The ISCIP Analyst
Volume XIV Number 8 (14 February 2008)

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Volume I
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Russian Federation

Executive Branch by Susan J. Cavan

Domestic Issues & Legislative Branch by Rose Monacelli

Security Services by Fabian Adami

Armed Forces by Lt Col Carol Northrup

Foreign Relations by Jeremy Weiss

Energy Politics by Creelea Henderson

~~~~~

Caucasus by Robyn Angley

Central Asia by Monika Shepherd

Western Region by Tammy M. Lynch

~~~~~

RUSSIAN FEDERATION

EXECUTIVE BRANCH

Putin reviews legacy, sets development agenda
In a speech before an expanded session of the Russian State Council, President Vladimir Putin surveyed the accomplishments of his administration and set out a list of priorities for the next phase of development through 2020.

As they have been previously, his remarks were notably critical of the political, economic, and social chaos of the 1990s.  Without identifying the late President Yel'tsin by name, Putin blamed an "ineffective" state for "weakened state institutions and disregard for the law.  Russian media outlets often acted in the interests of particular corporate groups, carrying out political and economic orders.  A large part of the economy was in the hands of oligarchs or openly criminal organizations.  Agriculture was in a state of serious crisis.  The country's finances were exhausted and we were almost completely dependent of foreign borrowing."  … Wealthy Russia had become a land of impoverished people."  (1)

Putin counts among his administration's accomplishments: "ending the war in the North Caucasus;" "a clear delimitation of powers between the federal, regional and local authorities;" "putting in place a stable and effective political system;" "rid[ding] the country of the harmful practice that saw state decisions taken under pressure from commodities and financial monopolies, media magnates, foreign policy circles and shameless populists;" "restor[ing] the level of social and economic development that was lost in the 1990s."   "Finally, Russia has returned to the world stage as a strong state, a country that others heed and that can stand up for itself."  (2)

For all the purported successes of his administration, Putin also pointed out the work left to be done.  Some of the goals are familiar themes from presidential addresses in many other states: better education, healthcare, and broader economic development.  Some of Putin's elucidated reforms are either the direct or indirect result of his own policies, such as " the inertia based on energy resources and commodities," "excessive centralization," and a "state system…weighed down by bureaucracy and corruption."  (3)

While Putin alludes to reforms of the administrative system and of the judiciary attempted during his presidential terms, he notes significant work is still to be done in these sectors, as well.

Putin also singled out corruption—at all levels of government—as an important target for Russia's future development, particularly economic:  "At the moment, small businesses work in very difficult conditions.  It is awful what federal bodies in the regions, with the support of regional and local authorities do.  … People have to give bribes in every controlling institution—fire prevention, environmental services, medical permissions—you need to go to all of them, and it's just terrible. (4)

In the final press conference of his presidency, 14 February, Putin returned to many of the themes mentioned in his address to the State Council.  He also was more forthcoming about his political plans in an administration led by President Medvedev (assuming Medvedev can out poll his competition).

As for his decision not to seek a third term, Putin explained, "On the very first day I told myself that I shall not abuse the Constitution.  I got that vaccination a long while ago, while I worked together with Anatoli Sobchak."  (5)  It would be interesting to discover not only what incident resulted in Putin's "vaccination," but whether or not his siloviki colleagues have been similarly inoculated.

As for his support of a Medvedev presidency, Putin commented, "simply I trust him." (6)  Given the difficulties inherent in this transition, in any transition from a position of such enormous influence, trust would have to be a singularly important element.  Putin offered that he believed Medvedev "will be a good president and an effective manager," describing him as "an honest, decent and progressive person."  (7)

As for the post-election period, Putin remarked:  "The Head of Government has enough powers.  There will be no problems with allocating them, I assure you.  We together with Dmitri Anatolyevich [Medvedev] shall allocate them if the electorate permits that."  (8)

Once the distribution of powers between the two highest offices is resolved, there will be many other decisions to be made about the work of the state administration.  [According to President Putin, the Russian public sector—including not only the state's administrative bodies, but those supervised by them as well—numbers 25 million people.  (9)]

It is clear that the Russian state in the post-election period likely will see significant changes both to the distribution of powers between the presidential and governmental arms of the executive branch, as well as to the contours of the state bureaucracy. 

"If voters give credence to Dmitri Anatolyevich Medvedev, if he nominates me for prime minister, change will be there – both in the presidential administration and in the government," Putin announced.  (10)   Putin continued to describe weaknesses in government work as structured during his administration (notably by Dmitri Kozak), opening the door for the potential redistribution of authority within the executive: "I don't think the structure, formed over the past four years, has worked the way some of our colleagues conceived it: the ministries are solely busy doing regulatory work, and agencies and others are doing their jobs – all the same, the minister will draw the administrative blanket up to himself."   Demonstrating that he clearly has given some consideration to the governmental division of labor, Putin praised the role of deputy prime ministers, but again left the reform door ajar:  "In our system, the institution of deputy prime ministers worked effectively.  It showed its worth and, I think, we'll weigh up how we could improve the situation and make the government more efficient."  (11)

It has been clear for more than a year that a series of presidential and state organizations aimed at fighting corruption are ramping up, and indeed, might either have had an effect or simply have mirrored a decision made but not announced, in the succession struggle.   During both his State Council address and final press conference, Putin acknowledged the pervasiveness of corruption in the Russian state and announced that a new law and other measures were ready to assist the new administration in dealing with the problem:  "The anti-corruption law will be adopted.  There is no medicine from corruption.  There should be a big legal system, stronger repressive measures and compliance with European convention. … Civil servants should be paid decent wages and be controlled how they fulfill their duties, [sic] and not be kept on a meager ration."  Putin added a need to be watchful for corruption among state workers: "We never forget them and will take actions in this direction." (12)

A Medvedev presidency is likely to be constructed around many of the same key players of past Putin administrations.  It becomes even more likely with the knowledge that Putin will not be traveling far from the reins of power in his post-presidency.   Those government denizens not welcome in a Medvedev administration may find themselves ousted by one of the eager anti-corruption committees already in place.  There are suggestions already that current anti-corruption leaders might be given even more prominent roles in the Medvedev presidency.  Clearly, this would benefit a figure such as Viktor Cherkesov; it might also shed light on his rationale for airing out the siloviki split so publicly in Kommersant last October.  (13)

In light of the upcoming presidential election, it also seems likely that a resignation of the government is in the offing.  It is an open question whether Putin or Medvedev would have final word in the personnel lineup of the first government of a Medvedev administration.  It would also reveal a lot about the real seat of authority in a so-called post-Putin Russia.

Source Notes:
(1) Putin speech at expanded meeting of the State Council on Russia's Development Strategy through to 2020, 8 Feb 08  Via http://www.kremlin.ru/eng/text/speeches/2008/02/08/ 1137_type82912type82913_159643.shtml
(2) Ibid.
(3) Ibid.
(4) Ibid.
(5) "Never felt temptation to seek third presidency-Putin," 14 Feb 08, ITAR-TASS, 12:41pm EST via Lexis-Nexis Academic.
(6) "Putin says supports Medvedev's candidacy for president, trusts him," 14 Feb ITAR-TASS, 1:04pm EST via Lexis-Nexis Academic.
(7) "Putin says Medvedev will be good president," (Part 2), 14 Feb 08, Interfax News Agency; Russia & CIS General Newswire via Lexis-Nexis Academic.
(8) "Putin may allocate powers between pres, PM after polls," 14 Feb 08, ITAR-TASS, 1:26pm EST via Lexis-Nexis Academic.
(9) Putin speech at expanded meeting of the State Council, Ibid.
(10) "Putin: Presidential staff, govt would be reshuffled if Medvedev elected, Part 2," 14 Feb 08, Interfax News Agency; Russia & CIS Business and Finance Newswire via Lexis-Nexis Academic.
(11) Ibid.
(12) "Russia to adopt anti-corruption law – Putin," 14 Feb 08, ITAR-TASS, 2:55pm EST via Lexis-Nexis Academic.
(13) "The collapse of the capo regime," The ISCIP Analyst, Vol. XIV, No.3 18 Oct 07.

By Susan J. Cavan (sjcavan@bu.edu)

~~~~~

DOMESTIC ISSUES AND LEGISLATIVE BRANCH

Democracy on the decline in Russia
If a democracy is represented by “a government in which the supreme power is vested in the people and exercised by them directly or indirectly through a system of representation usually involving periodically held free elections,” (1) what message is Russia sending to the world with its current election process? The outcome seemed to have been determined more than a year ago when current President Vladimir Putin began to indicate his preference for First Deputy Prime Minister Dmitri Medvedev; in the months following, Kremlin officials circumvented the democratic process time and again.  First, all outspoken critics of the current administration were barred from running in opposition.  Further, once the official election began on February 2, utilization of free public airtime offered by government-controlled Russian public television overwhelmingly was tilted in favor of Medvedev.  Finally, new and intricate restrictions on foreign election monitors have made it impossible for outside parties such as the Organization for Security and Cooperation in Europe (OSCE), which recently announced that, given Russian constraints, it would not send delegates to Russia, (2) to keep tabs on the election proceedings.  Opponents of President Putin’s United Russia party already have charged Putin with rigging the vote, and the absence of Europe's main election monitoring body will cast further doubt on the authenticity of the country’s supposed adherence to the democratic process.  It seems that the next head of the Russian Federation has been chosen already, and the current election is little more than “a performance to convince the world that there's a functioning democracy in Russia.” (3)

One way that Russia’s election administration attempts to counter such claims is by granting free airtime to each of the few presidential candidates allowed to run for airing commercials or televised debates.  (Medvedev, Putin’s candidate, has refused participation in debates.) The exact amount of airtime was officially divided with a drawing on the Tuesday before the campaign started. In addition, each candidate was given seven hours of media airtime during the month of February. (4) However, since Putin came to power in 1999, he has quietly consolidated many forms of national information dissemination.  Perhaps most significantly, nationwide television channels are under state control.  Only one independent radio station retains the capability to broadcast nationwide.  The circulation of independent newspapers is limited primarily to Moscow and St. Petersburg.  Today, United Russia is proving that control of the media is an excellent campaign tool.  According to the Center for Journalism in Extreme Situations, the state-controlled television stations have ignored virtually all candidates except Medvedev.  In addition, almost half of the time allotted to domestic political matters during nightly newscasts is filled with overwhelmingly positive stories about Medvedev.  Conversely, the other three candidates were allocated time for their commercials only between midnight and early morning. (5)

Presidential campaigning began in earnest Monday, with candidates sparring in televised debates and the broadcast of a series of patriotic television commercials. Current projections suggest that Medvedev will win more than 75 percent of the votes on March 2.  The first public debate between the candidates was held on February 4, while Medvedev was heading a Presidential Council meeting.  Medvedev’s conspicuous absence was explained by his spokesman in a statement that made it clear that the candidate would not partake in traditional campaigning or be a part of televised debates with the other candidates, citing his heavy workload of official duties as Deputy Prime Minister in Charge of Social Projects.  In the face of domestic and international criticism for Medvedev’s seeming unwillingness to discuss his platform or engage in unscripted dialogue with his rivals, a spokesman for United Russia explained that it was much more important for Medvedev to continue with his regular job doing “real deeds, meeting people and solving actual problems, not wrangling in a TV studio.” (6) To fulfill this pledge, Medvedev has taken to traveling around Russia with President Putin to take part in highly choreographed meetings that are covered extensively on state news television networks.

As for the other candidates, when Mikhail Kasianov officially was struck from the list of contenders on January 27 for allegedly falsifying over 13 percent of the two million signatures needed to place his independent party on the ballot, he called on his peers “not to take part in this farce” of an election. (7) Although the remaining candidates appear to recognize the discrepancies and essential inequality of the current presidential race, the drawbacks have yet to overpower the incentives for participating in the farce.  For example, Communist Party leader Gennady Zyuganov, who is currently polling at less than 10 percent, has raised his national profile by repeatedly threatening to suspend his candidacy on the grounds of the essential unfairness of the elections.  Among other grievances, he cited the example that his party's monitoring had found that about 80 percent of airtime devoted to presidential candidates on Russian television had been used by United Russia to promote Medvedev. (8) Despite Zyuganov’s public proclamation that “we are not that naive to think that these elections will be fair,” (9) he announced on February 4 that he would continue his campaign because “[he didn’t] want to give the country away to a group of nouveaux riches." (10) Zyuganov gives every indication that he hopes to widen political discourse in his country, going as far as to compare the level of debate in the current Russian election unfavorably to the competition between United States Senators Clinton and Obama. (11) At the same time, his continued reluctance to leave an “unfair” race is viewed by critics as bolstering the Kremlin claims of political legitimacy and constituting a safeguard allowing for the preservation of his own political standing in the face of certain defeat. (12)

Andrei Bogdanov, the leader of the Democratic Party, is an independent candidate who inexplicably remains in the race despite current poll numbers at less than one percent of the vote. (13) His unorthodox attributes include his age, 38, which makes him the youngest-ever presidential candidate in Russia, his role as the head of the country’s Freemasons, and his optimism about his chances for winning the support of younger generations of voters.  On the other hand, Bogdanov's party is also widely held to be a Kremlin creation designed to draw votes away from genuine democratic opposition candidates and providing voters with a non-threatening liberal option.  Like liberal opposition leader Mikhail Kasianov, Bogdanov registered without the backing of an official party after collecting over two million signatures of supporters.  Unlike Kasianov, who had openly and repeatedly criticized President Putin and the current administration, Bogdanov was allowed to stay on the ballot, a move that some analysts cite as a calculated Kremlin move to prevent further criticism from the West. (14)

At this point in the presidential race, all genuine potential figures of opposition have been removed from the political arena through a variety of means, some harsher than others.  Aside from Kasianov’s hurdles, supporters of former world chess champion Garry Kasparov were not allowed to rent halls for political gatherings and signature collection in hopes of earning him a position on the ballot.  The opposition rejects these actions and has called for international intervention. Zyuganov was recently quoted as saying the election monitors "should get off their high horse and at least come to see what is happening here." (15)

Unfortunately, another major indicator of Russia’s lack of concern about maintaining any semblance of democratic credibility is its unwillingness to work with international monitors like the OSCE, the world’s largest regional security organization. The OSCE is comprised of 56 member countries from Europe, Central Asia and North America, including Russia, that banded together in “a forum for political negotiations and decision-making in the fields of early warning, conflict prevention, crisis management and post-conflict rehabilitation, and puts the political will of the participating States into practice through its unique network of field missions.”  (16) The Office for Democratic Institutions and Human Rights (ODIHR), a division of the OSCE responsible for election observation and democratic development, had attempted to monitor the election process as part of its mission to measure each country’s ability to maintain a free and open campaign atmosphere and a hold a fair vote on election day.  However, Russia not only failed to invite ODIHR observers to take part in a standard planning session that would have set the parameters of the monitoring, but, when it finally relented and extended an invitation to the ODIHR on 28 January, it did so with severe limitations on the size and scope of the mission, as well as its duration, (including the mandate that the observers arrive in Russia no earlier than three days before the election) plus restrictions on the OSCE’s ability to monitor Russian media coverage of the campaign as a baseline for measuring fairness. (17) These restrictions were not in effect in past Russian elections, such as in 2003 when about 400 OSCE observers were on-hand. (18) In announcing the pull-out, ODIHR’s Director Ambassador Christian Strohal made it clear that ODIHR had outlined “minimal parameters necessary for effective, though limited observation in the Russian Federation” and that Russia had rejected their attempt at compromise by denying the OSCE advance team’s visa requests. (19)

Recent relations between Moscow and the OSCE have been combative due to clashing viewpoints on issues ranging from Kosovo to Chechnya. They have worsened proportionately with Russia’s increasingly bold attempts at asserting its status as a world power.  The Kremlin recently had indicated that it believed that ODIHR was biased against Russia and was acting as a tool of the West in order to facilitate access into Russian affairs. (20)

Regardless of what happens on March 2, this election has become less about choosing, or not choosing, a new President, than a means of proclaiming a major shift in domestic policy.  In removing the fundamental right of Russian citizens to “seek public office, their right to establish, in full freedom, their own political parties, to conduct political campaigning in a fair atmosphere without administrative obstacles, and access to the media on a non-discriminatory basis,” (21) the Kremlin is enforcing policy that hearkens back to an era where individual choice was sacrificed in favor of centralized control.  If "what is true for every election is also true for this one - transparency strengthens democracy; politics behind closed doors weakens it," (22) then, in the words of former Soviet leader Mikhail Gorbachev, who initiated the first inklings of democratization to the USSR two decades ago, "Something wrong is going on with our elections, and our electoral system needs a major adjustment.” (23)

Source Notes:
(1) “Democracy,” Merriam Webster Dictionary, 9 Feb 08 via http://www.merriam-webster.com/dictionary/Democracy.
(2) “Russia: OSCE rejects new offer for monitoring presidential poll,” Radio FreeEurope / Radio Liberty, 6 Feb 08 via http://www.rferl.org/featuresarticle/2008/02/616BBCB3-4359-43CE-B7D8-75FA10150478.html.
(3) Fred Weir, “It's Russian election season. So where's the campaign?” The Christian Science Monitor, 1 Feb 08 via http://www.csmonitor.com/2008/0201/p25s07-woeu.html.
(4) “Russia to kick off presidential campaign on Saturday,” China View, 30 Jan 08 via http://www.chinaview.cn/index.htm.
(5)  “Russian TV overwhelmingly covers Putin's favorite, media watchdog says,” PR Inside.com, 7 Feb 08 via http://www.pr-inside.com/print427521.htm.
(6) Ibid.
(7) Ibid.
(8) Alex Rodriguez, “Monitors abandon effort in Russian election,” The Chicago Tribune, 8 Feb 08 via http://www.chicagotribune.com/news/nationworld/chi-russia_rodriguezfeb08,1,246530.story?ctrack=1&cset=true.
(9) Ibid.
(10) “Zyuganov says vote won’t be fair,” The Moscow Times, 5 Feb 08 via http://www.themoscowtimes.com/stories/2008/02/05/014.html.
(11) Ibid.
(12) Nabi Abdullaev, “Not your standard presidential candidate,” The Moscow Times, 8 Feb 08 via http://www.themoscowtimes.com/stories/2008/02/08/003.html.
(13) Ibid.
(14) Ibid.
(15) Ibid.
(16) “About the OSCE,” The Organization for Security and Cooperation in Europe, 8 Feb 08 via http://www.osce.org/about/.
(17) Ibid.
(18) VOA News, “OSCE will not monitor Russia's presidential election,” Voice of America, 7 Feb 08 via http://www.voanews.com/english/2008-02-07-voa18.cfm.

(19) Ibid.
(20) Associated Foreign Press, “Election observers cancel mission to Russia” Taipei Times, 9 Feb 08 via http://www.taipeitimes.com/News/world/archives/2008/02/09/2003400688.
(21) Curtis Budden, “OSCE/ODIHR regrets that restrictions force cancellation of election observation mission to Russian Federation,” Press Release, ODHIR, 8 Jan 08 via http://www.osce.org/odihr/item_1_29599.html.
(22) Ibid.
(23) Ibid.

By Rose Monacelli (monacelr@bu.edu)

~~~~

SECURITY SERVICES

Threatening Georgia again
During the last six months, Russia’s border with Georgia has been the focus of increased attention from the Russian Security Services. A considerable part of the Border Reform Project announced by Deputy Director Vladimir Pronichev in the spring of 2005 has been devoted to improving infrastructure, as well as to introducing new surveillance equipment such as infrared sensors, radar, and television systems.

The physical improvements to the Caucasus section of the Russian border have not been carried out in a vacuum. Concurrent with the reform program, Russian officials have embarked on what can only be described as a campaign of “threatening rhetoric” against Georgia that has continued—and escalated—into the present.

In mid-November 2007, during an official visit to North Ossetia for the purpose of opening a new Border Guards’ residential complex, FSB Director Nikolai Patrushev stated that the “main terror threat” to Russia came from the region. (1) These comments were followed in short order by a statement from Lieutenant General Nikolai Rybalkin, Deputy Chief of the Border Guards, who claimed that the Georgian border would be reinforced, due to the fact that terrorist extremists could still cross into Russia “from Georgian territory.” (2)

Rybalkin’s, and Patrushev’s comments, together with the news that the Georgian border was to be reinforced had a clear purpose. Georgia experienced considerable internal unrest last fall, with the result that a new presidential election was called for early January 2008. The motivation for the above statements was to demonstrate Russia’s interest in the outcome of the polls. The message: elect a Russia-friendly President…or else.  (3)

On January 5, Mikhail Saakashvili was reelected President of Georgia. Poll results indicated that he had obtained 53.47% of the vote, while his closest rival obtained 25.69%. Included in the poll, was a referendum on the question of whether Georgia should continue its NATO “application process.” 72.5% of Georgia’s electorate apparently supports the idea of membership in the US-led alliance. (4)

During the Cold War, NATO—by including Turkey in its membership—was encamped on the USSR’s southern flank. If Georgia joins the Atlantic Alliance, Russia again will have NATO on its southern doorstep, in the vicinity of vital energy sources. As such, the election results cannot have been welcomed in Moscow, and this fact was reflected in a new statement emanating from the FSB.

On February 7, Lieutenant General Anatoli Zabrodin, First Deputy Chief of the Border Guards, spoke to reporters.  Zabrodin claimed that “gunmen affiliated with illegal armed formations” were still in the Pankisi Gorge, and that these rebels were “working to elaborate plans to carry out terrorist attacks in the North Caucasus Republics.” Zabrodin admitted that the Security Services had no “specific information” regarding the rebels’ intentions, (5) but that he could not rule out the “possibility” of a breakthrough by the “terrorists” into Russia. (6) Ominously, Zabrodin noted that the “entire land border with Georgia” is situated “within the zone of action” of the new Border Guards Special Forces unit created recently. (7) Zabrodin’s remarks have been labeled as “yet another provocation” from Russia by the Georgian government. (8)

If Tbilisi believes that provocative statements are all that Moscow intends, there yet may be a rude awakening. Zabrodin’s choice of words – namely that Russia as yet does not possess “specific information” on terrorists in the Pankisi Gorge is revealing. The question must be asked: what happens when the Russian Security Services claims to have developed precise and actionable intelligence? It may now be a matter of when, not if, Russia acts in some military way against Georgia proper, and the new Border Guards Spetsnaz units likely will be in the forefront of any action.

The surveillance state
Late in September 2006, Russia’s Interior Minister Rashid Nurgaliyev announced that a new law had been drafted that would allow the Security Services to register citizens genetically. Nurgaliyev claimed that registration for the DNA databank would, in some cases, be mandatory and in other cases voluntary, with members of the military, Security Services and certain classes of criminals to be included in the former category. The DNA databank is to be supported through a network of 34 nationwide laboratories. (9) At the time of writing, it is not clear just how developed the DNA system is.

On February 6, the Board of the Interior Ministry held its annual meeting. The importance of the session was indicated by the fact that President Vladimir Putin attended personally for the first time in two years. (10) Nurgaliyev’s keynote address contained an important piece of information: Work has commenced on the creation of a nationwide network of CCTV surveillance cameras, which are to be used to “eradicate street crime,” as well as to create “safe traffic” areas. (11) Some 500 areas of Russia will be placed under video surveillance by July 2008. (12) What those areas will be has not been specifically stated—but it is safe to assume that large parts of Russia’s major cities, including St. Petersburg and Moscow will be covered.

Also on February 6, FORUM/Moscow (a Russian internet watchdog) published for informational and debate purposes a new law on internet security that soon could be placed before the Duma for consideration. The draft law seeks to “regulate the relationship between the state and representatives of the Internet Community.” (13) FORUM/Moscow alleges that the law will allow “serious surveillance” to be carried out on the internet, and further, that allowing internet service providers and organizations to be “self-regulating” in their interactions with government (as the law proposes) is a policy that gives rise to serious concerns, because it will allow information on internet users to be passed to authorities without proper legal safeguards. Moreover, it will allow domain names and websites to be shut down without warrants, with no recourse through the courts for their owners and operators. (14) If the law passes the Duma, it will come into effect the day it is officially published.

The Russian government already has suborned large segments of both the print and televised media. Its citizens are to be logged in a genetic database, and large portions of their movements and daily lives watched by “traffic cameras.” Now, it is highly likely that their internet habits also will be tracked and logged by the Security Services.  Russia is taking a step beyond being merely a security state: apparently now it is to become a sophisticated and fully-fledged surveillance state.

Defector publishes memoirs
In October 2000, Sergei Tretyakov, a Colonel in Russia’s Foreign Intelligence Service (SVR), defected to the United States. At the time of his defection, Tretyakov was working as the Deputy Rezident at the United Nations, although he was apparently “undeclared” and working under diplomatic cover. (15)

Late in January, almost eight years after his defection, Tretyakov, together with Washington Post journalist Pete Earley, published a memoir called “Comrade J.: The Untold Secrets of Russia's Master Spy in America after the End of the Cold War.” According to the book, Tretyakov was resettled under a new name by the CIA and received one of the largest financial packages ever paid to a defector. (16)

Excerpts of Tretyakov’s book reveal his reasons for defection. Tretyakov believes that in the aftermath of the Soviet collapse, Russia had been “repeatedly raped and looted by its leadership,” while President Putin’s leadership of the country was and is “immoral.” (17)

Press reviews indicate that the book has problems. Not least, because Tretyakov makes claims that seem outlandish, such as the allegation that former Deputy Secretary of State Strobe Talbot was “a valuable intelligence source” for Russia, because the SVR managed to “trick and manipulate him.” (18)

Even if the book does contain somewhat dubious claims, Tretyakov has real words of warning for those who believe Russia’s international actions are entirely benevolent. He insists that the USA is still considered the “main target” of Russian intelligence services and that those intelligence services are doing everything they can to “embarrass the US.” It is “naïve,” in Tretyakov’s view, to believe that the Cold War ended Russia’s ambitions in the international arena. (19)

Concerns have been raised over Tretyakov’s safety – especially in light of the Litvinenko assassination. Tretyakov himself believes that it is not “in the interests of the Russian government” (20) to come after him. Given that his specialty was foreign, not domestic intelligence, and that therefore his knowledge of FSB behavior inside Russia probably was limited, this assumption may be correct, but it is likely that his CIA handlers are taking no chances with his security.

Source Notes:
(1) “FSB Chief Inaugurates New Border Complex in Dagestan,” RGVK TV, Makhachkala, in Russian, 14 Nov 07; BBC Monitoring via Lexis-Nexis.
(2) “Militants Could Break Through The Russian Border From Georgia,” Agentstvo voyennykh novostey, 29 Nov 07: OSC Transcribed Text via World News Connection.
(3) See The ISCIP Analyst, Volume XIV, Number 6 (17 Dec 07)
(4) See Caucasus Section of The ISCIP Analyst, Volume XIV, Number 7 (31 January 08).
(5) “Reports on Gunmen in Georgia’s Pankisi Gorge ‘Provocation,’—Official,” Kavkaz Press, Tbilisi, in Georgian, 8 Feb 08; BBC Monitoring via Lexis-Nexis.
(6) “Russian General Says There Are Still Rebels in Georgia’s Pankisi Gorge,” Interfax News Agency, Moscow, in Russian, 7 Feb 08; BBC Monitoring via Lexis-Nexis.
(7) “Reports on Gunmen in Georgia’s Pankisi Gorge ‘Provocation,’—Official,” Kavkaz Press, Tbilisi, in Georgian, 8 Feb 08; BBC Monitoring via Lexis-Nexis.
(8) Ibid
(9) “Russian Police Working on Nationwide DNA Database,” ITAR-TASS, 25 Sep 06; BBC Monitoring via Lexis-Nexis.
(10) “Putin Takes Part in Meeting of Top Interior Ministry Officials,” ITAR-TASS, 6 Feb 08; OSC Transcribed Text via World News Connection.
(11) Ibid.
(12) “Over 500 Video Controlled Areas To Be Created in Russia by 1 July 2008,” ITAR-TASS, 6 Feb 08; OSC Transcribed Text via World News Connection.
(13) “Russian Website Editor Calls Draft Model Law on Internet ‘Frightening.’ Report by Oleg Kazakov: ‘New Draft Law on Internet—People Watch Out,” FORUM/Moscow/Russia www-Text,  6 Feb 08; OSC Translated Text via World News Connection.
(14) Ibid.
(15) “Russian Spy Agency Brands Defector’s Remarks As ‘Traitor’s’”, ITAR-TASS, 28 January 08; OSC Transcribed Text via World News Connection.
(16) “Senior Russian Spy Reveals Secrets in New Book,” Reuters, 25 Jan 08 via www.msnbc.msn.com/id/22842463/
(17) “SVR Colonel Sergei Tretyakov In His Own Words,” The Center For Counterintelligence And Security Studies via www.cicentre.com/Documents/sergei_tretyakov.html 
(18) “They Had Robert Hanssen. We Had Sergei Tretyakov,” The Washington Post, 27 Jan 08 via Lexis-Nexis.
(19) “SVR Colonel Sergei Tretyakov In His Own Words,” The Center For Counterintelligence And Security Studies via www.cicentre.com/Documents/sergei_tretyakov.html.
(20) “Senior Russian Spy Reveals Secrets in New Book,” Reuters, 25 Jan 08 via www.msnbc.msn.com/id/22842463/.

By Fabian Adami (fabs_adami@hotmail.com)

~~~~~

ARMED FORCES

GLONASS woes
Precision-Guided Munitions (PGM) increasingly are considered crucial to military superiority in twenty-first century warfare.  The extreme accuracy of these coordinate-seeking weapons and the reliability with which they hit their intended targets puts them on par with nuclear weapons as a force multiplier.  When Russian President Vladimir Putin laid out his “grandiose” plan last October for upgrading Russia’s armed forces, he stressed the importance of “high-accuracy armaments” to Russia’s national security. 

A PGM’s accuracy comes from the very precise coordinates provided by a constellation of navigational satellites.  Russian PGMs rely on the Global Navigation Satellite System (GLONASS) to provide these coordinates.  Last March, President Putin singled out global positioning as a field in which he expected Russia to surpass the US (1) and charged Deputy First Prime Minister Sergei Ivanov with ensuring that GLONASS was fully operational by the end of 2007. (2)  However, Ivanov announced earlier this month that GLONASS is deficient and that he has been unable to carry out Putin’s wishes.

On 23 January, Ivanov announced that devices on the satellites have not reached the required reliability level, the satellite cluster does not provide 100% coverage throughout Russia and the constellation does not meet modern requirements for precision weapons employment.  (3)  When the Russian military successfully launched a Proton-M rocket with three GLONASS satellites on Christmas Day, Russian government reports proclaimed it now had a system on par with the US GPS constellation. (4)  Less than a month later, Russian Space Troops Commander Colonel General Vladimir Popovkin said at a press conference that the quality of the parts used to build GLONASS satellites is of “major concern” and that the system fails to provide coverage for the entire territory of Russia. (5)  Popovkin explained that Russia uses foreign-made hardware to make the satellites, but cannot buy high-quality US components due to fears that they may be sabotaged by secret “insertions.” (6) 

The first GLONASS satellites were launched in 1982 in response to the launching of the first US GPS satellites.  GLONASS officially was declared operational in 1993 and reached the planned complement of 24 satellites in 1996.  (7)  However, by 2002 the system had deteriorated so badly that only eight satellites were operational. (8)  Despite renewed emphasis since 2004, GLONASS still has only 13 functional satellites, (9) which severely hampers the system’s ability to triangulate a precise coordinate.  GLONASS is estimated to cover 50-60% of the earth’s surface and to provide accuracy within 17 meters.  By contrast, the US GPS system has 30 satellites in orbit enabling it to provide geo-positioning at any point on the globe with approximately one meter accuracy.  While GPS can be used by Russia for civilian navigation, it cannot be used for military purposes such as missile launches or targeting PGM.

Russia plans to continue launching GLONASS satellites; another six satellites are scheduled to be added in 2008 and plans call for 24 total by 2010. (10)  In 2009, the first two improved GLONASS-K satellites are set to be launched, (11) and Popovkin has called for reform of the space industry and creation of a special space corporation. (12)  Even so, it appears that once again the Kremlin’s reach has exceeded its grasp.  Even if all goes as planned, a truly operational Russian global navigation system and the attendant military capabilities are still years away.

Another step toward US missile defense in Europe
On 1 February, Polish Foreign Minister Radoslaw Sikorski announced that his country has reached agreement in principle with the US on plans to install components of a missile defense system in Poland.   The announcement dashes any hope Russia had that the Trusk government would derail Washington’s missile defense plan. (13) When the US announced plans early last year to install a missile defense system in Europe, then Prime Minister Jaroslaw Kaczynski strongly supported the presence of anti-missile systems in Poland.  However, his successor, Donald Trusk, argued for increased security concessions from Washington to counter threats from Russia in exchange for Poland’s support.  (14)

Trusk seems to have been successful.  Details have not been released, but in a joint appearance US Secretary of State Condoleezza Rice and Polish Foreign Minister Radoslaw Sikorski both suggested that the US would help with Polish air defenses. (15)  Sikorski and Rice sought to address Russia’s concerns about US aid by repeating that the reinforced defenses are not directed at any state in particular (presumably other than Iran), but are simply meant to make Poland a stronger NATO ally. (16)

The Kremlin is not buying it.  The announcement has generated sharp criticism from Russia, which once again has voiced strong opposition to what it claims is an attempt by Washington to encircle it. (17)  Russia’s Foreign Minister Sergei Lavrov said that it’s clear that the US missile defense system is concentrating around Russia’s borders, and that Russia views it as a manifestation of US imperial thinking. (18)  President Putin said Russia will be forced to take retaliatory steps and accused the US of stonewalling Russia and ignoring its security concerns regarding the sites. (19) 

The topic will be a key item on the agenda for talks between Trusk and Putin on 8 February.  “The issue has not yet been put to rest,” said a Putin aide, “this is a decision that is not being made for Poland’s own sake but against Russia.” (20)  In an interview with Interfax-AVN, Sikorski stressed that negotiations are not complete, and assured Russians that Poland would continue to discuss the issue with Russia.  Sikorski also stressed that Poland will make security decisions independently of Russia and other interested parties. (21)  “Russia is one of the few states in the world that shouldn’t fear other countries” Sikorski said. (22)

Russia has opposed US missile defense plans aggressively since they were announced, but to no avail.  Suspension of CFE, threats to target Poland with Iskander intermediate range missiles, promises of “asymmetric” response and warnings of a renewed arms race have yielded no concessions for Moscow.  Poland however, seems to have benefited nicely.

Source Notes:
(1) “GLONASS Should be Cheaper, Better than GPS,” RIA Novosti, 12 Mar 07 via Lexis-Nexis.
(2) “Putin Says GLONASS Should Cover Russia by Year End,” TASS, 29 Mar 07, via Lexis-Nexis.
 (3) “First Deputy PM Ivanov Slams Agency Over GLONASS Failings,” RIA Novosti, 23 Jan 08 via http://en.rian.ru/russia/20080123/97581422.html.
 (4) “Did GLONASS Failure Sink Ivanov’s Chance at the Presidency?” Eurasia Daily Monitor, 6 Feb 08 via http://www.jamestown.org/edm/article.php?article_id=2372780.
 (5) “Reasons Why Global Navigation System GLONASS Lags Behind GPS,” Nezavisimoye voyennoye obozreniye, 5 Feb 08, via World News Connection.
 (6) Ibid.
 (7) Space Today Web Site accessed 6 Feb 08, via http://www.spacetoday.org/Satellites/GLONASS.html.
 (8) Ibid.
 (9) Ibid.
 (10) “First Deputy PM Ivanov Slams Agency Over GLONASS Failings,” RIA Novosti, 23 Jan 08, via http://en.rian.ru/russia/20080123/97581422.html.
 (11) Ibid.
 (12) “Did GLONASS Failure Sink Ivanov’s Chance at the Presidency?” Eurasia Daily Monitor, 6 Feb 08 via http://www.jamestown.org/edm/article.php?article_id=2372780.
 (13) “Poland Agrees to Host US Shield,” The Moscow Times, 4 Feb via http://www.moscowtimes.ru/stories/2008/02/04/002.html.
 (14) “Polish Official Talks Security in US,” Associated Press Online, 1 Feb 08, via Lexis-Nexis.
(15) “Poland Agrees to House US Missile Interceptors; Russia Likely to Object to Security Maneuver,” The Washington Times, 2 Feb 08 via Lexis-Nexis.
 (16) Ibid.
 (17) “Naïve to Think That US Missiles Targeted Outside Russia – Lavrov,” ITAR-TASS, 8 Feb 08 via World News Connection.
 (18) Ibid.
 (19) “Russia has adequate response to new arms race challenges – Putin,” BBC Monitoring (Rossiya TV, Moscow, in Russian), 8 Feb 08 via Lexis-Nexis.
 (20) “Putin, Polish PM To Raise U.S. Missile Defenses Issue,”
Agentstvo voyennykh novostey (Internet Version-WWW), 8 Feb 08 via World News Connection.
 (21) “Polish PM: No ‘Definitive Decision’ Made on Missile Defenses,” Agentstvo voyennykh novostey (Internet Version-WWW), 6 Feb 08 via World News Connection.
 (22) Ibid.

By LtCol Carol Northrup, USAF (csn@bu.edu)

The thoughts and opinions expressed in this article are those of the author and do not necessarily reflect the official position of the United States Air Force, Department of Defense, or the United States government.

~~~~~

FOREIGN RELATIONS

Setback in Serbia, continuing Estonian resentment
The re-election of Boris Tadic as President of Serbia on February 3 marked a defeat for Russian interests in the Balkans. The EU-oriented Tadic edged out his pro-Russian opponent Tomislav Nicolic by a narrow margin, (1) in a development that has several negative consequences for Russian foreign policy. Throughout the campaign, the two candidates differed strongly in their approach to Serbia’s relations with the European Union. Nicolic, an ardent nationalist, pledged to turn away from the EU and toward Russia in response to the EU’s support for Kosovar independence, even going so far as to promise that he would allow a Russian military presence on Serbian soil, should he ascend to office. (2) This appeal to friendship with Russia failed to secure a victory for Nicolic, suggesting that Russia’s influence in the Balkan state may not be as strong as Russophile Serbs had hoped. The winning candidate indicated his willingness to oppose Russia’s aims in Serbia by criticizing the recent purchase of Serbia’s state natural gas monopoly by Gazprom. More importantly, Tadic has stated that although he opposes independence for Kosovo, he will not allow the matter to interfere with Serbia’s accession to the European Union. (3) EU officials, including Javier Solana, expressed their enthusiasm for Tadic’s victory, and scheduled the signing of an accord later in the week which would ease visa restrictions and promote trade between Serbia and the European Union. (4) However, ongoing disputes within Serbia over the Kosovo issue forced the EU to postpone the accord meeting, which had been slated for the week following the election. (5)

Despite this setback, President Tadic’s determination to lead his country to EU membership remains a significant challenge to Russia’s goal of expanding its role in the Balkans. Should Tadic’s aspiration of Serbian membership in the EU come to fruition, the move would mark a significant shift in Belgrade away from Russia and toward Moscow’s European rivals. Moreover, Tadic’s aims represent a serious threat to Russia’s attempts to prevent Kosovar independence. Immediately following the election, Kosovo’s Prime Minister, Hashim Thaci, stated that Kosovo would “declare independence this month.” (6) This bold statement, combined with Tadic’s refusal to compromise Serbia’s improving relations with the EU for the sake of retaining Kosovo, as well as international support for Kosovar independence, suggests that the intensive Russian campaign to forestall a declaration from Pristina faces imminent defeat. Should Prime Minister Thaci’s prediction of Kosovar independence by March materialize, it would mark a significant blow for Russia’s assertive foreign policy at the end of Putin’s time in the Presidential office.

While the Serbian election attracted attention from all sides of the ongoing Kosovo dispute, one of Russia’s smallest neighbors, Estonia, demonstrated renewed opposition to perceived Russian meddling in its affairs. In a move that took many of its targets by surprise, Estonia sought to exact a measure of revenge against the Kremlin-backed Russian youth organization Nashi by blacklisting over 2000 of its members from entering Estonia in retaliation for the group’s participation in anti-Estonian protests in 2007, as well as alleged participation by some of its members in the rioting that swept the Baltic state last April. Due to Estonia’s participation in the Schengen Agreement, the blacklisted youth activists also have found themselves forbidden from entering any part of the European Union. (7) This surprising action is only one of several recent indications of Estonia’s refusal to forget the support lent by Moscow to ethnic Russian rioters in Tallinn and Narva last year, after the removal of a prominent WWII memorial in Estonia’s capital city. Last month, Estonia began the highly publicized trial of four ethnic Russian youth activists, including the leader of Nashi’s Estonian chapter, charged with incitement during last year’s riots. Prosecutors asserted that the accused organizers planned the rioting well in advance of the monument’s removal and that their illegal activities had the financial support of the Russian government, an allegation the Kremlin has denied. (8) In addition, Estonian courts fined an ethnic Russian over 1,500 dollars for launching a denial-of-service attack against the website of Prime Minister Andrus Ansip’s political party during the rioting. (9) The clearly deteriorating relationship between Russia and Estonia bodes poorly for Russian-EU relations on the whole, for, as the anti-Nashi blacklist demonstrates, the Baltic state’s entry into the European Union has granted it a voice in wider European affairs, which adds another dimension to Russia’s historically poor relations with the former Soviet republic.  Most importantly, however, Estonia also recently used its standing as a new member of NATO to present Russian policymakers with a new hurdle. While on an official visit to Georgia, Estonian Prime Minister Ansip vowed to continue his efforts to convince Estonia’s NATO partners to accept Georgia into their ranks. (10) Such a move certainly would exacerbate Moscow’s already strained relations with Georgia and could undermine Russia’s relationship with the NATO alliance as a whole.

Russia pledges to coordinate policy with Belarus
As Russia’s relations with Serbia and Estonia falter, the Kremlin continues to draw ever closer with its Belarusian allies.  During a visit to Minsk on January 30, Foreign Minister Sergei Lavrov and his Belarusian counterpart Sergei Martynov unveiled a new plan to coordinate their countries’ foreign policy programs, with the goal of ensuring, “maximum favorable external conditions for the economic and social welfare and security of citizens of our states.” (11) In addition, Lavrov promised to help Belarus combat sanctions and other “short sighted” restrictions placed upon it by the international community. (12) Lastly, Russia’s ambassador to Belarus promised his host country that Russia would not significantly increase the price Belarus must pay for Russian natural gas in the near future. (13)

Source Notes:
(1) “Kudrin Calm at Woeful Davos Forum”, 24 Jan 08, Kommersant via www.kommersant.com, accessed 11 Feb 08.
(2) Time, “Battles Begin After Serbian Election”, 4 Feb 08, via www.time.com/time/world.
(3)Ibid.
(4) The Independent, “Tadic victory boost for Kosovo independence”, 5 Feb 08, via www.independent.co.uk
(5) Swissinfo.ch, “Battle over EU and Kosovo paralyses Serbian government”, 6 Feb 08, via www.swissinfo.ch/eng/news/international.
(6) The Independent, “Tadic victory boost for Kosovo independence”, 5 Feb 08, via www.independent.co.uk
(7) The New York Times, “Estonia Bans Travel for Kremlin Youth Group”, 30 Jan 08, via www.nytimes.com
(8) BBC News Europe, “Estonia trial of Russia activists”, 14 Jan 08, via news.bbc.co.uk, and The Moscow Times, “4 Suspects Go on Trial Over Riots in Estonia”, 15 Jan 08 via www.themoscowtimes.com
(9) Agence France Presse, “Estonia convicts first ‘cyber war’ hacker: prosecutors”, 23 Jan 08, via afp.google.com
(1o) The Georgian Times, “Estonia’s Prime Minister meets Georgian counterpart”, 2 Feb 08, via  www.geotimes.ge
(11) The National Center of Legal Information of the Republic of Belarus, “Programme of coordinated foreign policy actions derives from national interests of Belarus, Russia”, 30 Jan 08, via www.law.by/work/EnglPortal.nsf
(12) The Moscow Times, “Russia Pledges to Back Belarus”, 31 Jan 08, via www.themoscowtimes.com

(13) Interfax News Agency, “Diplomat says there will not be big changes in Russian gas prices for Belarus”, 1 Feb 08, via Lexis-Nexis.

By Jeremy Weiss (weissjer@bu.edu)

~~~~~

SPECIAL FEATURE

ENERGY POLITICS

Medvedev questions pipeline delays in the Far East
First Deputy Prime Minister and heir apparent to the Russian presidency, Dmitri Medvedev, temporarily stepped out of his tertiary role as Chairman of the Board of Directors of Gazprom earlier this month to admonish executives from both Rosneft and Gazprom to set aside their differences and get to work on a pipeline that will supply Russian consumers in the Far East with long-awaited volumes of blue fuel. (1) Medvedev was in the eastern city of Khabarovsk to address chronic delays holding up construction of a gas pipeline that will link Sakhalin Island to Vladivostok. The stymied project represents a lack of coordination between the state behemoths Gazprom and Rosneft and highlights the difficulties in the implementation of Russia’s gasification program, the state strategy to provide socioeconomic stimulus to the regions through the infusion of natural gas volumes.

The Sakhalin-Vladivostok gas line is one branch in a proposed complex of pipelines that will travel southward through the Primorsk region. While plans for the pipeline originally envisaged delivery to domestic markets in Khabarovsk and Vladivostok, a second, parallel arm was proposed to transport volumes of gas from the Sakhalin-1 project to neighboring China. (2) This proposal, put forward by Exxon Naftegas in 2006, was the result of an agreement signed between Exxon Mobil and China National Petroleum Corporation to build a pipeline with an annual capacity of 8 billion cubic meters of gas destined for the Chinese market. (3) With a 20 percent stake in the Sakhalin-1 project, Rosneft also was attracted by the potential profit flowing from foreign sales. No sooner was the plan announced, however, than it was scuttled by Gazprom officials keen to maintain the company’s monopoly over gas exports.

In 2007, Gazprom succeeded in persuading Exxon Naftegas to direct gas volumes extracted from Sakhalin-1 to domestic markets in Russia’s Far East, in cooperation with the country’s regional gasification campaign. (4) To that end, Gazprom arranged the purchase of the entire gas production of Sakhalin-1 at artificially depressed rates. “The people involved in Sakhalin-1 are very well aware of the price range in the Russian Far East,” said Aleksandr Medvedev, Deputy Chairman of Gazprom. “I believe that this price level would be a good basis for our negotiation.” (5)

Now it appears that Gazprom, too, has its eye on the lucrative export route to China. In April of last year, Gazprom Deputy CEO Aleksandr Ananenkov indicated that the company plans to acquire both the domestic and export-oriented Sakhalin-Vladivostok pipeline network controlled by Rosneft-Sakhalinmorneftegaz. (6) At present, the pipeline extends only as far as Komsomolsk-on-Amur and operates at less than half of its capacity for 4.5 billion cubic meters of gas annually. “It hasn’t been fully completed while the section between Sakhalin and Komsomolsk-on-Amur is in an extremely bad technical condition. It is an old system and it belongs to Rosneft,” Ananenkov said, laying blame for the incomplete pipeline squarely upon Gazprom’s rival. (7)

Speaking with Dmitri Medvedev this month in Khabarovsk, Ananenkov declared that Gazprom is prepared to complete the pipeline complex that will supply Primorsky residents with gas, should the company be allowed to take charge of the project. “We handed our proposals to Rosneft and other participants in the project supported us,” Ananenkov said. “Gazprom must join the project to build a system from Sakhalin to Komsomolsk and to bring it eventually to the design throughput of 4.5 billion cubic meters. Then we’ll extend the system by another 900 kilometers from Khabarovsk to Vladivostok so that people in that city could get gas as of 2011,” he said. (8) As matters stand, the project remains deadlocked with Gazprom and Rosneft unwilling to meet the other’s terms.

The pipeline debacle puts Dmitri Medvedev in a delicate situation. In his new capacity as Putin’s successor, it is incumbent upon the chairman of Gazprom to rise above parochial loyalties owed to his company and to advance the cause of domestic development, at least in the run up to March elections. As first deputy prime minister of the Russian Federation and presidential candidate, Medvedev issued what he called “strict instructions” to Gazprom and Rosneft: to bring the pipeline development process to an expedient close. “Let’s conclude negotiations, come to a commercial agreement and build,” he said. (9)

Source Notes:
(1) Galina Shakirovna and Aleksei Topalov, “Medvedev takes an even hand with Gazprom,” Kommersant, 7 Feb 08 via (www.kommersant.ru).
(2) “Russia considering new gas pipeline to China—governor,” RIA Novosti, 8 Feb 06 via (http://en.rian.ru/business/20060802/52171345.html).
(3) Nina Poussenkova, “All Quiet on the Eastern Front,” Russian Analytical Digest no. 33, 22 Jan 08 via (www.russlandanalysen.de).
(4) Ibid.
(5) Tom Bergin, “Gazprom wants Exxon to sell Sakhalin gas cheaply,” Reuters, 27 Nov 07 via (http://uk.reuters.com/article/oilRpt/idUKL2718524820071127).
(6) Sergei Blagov, “Russia Eyes Yet Another Gas Pipeline to China,” Eurasia Daily Monitor, 15 Aug 06 via (www.jamestown.org/edm/article.php?article_id=2371383).
(7) “Medvedev calls for speeding up talks on Sakhalin-Khabarovsk pipeline,” ITAR-TASS, 8 Feb 08 via (http://www.itar-tass.com/eng/level2.html?NewsID=12349876&PageNum=1).
(8) Ibid.
(9) Galina Shakirovna and Aleksei Topalov, “Medvedev takes an even hand with Gazprom,” Kommersant, 7 Feb 08 via (www.kommersant.ru).

By Creelea Henderson (Creelea@gmail.com)

~~~~~

CAUCASUS

ARTIARMENIA

Elections loom large
Armenia is preparing for presidential elections on February 19, and the electorate is evaluating the unexpected reappearance of former President Levon Ter-Petrosian. The official campaign season began on 21 January. The contest has nine candidates: the head of the Republican Party of Armenia and designated favorite of President Robert Kocharian, Prime Minister Serzh Sarkisian; Orinats Yerkir party leader Artur Baghdasarian; former president of Armenia Levon Ter-Petrosian; Vice-Speaker of parliament and leader of the Dashnaktsutyun party Vaan Ovanissian; former prime minister and chief of the opposition National Democratic Union Vazgen Manukian;  People's Party leader Tigran Karapetian; the head of the National Unity party Artashes Gegamian; National Accord leader Aram Arutyunian; and
former Nagorno Karabakh presidential adviser Arman Melikian. (1) About 280 OSCE observers and 30 PACE observers are scheduled to monitor the elections. (2)

The definitive front runner in the election is Serzh Sarkisian. Sarkisian is backed, not surprisingly, by the parties of power, the Republican Party, and the Prosperous Armenia party. (3) The Republican Party and Prosperous Armenia are both pro-presidential parties that have cooperated to maintain a majority in parliament. Ter-Petrosian, on the other hand, has received support in his surprise resurgence from a variety of actors, including the Armenian National Movement Party, Stepan Demirchian from the People's Party, and the leader of the opposition Republic Party, Aram Sarkisian. (4) Additionally, Ter-Petrosian’s campaign team includes many former government officials. His election campaign is being run by former Foreign Minister Aleksandr Arzoumanian, while former Interior Minister Suren Abrahamian is helping to run one of the Yerevan district offices. (5) 

The campaign has been relatively sedate, although there have been several protests in the lead-up to the election as well as during the campaign period. In November, almost 12,000 people gathered at a protest sponsored by former Armenian president and current opposition candidate Levon Ter-Petrosian. (6) More recently, on 3 February, thousands rallied in Yerevan in support of presidential candidate and Orinats Yerkir party leader Artur Baghdasarian. (7)

Media coverage prior to the campaign seemed slanted in Sarkisian’s favor. He received abundant coverage largely in his official capacity as prime minister. (8) There were also reports of pressure and attacks on media outlets supporting Ter-Petrosian. In December, a pro-Ter-Petrosian newspaper, the Chorrord Ishkhanutyun, was the target of a planted explosive in the early hours of the morning. The paper’s editor, Shogher Matevosian, claimed the attack was the result of the paper’s support for the former president. (9)

Also in December, the Gyumri-based television station Gala came under pressure after airing favorable coverage of Ter-Petrosian earlier in the fall. Vahan Khachatrian, the station’s owner, said that the municipal authorities suddenly claimed ownership of the broadcasting tower that Gala has been using, citing the need to privatize it. When he offered to pay a reasonable price, the authorities informed him that they would accept a price five to six times the normal cost of a tower and also would charge him an exorbitant fee for previous use of the tower. Khachatrian insists that the issue of the broadcasting tower has come to the fore only because his station has covered Ter-Petrosian in an objective way. (10)

During the election period, Ter-Petrosian has refused to appear on several political television programs during the campaign, claiming that the questions he would have been asked would have been prepared specifically by Kocharian’s administration with the aim of discrediting him. (11)

Opposition parties have complained of violations in the electoral process. For instance, although the campaign officially began on 21 January, a group called the United Liberal National Party began campaigning on Sarkisian’s behalf at least 12 days before the campaign’s official start, with no reaction coming from the authorities. (12)

Ter-Petrosian’s campaign headquarters has appealed to the Central Electoral Commission (CEC) to cancel Sarkisian’s registration as a presidential candidate on the grounds that he is spending funds on his campaign from sources outside of his election fund. (13) The spokesman of Ter-Petrosian’s central election headquarters, Arman Musinyan, also stated that the opposition will bring a suit against the CEC if they fail to act on the complaint. (14)

Artur Baghdasarian, the distant second place candidate according to some polls, has alleged that a process of bribery has started in the lead-up to the elections. The Prosecutor-General has requested that Baghdasarian present evidence of his claims. (15)

As things now stand, the presidency seems likely to go to Sarkisian. A poll conducted by the Sociometer survey organization on 1 February showed Serzh Sarkisian leading the polls, with 67% of participants saying they would vote in his favor. Trailing far behind him were Artur Baghdasarian (9%), Levon Ter-Petrosian (6%), Vaan Ovanissian (3%), Artashes Gegamian (2%) and Vazgen Manukian (1.5%). The remaining candidates received virtually zero support. (16)

According to a different survey conducted by a British polling organization, Populus, and published on state-owned Armenian TV, 50.7% of those polled would vote for Prime Minister Sarkisian, with Artur Baghdasaryan receiving 13.4% and Levon Ter-Petrosian culling 12.6%. None of the other presidential candidates garnered more than 8%, according to the poll results. With regard to other issues, including the economy, resolution of Nagorno-Karabakh’s status, international recognition of the Armenian genocide, and national security, Sarkisian consistently earned at least 20 percentage points more than his closest competition. (17)

In early February, with more than two weeks remaining in the campaign period, there had seemed to be a chance that several of the opposition candidates could unite and potentially force Sarkisian to a run-off. Talks were reported to be underway between Ter-Petrosian, Orinats Yerkir party candidate Artur Baghdasaryan, and Raffi Ovannesian, (18) the leader of the Heritage party who was barred from competing in the election because the police refused to confirm that he had held Armenian citizenship for at least ten years. (19) Baghdasaryan and Ovannesian were rumored to be considering giving their support to Ter-Petrosian as an opposition candidate. However, the 9 February deadline for withdrawal has since passed with all nine of the candidates remaining in the race, thus dividing the opposition vote and strengthening Sarkisian’s candidacy.

In a desperate attempt to forestall the elections, Ter-Petrosian appealed to the Constitutional Court to rule that he was confronted with “insurmountable obstacles” to his campaign in the form of biased news coverage. A favorable ruling would delay the vote for two weeks, thus giving Ter-Petrosian a longer time to campaign. The Constitutional Court denied the erstwhile president’s appeal, thus solidifying Sarkisian’s prospects as Kocharian’s successor. (20)

Source Notes:
(1) “Presidential election campaign kicks off in Armenia,” 21 Jan 08, Russia & CIS Presidential Bulletin via Lexis-Nexis.
(2) “About 280 OSCE observers to monitor February election in Armenia,” 9 Jan 08, ITAR-TASS via Lexis-Nexis; “30 observers from PACE to follow presidential election in Armenia,” 31 Jan 08, ARMINFO News Agency via Lexis-Nexis.
(3) “Sarkisian boosted by support of second largest party,” 25 Dec 07, Central Asia & Caucasus Business Weekly via Lexis-Nexis.
(4) Rita Karapetian, “Former Armenia president emerges as contender,” 1 Feb 08, ISN Security Watch via http://www.isn.ethz.ch/news/sw/details.cfm?ID=18597.
(5) “Armenia: Former president unveils election manifesto,” 10 Jan 08, Radio Free Europe via Lexis-Nexis.
(6) “Thousands demonstrate against Armenian president,” 16 Nov 07, Agence France Presse via Lexis-Nexis.
(7) “Thousands rally for Armenian opposition candidate,” 3 Feb 08, Agence France Presse via Lexis-Nexis.
(8) “Monitors of Armenian broadcast media record a number of advertising materials that made a direct or indirect contribution to image of politicians in November,” 10 Dec 07, ARMINFO News Agency via Lexis-Nexis.
(9) “Blast hits opposition paper in Yerevan,” 13 Dec 07, AssA-Irada via Lexis-Nexis.
(10) “Armenia tightens control of media ahead of elections,” 21 Dec 07, BBC Monitoring via Lexis-Nexis.
(11) “Armenian opposition wants cancellation of ruling party candidate’s registration,” 7 Feb 08, ARMINFO; BBC Monitoring via Lexis-Nexis.
(12) “Armenian paper says election law violated by pro-government party,” 17 Jan 08, Haykakan Zhamanak; BBC Monitoring via Lexis-Nexis.
(13) “Armenian opposition wants cancellation of ruling party candidate’s registration,” 7 Feb 08, ARMINFO; BBC Monitoring via Lexis-Nexis.
(14) “Armenian opposition wants cancellation of ruling party candidate’s registration,” 7 Feb 08, ARMINFO; BBC Monitoring via Lexis-Nexis.
(15) “Prosecutor General's Office of Armenia applies to Arthur Baghdasaryan for materials about bribery of voters,” 5 Feb 08, ARMINFO News Agency via Lexis-Nexis.
(16) “Sargsyan is Armenia's next most probable president – poll,” 1 Feb 08, Russia & CIS General Newswire via Lexis-Nexis.
(17) “Armenian premier leads in pre-election poll held by British firm – TV,” 6 Feb 08, Armenian Public TV; BBC Monitoring via Lexis-Nexis.
(18) “Armenian opposition leaders in talks ahead of presidential vote,” 2 Feb 08, ARMINFO; BBC Monitoring via Lexis-Nexis; “Armenian opposition uniting ahead of vote,” 5 Feb 08, AssA-Irada via Lexis-Nexis.
(19) “Sarkisian boosted by support of second largest party,” 25 Dec 07, Central Asia & Caucasus Business Weekly via Lexis-Nexis.
(20) “High Court Refuses to Delay Armenian Vote,” Radio Liberty, 11 Feb 08 via Armenian News Network, 12 Feb 08.

Robyn E. Angley (rangley@bu.edu)

~~~~~

CENTRAL ASIA

Uzbek president signs away aircraft, natural gas production to Russia
Islom Karimov arrived in Moscow on February 5 for his first meeting with President Vladimir Putin since winning reelection to his third term as Uzbekistan’s president in December.  The meeting is reported to have been arranged rather hastily, following US Central Command Admiral William Fallon’s trip to Tashkent in late January. (1)  During his one-day visit, Admiral Fallon met with President Karimov, as well as with other senior government officials, in order to discuss issues such as regional security and operations in Afghanistan. (2)  A number of experts on the region view the Admiral’s visit as a clear attempt to improve US relations with Uzbekistan and see Karimov’s subsequent visit to Moscow as a move to allay Putin’s suspicions that the Admiral’s overtures might have been too well received. (3)  Admiral Fallon’s Central Asia trip included Tajikistan, Afghanistan and Pakistan, concluding in Tashkent. (4)

Aside from the usual surfeit of mutually complimentary rhetoric and general bonhomie, Karimov’s sojourn to Moscow bore only two concrete results.  The first is an agreement between Lukoil Overseas (wholly owned subsidiary of Lukoil) and SoyuzNefteGaz to cede Lukoil controlling shares in the group of companies, which includes SoyuzNefteGaz Vostok Limited.  SoyuzNefteGaz Vostok Ltd. is one of the signatories to the Production Sharing Agreement (PSA) for the natural gas fields in Uzbekistan’s Southwest Hissar and Ustyurt Regions.  The PSA includes eight fields which contain C1 reserves (C1 reserves are those reserves estimated by drilling and individual tests) of 100 billion cubic meters, according to a Lukoil press release.  Development of these eight fields will require an investment of more than US$700 million and the resulting flow of natural gas is to be exported through the Gazprom pipeline network. (5)  Uzbekistan and the other Central Asian republics, certainly are in need of foreign investment in order to develop their energy resources and the Russian government clearly has an interest in gaining control of Central Asia’s energy industry, especially in light of China’s recent aggressive tactics to secure sufficient oil and gas resources to fuel its own rapidly expanding economy.  However, the Russian government has been known to fall short in its investment promises to Central Asian countries, including in Lukoil’s and Gazprom’s contracts with Uzbekneftegaz. (6)  President Karimov’s esteem for Russia’s oil and gas giants must have experienced a considerable leap upward for him to grant what easily could become a Russian monopoly over the Southwest Hissar and Ustyurt gas fields to Lukoil.  Perhaps now that Karimov has renewed his family’s stranglehold on power (his daughter Gulnara heads a business empire in Uzbekistan that includes sections of the oil and gas industry), he has decided to plumb the depths of his country’s energy wealth a little more deeply, with help from a company amenable to his needs.

The second result of the Uzbek president’s trip to Moscow is the finalization of Russia's United Aircraft Corporation (UAC) takeover of the Chkalov Aircraft Production Enterprise, (7) which is located on the outskirts of Tashkent and when in full production employs at least 30,000 people.  The Chkalov plant is one of the largest aircraft assembly facilities in Central Asia and one of Uzbekistan’s biggest employers. (8)  The plant apparently has not been doing well financially and has relied mainly on government subsidies to stay afloat.  Its export sales have declined dramatically and it is heavily in debt, (9) prompting Uzbekistan’s cabinet of ministers to issue a resolution last August ordering a 20% reduction in the plant’s workforce by the end of 2007, most likely in preparation for its takeover by Russia’s UAC. (10)  Now under UAC’s auspices, the Chkalov plant will undergo an audit by accountants from Ernst, Young, Deloitte and Touche, as part of a “restructuring process,” which is expected to be completed by the end of this year, according to UAC chief Alexei Fyodorov. (11)  The Chkalov facility currently assembles Il-76 transport planes and Il-114 passenger planes. (12)  Even in its economically ailing state, the plant supplies a very significant number of employment opportunities and should its workforce be drastically reduced or should UAC decide to strip the plant of its equipment and then relocate production to Ulyanovsk, as former Russian Prime Minister Mikhail Fradkov threatened might happen last March, it would cause a sharp rise in Tashkent’s unemployment rate. (13)  Given the precarious state of Uzbekistan’s economy and the government’s inability to provide much in the way of social services for the unemployed, allowing UAC to shut down one of the country’s largest job-providers seems inadvisable.  The real question, however, is why any Russian company would agree to take on an enterprise in Uzbekistan, which is so heavily in debt, unless the deal with UAC was an unofficial part of the agreement with Lukoil – one of Russia’s state energy companies is granted a sizeable chunk of Uzbekistan’s natural gas assets in return for taking a financial sinkhole (the Chkalov plant) off Karimov’s hands.  Even the local powers-that-be in Tashkent may be indifferent to the plant’s eventual fate, if their pockets also were lined as part of the deal.

Admiral Fallon’s visit, however well met it may have been, seems to have been of little consequence for US-Uzbek relations, at least in the short term. But, deals such as the ones President Karimov struck in Moscow usually are long in the making and in fact, the Uzbek president only signed off on contracts for which negotiations started at least one year ago.  Furthermore, if one of Karimov’s primary concerns continues to be the growth of his family’s business empire, even when at the expense of Uzbekistan’s economic stability, then Russian companies undoubtedly will prove to be far more amiable partners than Western businesses, which tend to be constrained by stricter laws and regulations regarding ethical business practices.

Source Notes:
 (1) Sergei Blagov, “Russia Wary About Uzbekistan’s Geopolitical Intentions,” Eurasia Insight via EurasiaNet.Org. <http://www.eurasianet.org/departments/insight/articles/eav020608b.shtml>.
(2) “U.S. Central Command Admiral William J. Fallon Visits Uzbekistan,” 25 Jan 08, US Fed News; HT Media Ltd. via Lexis-Nexis Academic.
(3) Ibid., Blagov, Eurasia Insight.
(4) “Admiral Fallon secures U.S. presence in the region,” 29 Jan 08, The Times of Central Asia via Lexis-Nexis Academic.
(5) “Lukoil acquires new hydrocarbon assets in Uzbekistan,” 8 Feb 08, UzReport.com; Biznes-Vestnik Vostoka via Lexis-Nexis Academic.
(6) Sergei Blagov, “Russian Economic Ties With Uzbekistan Hit Turbulence,” 8 Mar 07, Eurasia Daily Monitor (Jamestown Foundation), Volume 4, Number 47 via http://www.jamestown.org/edm/article.php?article_id=2371978.
(7) “Russia's UAC to take over Uzbek aircraft producer,” 6 Feb 08, Russia & CIS Business and Financial Newswire; Interfax via Lexis-Nexis Academic.
(8) Ilyushin Aviation Complex: Chkalov Tashkent Aircraft Plant (TAPOiCh), via GlobalSecurity.org <http://www.globalsecurity.org/military/world/russia/chkalov.htm>.
(9) Ibid., Blagov, Eurasia Insight.
(10) “Uzbekistan: Chkalov Aircraft Factory launched a major personnel reduction program,” 8 Aug 07, Vesti.Uz via Ferghana.Ru <http://enews.ferghana.ru/article.php?id=2078>.
(11) Ibid., “Russia's UAC to take over Uzbek aircraft producer,” Interfax.
(12) “Russia's United Aircraft Corp to take over Uzbek aircraft plant,” 6 Feb 08, ITAR-TASS via Lexis-Nexis Academic.
(13) “Russian-Uzbek Cooperation In Aviation Set To Grow Following Top-Level Talks,” 7 Mar 07, Interfax; BBC Monitoring International Reports via Lexis-Nexis Academic Universe.

By Monika Shepherd (moshep@bu.edu)

~~~~~

WESTERN REGIONS

UKRAINE

Ukraine’s gas woes underscore domestic power struggle
On 12 February the international press heralded a “solution” to the latest dispute between Russia and Ukraine over the latter’s gas debt.  (1)   Ukraine’s politicians publicly celebrated, too.  Prime Minister Yulia Tymoshenko termed the “agreement” made between Russia President Vladimir Putin and Ukraine President Viktor Yushchenko a “victory of the democratic team.”  In particular, Tymoshenko stressed that both sides had agreed to pursue “the elimination of all mediators from the gas market of Ukraine, including the shadows and corruption.” (2)   

However, it is likely that this celebration is just a bit premature.  A close examination of the situation shows that, with two major exceptions, the “agreement” actually contained only outlines for future discussions.   

The exceptions are important.  In a clear negotiating maneuver, Gazprom figured the cost of gas used (and not paid for) in the final quarter of 2007 at the 2008 price of $179 per 1000 cubic meters instead of the 2007 price of $130 per 1000 cubic meters.  Putin and Yushchenko finally agreed that the price would be $130 per 1000 cubic meters, which will, according to Yushchenko, lower the debt by over $150 million.  (3) 

Gazprom also agreed to remove the controversial gas broker RosUkrEnergo from the gas distribution process.  The way in which this will be done, however, and the long term implications for Ukraine were left to others to decide.  Since this constitutes the thorniest issue in the gas debate, it is very possible that within just a few short weeks, a new dispute will emerge.  This is particularly true since there is deep disagreement within Ukraine about how to deal with the situation, and since Gazprom has been unclear about whether or not it will accept removal of gas intermediaries altogether.

Yushchenko, Tymoshenko and RosUkrEnergo
Although the situation is often portrayed simply as a dispute between Russia and Ukraine, in reality this dynamic is just one part of the equation.  Ukraine’s gas trade is fully immersed in a power struggle between President Yushchenko and Prime Minister Tymoshenko, and to a lesser extent, between Russian politicians vying for control as President Vladimir Putin’s presidential term ends. The internal Ukrainian power struggle informs every word and every action taken around the issue of gas.

The main disagreement, and the underlying cause of Ukraine’s dispute with Russia, deals with the use of RosUkrEnergo (RUE) to control the gas trade between the two countries.  RUE was created in 2004 by then-President Leonid Kuchma simply as a tool to negotiate a gas deal between Ukraine and Central Asia.  In the last two years, it has taken full control over all gas transactions for Ukraine.

Its work has been profitable.   RUE reported earnings of around $800 million from its work as an intermediary during 2006. (4)  Several energy analysts claim that some 45% of that figure went to a Ukrainian businessman who was found last year to be a major holder of RosUkrEnergo, through his own company.  Another Ukrainian businessman is said to own a significant portion of RUE, also through the same company, while Gazprom owns 50%.  The precise figure’s are difficult to confirm at this point.

As of 13 February, earnings for 2007 do not appear on the company’s website.

The company reportedly has received a percentage of its profits by re-exporting—at a price of over $300 per 1000 cubic meters—a portion of the Central Asian gas that was imported at only $179 per 1000 cubic meters.   Most of these exports were to Poland or Hungary. 

This arrangement with RUE removes the Ukrainian government entirely from oversight over gas imports, while creating a windfall for a very select few.  Furthermore, while cutting out the Ukrainian government, it simultaneously allows Russian state-owned Gazprom significant input over Ukraine’s gas policy by virtue of the company’s 50% ownership of RUE. 

As noted in the previous ISCIP Analyst, President Yushchenko has publicly waffled between calling for all intermediaries to be removed from the process and supporting the work done by RosUkrEnergo.  In recent weeks, Yushchenko has increased his praise for the company’s work in securing what he has described as the lowest gas price in Europe.  “The price we have today, of 179 dollars per 1000 cubic meters, is the lowest price on the whole perimeter from the Baltic to the Caucasus,” he said on 20 January.   “This is good.” (5) 

Prime Minister Tymoshenko, meanwhile, has urged that RosUkrEnergo be immediately discharged from its intermediary duties, calling it a corrupt structure and suggesting that the fees and profits the company receives are a hidden additional tax that must be included in the cost of Ukraine’s gas.  “It is a front company, an artificially created company, so that gas coming to Ukraine comes through a filter that will catch a significant amount of money,” she told the New York Times in 2006. (6) 

This disagreement between Yushchenko and Tymoshenko has the potential to undermine any deal with Gazprom.  Any gas contract involving Naftohaz technically must be approved not by the head of state, Yushchenko, but by the head of government, Tymoshenko.  At the same time, as head of the National Security and Defense Council, and as the leader of one bloc in Tymoshenko’s parliamentary majority, Yushchenko can torpedo any deal made by his Prime Minister.

That was then…
Questions abound regarding how RosUkrEnergo was created and who was involved.  Ukraine’s media carries continual speculation, with the only certainty being that the decisions were made quietly outside the view of the public.   These questions long have caused tensions between Ukraine’s two leaders. 

During Tymoshenko’s first premiership in 2005, she began investigating whether Ukrainian politicians had received a portion of RUE’s windfall in exchange for supporting the deal that created the company.  Former Minister for Fuel and Energy Yuriy Boyko was found to have been listed as a member of RosUkrEnergo’s founding Coordinating Council and, according to former Security Services head Oleksandr Turchynov, was questioned at length twice about his connection to the company.  Officials also questioned Ihor Voronin, former deputy head of Naftohaz, for his appearance on the Coordinating Council.  (7)

Turchynov, who has been one of Tymoshenko’s closest allies for more than 15 years, hinted to RFE/RL in 2006 that his investigation of RosUkrEnergo contributed to the decision by Yushchenko to dismiss the Tymoshenko government in September of 2005.  Yushchenko has denied this vehemently, citing other reasons for the dismissal, including what he called unsatisfactory work overseeing the economy.

Turchynov suggested that, in mid-August, Yushchenko ordered him to stop “persecuting my men,” and complained that his investigation was causing tensions between him and President Putin.  Turchynov claimed that investigators uncovered evidence of kickbacks to former government officials.  He has never publicly produced such evidence and no officials have been charged.  The investigator working on the case was transferred to other matters, following Turchynov’s sudden removal.  (8)

During the acrimonious 2006 parliamentary campaign, which saw the blocs of Tymoshenko and Yushchenko running separately, Tymoshenko suggested that Yushchenko had ordered her away from the gas industry.  “There were written documents which contained certain restrictions for the government when the gas matters were concerned,” she told Ukrayinska Pravda.  “He said ‘I am going to deal with these issues myself, there is no need for the Prime Minister to get involved,’” she continued.   She did not aggressively protest at that time, Tymoshenko said, but suggested that she was bothered by the order.  “I thought: RosUkrEnergo has got itself a new ‘roof’ now.” (9)

Since then, Yushchenko and Tymoshenko have reconciled and Tymoshenko shies away from direct criticism of the president.  She has gone to great lengths to underscore that she does not believe gas corruption has touched Yushchenko himself.

Nevertheless, these accusations have led to constant undercurrents of suspicion regarding Yushchenko’s connection to RosUkrEnergo’s beneficiaries, although there has never been any evidence—direct or indirect—that the president is benefiting from RosUkrEnergo’s existence.   

Just one week ago, Yushchenko responded with irritation when questioned about the situation by a reporter on a live interview program:

“I find it unpleasant to talk about gas. I don’t feel like talking about this damn subject because I realize that it…it puts me in a tight spot. I get tied to the allegation that my family is involved in gas trade. Thank God Almighty, I’m occupied with something more interesting — and so is my family — than gas.” (10)

In fact, many observers of the president suggest that his primary motivation is that he prefers to avoid confrontation;  he views any disagreement over RosUkrEnergo as unnecessary and potentially destabilizing to the economy. 

The President also has expressed suspicion of Tymoshenko, implying that she would like to gain control of the gas income for her allies.  She vehemently denies these suggestions.

For her part, the Prime Minister never has avoided confrontation, seeing it as necessary to implement significant reform.  She has called corruption in the energy market a “cancer” on Ukraine, and is said to view RosUkrEnergo as the country’s greatest example of this “cancer.” 

Nevertheless, almost immediately after Tymoshenko’s dismissal in 2005, her replacement, Yushchenko ally Yuriy Yekhanurov, began negotiating a new agreement with Gazprom through RosUkrEnergo.  For reasons never fully explained, in the new agreement, RosUkrEnergo, Gazprom and Ukraine’s Naftohaz created yet another intermediary structure for distribution of gas within Ukraine. 

Previously, RUE could import gas only for distribution by Naftohaz.  The new UkrGasEnergo effectively took over most of the work of the state-owned Naftohaz, distributing gas to industrial customers and collecting money and fees for doing so.  UkrGasEnergo is owned 50% each by RosUkrEnergo and Naftohaz.  In the agreement that created the concern, Naftohaz was granted the right to distribute gas to residential consumers, who represent the least lucrative gas market in the country.  In essence, Naftohaz de facto was privatized.   

Then in opposition, Tymoshenko launched a campaign against the continued use of RosUkrEnergo and against the creation of UkrGasEnergo.   Speaking on ICTV’s “Freedom of Speech” debate program, she warned that the effect of allowing UkrGazEnergo to distribute gas in Ukraine could be “bankruptcy and the loss of our state company [Naftohaz].” (11) These worries were dismissed by the government. 

Privately, a number of energy analysts wondered if perhaps Naftohaz intentionally was being pushed to bankruptcy.  Such a bankruptcy would allow those in power to make a case for full legal privatization of the entity, which could lead to UkrGazEnergo and RosUkrEnergo taking over all distribution of gas in Ukraine, and potentially management of the country’s pipeline system.  Ukraine’s largest asset would be neutralized. 

… and this is now
 Upon entering office in late December 2007, Tymoshenko’s Cabinet discovered that Naftohaz had neglected to pay RosUkrEnergo for gas it distributed to residential customers. (12)  At the time, according to those close to the situation, Naftohaz even was unable to articulate what it had paid and what it hadn’t.  No money appeared on its accounts.  After an examination of various accounts, the government confirmed a debt for gas as of 1 January 2008, totaling approximately $1.04 billion. 

In a 31 January 2008 letter to RosUkrEnergo, copied to Gazprom, Naftohaz formally acknowledged the discovery of the $1.04 billion debt for 2007.   In its note, newly appointed Naftohaz deputy head Ihor Didenko suggested that the company is in negotiations with Deutsche Bank for a loan, and that full payment of the 2007 debt should be complete within 6-8 weeks.  (13)

It is unclear whether there was any official written response to this letter, but one week later, Gazprom’s Sergey Kupriyanov threatened to “cut supplies of Russian gas to Ukraine.” (14)  Kupriyanov suggested that the debt had “ballooned” to $1.5 billion.  Ukraine immediately rejected the figure, largely because it included the cost of Russian gas instead of only gas from Central Asia.

Because Central Asia could not meet its designated gas volumes to Ukraine in late 2007 and so far this year, RUE chose to make up the difference with far more expensive Russian gas, for which it is charging not $179 per 1000 cubic meters, but $314.  (15) 

The Ukrainian government apparently was not consulted about the inclusion of Russian gas at the new price, and there appears to be no way for the government to verify where its gas originated, since it is “mixed” by RosUkrEnergo at the border.  On 11 February, Tymoshenko said Ukraine “will not accept from RosUkrEnergo any gas other than Central Asian gas.”  (16) At the same time, the Prime Minister suggested that Ukraine’s debt had increased to $1.072 billion as of that day – calculated using the $179 figure.  (17)

For his part, Yushchenko has kept his comments general.  He has released no statement on the possibility of removing RosUkrEnergo, although Gazprom’s Aleksei Miller suggested that it had been agreed upon during a meeting between Putin and Yushchenko.  The Ukrainian president also has given no opinion on the size of the debt, instead suggesting that a working group would be formed to examine the issue. 

The issue of a schedule for debt payment and how to solve the issue of RosUkrEnergo will now be the subject of negotiations including representatives Naftohaz and Gazprom.  Gazprom continues to insist that Ukraine owes over $1.5 billion, while Ukraine insists that it owes under $1.1 billion. 

Additionally, on 13 February, one day after announcing the agreement, Miller rejected Tymoshenko’s calls for a removal of all intermediaries.  “If they want Central Asian gas,” he said, “it would be necessary to leave an intermediary.” (18)  He did not explain why, but it is clear that Russia intends to keep some sort of private entity involved in the process.  At their meeting, Putin and Yushchenko agreed to replace RosUkrEnergo with a new company owned equally by Gazprom and Naftohaz – in other words, a new gas intermediary. 

Those monitoring the creation of RosUkrEnergo in 2004 will remember that this company also was designed originally to represent Gazprom and Naftohaz equally;  somehow, though, Ukraine’s interests were put in the hands of private businessmen who profited handsomely at Ukraine’s expense.  Could this happen again?  

Those same observers also will remember that RosUkrEnergo replaced another discredited intermediary that had, in turn, replaced yet another.  Is it possible, then, to create a gas broker that could serve the interests of both Russia and Ukraine? To do so, agreement must be achieved not only between Russia and Ukraine, but also between Ukraine’s leaders.  Given the history of all concerned, that may be too much to ask. 

Source Notes:
(1) “Russia and Ukraine negotiate solution to gas dispute, payments start Thursday,” The Canadian Press, 0250 EST, 12 Feb 08, and “Russia and Ukraine Strike Gas Deal,” The Associated Press, 1243 EST, 12 Feb 08, and “Russia, Ukraine Reach Last Minute Deal,
(2) Press Office of the Cabinet of Ministers, 11:00 CET, 13 Feb 08 via www.kmu.gov.ua.
(3) President comments on gas agreements,” Press Office of President Yushchenko, 1423 CET, 13 Feb 08 via www.president.gov.ua.
 (4) Financial data, RosUkrEnergo, via www.rosukrenergo.ch/eng/pub/business.html.
(5) Inter TV, 1800 GMT, 20 Jan 08 via Lexis-Nexis.
(6) “Ex-Premier of Ukraine Attacks Gas Price Deal,” New York Times, 6 Jan 06.
(7) Roman Kupchinsky, “Ukraine: Battle Against Corruption Grinds to a Halt,” RFE/RL, 26 Sept 06.
(8) Ibid.
(9) Serhiy Leshchenko, “Yulia Tymoshenko: I suspect Yushchenko avoids meeting me because it would hurt him to look me in the eyes,” Ukrayinska Pravda,17 Feb 06. 
 (10) “Ya Tak Dumayu (I think that),” 1+1 television, 7 Feb 08.  Video available at www.youtube.com/watch?v=U51bv_OQub8&eurl=http://tap-the-talent.blogspot.com
(11) Svoboda Slova (Freedom of Speech), ICTV, 20 Jan 06.  Video available at www.tymoshenko.com.ua.
(12) See ISCIP Analyst, Volume XIV Number 7 (31 January 2008) for further details on Naftohaz’s brush with loan default. 
 (13) A scanned copy of the letter is available in “???? ????????? vs RosUkrEnergo,” Ukrayinska Pravda, 1115 CET, 11 Feb 08 via www.pravda.com.ua/news/2008/2/11/71342.htm.
 (14) “Gazprom threatens to cut off gas supplies to Ukraine,” ForUm, 1220 CET, 8 Feb 08.  
 (15)  “RosUkrEnergo Claims Ukrhaz-Enerho’s USD 830 million Debt for Delivered Gas,” Ukrainian News Agency, 0843 CET, 17 Jan 08 via www.ukranews.com.
 (16) “Yulia Tymoshenko won’t accept RosUkrEnergo and UkrGazEnergo’s terms for regulating the gas conflict,” Ukrayinska Pravda, 11 Feb 08 via Yulia Tymoshenko Personal Website at www.tymoshenko.com.ua/eng/news/first/5247/
(17)”Yulia Tymoshenko: Ukraine will work on restructuring Naftogaz’s $1.072 billion debt,” Press Service of Yulia Tymoshenko, 11 Feb 08 via www.tymoshenko.com.ua/eng/news/first/5248/
(18) “U Moskvy peredumali zabirati RosUkrEnergo (Russia considers how to remove RosUkrEnergo),” Ukrayinska Pravda, 1942 CET, 13 Feb 08.

By Tammy Lynch (tammymlynch@hotmail.com)

By Tammy Lynch (tammymlynch@hotmail.com)

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