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N75 - April 10 2008 Published every two weeks / International Edition

P. 1-3 Politics & GovernmentDIPLOMACYc Some grist for the mill between Moscow andWashington

BEHIND THE SCENEc Toward a Pax russica inTransnistria

FOCUSc Putin puts a marker onMedvedev

ENERGYc TNK-BP : Moscow blowshot and cold

ALERTc Suez /Gaz de France

P. 4-8 Business & NetworksINDUSTRYc Abyzov, the rising star of theRussian electricity sectorALERTSc Voloshin / Inter RAOPROFILEc Skorobogatko andPonomarenko, the strongmen on the port ofNovorossiyskALERTSc Nord Stream / Mechel FOCUSc Norilsk : Oleg Deripaskaunder pressureTELECOMc Altimo pursues its competi-tion with Telenor and aims at the Turkish marketALERTSc Kamaz c Chigirinsky FOCUSc Behind the Atomenergo-prom / Toshiba accordSHIPBUILDING FLK on a spree in Ukraineand in Germany

Some grist for the mill between Moscow and WashingtoncDIPLOMACY

The farewell meeting between George Bush and Vladimir Putin in Sochi, just after the NATO sum-mit in Bucharest, confirmed what we had already noticed on several occasions in the past : the two mennever really understood each other. Although they deny it, they are both products of the cold war.Theirtwo Foreign ministers, Condi Rice and Sergey Lavrov, are also both derived products and the very sub-jects raised in Sochi NATO, anti-missile systems would not have been out of place in one of the goodold US-Soviet summits from the 1970s or 1980s. It was a remarkable relationship George Bush felt ap-propriate to conclude, remarkable in fact since it leaves the United States and Russia at a sort of squareone after the feverish hugs of the 1990s and the aborted grand designs of the 2001-2003 period.

In a few days, Dmitry Medvedev will establish himself in the Kremlin and will become the new inter-locutor for George Bush until next January. There is little chance that significant changes will take placeby then. Then in January, it will be the unknown for Russian diplomacy, with the only certainty being atthis stage : that none of the three candidates for the presidency of the United States has been seen asbeing particularly amicable toward Russia, with Senator McCain appearing the most outspoken since hehas called for a withdrawal of Russia from the G8.

This does not necessarily mean that everything is frozen on all the most sensitive issues that will reap-pear with the new American administation. Concerning the enlargement of NATO and the delay in theinclusion of Georgia and Ukraine in the Membership Action Plan, Russia earned a precious point. Themost moderate reaction by Moscow to the proclamation of independence by Kosovo was probaly wortha type of recognition on the part of a certain number of European member countries of the Alliance. ButRussian diplomacy is not the only one to have been able to claim the credit for the rejection of the Geor-gian and Ukrainian candidacy. Even in the United States, and more so in Europe, there exist some doubtson the interests that NATO can have to recruit those two countries. During a seminar co-organised by theBrookings Institution in Tbilisi the day after the Bucharest summit, certain American experts, reputedclose to the two democratic candidates for the nomination, questioned the justification for Georgias in-tegration. As for Ukraine, it is known that the consensus on the subject even within the population doesnot exist, and it can be guessed by the recent statements from Vladimir Putin (provocation or awkward-ness?) suggesting a possible partition of the country and a return of the Russian territories to the mo-therland, that the case of Ukraine is probably the most sensitive of all for Moscow.

Concerning the anti-missile systems to be deployed in Poland and the Czech Republic, the situationis clearer. Several former Clinton administration officials close to Hillary, such as Richard Holbrooke,or General Wesley Clark, cast into doubt privately the utility of this initiative by the Bush administrationwhich set fire to the powder in the Kremlin. In case of a victory for Senators Clinton or Obama, a nego-tiating space would open on this question.

In fact, it was on Afghanistan that American and Russian positions drew the closest together in re-cent weeks. The fact that Russia accepted the transit on its territory of non-military products and equip-ment from NATO countries toward Afghanistan is not anodyne. The establishment of a corridor bet-ween Europe and the Afghan territory, by Russia and Uzbekistan and the construction of the railwaybridge over the Amu Daria will facilitate the transfer of equipment and materiel toward Afghan citiesand would especially make them less expensive. By helping NATO in Afghanistan, Russia is helping itselfin combatting religious fundamentalism in Central Asia and the Caucasus. Even if the support is provi-ded without excessive enthusiasm on the part of Moscow, it is a sign addressed in the direction of themember countries of the Alliance so that they do not weaken their efforts to re-establish peace in Afgha-nistan. In counterpart, Russia could assist in a more convincing way with the negotiation with Iran onits uranium enrichment programme, which even in the United States, some feel would be very desirable.

Even if Bush and Putin separated in aknowledging failure, their successors will nevertheless disposeof an essential resource for negotiation and diplomacy : some grist for the mill...d

2Russia Intelligence N75 j April 10 2008 www.russia-intelligence.fr

RUSSIA INTELLIGENCE Poli t ics & Government

Putin puts a marker on Medvedevcc FOCUS

A slightly better picture is emerging about the political sequence for the comingweeks in Moscow. As Russia Intelligence explained in its previous edition, the firstmajor episode will be the convention of United Russia, brought forward to April 14and 15 (instead of the 19th of May as originally planned). Vladimir Putin should beoffered the party presidency. This was confirmed April 7 by Boris Gryzlov, the cur-rent officeholder of the State Duma presidency. He also added in the most se-rious manner possible that the ideal would be for Vladimir Putin to accept. Thetakeover of United Russia should allow the future Prime minister to better controldeputies, governors and, more generally, the senior bureaucracy, always efficient inadjusting to changes in the balance of power in Moscow. Vladimir Putin is progres-sing toward a double lock system perfectly in tune with KGB norms.

The second phase of this political sequencing to come will be the investiture ofVladimir Putin to the office of head of government. It will take place May 8, the dayafter the assumption of office by Dmitry Medvedev to the Kremlin. Contrary to tra-dition, the vote of the State Duma will take place without prior consultation. It willnot have been only for pure form, but this acceleration of the calendar displays acertain nervousness on the part of a segment of Vladimir Putins inner circle. Notto leave Dmitry Medvedev alone in power even for 24 hours above all before theVictory day celebration May 9, which should have a particular aura this year sincethe tanks will once again roll on Red Square was apparently absolutely impera-tive.

In anticipation, the war of the clans continues unabated in the structures of po-wer. The most spectacular developments emerged from the General prosecutors of-fice, the theatre, since last summer, of constant tension between Yuri Chaika andhis deputy, Alexandre Bastyrkin, an old companion of Vladimir Putin named atthe head of the Investigating committee who distinguished himself since then es-pecially by playing an active role in the Bulbov and Storchak affairs (Russia Intel-ligence n63 of october 11 2007 and n64 of october 25 2007). Put forward by IgorSechin and Nikolay Patrushev, Alexandre Bastyrkin had hoped to take control ofa possible Russian FBI. The choice of Dmitry Medvedev as Vladimir Putins suc-cessor in the Kremlin has, however, compromised his chances. Since the end ofMarch, Alexandre Bastyrkin is even frankly on the defensive, which is nothing butbad news for his protectors.

On March 28, he had to suspend one of his closest collaborators, Dmitry Dovgy,as well as three other members of the Investigating committee Alexey Novikov,Sergey Glukhikh and Yuri Ermakov. A decision not gladly taken which followed aletter of denunciation addressed by two other investigators on the Committee Sergey Chernyshev and Zigmund Lozhis to the presidential administration. Theyaccused Dovgy, Novikov, Glukhikh, Ermakov of corruption. According to Chernys-hev, Dovgy had received 2 million dollars in exchange for the liberation of a suspect,a deal all the more disgraceful in that it concerned an affair linked to Yukos. Erma-kov and Glukhikh for their part may have worked for the transfer of Vladimir Bar-sukov the godfather of the Tambov mafia in Saint Petersburg arrested last au-tumn (Russia Intelligence n61 of september 13 2007) from his high-securitycell in the notorious Matroskaya Tishina to Saint Petersburg, where he was ableto regain his freedom thanks to other connections.

To sort out all these developments is obviously not easy, but one thing is certain :Yuri Chaika is rubbing his hands. The contest between him against Bastyrkin appearsas won. But, as is well-known, behind Chaika are profiled the loyal supporters of Dmi-try Medvedev, notably the boss of the Federal anti-narcotics service, Viktor Cherke-sov. Suddenly, the latter believes more than ever in his chances to replace Nikolay Pa-trushev in the Lubyanka after mid-May. The current boss of the FSB could well seebeing offered a post as vice Prime minister in charge of power structures, accordingto information collected in Moscow by Russia Intelligence. Our sources indicate ne-vertheless that a decent delay could be observed and that the shifts awaited in themidst of the power structure could then be delayed until the autumn. d

Toward a Pax russicain Transnistria

BEHIND THE SCENE

As Russia Intelligence had let it be un-derstood in its edition of January 31, the sit-uation around the frozen conflict inTransnistria is on the way toward somemovement. On April 7, the President ofMoldova, Vladimir Voronin, and the headof he secessionist province, Igor Smirnov,held a telephone conversation. It repre-sented an event in itself since the two menhad not spoken since 2001. According to acommuniqu published by the authorities inTiraspol, they should even meet in a shortdelay.This possibility of a conclusion to thelengthy crisis has been made possible bythe closer relations between Chisinau andMoscow. It must be remembered that thelast-minute rejection by Vladimir Voronin ofthe Kozak Plan, at the end of November2003, and the introduction of new bordercontrols toward Transdnistr with the sup-port of Ukraine in March 2006, put a chillon Russo-Moldovan relations. Thingschanged after the Poutine-Voronin meetingon June 27 2007. The embargo decreed byMoscow on Moldovan agricultural products(especially wine) was lifted in exchange forpolitical guarantees whose scope can nowbe evaluated. At the same time, Moscow fo-cused the pressure on Igor Smirnov andfavoured the emergence of a new pole ofinfluence around the young president of thelocal parliament, Yevgeny Shevchuk (Rus-sia Intelligence n45 of December 2006).On a daily basis, it was Yuri Zubakov, then2 of the Russian national security council,and ambassador Valery Nesterushkin, arather francophile diplomat who retains anemotional memory of his stay in Mauritius,who have followed the Moldova-Transdnistrissue since 2004. The deterioration of rela-tions between Chisinau and Bucharest(Russia Intelligence n50 of March 2 2007),as well as the imminence of general elec-tions in Moldova also played a role in themore conciliatory attitude by VladimirVoronin.

Russia is therefore preparing to make adiplomatic splash of the first order by thissummer. In this matter, it intends to send avery strong signal to the West, by showingthat it holds the keys to the frozen con-flicts in the former USSR. Georgia andUkraine are also in sight. Among the con-cessions that Chisinau is preparing to maketo recover its territorial integrity are in-cluded in effect a renunciation of NATO andthe exit from GUAM. A position, which, it ishoped in Moscow, would be a cause for re-flection for Vladimir Yushchenko andMikhail Saakashvili. d

3Russia Intelligence N75 j April 10 2008

RUSSIA INTELLIGENCE Business & Networks

www.russia-intelligence.fr

Even as the president of its supervisory board prepared to en-ter the Kremlin, Gazprom launched a vast spring offensive. In-tense discussions are being pursued with TNK-BP on the Ko-vytka issue, but also despite the denials over the purchaseof 51% of the interest in the Russo-British joint venture. Thingsare also well underway with Italys ENI, which is ready to asso-ciate Gazprom in some of its projects in Libya or even Egypt. Onthe internal front, Gazprom has won an important victory by ob-taining from the government that it will not increase the gas sideof the tax on extraction of raw materials as the Finance minis-ter, Alexey Kudrin, wanted.

Can Viktor Vekselberg not sell ? Intervening two weeks af-ter the disruptive searches in the Moscow offices of TNK-BP andthe recall of 148 British expatriates of the group (Russia Intel-ligence n74 of March 27 2008), the discussions that took placeApril 3 in Moscow between Alexey Miller, Tony Hayward (theboss of BP) and Viktor Vekselberg (head of the Russian share-holders in TNK-BP and in charge of the groups gas projects) wasmuch awaited. They appear by all accounts to have gone ratherwell. According to Robert Dudley, the president of TNK-BP, anaccord about Kovytka should be signed before May 1st (sourcesclose to the matter nevertheless indicated to Russia Intelligencethat the two parties did not narrow their differences over theprice of the transaction. Gazprom would not want to spend morethan 800 million dollars, while TNK-BP evaluates the investmentsachieved on the deposit since 1994 at 1 billion dollars). Anothersign of improvement between TNK-BP and Gazprom is that a com-promise has been found between two of their subsidiaries, Mezh-regiongaz and Rospan (the latter obtained expanded access tothe internal Russian gas pipelines and as a result could doubleits production, which will be sold by Gazprom).

Nothing, on the other hand, filtered out regarding the evolu-tion of the TNK-BP shareholdings. Officially, the question was noton the agenda. Robert Dudley underlined this during his pressconference. According to information gathered by Russia Intel-ligence in Moscow, the reality is nevertheless a bit different. Gaz-prom has not given up on buying the shares of the Russian ow-ners. Viktor Vekselberg (Renova), Len Blavatnik (AccessIndustries) and Mikhail Fridman (Alfa-Group) have denied, inFebruary, wanting to sell, but recent history in Sakhalin no-tably demonstrates that this need not be a insurmountableobstacle.

According to our sources, Alexey Millers forces would also likethe British to sell them 1% of TNK-BP in case the Russian share-holders decide to sell their interests to Gazprom. The questionof price is still open. 51% of TNK-BP would represent an invest-ment of more than 20 billion dollars. A possibility that does notfigure in the memorandum made public by Gazprom in late Marchon the occasion of a new Eurobond emission.

The Russo-Italian honeymoon still underway. Things aremuch simpler for Gazprom with its strategic partner ENI. Theboss of the Italian group, Paolo Scaroni, confirmed April 2 thathis group was ready to sell it a third of its involvement in the Li-byan Elephant oil deposit (proven reserves of 68 Mt). This an-nouncement was made on the occasion of a meeting between Vla-dimir Putin, Dmitry Medvedev and an impressive delegation ofItalian businessmen, which included, among others, Pier Fran-

cesco Guargualini (Finmeccanica), Fulvio Conti (ENEL),Gianfelice Rocca (Techint), or also Luisa Todini (formerEuropean deputy for Forza Italia, president of the Todini Fi-nanziara holding company). In addition to the accord bet-ween Gazprom and ENI, it was also noted that this meetingwas marked by the proposal by Intesa to create a Russo-Ita-lian investment bank whose objective will be to operate inthe former USSR, but also in China and India. Officers ofENEL, for their part, confirmed that they were ready to co-operate with Rosatom (whose boss, Sergey Kirienko, waspresent in Novo-Ogaryovo) on projects in central Europe, no-tably in Slovenia.

LNG, Gazproms new priority. Developments at Gaz-prom are also quite intense within Russia itself. On March26, the groups board adopted its strategy in the sector he-retofore embryonic in Gazprom of liquidified natural gas(LNG). It foresees a spread of investments situated between45 and 60 billion dollars by 2030 and an annual LNG produc-tion somewhere between 39 and 63 Mt by a horizon of 2030(essentially Shtokman and Sakhalin).

Also, Gazprom achieved a major victory on the fiscal level.The interministerial meeting held on March 25 around thePrime minister Viktor Zubkov adopted a decision favourableto the gas giant. The gas chapter of the MET, the mineral ex-traction tax, remains set at 147 rubles/1000m3, an amount un-changed since 2006, although Alexey Kudrin proposed an in-crease to 735 rubles/1000m3 by 2010. According to Gazprom,an increase in the tax would deprive it of funds necessary forinvestments in exploration.

This victory, however, could be only a momentary one. Apossible reduction in the VAT to 12% strenuously advocatedby the Economic development minister Elvira Nabiullina,but opposed by Alexey Kudrin would in effect force the go-vernment to look for other means of financing. So much sothat most economists (such as those gathered for the annualHigh School of Economics colloquium in Moscow in earlyApril) consider that public financing will encounter seriousdifficulties beginning in 2009 resulting from the combinedeffect of increases in public spending and an erosion in thecountrys commercial surpluses. d

ENERGYc TNK-BP : Moscow blows hot and cold

A L E R T

The cooperation between Suez and Gaz de France has somequite unexpected collateral impact in Russia. According to infor-mation collected by Russia Intelligence from sources close to thematter, the Gaz de France management has not been able toconvince SUEZ of the interest in investing in the Russian electricitysector. It is known that last autumn on the margins of the 20thworld energy congress, Gaz de France had expressed its interestfor TGK-10, finally acquired in early March by Fortum (Russia In-telligence n73 of March 14 2008). d

3 Electricity : Suez puts a brake to Gaz de Frances appetite



INDUSTRYMikhail Abyzov, the rising star of the Russianelectricity sector

c

While the reforms of the electricity sector conceived and applied byAnatoly Chubais are entering the final stretch (Russia Intelligencen74 of March 27 2008), a name is raised more and more frequently inMoscow conversations of Mikhail Abyzov. The boss of the E4 hol-ding company has in fact established himself, at only 35, as a more andmore inescapable actor in this sector.

The meteoric career of Mikhail Abyzov began in 1993. At the time,he joined the small team of deputy Ivan Starikov, elected on the Choiceof Russia list headed by Igor Gaydar. A native of Novosibirsk, Stari-kov presented Abyzov to the governor of the region, Vitaly Mukha. Adecisive meeting since it permitted Abyzov in 1996 to make his first bigplay in the business world. The firm ORTEK he created a year earliersupplied various equipment and fuel to the regional authorities; a mo-dest transaction 500,000 dollars accompanied by serious guaran-tees. In this case, 19.5% of the Novosibirskenergo electricity, a stakeevaluated then at... 40 million dollars. The regional authorities revea-led themselves to be incapable of managing ORTEKs expenses, andMikhail Abyzov becomes a shareholder in Novosibirskenergo and takeshis first steps in the Russian energy sector. It should be noted in pas-sing that this episode led to charges against Vasily Mukha, who was fi-nally amnestied in 2001.

In 1998, Anatoly Chubais who was named at the head of the na-tional electricity company RAO EES Rossii noticed the young Aby-zov (who at the time was 26 years old) and offered him the directionof the investment department. A year later, Mikhail Abyzov joined theboard of directors of RAO EES Rossii, which he would not leave untilApril 2005. He was notably charged with the supply of coal, gas and fueloil to regional affiliates. A strategic post that allowed him to weave pro-ductive relations at the time of the privatisation of the groups powerstations.

By coincidence or not, it was in Kuzbasrazrezugol the main mi-ning asset of SUEK where Mikhail Abyzov landed in the fall of 2005.Collaboration with Iskander Makhmudov and his partners proved tobe in any case complicated (he will definitely leave the group in 2007).In parallel, Mikhail Abyzov had created his own organisation, E4, which

A L E R T

collected subcontracting deals for RAO EESin the engineering and maintenance sector.To this day, the E4 holding company unitessome fifty companies throughout the countryand is expanding its field of operations inother sectors (notably the agro-food sectorthrough the Rukon investment firm, but alsoseveral companies in the Urals, Siberia and

the Far-east specialised in the repair of road infrastructure).

But it is in the field of power generation that Mikhail Aby-zov is on the way to achieving his most successful operations.During the course of an interview, Viktor Vekselberg, revea-led that Mikhail Abyzov held an option for the 25% of KES(Kompleksnye energeticheskie systemy), the Renova affiliatein charge of managing assets in the electricity sector. Ratherevasive about the origins and outlines of this partnership, Vik-tor Vekselberg limited his explanation by saying that it datedback to the autumn of 2006 and that it was linked to otheroperations with Renova. It concerned a major asset since KESholds shares in numerous electricity generation units privati-sed in recent months (TGK-5, TGK-7, TGK-9 and TGK-10).

Last but not least, Mikhail Abyzov has just taken a stake ofat least 25% in Transneftservice-S. Controlled by the business-man Alexandre Rubanov, a trader historically linked withTransneft, where he was the main supplier of electricity. Thedeparture of Semyon Vainshtok and the nomination of newteams around Nikolay Tokarev (Russia Intelligence n70 ofJanuary 31 2008) nevertheless changed things. Transneftser-vice-S lost its contract with Transneft which representedclose to 80% of its turnover. A vulnerability that immediatelyprofited Abyzov by entering into its capital. But in all likeli-hood, it is precisely Transneftservice-S which should buy OGK-1, the main production unit for RAO EES Rossii which will besold at auction on April 17 for about 6 billion dollars ( a pricewhich forced Electricit de France, as well as Finlands For-tum to drop out). d

The former boss of the presidential administration and head of thesupervisory board of the national electricity company, RAO EES Ros-sii is actively preparing his return to the front lines of power in Rus-sia. Observed at the side of Dmitry Medvedev on the evening ofthe elections, Alexandre Voroshin is part of that small circle ofhigh officials to which the new president should refer to fill his teamafter May 7. If his future elevation is not yet confirmed, one thing isnevertheless clear : Alexandre Voroshin will continue to play an im-portant role in the sector being completely reorganised of elec-tricity.He has just been named to the supervisory council of InterRAO, the international subsidiary of RAO EES Rossii, which is the ex-clusive operator for import-export of power in Russia and whichpossesses or operates a certain number of assets in Georgia, in Ar-menia, in Tajikistan and in Moldova (Inter RAO will also sooninherit stations in Russia, notably in Sochi and in Kaliningrad). Up

to now, the group was managed by Yevgeny Dod (director general)and Andrey Rappoport (president of the supervisory council andright-hand man to Anatoly Chubais. But the internal balance of po-wer is in the process of changing. Andrey Rappoport will not bereappointed to head the supervisory council.The Energy and indus-try minister, Viktor Krishenko, should replace him. Temporarily, atleast, since it is doubtful that he will be retained in the governmentafter May 8. The most likely possibility is that the presidency of thesupervisory council of Inter RAO will go to Alexandre Voloshin. Heshould be, along with Vladimir Dmitriev, the boss of Vnesheko-nombank, the new shareholder of Inter Rao (Russia Intelligencen74 of March 27 2008), the strong man of the group. His actions inany case should be followed closely in Paris, where it is still hopedthat EDF will be able to take a 25% share of Inter RAO in the co-ming few months. d

3 Alexandre Voloshin makes his entry in Inter RAO

Mikhail Abyzov



PROFILEAlexandre Skorobogatko and Alexandre Ponomarenko, the strongmen on the port of Novorossiysk

c

Names can create a destiny. This is possibly what AlexandreSkorobogatko (soon rich) thinks. He only counts for 1.4 bil-lion dollars in the latest Forbes ranking, placing him far be-hind Deripaska (28 billion), Abramovich (23 billion), Frid-man (22 billion) or Mordashov (22 billion). With his colleagueAlexandr Ponomarenko, Alexandre Skorobogatko, has never-theless the merit of not being at the head of an oil, mining ormetal company, but a commercial port. Not just any port sinceit involves Novorossiysk (NMTP), the 1st in Russia in terms ofvolume (80Mt last year), a strategic asset which should profitfully from the economic fallout from the winter olympic gamesof 2014 in Sochi.

Skorobogatko, 40, and Ponomarenko, 43, are both natives ofUkraine. It was in Simferopol in Crimea that they met at theend of the 1980s. There they created a small firm specialised inperfume production. After the collapse of the USSR, they set upin Moscow, where they founded the Russian general bank (RGB).Skorobogatko obtained an economics degree from the presti-gious Plekhanov Academy and began to frequent political cir-cles. In 1996, he became the assistant to the Communist deputyAlexandre Korovnikov, a close associate of Sergey Stepashinwho had numerous contacts in the Academy of the Interior mi-nistry in Saint Petersburg (which in fact awarded Skorobo-gatko the title of doctor of law in 1998. We also recall that Sko-robogatko remains one of the sponsors of the ice hockey teamof the Interior ministry). In August 2002, he was named to theFederation Council, where he represented the Kaliningrad re-gion. Then in 2003, Skorobogatko was elected to the State Dumaon the list of the liberal-democratic party of Vladimir Zhiri-novsky. Feeling the wind changing, he finally joined United Rus-sia in 2007.

Skorobogatko and Ponomarenko became interested in theport of Novorossiysk as early as 1994. The Russian general bankpatiently acquired shares in NMPT and thereby reached 13% ofthe capital in the early 2000s. Skorobogatko and Ponomarenkotook over control of the commercial port of Novorossiysk in twophases. In 2005, they first bought the interest held by the de-puty Sergey Shishkaryov and his partner Mikhail Bashin (about20%). Then in 2006, it was the turn of the investment firm Ural-sib owned by Nikolay Tsvetkov (a close associate of the boss

of Lukoil, Vagit Alexperov) to sell its share to the Skorobo-gatko-Ponomarenko team for 530 million dollars. This trans-action was essentially financed by the sale of Investberbank RGBs new name to the Hungarian bank OTP in Au-gust 2006. Up to then not really known for the transparencyof their management, Skorobogatko and Ponomarenko lif-ted the veil on the shareholding of the commercial port ofNovorossiysk in the autumn of 2007, just as they were pre-paring to launch an IPO in London. It is learned that theyhave consolidated close to 63,36% of the capital, notablythrough the Kadina firm, registered in the Virgin Islands.The state holds 20%, the remainder in the hands of uniden-tified minority shareholders, some of whom may be actingon behalf of Skorobogatko and Ponomarenko. Organised byMorgan Stanley, the IPO covering a bit less than 20% ofthe capital is an honest success. 980 million dollars areraised, which brings the value of NMTP to close to 5 billiondollars. On that occasion, the Railway (RZhD) take over 5%of the port capital.

According to information gathered by Russia Intelligence,Skorobogatko and Ponomarenko have been able to establishsound relations with Vladimir Yakunin, one of whose objec-tives, as is known, is to reinforce the presence of RZhD inthe countrys ports.

Already flourishing, business for Skorobogatko and Pono-marenko should continue to develop during the course ofthe coming years. A good share of the material to be impor-ted in view of the construction of the infrastructure in So-chi would in fact transit through the port of Novorossiysk.Its activity should also benefit from the launching of majorprojects South Stream, the underwater gas pipeline thatwill link Novorossiysk to Bulgaria in about 2013, and theBourgas-Alexandroupolis oil pipeline to be built by Trans-neft. In the meantime, Skorobogatko and Ponomarenko havedecided to take advantage of their networks in Saint Peters-bug and Kaliningrad to develop their activities on the Bal-tic. NMTP announced in early March that it would take 50%of the freight terminal under construction near Lomonosov,a project up to now operated by Mediterranean ShippingCompany. d

A L E R T

Venezuelan president Hugo Chavez truly intends to profit from hispresence in Moscow in early May where he will assist at the inau-guration of Dmitry Medvedev to sign new arms contracts withRosoboronexport. The most advanced deal concerns the sale of 4conventionally-powered Kilo (project 636) class submarines. Adecision in principle was reached early this year by the Venezuelanmilitary. Moscow and Caracas are currently discussing the grant of aloan for 800 million dollars by Vneshkonombank that would allowfor the financing of the bulk of the transaction evaluated at close to abillion dollars. Dmitry Pankin the new Finance vice minister whosucceeded Sergey Storchak, in prison since last autumn (Russia In-telligence n66 of november 21 2007) is charged with the matter

in Moscow. The Venezuelan shopping list also includes a dozen Il-76transport aircraft, as well as Mi-28 combat helicopters. According tosources close to the boss of the Rostvertol plant in Rostov on Don,Boris Slyusar, the deliveries could take place as early as the summerof 2009. Finally, Sukhoi which will complete deliveries of the 24Su-MK2-V ordered by Caracas in the summer of 2006 has hopesfor the Su-35 (to be presented shortly at the FIDAE air show in San-tiago de Chile). Obviously the technical problems encountered bysome of the helicopters delivered to the Venezuelan air force byRussia in 2006, no more than the fiasco over the Algerian MiGs (Rus-sia Intelligence n72 of February 29 2008), have killed Hugo Cha-vezs appetite for Russian armaments.d

3 Venezuela : new arms contracts in sight



cc FOCUS

Norilsk : Oleg Deripaska under pressureThe strange ballet being played since several weeks by four of the most impor-

tant oligarchs of the Russian metals sector, Oleg Deripaska, Vladimir Potanin,Mikhail Prokhorov and Alsiher Usmanov, has an outcome that appears less andless certain. We indicated in our last editions (Russia Intelligence n73 of March13 and 74 of March 27) that the chances of Oleg Deripaska to become the leadingshareholder in Norilsk Nickel by buying the shares of Mikhail Prokhorov were se-riously eroding since several weeks. The latest events have tended to confirm thispossibility. The closure of the Deripaska/Prokhorov operations has been delayeduntil the end of April. Some last-minute difficulties have appeared in the provi-sions of the accord concluded between the two men. It is known that the agreedprice for 25% or 28% of Norilsk held by Prokhorov is 12,7 billion dollars, of whicha certain part in Rusal paper (about 11% of the capital), one part in cash (4,5billion dollars) and another part in defered payments (about 3 billion dollars).

In addition, Prokhorov may have obtained a guarantee of being able to freelyresell his shares to Rusal in 2010. But the international banks that will assure thefinancing of the 4.5 billion dollars of the cash portion of the transaction are as-king, apparently, an early repyment of the same amount if Rusal does not list onan exchange by November 1 2009, a clause that hardly pleases Mikhail Prokho-rov, who is said to have requested to revise the conditions for the operation.

The other element that troubles the game is naturally the projected mergerbetween Norilsk Nickel and the Metalloinvest group of Alisher Usmanov. Duringthe extraordinary general assembly that was held on April 8, the Norilsk share-holders gave themselves one month to complete an accord with Alisher Usmanov,discussions to focus essentially on the value of the Metalloinvest assets as wellas on the final strucuture of the Norilsk Nickel shareholding. Apparently this ge-neral assembly did not lead to a frontal opposition between Vladimir Potanin andMikhail Prokhorov, to the point that the structure they jointly control, KM Ma-nagement and which holds about 8% of the Norilsk capital decided to vote withthe management of the mining company although the position of this structurein the general assembly was believed to be crucial.

Many elements that lead to the belief by close watchers of the business thatthe cleavage between Potanin and Prokhorov, which was believed to be withouthope of return, is perhaps not so definite as that. In any case, at the close of thisgathering, Andrey Klishas, president of the Norilsk administrative council, sur-prised his world by declaring to the press that Norilsk was ready to purchase Mi-khail Prokhorovs shares in case an accord with Deripaska did not materialise.Many things must therefore take place during this month of April and the discus-sions risk being torrid in view of the sums at stake and the well-known hostilitybetween Oleg Deripaska and Vladimir Potanin. It is probable in fact that the Ru-sal bankers are questioning the interest for the aluminium group to find itself asminority shareholder of Norilsk/Metalloinvest, in case this transaction materia-lises. As for Mikhail Prokhorov, he can consider that his interests are more to sellhis shares to Vladimir Potanin since the markets accord a higher value to Norilskin case of a merger with Metalloinvest rather than a cooperation with Rusal.

Mikhail Prokhorov also surprised observers by winning in a completely unex-pected fashion the auctions for the state share in the energy production companyTGK-4, for the sum of 500 million dollars. This company operates 25 power sta-tions in central Russia (Smolesnk, Lipetsk, Tula, Voronezh). Already for a longtime, it was known that Mikhail Prokhorov was interested in the electricity energysector. He was even seen as becoming the controlling shareholder of energy as-sets within Norilsk Nickel which Vladimir Potanin wanted to spin off this win-ter, an operation which Prokhorov was in fact opposed to. In Brief, this TGK-4operation intrigues many observers to the point that some are asking if it doesntinvolve a bonus offered to Prokhorov to obtain his backing for one of the twostructures surrounding Norilsk Nickel. And if this is the case, it could be not goodnews for Oleg Deripaska... d

3 Nord Stream : the consortium retreats in theface of Swedish reservationsNord Stream AG, the operator of the fu-ture northern European gas pipeline oper-ated by Gazprom, BASF, E.ON andGasunie, has finally abandoned construc-tion of a maintenance platform close tothe island of Gotland in Swedish waters.Other technical solutions are being con-sidered, according to the consortium. It isknown that Stockholm was concernedabout the projects by Nord Stream AG,with some experts believing that a plat-form could possibly be used for intelli-gence purposes by Russia. Gazprom andits European partners, who want to followthe initial calendar for the project launch(the end of 2010 for the first pipeline, 2013for the second), have therefore decided towithdraw their plans, which should alsoreduce the concertation procedures withthe Swedish side. In keeping with the 1982convention on the law of the sea, Stock-holm, just like Copenhagen and Helsinki)will give its opinion after examining theecological impact of the project, but can-not in principle prevent construction ofthe pipeline. It should also be noted inpassing that the predicted costs of NordStream have been revised upward andare now established at 7,4 billion euros.

3 Mechel strengthens its position in RomaniaIf Bulgaria and Serbia have in recentmonths been the priority targets of theKremlin (Russia Intelligence n70 of Jan-uary 31 2008), Romania is not in the leastbit absent from the sphere of interest ofthe large Russian industrial grooups.Therefore, Mechel just announced thepurchase, for some 221 million dollars, ofthe Ductal Steel works. This acquisitionsupplements the two other assets of IgorZyuzins group in Romania, IndustriaSarmei (renamed Mechel Campia Turzii)and COST, purchased in 2002-2003. Thenext phase of the Mechel expansion onthe Romanian market should be in the en-ergy sector, with a joint offer with Hun-garys Magyar Villamos Muvek for apower station. We remind that Mechel haselsewhere profiled itself in recent weeksby buying Oriel Resource (Russia Intelli-gence n74 of March 27 2008). Amongthe other major Russian groups present inRomania should be mentioned DmitryPumpyanskys TMK, which controls asteelwork in Resita, and the oil firmLukoil, owner of the refinery in Ploiestisince 1998. d

A L E R T S



3Kamaz on the lookout for a western investorMajor manoeuvres are underway in theRussian automobile sector. Just a fewweeks after having concluded the sale of25% of the capital in Avto Vaz to Renault(Russia Intelligence n68 of December20), Ruben Vardanyan, the boss of theTroika-Dialog investment firm, is turningtoward a new industrial undertaking. Av-tominvest Ltd, a subsidiary of Troika-Dia-log, has just taken a 29,48% stake in Ka-maz, the truck manufacturer situated inTatarstan made famous outside Russia forits repeated victories in the Paris-Dakarauto rally. This transaction allows Troika-Dialog to attain majority status since it al-ready held 21,2% of the Kamaz shares.Theteams under Ruben Vardanyan will nowbegin to seek out a strategic investor, towhom they will propose 25% to 49% ofKamaz. Volvo, Iveco and MAN are fre-quently cited. Another scenario raised upto now, cooperation with the Belarus ma-nufacturer MAZ, is in the process of beingabandoned because of the reticence ofAlexandre Lukashenko. The Russian statewill remain present in the capital of Kamazthrough the Rostekhnologii holding com-pany under Sergey Chemezov (38%).

3Moscow : Chigirinsky loses a new legal battleThe oligarch of Georgian origin, at thehead of the construction and public worksfirm ST Development, has just experien-ced a new setback. In its editions of Octo-ber 26 2006 and February 2 2007, RussiaIntelligence echoed the information aboutthe contest over the reconstruction of theRossia hotel, located near the Redsquare.The call for proposals organised inlate 2004 by the Moscow municipality andwon by ST Development had been challen-ged and then cancelled by court edict. Sucha situation was hardly designed to comfortChigirinsky who strengthened by thesupport of the capitals mayor, Yuri Luzh-kov had not halted the works. The situa-tion appears more serious this time. At theend of March, the 9th appelate court of thearbitration tribunal in Moscow invalidatedall the commercial procedures that follo-wed the 2004 call for proposals, which wasreversed on January 23 by the supreme ar-bitration court. ST Development lodged afinal appeal and plans to pursue its policyof the fait accompli. But it remains that theenvironment in Moscow is evolving in a di-rection that is not favourable to Chigirinskywith the probable departure of his protec-tor Yuri Luzhkov.d

A L E R T Scc TE LECOM

Altimo pursues its competition with Telenorand aims at the Turkish market

Altimo the susidiary of the Alfa-Group in charge of management of the as-sets of the holding company in the telecommunications sector is in the processof launching a vast reorganisation of its industrial strategy. If we can believe thewhispers of its officers, Alexey Reznikovich and Kirill Babaev, the twin priori-ties are the takeover of control of Vympelkom and of Turkcell, the main Turkishmobile telephone operator (close to 30 million subscribers, or 63% of the localmarket. After which Altimo could eventually side with a European leader of thetelecommunications sector. In the meantime, the Russian group has resumed hos-tilities with its old Norwegian adversary, Telenor, which could once again repre-sent an obstacle to the Altimo ambitions.

Ukraine, a Russo-Norwegian battlefield. We remind our readers that Altimo possesses to this day 43,8% of the mobile

telephone operator Vympelkom (BeeLine), 25% + 1 share of its competitorMegafon, 13,22% of Turkcell, 49% of the Kirghiz operator Sky Mobile, 26,6% ofGolden Telecom and 43,5% of the Ukrainian operator Kievstar. In the latter, likeVympelkom, Altimo is associated with Telenor (29,9% in Vympelkom and 56,6% inKievstar). A somewhat rocky association since 2005. At the time, Altimo backedthe purchase by Vympelkom of URS, a small Ukrainian mobile telephone opera-tor. An operation which was opposed by Telenor, which saw it as unfair competi-tion vis--vis Kievstar.

The transaction took place and was followed by a lengthy legal battle betweenAltimo and Telenor before courts in Moscow and New York. The Norwegian groupwas rebuffed in the URS case, but on the other hand was succesful last July whenan American court ordered Altimo to release its 43,5% in Kievstar. More recently,relations have appeared calmer. Altimo and Telenor even agreed on the purchase,by Vympelkom, of the operator Golden Telecom, where they are both sharehold-ers (26,6% and 18,3% respectively).

A short-lived truce. March 25, Altimo in fact filed before an arbitration courtin Geneva to obtain 1 billion dollars in damages and interest from Telenor. Thisamount corresponds, according to the Russians, at the loss caused by the delayin the acquisition of URS. The chances for Altimo to succeed seem weak, but thiscomplaint has the main objective to maintain pressure on the Norwegians to makeprogress on another issue. Alexey Reznikovich, the president of Altimo, declaredat the end of March that he wanted to concentrate his activities around two poles Vympelkom and Turkcell where he hopes to gain a majority stake.This wouldimply the purchase of one part of the shares of Vympelkom held by Telenor. Butit is not certain that the Norwegians want to sell, even if they have not completelyclosed the door.

Turkcell : toward an exchange of shares with TeliaSonera ? Concerning the Turkish front, things are not any simpler for Altimo. They own

at this point 13,22% of Turkcell, a holding purchased in November 2005 for 1,6 bil-lion dollars from Cukurova, to which the Russian group also lent 1,7 billion dol-lars pledged for an additional 13,8% of Turkcell. Since Cukurova did not repay thedebt in the time agreed, Altimo demanded that it be transferred 13,8% of Turk-cell, which was opposed by the Turkish side. Legal proceedings are therefore un-derway. But it is through another means that Altimo intends to takeover controlof Turkcell. The Russians plan in fact to propose to the Swedish group TeliaSon-era which holds 37,08% of the Turkish operator to exchange its holding againstAltimos in Megafon. A swap that would be accompanied by payment by the Russ-ian group of 2 billion dollars in order to compensate for the difference in valuebetween the holdings exchanged.

It remains that on the Megafon issue, Altimo risks nevertheless to have to takeinto account the appetite of Alisher Usmanov, who already owns 31,5% of the op-erator and doesnt hide his aim to take over control. d

Russia Intelligence N75 j April 10 2008 www.russia-intelligence.fr


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FOCUSBehind the Atomenergoprom-Toshiba accordc

Whether a simple declaration of itent or the launching ofa wide-ranging industrial partnership, the framework coope-ration agreement signed March 20 between Atomenergopromand Toshiba has in any case aroused a considerable interestin Paris, in both the concerned ministries as well as at Areva.The stakes no more no less than the constitution of a worldleader in the civilian nuclear sector is truly far-reaching.

If we believe the communiqu made public on March 20,Russians and Japanese will begin feasibility studies on co-operation concerning the design and engineering for theconstruction of civilian nuclear power plants, the construc-tion and maintenance of capital euquipment and the nuclearcombustion cycle. It elsewhere underlines that the comple-mentary links between the two companies could in the lon-ger-term engender a strategic partnership. This accord willpermit to guarantee deliveries that are viable and securefor services in the nuclear cycle to consumers of Japan, theUnited States and other countries.

The Russo-Japanese cooperation in the nuclear domain isnot really a surprise. It is the culmination of discussions be-gun in the spring of 2007 during the visits to Tokyo of the for-mer Russian Prime minister Mikhail Fradkov and the bossof Rosatom, Sergey Kirienko (Russia Intelligence n 50 ofMarch 2 2007). For Russia, the interest in collaboration withJapan is obvious. It enlarges in effect the potential geogra-phy of Atomenergoprom activities, up to now limited to the

former USSR, China, India and Bulgaria (even soon to theMaghreb, even if discussions with Egypt and Libya are farfrom concluding). The cooperation with Toshiba should alsoallow the resolution, in part at least, of the problems in pro-duction capacity that is confronting the Russian industria-lists, whether concerning turbines or reactor tanks. In ad-dition, it permits Russia to rejoin the Kazakh groupKazatomprom, which bought from Toshiba 10% of Westing-house in the summer of 2007 (Central Asia and Caspian In-telligence n 15 of august 30 2007).

The document of March 20 relates to an obvious comple-mentarity between Russians and Japanese. After the acqui-sition of Westinghouse in 2006, Toshiba disposes in fact ofquality products, especially the AP 1000 third-generationreactors, that compete with Arevas EPR. Russians are, ontheir side, competitive in the combustion cycle supplying po-wer stations. One of the first projects on which Atomener-goprom and Toshiba should cooperate is the construction ofa nuclear power plant in the Russian Far east, near Vladi-vostok, which is backed by Oleg Deripaskas Rusal (Rus-sia Intelligence n53 of April 30 2007).

On the political side, the implementation of the accord bet-ween Toshiba and Atomenergoprom is an important signal, ata time when Russians and Japanese have resumed discreet dis-cussions on resolution of the territorial dispute on the Kurileislands (Russia Intelligence n71 of February 13 2008). d

If Ukraine remains the theatre of a Russo-Norwegian competition in the telecoms sector(read article page 7), the atmosphere is morecooperative in the shipbuilding domain. March25, Aker Yards ASA announced the sale of70% of its subsidiary Aker Yards Ukraine Hol-ding AS to FLC West, a Luxembourg subsi-diary of the Russian leasing firm FLK. This trans-action of 291 million euros, which should beconcluded during the summer, concerns theOkean Nikolaev in Ukraine, as well as thoseof Wismar and Warnemnde in the formerGDR. The Norwegian side underlined that theAker Yards Ukraine Holding AS will remain ba-sed in Oslo and the management would beretained. The presence of FLK in this deal is atfirst glance surprising. The group is in effect51,8% held by OAK, the public holding firm

that unites Russian aircraft companies (theother major shareholder being the State pro-perty fund with 28,69%). FLC West is for itspart jointly held by FLK and the Cyprus-basedfirm Almiar Investment Ltd, which representsthe interests of private shareholders in FLKclose to Nail Malyutin and Ismael Ostrovsky.The initial mission of FLK was to support aer-nautical industries by ordering new aircraft,notably from Tupolev. Certain persons consul-ted by Russia Intelligence in Moscow do notexclude that FLK was activated by the State toundertake a conveying operation on behalf ofthe holding firm specialised in shipbuilding,OSK, whose establishment is experiencing somedelays and which to this day does not as a re-sult dispose of all the instruments required forsuch a major foreign financial operation (Rus-

sia Intelligence n64 of October 25 2007).

The purchase of Aker Yards Ukraine Hol-ding AS constitutes in all probability a signifi-cant operation for Russia. The Okean Nikolaevyard is operating at virtually full capacity, with12 vessels under construction (essentially bulkcarriers, container ships, chemical and refri-gerated ships). Those of Wismar andWarnemnde are for their part considered assolid, since they have benefitted in recent yearsfrom impressive European funding to moder-nise. They will this year deliver 16 vessels, in-cluding 3 ice-breaker tankers(Arctic class)for Lukoil. Historically, these yards workedclosely with the Soviet union and some of theirmanagement are believed to be perfect Rus-sian speakers. d

Shipbuilding : FLK on a spree in Ukraine and in Germany

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