscow suburb).

“He (Yeltsin) finally realized that he lives like a prisoner in a gilded cage. Realizing that was a real tragedy to him,” Kasyanov says. “I called him. He was quite angry…Said: ‘They tap all the phones. It’s hard to see all this happening around me’…I Last saw him in the fall of 2006, when Yeltsin…was in the hospital. They didn’t let anybody visit him, but he insisted on seeing me…Boris Nikolayevich strongly recommended then, that I should keep changing my phones constantly to avoid tapping. ‘Buy many inexpensive phones, so that you wouldn’t grudge disposing them. Take one, make a call—and throw it out. Then, take another one, make another call—and throw it out!’ He got so excited that he started gesticulating to show how such ‘compromised’ phones should be thrown out the car window.”

Kasyanov says that Yeltsin approved his siding with the opposition, although the First Russian President couldn’t publicly endorse him, as he feared for his family.

“He realized that everything he had placed on the altar of the democratic society was being destroyed by the very man, whose ascent to power he assured. Disenchantment with that man came hard on him.”

Kasyanov apparently deplores Yeltsin’s choice of his heir.

However, Kasyanov doesn’t seem to mind the very idea of a picked-up heir at all.

It’s just that the establishment must pick up the right heir the next time---him.

It wasn’t really Yeltsin who picked Putin, but rather the elitist establishment that views a legitimate transfer of power through fair and transparent popular election as detrimental to their vested interests.

Kasyanov just might fit the bill for that segment of the Russian establishment who are quietly unhappy, because the regime has pushed them away from the trough. They seek a Russian version of Ukraine's Yushchenko minus the mass support he enjoyed during his election. Someone who knows the in's and outs of the system and has been wronged by the regime- thus making him popular-but still part of the clan, capable of keeping popular support in check. They need a person from the same bureaucratic oligarchic machine which put Putin in power.

In the still unlikely event of Putin letting other than token contenders run besides himself and/or Medvedev, Kasyanov’s ascent might indeed make a difference to the now dissatisfied establishment camp. What difference though, will it make to Russia?

Thursday, September 24, 2009

What is President Yushchenko Doing?

by Tammy Lynch

I stood on the Maidan in Kyiv for the 17 days that became known as the Orange Revolution. I am an American, but I listened to the speeches, talked to the “campers,” joined the chanting and waved my orange flags and creased, worn streamers. I watched as a million people soared on the wings of a collective euphoria.

During these 17 days, presidential candidate Viktor Yushchenko railed against corruption, promised to solve politically-motivated murders and vowed to involve “the people” in the process of state building.

And then …. he took office. Five years later, those million-strong euphoric expectations have crashed to the ground. Corruption has not decreased. Political crimes have not been solved. And few in Ukraine believe that “the people” matter.

The blame for this must not solely be laid at President Yushchenko’s door. One thing is clear, however – in five years, Yushchenko has proven unable to work efficiently with any government, any prime minister, or any political bloc to pass his stated reform agenda.

This week, in an apparent attempt to undermine Prime Minister Yulia Tymoshenko, President Yushchenko attacked her government – again. In the process, he also perhaps unwittingly launched an attack on Ukraine itself.

On 17 September, Yushchenko announced that the IMF is being too lenient with Tymoshenko’s government, implying that the Fund should suspend disbursement of the remaining tranches of a $16.4 billion loan. “I am very disappointed,” Yushchenko said, “that the policies in 2009 departed so far from the memorandum [of understanding with the IMF],” as his aide warned that the IMF had said it would not disburse more money this year. So far, the country has received over $10 billion from the Fund. The government quickly disputed these statements.

Yushchenko is correct about one thing – the IMF has been very lenient. A majority of agreed reforms have not occurred. However, President Yushchenko should look in the mirror to see one of the reasons. A number of reforms have been enacted by the Prime Minister’s direct decree. PM Tymoshenko was forced to rely on decree power after Yushchenko’s parliamentary allies refused to vote for IMF-supported changes to the pension fund and Naftohaz gas company funding. Yushchenko made no attempt to rally his troops on behalf of these policy alterations.

Yushchenko also has avoided campaigning personally for the implementation of the IMF’s toughest reform requirement – higher gas prices for consumers. With an election four months away, it is unlikely any politician will board that reform train.

The biggest problem with Yushchenko’s critique of the IMF’s leniency is not whether it is true. Rather, his comments undercut his own government’s work with an international lending organization, while signaling to other investors that they should stay away. He has spotlighted a potential problem but done nothing to fix it – a common event during his presidency. In the process, a president who is supposed to represent his country has undermined it.

So, what if the IMF listened? Would the situation in Ukraine improve? Hardly. In fact, a suspended IMF loan could have a fatal effect on Ukraine’s bond yields, further destabilize the currency, squash Naftohaz’s attempts to restructure its Eurobonds and freeze Foreign Direct Investment indefinitely. Is President Yushchenko too concerned with undermining his prime minister – and presidential campaign opponent – to understand this?

Wednesday, September 23, 2009

Eurasian Energy Briefs

by Roman Kupchinsky

Russia Seeks Partners to Develop the Yamal Gas Fields.

Russian Prime Minister Vladimir Putin will meet with representatives of the world’s largest energy companies on Thursday to discuss their participation in the development of the huge gas fields located in the Yamal Peninsula. Among them will most likely be French Total and GDF Suez, Norway’s StatoilHydro, British-Dutch Shell, ExxonMobil and ConocoPhilips from the U.S.

The licenses for the Yamal fields are held by the Russian companies Gazprom and Novatek, but they do not have the necessary experience in drilling in the Arctic and need the expertise of such companies as StatoilHydro.

“We are looking for the possibility to expand our business in Russia,” said Mari Dotterud, a spokeswoman for StatoilHydro. “We want to offer our experience in developing gas deposits in the Arctic, and in this way Yamal is a priority for us.”

The Yamal Peninsula’s gas reserves are believed to be 16 trillion cubic meters and the estimated coat of the project is in the range of $100 billion. Gazprom expects that by 2030 it will produce 310-360 billion cubic meters annually –some 60-70 percent of current production.

Western companies are approaching the project with well considered caution. Past experience has shown that the Russian state has a tendency to play hard ball with its Western partners. Despite early promises of fair play by the Kremlin, some companies have been forced to abandon Russian gas projects, such as Sakhalin 1, after being pressured by government agencies for allegedly violating various regulations once the project was completed.

Russia to resume buying Turkmen Gas?

The 6 month-long Russian-Turkmen gas dispute might finally be resolved, or so stated Turkmen President Gurbanguly Berdymukhamedov on September 21. He explained that at long last the damaged section of the Central Asia “Center” – 4 pipeline had been fixed after an explosion in April and that Ashgabat was now ready to begin talks on resuming gas sales to Russia’s Gazprom.

The reality, however, is somewhat different according to Mikhail Korchemkin, the President of East European Gas Analyst. The pipeline was repaired back in April, a few days after the explosion and remained empty due to Gazprom’s decision not to buy expensive Turkmen gas at a time when demand for Russian gas in Europe and Ukraine fell to records lows.

The Russian daily newspaper Kommersant points out that the decision to resume gas purchases was in fact made during Russian President Dmitri Medvedev’s recent visit to Turkmenistan. The reason for Russia’s renewed interest in doing so is to prevent the gas rich Central Asian state from supplying gas to the Nabucco pipeline project, a competitor to Russia’s South Stream pipeline project.

Some analysts are speculating that Russia will go so far as to pay Turkmenistan the original price of $300 per 1,000 cubic meters negotiated by Vladimir Putin in December 2008 just to insure that Turkmen gas is not pledged to Nabucco.

At the same time, the Turkmen leadership finds itself in a bind –revenues from gas sales have declined significantly due to Gazprom’s decision to stop buying.

And while two new Turkmen gas export pipelines are due to come on line soon – one to China and the other to Iran, the initial sales volumes will be small and not enough to cover Turkmenistan’s needs.

Poland Still Suffering from Gazprom Scam

Polish gas giant PGNiG released a fourth quarter prognosis stating that the company will be short of 0.5 billion cubic meters of gas and will likely reduce supplies to industrial consumers.

The shortage of supplies is due to the liquidation of the murky middleman company RosUkrEnergo (RUE) from the Ukrainian gas market in January 2009. RUE, owned 50 percent by Gazprom and 50 percent by Ukrainian businessman Dmytro Firtash and his partner Ivan Fursyn, supplied Poland with 2.5 billion cubic meters of gas per year since 2006.

According to Polish media reports, Polish Prime Minister Donald Tusk discussed this situation with Russian Prime Minister Vladimir Putin on September 1 and talks are underway to negotiate a new delivery contract.

Putin, however, is partially to blame for this shortage since he was personally involved in creating RUE in 2004 while Russian President Dmitri Medvedev was then chairman of the Board of Gazprom.

Tuesday, September 22, 2009

Russia Advances Its Interests as the U.S. Keeps Pushing the ‘Reset Button’

by Giorgi Kvelashvili

The Russian media has not hidden its delight at President Obama’s decision to halt the American anti-missile plan for Europe. As high-level Russian leaders express their satisfaction with the American president’s “prudent” and “farsighted” accommodation of Russia’s concerns, the Kremlin has reciprocated in a typical Russian way – ascribing the ‘concession’ to the relative weakness of the West, not to its good will or desire to improve relations with Russia - and capitalizing on ‘the Russian victory’ by more energetically advancing its self interest in the ‘near abroad.’

On September 21, the Russian media reported that the Russian corvette Novorossiysk began patrolling the Black Sea coast of the Russian occupied Georgian province of Abkhazia. According to the Russian news agency Regnum, “it is planned to send ten motor boats in total to protect the maritime borders of the [Abkhaz] republic, and they will be based in [the harbor of the town of] Ochamchire,” near the administrative border with the rest of Georgia.

As Jamestown’s Eurasia Blog reported earlier, a new ‘sea phase’ of confrontation between Russia and Georgia came as Tbilisi was desperately trying to protect its sovereignty in its own territorial waters. The Kremlin’s reaction was swift, starting with bellicose rhetoric by the government in Sokhumi and then rapidly escalating to implement ‘concrete steps,’ meticulously designed by the Kremlin.

The Russian decision to advance the process of occupation of Abkhazia by including the sea coast was met with a lukewarm reaction from the European Union whose monitoring mission in Georgia issued a statement urging “all sides concerned to refrain from words and actions that could cause an increase in tension and a deterioration of the situation”.

Apparently this balanced and evenhanded announcement has been interpreted by the Russians if not as encouragement than as proof that Europe – the main guarantor of the post-war Russo-Georgian agreement – would do little to make the Kremlin abide by its international obligations.

Following a failed attempt to oust the pro-Western Georgian government of President Saakashvili during and shortly after the Russian military aggression in August 2008, Moscow has realized that a more patient and deliberate policy aimed at gradually isolating and distancing Georgia from the West could better serve its strategic plan of imperial dominance.

By stationing naval forces in Georgia’s territorial waters along the Black Sea coast of Abkhazia the Russians are trying to prevent both Georgia’s exercise of its sovereign rights and any future U.S. maritime maneuvers in the region. Russia has long claimed that there are new realities created after the war and both regional and international actors have to come to terms with them.

On September 21, the vice speaker of the Russian State Duma, nationalist Vladimir Zhirinovsky, notoriously famous for his anti-Georgian and anti-Western rhetoric, was quoted as saying that it would be only natural that Obama’s abandonment of the missile shield in Poland and the Czech Republic be followed by “taking off the agenda the issue of Georgia’s and Ukraine’s NATO membership once and for all”.

It remains to be seen if this will indeed be the West’s next step for the sake of improved relations with Russia and if it will come at the expense of the sovereign rights of the post-Soviet states.

Monday, September 21, 2009

Was Ukrainian President Viktor Yushchenko Poisoned in 2004?

by Roman Kupchinsky

One of the great unsolved mysteries of the 2004 Ukrainian presidential election is the alleged dioxin poisoning of Viktor Yushchenko on September 5, 2004.

The perpetrators have never been caught and while Yushchenko has hinted a number of times that the plot to poison him was concocted in Russia, no concrete evidence supporting this theory has ever been offered.

Moreover, the inability of Ukrainian law enforcement agencies to solve the crime has bred numerous conspiracy theories in Ukraine, the latest of which appeared in the Ukrainian newspaper Segodnya on September 18, 2009.

The paper published a sensational report stating that Larysa Cherednichenko, the head of the department for supervision over investigations into criminal cases of the Ukrainian Prosecutor General’s Office, claimed that high-ranking officials from the presidential secretariat and family members of Yushchenko falsified evidence in his poisoning case.

"As [Davyd] Zhvaniya [member of the Our Ukraine - People's Self-Defense faction of the Ukrainian parliament, who has more than once denied Yushchenko's poisoning] said, the victim had blood samples taken from him in September-October 2004 with help from an Austrian doctor. However, the samples were not studied in Ukraine or another European country. They were secretly taken to the U.S., where they were enriched with dioxin and were later taken to the UK with help from the U.S. special services.

"Those blood samples were sent by the administration of the Austrian clinic Rudolfinerhous to expert establishments, which found dioxin," Segodnya quoted Cherednichenko as saying.

In December 2004 Yushchenko said that he would soon reveal proof that his opponents had tried to assassinate him.

The proof never materialized, but this did not prevent Yushchenko from claiming that the case was well on its way to being solved.

Two years later, speaking to journalists in Baku on September 8, 2006, the Ukrainian president said the investigation into the alleged poisoning in September 2004 was "one step away from the active phase of solving this case."

Yushchenko's statement in 2006 came as Ukraine's prosecutor-general, Oleksandr Medvedko, announced that investigators had determined the time, place, and circumstances in which the poisoning attempt took place.

Austrian doctors responsible for examining Yushchenko several months after the poison was reportedly administered said the Ukrainian politician had ingested a concentrated dose of dioxin.

The powerful toxin caused bloating and pockmarks on Yushchenko's face, giving his skin a greenish hue and adding a macabre note to a tumultuous political season culminating in the mass Orange Revolution protests in December 2004.

Prosecutor-General Medvedko, confirming earlier allegations, said tests on the dioxins found in Yushchenko's blood showed they were highly purified and manufactured in either Russia, the United States, or Great Britain.

When he was rushed four days later to Vienna's Rudolfinerhaus clinic, his liver, pancreas, and intestines were swollen, and he was barely able to walk.

Doctors were initially baffled. But Yushchenko's supporters already had a theory: that the candidate had been poisoned during a dinner September 5 with Ihor Smeshko, the head of Ukraine's Security Service, at the summer home of Smeshko's deputy, Volodymyr Satsiuk.

Later that month, many were surprised to read a Rudolfinerhaus press release stating doctors did not believe Yushchenko had been poisoned.

But several days later, officials at the Vienna clinic publicly objected, insisting the press release was a forgery -- an episode that soon conjured up images of a Soviet-style disinformation campaign.

Satsiuk's case raises further questions. In 2008 Moscow refused to extradite the former Ukrainian security chief.

The press-service of Russia’s Prosecutor-General’s Office reported that Satsyuk has Russian citizenship, and therefore cannot be extradited.

According to the Podrobnosti internet newspaper, the Ukrainian office of Interpol was not aware that Satsyuk had been re-nationalized in Russia. “As of today, we did not receive any such information,” said Vasiliy Nevolya, a senior figure in the National Interpol office.

Was Yushchenko poisoned and by whom? Given the byzantine nature of Ukrainian politics, and the cut-throat reality of Ukrainian-Russian relations, the answer might continue to evade even the best investigators for years to come.

Friday, September 18, 2009

The Smell of Fascism

by Yuri Zarakhovich

On August 25, the Kurskaya metro station in Moscow reopened after years of restoration works. The most striking feature of the restoration are the lines in the frieze under the station ceilings from the 1944 Soviet anthem: “Stalin raised us to be ever true to the people and inspired us to heroic deeds and labor.”

These “lyrics,” originally placed there in 1950, when the station first opened, were unceremoniously edited once Stalin’s “personality cult” was denounced in 1961 and Stalin’s name was replaced by “Lenin”.

Today “Muscovites and guests of the capital” to use the standard Russian bureaucratese, can again avail themselves of this source of inspiration. They also can enjoy the sight of the huge VOZHD’s bás-relief. (The English word for Vozhd, as Stalin was popularly known, is ‘Leader”. In German it is “Fuhrer”).

“This goes to show who the incumbent regime seeks to identify itself with,” summed up Aleksander Cherkasov of the “Memorial” human rights organization.

Human rights activists launched a web site to gather signatures under an appeal to the Moscow Mayor to remove this outrage. However, as soon as they gathered several thousand signatures, the site came under massive hackers’ attacks—and stopped functioning.

It is time to face the sad fact that not only the incumbent regime seeks to identify itself with the Vozhd; a very large segment of the Russian populace feel likewise. By “populace,” I have in mind those Russian citizens who have never evolved to truly become “people”.

In June 2008, the official state Rossiya TV station launched “the name of Russia” project. Citizens were invited to name the person who they wanted their country to identify with. They did as asked and by July 8, 2008, Stalin ranked first.

To avoid the public embarrassment, the project was quietly curtailed.

According to recent public opinion polls taken by the VTSIOM pollsters, 45% of Russians believe that the Vozhd played a positive role in Russia’s history.

It’s nothing new, really. I remember the hungry Soviet 1970s-1980s, when many a Russian driver demonstratively adorned his vehicle’s windshield with the Vozhd’s portrait? The worse things are in the country, the stronger the longing for a strong arm.

Why? Because our state has never ceased being Stalinist. When King Juan-Carlos of Spain was dismantling Franco’s legacy, he didn’t remove the late Generalissimo’s portraits from the walls. He removed the essentials of the late Dictator’s regime: he replaced authoritarianism with public politics, and restored the rule of law, political and economic freedoms, and respect for human rights.

The Soviets toppled Generalissimo Stalin’s monuments and tore down his portraits in the 1960s, but never dismantled the essentials of his regime. That’s why the regime now emphasizes imperial ambitions and state supremacy rather than individuals’ rights, pins the blame for Russia’s ills on “foreign enemies” rather than on its failures, and encourages nostalgic longings for a strong-arm. Hence, the creeping restoration of Stalinism.

Almost 50 years ago, I read an interview by Erich Maria Remarque, one of my favorite writers. Asked about neo-Nazism, he answered: “The old shit smells the same, no matter how packaged.”

When Putin first emerged as Russia’s ruler back in 1999, we nicknamed him “Stalin-lite.”

But Remarque was right: packaged heavy or light, fascism smells the same, be it brown, or red.

Thursday, September 17, 2009

Lukashenka on Abkhazia, Russia and the EU

by Roman Kupchinsky

Belarus President Alexander Lukashenka put on a grand performance in the Lithuanian capital of Vilnius on September 16 during the Lithuanian-Belorussian business forum. It was his second visit to an EU member country since the EU-imposed ban on his travel was lifted.

For starters, Lukashenka told participants that the Belarus parliament will review the question of recognizing the Russian occupied Georgian provinces of Abkhazia and South Ossetia in October.

The crafty former collective farm chairman, once seen as the last dictator in Europe, did not provide any hints as to what the outcome of these deliberations would be by his rubber stamp parliament. But the mere fact that he chose to highlight this issue a few days after Venezuelan President Hugo Chavez promised to recognize the occupied territories in return for a highly lucrative arms deals worth $2.2 billion with the Kremlin, could be a sign that Lukashenka is also willing to recognize the break-away Georgian regions for a price.

At stake is a $500 million loan which the nearly bankrupt Belarus is seeking to obtain from Russia.

However, according to Kommersant daily, the Russian Ministry of Foreign Affairs and sources in the Kremlin stated that Russia is not interested in providing any further credits to Belarus, even if the former Soviet Republic does recognize Abkhazia and South Ossetia.

A source in the Russian president’s administration told Kommersant: “Lukashenka’s statement is his personal initiative. He promised this [to recognize Abkhazia and South Ossetia] a long time ago” To link the recognition of Abkhazia and South Ossetia with credits from Russia is senseless.”

The Belarusian president used the forum in Vilnius to present his views on relations between Belarus and the EU.

"We want to be a bridge between the East and West ... Why should we get rid of our relationship with Russia? Who would benefit from that?" "We want to be a good and strategic partner of the European Union," "I want the Europeans to understand we cannot be pushed about or made to do anything we don't want to." His country stood "on the threshold of accession to the European Union", Lukashenka stated.

While Moscow is hedging on loaning any more money to its neighbor and erstwhile ally, the West appears anxious to pull Belarus further from the Russian sphere.

Martin Raiser, the World Bank country director for Ukraine, Belarus and Moldova said that the World Bank is considering extending a $200 million development credit issued to Belarus by offering the country two more development loans worth $200 million each.

This year, the World Bank’s total assistance to Belarus might total $325 million.

According to Reuters: “This… would be only a fifth of the $1.5 billion that Belarus has received from the International Monetary Fund since January as a part of a $3.5 billion stabilization loan.”

Wednesday, September 16, 2009

Ukrainian President in Turkmenistan – a Futile Journey?

by Roman Kupchinsky

Ukrainian President Viktor Yushchenko completed his state visit to Turkmenistan on September 16 and returned to Kyiv empty handed according to a number of Ukrainian energy experts and political observers.

The purpose of Yushchenko’s trip was ostensibly to try and convince Turkmen President Gurbanguly Berdumykhamedov to sign a direct gas contract with Ukraine that would bypass Russia’s Gazprom. Numerous references to this goal appeared in the Ukrainian media prior to the trip, most of which were propagated by Yushchenko’s energy advisor Bohdan Sokolovsky.

In his September, 14 interview with RFE/RL, Sokolovsky said Ukraine stands a good chance to resume direct supplies of Turkmen gas.

When asked how real the prospect of direct supplies is, Sokolovsky said, “What depends on the will of two parties and does not harm the third one is always real. We have a chance to map out such a format of cooperation which would interest even third parties.”

“I can see excellent prospects for deepening and strengthening gas cooperation with Turkmenistan, with third parties only standing to gain,” Sokolovsky added.

Others in Kyiv, not employed by the presidential administration, were less enthusiastic about the chances of reaching this type of agreement.
Volodymyr Saprukin from the Kyiv-based Razymkov Center was bluntly dismissive of Yushchenko’s initiative:

“As to signing direct contracts with Turkmenistan – this is not realistic due to various reasons. First of all there is a Russian-Ukrainian contract for gas deliveries and Ukraine cannot even fulfill its obligations to take the specified amounts of gas called for. Therefore direct contracts are impossible because there is no demand for so much gas in Ukraine. On the other hand, Russia will never relinquish its hold on Turkmen gas even though it does not need it today.”

The Turkmen media reported on Yushchenko’s visit to Ashgabat, but did not mention any talks between the two presidents about direct gas contracts.

Commenting on the trip, the UNIAN press service speculated that the hidden reason for Yushchenko’s media hype about the possibilities of direct gas deliveries from Turkmenistan was part of his election campaign. According to UNIAN commentator Mykola Pysarchuk, Yushchenko tried to demonstrate to the “pro-Orange” electorate that he is the only presidential candidate that is willing to stop Russian energy expansionism.

Tuesday, September 15, 2009

Bacho Akhalaia Becomes Georgia’s New Defense Minister

by Giorgi Kvelashvili

On September 2nd, the Jamestown Blog reported the appointment of Bacho Akhalaia to become Georgia’s new defense minister; the sixth in almost six years after the Rose Revolution in November 2003.

Akhalaia replaced Vasil Sikharulidze who, before assuming the post of defense minister shortly after the Russo-Georgian war in 2008, had served as Ambassador to the United States and now will be advising the president on foreign policy.

Introducing the new minister to the National Security Council of Georgia on August 28, President Saakashvili highly praised his organizational skills above all his efforts which helped “establish the lines of military fortifications around Tbilisi,” and thanks to his “personal efforts,” “these defense lines are now set in place”.

The radical opposition, not represented in parliament, harshly criticized the new appointment. As reported by the Georgian TV channel Rustavi 2, former Speaker of the Georgian parliament, currently one of the leaders of the radical opposition, Nino Burjanadze said during her press conference on August 31 that by appointing Bacho Akhalaia as defense minister “President Saakashvili decided to destroy the Georgian army,” and accused the president of “attempting to subordinate the army to police and [Minister of Internal Affairs] Merabishvili and establish police mechanisms in the army.

She also noted that “during my visit to the United States I personally witnessed how high ranking U.S. officials from the State and Defense Departments expressed their concerns when Akhalaia became deputy defense minister.”

According to the Russian news agency Regnum, the outgoing Public Defender of Georgia, Sozar Subari, whose five-year term is soon to expire, accused Mr. Akhalaia “of repeatedly violating the Georgian law” and called him “a criminal.” The same news agency reported one of the leaders of the radical New Rights Party, Mamuka Katsitadze, as saying that “the new appointment proves that President Saakashvili continues to create a police regime” in the country.

Another representative of the radical opposition , ex-chief of Georgian Intelligence and a long-time associate of former President Shevardnadze went even further by declaring that “since Bacho Akhalaia is incompetent and has a bad reputation, his appointment will bring about a new wave of dissatisfaction in the army.” Notably enough, the Russian news agency Regnum – known for its anti-Georgian publications, titled the article with Mr. Batiashvili’s revelation “The Georgian Army is getting out of Saakashvili’s Control”.

Who is Bacho Akhalaia whose appointment has caused so much heated debate? He is closely associated with President Saakashvili and Minister of Internal Affairs Vano Merabishvili, who as one of the few long-serving ministers in the ever-changing Georgian government was once called by President Saakashvili “the backbone of the Georgian state.”

The 28-year-old Mr. Akhalaia started his political career as an activist in the Liberty Institute of Georgia, an NGO that played an outstanding role in the 2003 Rose Revolution. After the revolution, he first worked in the office of the Public Defender and then headed the Penitentiary Department under the Ministry of Justice before he became deputy defense minister – the position he held until the current ministerial office.

Mr. Akhalaia’s tenure in charge of correction facilities was marked by a prison riot in which several inmates died when police moved in “to stop an attempted mass breakout” on March 27, 2006. The rioting was a direct result of President Saakashvili’s determination to eradicate the most notorious bastion of organized crime in Georgia, the so called thieves-in-law (Georgian mafia or kurduli samkaro). The highly organized, structured and hierarchical thieves-in-law were an indelible feature of the former Soviet Union and remain such throughout Russia and other post-Soviet states. They are believed to be involved not only in extortion and other types of crime but also in high profile political processes. They played an outstanding role in the coup d’etat against the first elected President of Georgia Zviad Gamsakhurdia and were then closely associated with President Shevardnadze’s most notorious ministers - most notably, former Minister of Internal Affairs Kakha Targamadze who currently resides in Russia.

It is believed in Georgia that ethnic Georgian thieves-in-law are manipulated by the Russian intelligence service against the Georgian state and their illegal financial assets are used to thwart Georgia’s state-building process and pro-Western drive.

Many Georgians think that thieves-in-law are a linkage with the Soviet past with its rampant corruption and criminality from where Georgia has been trying to escape ever since the Rose Revolution. Furthermore, pro-Western Georgians consider the “all-Union” structure of thieves-in-law as one of the pillars of the Russian empire which together with other more formal and cultured mechanisms have cemented the empire for decades.

Interestingly enough, Georgian radical opposition figures who are severely condemning Bacho Akhalaia’s new appointment, had in March 2006 explicitly and implicitly criticized the penitentiary department’s anti-mafia steps, saying that even “Stalin was not able to eliminate thieves-in-law.” Mr. Batiashvili, mentioned above, in late 2006 was accused of providing logistical and intellectual support to Emzar Kvitsiani – a Kremlin-backed warlord and a thieves-in-law associate in Upper Abkhazia, who rebelled against the Georgian government – and spent two years in prison. He is now one of the leaders of the opposition Republican Party, which forms an alliance with Mamuka Katsitadze’s New Rights Party. Together with Mrs. Burjanadze’s own Democratic Movement-United Georgia Party and other minor factions, these parties organized protest rallies this past April-June in Tbilisi, demanding Saakashvili’s resignation.

Saakashvili looks unhappy with the state of affairs in his country’s defense. On August 27 he said that “he cannot assess as satisfactory the preparedness of the Georgian armed forces to contain our very aggressive neighbor. A lot more has to be done and a stricter hand is needed in the [defense] ministry.” He then went on to say, “Bacho Akhalaia has many enemies; and there is a specific reason for this: Georgia is the only former Soviet nation – including the Baltic countries which now are EU members – where thieves-in-law can no longer control correction facilities…This man [Bacho Akhalaia] did this, and he did this through very tough measures…The thieves-in-law no longer control the prisons and crime in the country is no longer directed and managed from the prisons”.

There might be several reasons behind President Saakashvili’s choice: bringing a ‘tough man’ to head the defense ministry is apparently aimed at restoring discipline within the Georgian military.

Second, 28-year-old Bacho Akhalaia is not associated with the Soviet past, has no connections to Russia and is known for his pro-Western political views. Saakashvili is believed to prefer the young and inexperienced over those who might be more competent but tainted with ‘Soviet connections.’

Third, institution-building remains Georgia’s major priority given the Kremlin’s efforts to weaken the Georgian state, and reforms in the law enforcement and the penitentiary system have been widely acclaimed as successful.

With the presidential elections in 2013 approaching, Saakashvili apparently wants to create a firm foundation for the next Georgian leader who, he hopes, will have legitimacy not only from the Georgian people but will also abide by the principles of the Rose Revolution.

Sunday, September 13, 2009

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."

Saturday, September 12, 2009

From Tanks to Spies to Banks – the European-Russian Bank

by Jiri Kominek

The expulsion of two Russian diplomats on August 17 by Czech authorities who accused the pair of spying came as a surprise to many Czech’s.

Locals often joke about how Russia has annexed the Czech resort of Karlovy Vary, but for the Czech intelligence services, the number of Russians suspected of being involved in espionage activities in the country is no laughing matter.

The Czech BIS security service and UZSI foreign intelligence service estimate that of the 200 Russian diplomats serving in the Czech Republic, two thirds are doing more than issuing visas. How many more are posing as businessmen or journalists remains a mystery. Why so much interest in the former Soviet satellite-turned EU and NATO member with a population of 10 million?

The Russians are keen on gathering information in the energy sector on companies such as the partly state-owned utility CEZ and its nuclear power know-how. Other local companies of interest include Unipetrol, Ceska rafinerska, and MERO which controls the IKL oil pipeline.

Apart from this, the Russian SVR foreign intelligence service has a slew of local friends including former members of the Czechoslovakian StB secret police who have wormed their way into politics, the civil service, banking and big business on both sides of the Czech-Slovak border following the break-up in 1993.

These friends or corrupt acquaintances allow their Russian guests the opportunity to allegedly launder billions and asset strip local companies while at the same time enabling Moscow to exercise greater control over the territory without having to send a single tank.

Enter the European-Russian Bank (ERB), which was granted its operating license by the Czech central bank in 2008 after two previously unsuccessful attempts.

The European-Russian bank is owned by the First Czech-Russian Bank (FCRB) which traces its roots to the early 1990s when it was set up with the assistance of the now-defunct IPB bank to foster closer economic ties between the two countries.

IPB was a legendary nexus of asset stripping and money laundering, often accused of illegally funding both the Civic Democratic Party (ODS) and Social Democrats (CSSD), the two largest and most influential parties in the country comprising mostly of former communist hacks, who despite pretending to be opposed to one another, in reality run the country as a consortium together with local big business.

The BIS and UZSI are concerned that the European-Russian Bank and the First Czech-Russian Bank could have ties to Russian intelligence, or organized crime elements, which given the current state of affairs in Russia often makes it difficult to distinguish between the two.

Roman Popov, CEO of the ERB said on April 18 that “once we settle down in the Czech Republic and Slovakia we would also like to expand to Italy”. Popov said the ERB plans mainly to cater to Russian companies doing business in Prague and Karlovy Vary.

According to Czech public records Popov, apart from running the ERB and FCRB, also ran, together with other Russian associates, the Prague-registered Personal Advisory Services currently in liquidation.

The sole shareholder was Olivier Capital, an opaque Czech shell company also in liquidation whose domicile migrated between the UK, Gibraltar and the Polynesian island of Niue depending on the season.

Public records further show that David Castek, a supervisory board member of ERB is also listed as the ultimate beneficiary of three other companies that were previously owned by another opaque Czech firm called Nordic Victory whose domicile has shifted from Prague, Gibraltar, the UK and the US.

Noteworthy is that Olivier Capital and Nordic Victory shared the same domicile in Gibraltar with a company called Garnett Holdings Ltd.

Further research reveals that a number of Czech and Slovak nationals who appear in Olivier Capital and Nordic Victory also appear in a third company called Braxton Invest, whose globetrotting domicile record has also linked it to Garnett Holdings. Some of these individuals figure in over 80 companies in Czech and Slovak public records that eventually have links to Braxton Invest, Olivier Capital or Nordic Victory.

European Russian Bank recently announced that it intends to open a branch in Vienna, Austria,long suspected of being a favorite location for money laundering operations by Russian firms.

Friday, September 11, 2009

Eurasian Energy Briefs

Igor Putin

Price for Russian gas to Ukraine increases.

In the 4th quarter of 2009 Ukraine will pay Gazprom $205-210 for 1,000 cubic meters of gas, a slightly higher price than in the 3rd quarter according to Ukrainian Naftohaz spokesman Anatoliy Podmyshlansky.

Podmyshlansky added that Naftohaz intended to buy 32 billion cubic meters of Russian gas in 2010 which is in line with the lower limit allowed in the January 2009 contract. The spokesman also reported that in the first 8 months of2009, Ukraine bought 14.8 billion cubic meters of gas from Gazprom.

Two Putin’s Own RosGas.

The Russian daily Vedomosti reported on September 9 that the owners of RosGas, a company registered in Zug Switzerland which bought Emfesz Kft, the Hungarian gas trader owned by Ukrainian businessman Dmytro Firtash, are Sergei Prokopyev, Oleg Putin and his brother Igor Putin.

Dmitry Peskov, Russian Prime Minister Vladimir Putin’s press secretary told the press that the two brothers are not related to his boss. Igor Putin however, refused to tell the Russian paper if he was related to the prime minister, but is certain that their ancestors came from the same village. According to his biography published on the Russian website Lyudy, it appears that Igor’s father was one of three brothers of Vladimir Putin’s father.

The sale of Emfesz Kft has been linked to the ongoing scandal surrounding the Swiss-based gas intermediary RosUkrEnergo (RUE), 50 percent owned by Gazprom and 50 percent by Firtash and his partners.

RUE was dropped from the Ukrainian-Russian gas trade in January 2009 at the insistence of Ukrainian Prime Minister Yulia Tymoshenko who claimed that the company was a “criminal scheme.”

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 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.

Thursday, September 10, 2009

Chavez Recognizes Abkhazia, South Ossetia

Venezuelan President Hugo Chavez recognized the Russian occupied Georgian provinces of South Ossetia and Abkhazia today as “independent states” during a meeting with Russian President Dmitry Medvedev in Moscow.

"Venezuela joins in recognizing the republics of Abkhazia and South Ossetia as independent states," Chavez said. "We will recognize these two republics starting today."

Abkhazian President Sergei Bagapsh expressed his thanks to Chavez for recognizing the two republics.

"I would like to express my gratitude on behalf of the people of Abkhazia to the leader of Venezuela, Hugo Chavez, for recognizing the independence of Abkhazia and South Ossetia," he said Thursday, Interfax reported. "We intend to develop close economic and political ties with Venezuela."

Medvedev praised Chavez's move. "Thank you, Hugo. Russia has always supported a country's sovereign right to recognize or not recognize a state's independence."But of course we are not indifferent to the fate of these two states. We're very grateful."

Georgian Deputy Foreign Minister Alexander Nalbandov downplayed Chavez’s announcement and stated: "Russia has been trying for a year to provide these puppet regimes with legitimacy," Georgian Deputy Foreign Minister Alexander Nalbandov told Reuters. "These attempts have been in vain."
"It should be clear to the Russian side that such actions won't add legitimacy to these puppet regimes."

The Russian daily Kommersant daily reported Thursday that Russia would seek to find more supporters for its stance on Abkhazia and South Ossetia in Latin America.
"After the recognition by Nicaragua, the most promising region from this perspective is Latin America," a Russian foreign ministry source told Kommersant.

Protecting the “citizens” of Russia

by Tammy Lynch

On Wednesday, Russia’s Duma passed in its first reading a significant change to its Law on Defense. The change, which must pass two more readings in the Duma, would allow the country to use its armed forces to “protect its citizens” outside of its borders. It is unclear what “protect” means. Previously, the Law on Defense only allowed Russia’s armed forces to be used outside of Russia for combating terrorist activity and implementing international treaties. The vague wording of this new provision has led to speculation in Ukraine that Russia is creating a legal pretext for intervention of some sort in the country’s autonomous region of Crimea.

Ukrainian officials have complained for months of attempts to distribute large quantities of Russian passports in the region, although it is difficult to prove these allegations. These passports theoretically would allow Russia to claim the need to “protect” its “citizens” against some form of Ukrainian “aggression.” This (again theoretically) would initiate the use of armed forces – even though most of these “citizens” have always lived on Ukrainian territory. Ukrainian officials point out that Russia distributed large numbers of passports in the Georgian separatist republics of South Ossetia and Abkhazia before sending forces deep into Georgian territory to “protect” these same “citizens”

This change to the Law on Defense would bring Russia’s legislation in line with action already taken in Georgia, as explained by Duma Speaker Boris Gryzlov. "The situation that we had in August last year - I am talking about the Georgian aggression against South Ossetia and Russian citizens who live in Southern Ossetia,” he said, “”has highlighted the need to adjust the law.” Georgia hotly disputes that Russian “citizens” were in danger.

Ukraine President Viktor Yushchenko immediately reacted to the Duma action by ordering a “readiness check” of all Ukrainian military units. The method of conducting this examination wasn’t specified. But although it will not be completed until 30 September, the results of the exam are easy to predict – failure. The country’s underfunded military is short on new equipment, manpower, parts and fuel.

Still, even government critics appear bullish about Ukraine’s potential to repel a Russian incursion – largely because Russia’s military is "also" underfunded. "In the event of a military conflict in Ukraine, Russia will need many more resources (than in Georgia) and it does not have such resources today," Mykola Sinhurovskyi said.

But the fact that Russian military intervention in Ukraine is being discussed signals what may be the highest level of tension between the two countries since the early to mid 1990s.

This tension (which appears only to exist at the highest government levels) can be blamed on a number of issues, including President Yushchenko’s focus on Russia and the divided leadership in both countries. But, more than anything, both Russia and Ukraine are preparing for the upcoming Ukrainian presidential election – both exploiting tensions to develop an advantage that can be used later. In the process, worrying precedents involving military troops are being set.

So far, there has been little international response to Russia’s new defense provision. Given the recent dismissive tone toward Georgian complaints, a significant response is unlikely. This means that both sides will be left to their own (potentially dangerous) devices – at least until the election.

The “Arctic Sea” Caper - a Russian Cover-up?

The mysterious adventures of the freighter “Arctic Sea” has taken on new dimensions. The Russian Security Service, the FSB, reported on September 8 that there was no illegal cargo on board the ship; only the original load of timber.

However, according to the British paper the Telegraph, the Arctic Sea cargo ship that disappeared for almost a month earlier this summer, was carrying weapons to Iran and was being tracked by the Mossad, the Israeli security service.

Russian Foreign Minister Sergei Lavrov on September 8, once again denied speculation that the hijacked Finnish freighter Arctic Sea had been smuggling weapons to Iran. Quoted by the Interfax news agency, Lavrov said that speculation that an S-300 air defense system was hidden aboard the freighter's cargo of wood was "groundless and absolutely untrue."

"Russia will closely investigate the ship, with the support of Malta under the flag of which the freighter sailed. Everything will be very transparent," Lavrov said.

There was also speculation that Soviet-era X-55 cruise missiles which are capable of carrying nuclear warheads were among the cargo.

Mikhail Voitenko, editor of the online “Sovfracht Marine Bulletin” was among the earliest “and most outspoken of those casting doubt on the official version, questioning why pirates would risk seizing a relatively inexpensive cargo in one of Europe's busiest shipping lanes.”

RFE/RL reported that on September 2, "Voitenko left Russia on the first flight to Istanbul after receiving a nighttime telephone call advising him to leave. He's declined to identify the callers, but told news agencies they were "serious people," and hinted they were from the special services. He said the callers told him people involved in the case were furious at him for speaking publicly.

Wednesday, September 9, 2009

Why Are the Russians Digging Tunnels in Abkhazia?

by Giorgi Kvelashvili

Following Russian Prime Minister Vladimir Putin’s visit to the occupied Georgian province of Abkhazia in late August 2008, the Kremlin appears to be intensifying its military preparations in the South Caucasus.

On September 4, Georgian newspapers and TV channels reported that “the Russian occupation forces have been engaged for two months in constructing a one-kilometer-long tunnel deep in the Ochamchire district. Allegedly, the construction is highly secretive, only Russian military are employed and the local residents are not even allowed to approach the construction site. The Russians will use the tunnel to deploy military equipment and munitions.”

Television station Rustavi 2 showed footage of the tunnel construction “clandestinely taken on a cell phone by a Sokhumi resident.” According to Rustavi 2’ “the Russian occupation forces have been engaged for two months in construction work and that 700 meters have already been dug through the mountains near the town of Tkvarcheli".

Georgian Public Broadcasting (GPB) reported that it is not one but several tunnels that the Russians are constructing near the towns of Ochamchire, Gulripshi and Tkvarcheli in the central and southern zones of occupation. The Russian military in some places are enlarging already existing tunnels leading to abandoned coal mines for “serious military purposes”.

The Georgian government has not commented on the Kremlin’s new construction activities and the Russian and Western media have not reported the story. It is difficult to speculate on the purpose of the tunnels, but the secretiveness of the construction leaves ample room for guessing.

Dr. Nodar Natadze, a Georgian scholar and a former member of the Georgian Parliament whose Popular Front played an important role in Georgia’s national liberation movement in the late 1980s and early 1990s thinks that the significance of the tunnels for the Russians cannot be overestimated.

On September 5, he gave an interview to, in which he presented two possible reasons for their construction.

“Russia is digging the tunnels in Abkhazia to deploy powerful, possibly, nuclear missiles there.” He based this assumption on the fact that “Russian naval forces are extremely weak in the Black Sea, having only one modern missile launcher Moskva.” Given this disadvantage, “Moscow would like to increase its offensive potential by deploying missiles along the Black Sea coast.”

Abkhazia’s geostrategic location, in Dr. Natadze’s words, is the primary reason why the Kremlin would like to use it as a missile base in addition to the North Caucasus where Russia already has missiles.

The second hypothesis Dr. Natadze mentioned was that the Russians might need “to use the tunnels to bury their nuclear waste.”

The international community has been largely silent about Russia’s illegal activities in Abkhazia and Tskhinvali. Although there is an EU Monitoring Mission in Georgia (EUMM), and its monitors are entitled under their mandate “to cover the entire territory of Georgia,” they are denied the opportunity by Russia to enter the occupied territories.

Given the prerogatives allowed by the mandate to monitor “the withdrawal of Russian and Georgian armed forces to the positions held prior to the outbreak of [August 2008] hostilities” and “to contribute to the stabilization and normalization of the situation in the areas affected by the war”, the EUMM and Brussels have the right to demand from the Russian side unfettered access to monitor the situation in the Georgian territories currently held by Russia, including Abkhazia and Tskhinvali.

If the Russians are indeed constructing tunnels for highly sensitive military deployments which could potentially alter the military balance in the South Caucasus, this should concern not only Georgia, but the entire international community, especially the United States and the European Union, which should express their concern and demand an explanation from Moscow.

Tuesday, September 8, 2009

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.