December 2006 Archives

Which are the strongest national oil companies?

By Tom Nicholls, journalist

Through their merger, Statoil and Hydro will set a new standard for the increasingly powerful group of national oil companies (NOCs).
Both are significant upstream acreage holders in Norway. Both have solid positions overseas. Together, they form a formidable national champion – and one that will remain under government control; the firm will be 62.5% state-owned and Oslo plans to raise this to around 67%.

Technology, baby, technology
However, in addition to reserves, production and cash, which other big NOCs now have in abundance, Statoil Hydro will have what most other NOCs lack: state-of-the-art technology. Statoil has built a deserved reputation for sophisticated technology through decades of operating in the inhospitable North Sea. Hydro too: its development of the oil segment of Norway’s offshore Troll field, for example, is widely regarded as one of the most remarkable achievements ever accomplished by an upstream operator.
Arguably, the deal makes Statoil Hydro the world’s pre-eminent company in offshore technology and certainly puts it on a par with the giants of the private sector. The new entity’s offshore production in water depths of over 100 metres will be ahead of Shell, in second place, and more than BP and ExxonMobil combined.
Given that the most lucrative upstream opportunities to which Western companies have access now tend to be in offshore areas, its technological edge gives the new company a strong competitive advantage: Statoil Hydro will be an attractive business partner for acreage holders that lack the technology and skills needed to produce in deep water (the $29 billion deal will also bulk up the company’s human capital – in short supply in the overstretched upstream market). In addition, as a government-controlled company, it is a partner with which other NOCs are likely to feel comfortable.
It is no surprise that both Statoil and Hydro were on Gazprom’s shortlist for Russia’s Shtokman development. And although Moscow seems to have slammed the door on foreign participation there, if Gazprom eventually decides it does need overseas partners for upstream projects, Statoil Hydro is likely to be a contender. (Could the quid pro quo of any future involvement of Statoil in Russia’s upstream sector be alignment with Moscow on gas pricing?).
In addition, some commentators have suggested that the tie-up is a defensive move designed to blunt Gazprom’s aggressive expansion. Graham Weale, an analyst at Global Insight, a consultancy, has described the proposed merger as “an unambiguous response to the growing dominance of Gazprom in the global gas scene”.
Without doubt, the merger (in which Hydro’s oil and gas assets will be incorporated into Statoil) seals Statoil’s position in the premier league of NOCs.

NOCs versus IOCs
The most significant difference between NOCs and international oil companies (IOCs) is that NOCs tend to be rich in below-ground resources – oil and gas. IOCs tend to be rich in above-ground resources. That used to mean cash, skills and technology. But NOCs are now in strong financial shape thanks to prolonged high oil prices and this has basically whittled the advantage of IOCs down to technology and skills.
Herein lies one of the main strengths of the Statoil-Hydro combo. The new company will have a production of 1.9 million barrels a day in 2007 and proved oil and gas reserves of 6.3 billion barrels of oil equivalent. That upstream profile – while far smaller than that of the biggest NOCs – puts it on a similar footing to the larger IOCs. And, just as importantly, it puts Statoil Hydro on a superior footing to all other NOCs and arguably all IOCs in terms of offshore expertise.
So which are the other pre-eminent NOCs? Aramco, Petrobras, Petronas, Statoil and Qatar Petroleum can consider themselves modern, sophisticated oil companies, capable of operating energy projects to the standards of an IOC.

Aramco: heavyweight champ
The sheer size of Saudi Aramco’s oil reserves makes the Saudi state-owned giant the undisputed heavyweight champion of the world's upstream industry. Its natural advantages are not only its embarrassment of riches in oil reserves, but also that the resources are predominantly onshore, the fields are large and wells have high productivity rates.
In addition, Aramco has developed the technical capacity to undertake projects itself and does not require help from the private sector. Few companies – if any – can match Aramco's technical capabilities in the management of complex onshore oil projects. When it does need assistance, it is able to buy services and equipment directly from oil field services companies and does not need to cede equity in the country’s hallowed oil sector. And, for now at least, it has no worries on the budgetary side: the company is the engine room of the national economy, producing around 9 million barrels of oil a day (worth around $200 billion a year at present oil prices) and the government therefore has a strong interest in making sure it is adequately funded.
That Riyadh has the flexibility to act as the world's only swing oil producer, turning the taps on and off at will, is down to Aramco's technical proficiency.
Both Statoil and Aramco attribute their success, in part, to a hands-off approach by their shareholders – their respective governments. Commercial and operational autonomy allows each company to take decisions that are in their long-term interests – enabling business growth.

Petrobras: offshore leader
Petrobras falls into this category too and must be classed as a premier league NOC. The Brazilian state holds only around 30% of Petrobras' shares, but has shrewdly retained a majority of the voting rights – and, therefore, control. Petrobras itself – while proud of its role and identity as a national champion – thinks and behaves like an IOC and continues to enjoy the operational autonomy it needs to be successful. It has already established itself as one of the world's most effective deep-water operators, building up a large offshore industry at home and generating much of the technology required itself. Another mark of the firm's ambition is its overseas expansion – exporting its deep-water technology to West Africa and the Gulf of Mexico, for instance.

Petronas: international operator
Malaysia's Petronas also debunks the obsolete perception that a state-run company must be inefficient. Once an ineffectual NOC without the luxury of an impregnable oil-reserves position to fall back on at home, Petronas is widely rated by industry experts as the NOC that, with operations in over 30 countries, has been most successful at diversifying beyond its national boundaries. Like some other NOCs, it has the stomach for certain investments that are too much for IOCs; for example, while shareholder pressure saw Canada's Talisman Energy pull out of Sudan, selling its 25% stake in the Greater Nile Oil production and pipeline project to India’s ONGC, Petronas stayed on (so did CNPC).

Qatar Petroleum: LNG giant
Qatar Petroleum has enlisted the technical help of outsiders to develop its liquefied natural gas and gas-to-liquids industries – including ExxonMobil and Shell. But, nonetheless, the company has presided over the biggest ever expansion in the world’s LNG industry, on budget and on time. Around the end of the decade, it will control around 77 million tonnes a year of LNG and its combination of market access, upstream strength and the technical accomplishments involved in its impressive slate of projects surely place the firm in the leading pack of NOCs.

Gazprom: catching up
Russia’s state-owned energy companies, Gazprom and Rosneft, are adrift of this elite group – but only just. As the colossus of world gas reserves, Gazprom’s future has always been assured. That advantage has been made even more formidable by the firm’s monopoly over Russia’s gas trunk-lines and its proximity to the lucrative market of western Europe.
Rosneft’s upstream position has been significantly enhanced through acquisitions, notably that of Yuganskneftegaz, the oil producer formerly owned by Yukos. However, both Gazprom and Rosneft lack the technological ability of, say, Statoil and Petrobras, and the international reach of Petronas.
That, though, will gradually change. Through its participation in the Sakhalin-2 LNG project, for example, Gazprom will gain valuable hands-on experience of a managing a large-scale, technologically and logistically complex project. And it would not be a surprise to see both Gazprom and Rosneft continue to build their reserves position in the coming year through acquisitions.
In addition, Gazprom has plans to globalise: as well as its well-documented attempts to acquire downstream assets in target markets in Europe, it is expanding upstream outside Russia. It is involved in Iran's South Pars gas development, for instance, and is planning to explore in India.
Algeria’s Sonatrach fits into a similar bracket to Gazprom. It has prodigious gas reserves and rapid expansion plans. In addition, it is a seasoned LNG operator, which gives it a technical advantage over the Russian company, although this is outweighed by Gazprom’s comfortable superiority in gas resources.

Other contenders
Libya's NOC is a step behind Sonatrach, but it is capable of catching up quickly. It has huge underdeveloped oil and gas resources and an impregnable position in its home market. Although deficient in technology and capital, NOC will become a more effective operator as oil investment flows into Libya and is likely to take on a greater number of developments itself.
Iraq's INOC has suffered because of sanctions, wars, terrorism, sabotage and the loss of crucial personnel (that it has kept going at all with the limited cash and resources available is remarkable). If physical security can be established in Iraq and when the government has decided how to structure the oil industry, INOC could have a bright future, given its huge oil reserves.
Other NOC laggards include Venezuela’s Pdvsa and Mexico’s Pemex, both of which have been undermined by their need to fund the wider economy and ambitious social projects – and therefore a shortage of upstream investment. Political meddling is also likely to put the brakes on the development of Bolivia’s upstream sector and, along with corruption, has restrained the development of Nigeria National Petroleum Corporation, among others.
There is, of course, much more to the NOCs story than the upstream picture: China’s state-owned oil companies have limited status in terms of oil and gas reserves, but they have been extremely active in recent years on the international asset market, racking up tens of billions of dollars of acquisitions outside China – often overpaying to meet the strategic goal of gaining access to oil and gas to fuel their booming economy. India’s ONGC, a late starter, is catching up. And while these companies may not possess large indigenous reserves, they have something else of enormous value – they are the gatekeepers of the fastest-growing and, by some measures, the biggest markets on earth. That is another feather in Petrobras’ cap: as well as its deep-water skills, it has expertise in handling a big market. The company retains a virtual monopoly on the refining industry of a country with consumption in the region of 1.8 million barrels a day – another bargaining chip for Petrobras as it forms relationships with other NOCs.
However, while the likes of CNPC, CNOOC and Sinopec have expanded at an astonishing rate overseas, they still cannot be classed as leading NOCs because, while rich in ambition and cash, they lack project experience and technology. CNOOC tried to fix that by buying US explorer Unocal. Ultimately, the bid failed, but eventually CNOOC – or another NOC – could propel itself to global pre-eminence through selective acquisitions. That goes for Gazprom too.

Yesterday the Kremlin's English website posted some of President Vladimir Putin's holiday greetings to various world leaders. Germany and China, it seems, are regarded with much greater affection than Georgia.

Germany

In his address to German President Horst Koehler, Putin wrote that much has been done in 2006 to strengthen the fruitful cooperation between Russia and Germany, two countries that are kept together by relations of strategic partnership and a common approach to crucial international events.

Vladimir Putin wrote to German Federal Chancellor Angela Merkel that Russian-German relations of strategic partnership and the friendly and confident relations between the leaders of the two states have been developing consistently. He expressed the hope that 2007, when Germany will hold the rotating presidency of the G8 and the European Union, will see new initiatives and projects aimed at ensuring the prosperity of the two countries, and that multifaceted bilateral cooperation will grow dynamically, facilitating the solution of pressing problems on the European and global agendas.

China

Mr Putin wrote to Chinese President Hu Jintao that Russia and China have attained impressive results in promoting mutually beneficial political, economic and cultural cooperation in 2006, and have considerably expanded their interaction in global affairs. The sides have celebrated the 10th anniversary of a policy of equality, confident partnership and strategic cooperation, as well as five years of the Treaty of Good-Neighborliness, Friendship and Cooperation. The Year of Russia in China has had a beneficial effect on the development of bilateral relations, and the Year of China in Russia (2007) will give Russians a chance to learn more about the thousand-year history of China and the culture and traditions of the friendly Chinese people, and will promote bilateral relations and give a powerful impetus to more extensive use of the two countries’ potential for strategic partnership.

Georgia

In his address to Georgian President Mikhail Saakashvili, President Putin wished the Georgian people peace and prosperity.

From today's FT:

COMPANIES UK: There are times when you cannot be sure of Shell

By Chris Hughes

Sakhalin throws up a fresh disappointment

Shell suffered a blow when it was forced to surrender control of Russia's Sakhalin-2 oil field to state-backed Gazprom last week. Now the Anglo-Dutch oil group faces fresh embarrassment in defeat.

To re-cap, Shell sold half of its 55 per cent stake in Sakhalin to Gazprom to revive the project that Russia had grounded citing environmental reasons. The price Shell received - following months of wrangling - was better than many had expected. That helped Shell preserve some dignity despite losing control.

But yesterday it emerged that the terms of this transaction are not as favourable as they had seemed. Shell will have to contribute additional investment to Sakhalin beyond what investors had previously factored in.

This rather inconvenient detail was meant to stay confidential. Instead, it leaked into the Russian media.

True, this is a small setback relative to losing control over Sakhalin in the first place. From a solely financial perspective, the additional costs are not hugely burdensome for a company of Shell's size. That was reflected in Shell's relatively muted share price reaction yesterday.

But this is still a humiliating end to the saga for Shell. Meanwhile, the clumsy revelation of Shell's true funding obligations raises questions about its communication skills. Surely the company could have been clearer in its guidance on the deal's underlying economics last week.

As I have mentioned in earlier statements, there are elements within the Kremlin who love to pull their biggest pranks during the holiday season.

The latest evidence of this trend is the announcement of new, fabricated charges against Mikhail Khodorkovsky (which Chris Weafer of Alfa Bank has identified as a ruse to make the Yukos attack look like the legitimate crackdown at Enron), and the preposterous accusation that Leonid Nezvlin ordered the murder of ex-Russian spy and Kremlin critic Alexander Litvinenko.

Here is Mikhail Khodorkovsky's statement, translated from Russian:

28 December 2006

TO: THE PROCURACY-GENERAL OF THE RUSSIAN FEDERATION
FROM: Khodorkovsky M.B.

APPLICATION FOR REPLACEMENT OF INVESTIGATIVE GROUP
IN CRIMINAL CASE No. 18/41-03

On 27 December 2006, I, Khodorkovsky M.B., was presented with two
decrees on the conducting of a preliminary investigation, from which it
became known that the investigation with respect to criminal case No.
18/41-03 is being carried out by an investigative group of the
Procuracy-General of the RF consisting of 17 persons. It is headed by
senior investigator for particularly important cases S.K. Karimov, i.e.
that same high level official who headed an analogous group in the
previous criminal case with respect to me and Platon Lebedev, and had
filed ungrounded charges against us.

Everybody, and the members of the investigative group first and
foremost, knew perfectly well that during the course of the examination
of the previous criminal case, the result of which became the
appointment of punishment in the form of 8 years of deprivation of
freedom for each one, I was convinced to the last moment that a just
verdict would be issued.

During the course of the preliminary investigation, trial, and
cassational consideration of the case, I cooperated actively with
justice, including by way of presenting objective proof of Lebedev's and
my innocence. However, the judges simply copied the bill of indictment
previously signed by Mr. S.K. Karimov, repeating all the stupid legal,
and even simply grammatical, mistakes which were contained in it.

Even during the course of the consideration of the case by the
Meshchansky Court, in December 2004, I was informed that the
Procuracy-General of the RF had initiated a criminal case based on the
legalization of monetary funds. Since that time, the top leadership of
the Procuracy-General of the RF has regularly reminded the public that
there would in the near future be new charges filed against me and
Platon Lebedev. These declarations by the Procuracy-General of the RF
were voiced not only after the issuance of the verdict, but also at
subsequent stages of the consideration of the given case. By the way,
they were made intentionally, with a single objective - to create
negative public opinion with respect not only to me and Platon Lebedev
personally, but also to all our activities over many years. In these
declarations, it was sometimes said that the procuracy has sufficient
evidence of our guilt, at other times that it is still gathering
evidence, but no charges have yet to be filed against us to the present
moment.

However, certain high level employees of the Administration of the
President of the RF are very worried by the fact that next year, half of
the term of punishment appointed for me and Platon Lebedev expires and
that consequently, there exists the theoretical possibility of our early
conditional release on parole. In addition to this, they all know
perfectly well that elections to the State Duma will take place in 2007,
while elections of the President of the RF will occur in March 2008.

Consequently, these people could not allow even the possibility that I
might happen to be at liberty precisely at this time. Therefore, they
decided to do everything so that I would remain in confinement for as
long a time as possible.

Of course, my stay in the colony could have been extended in another,
more "humane" way, by not granting me conditional early release before
all the elections had ended. This would be very easy to do, making ever
more new reprimands to me for violations of the regime supposedly
committed by me.

However, the power considered this method insufficiently reliable. But
the filing of new charges, a new trial, and a new term significantly
simplify the so called "problem of-the year 2007" for the Kremlin -
Platon Lebedev's and my conditional early release.

In such a manner, I have no doubts that the new case in respect of me
and Platon Lebedev, about which has been declared to us 4 days before
the coming of the New Year holidays, has an exclusively political
character. The Kremlin knows very well our political convictions, which
do not leave place for doubt that our sympathies lie not at all on the
side of the party of the "third term".

The return of Mr. S.K. Karimov from the post of deputy procurator of
Bashkortostan to his old familiar Procuracy-General also without any
doubt is associated with the filing of new charges. This, no doubt, is
evidence of a "special trust" in him on the part of both the
Procuracy-General and even higher bosses, but, naturally, does not
increase my trust in him.

As follows from the decrees on the creation of an investigative group
that have been presented to me, Mr. Karimov was appointed its head on 4
December 2006, and he showed such enviable workplace zeal that already 2
weeks after his appointment, I was convoyed to Chita for the conducting
of investigative actions in the new case.

In fact, practically immediately after taking on the case, Mr. Karimov
"adorned" it with a gross violation of the law (so far I know of only
one thing; I would not be surprised if I soon learn about other
violations as well). Thus, pursuant to Art. 152 of the CCP RF, a
preliminary investigation must be carried out in the place where the
crime was committed. In our case, the investigation is being conducted
in the City of Moscow. Despite this, Platon Lebedev and I were for some
reason convoyed not to Moscow, but to the investigative isolator of the
City of Chita, where, from all appearances, they intend to hold us for a
long time.

I do not doubt that the new trial will end up being the same kind of
farce as the previous one, just like the numerous criminal cases in
respect of other YUKOS employees, in particular that of the mother of
two minor children, Svetlana Bakhmina. I consider it unworthy to
participate anew in this farce. I have already refused to give
testimony in the capacity of a "suspect", inasmuch as I see no sense in
proving anything to people whose task is not in promoting justice by way
of establishing the truth, but has a directly opposite objective.

I don't personally know all the members of the investigative group, but
I allow fully that among them are decent and professional people,
capable of conscientiously carrying out their duty. But, unfortunately,
in my case all of them, including the head of the group, S.K. Karimov,
are fated to be merely obedient executors of a political contract.
Consequently, I have no grounds for counting on their sense of
professional principle.

In fact I do not trust the Procuracy-General of the RF as a whole, but
the law does not allow me to apply for the replacement of everybody, and
besides, the point is not about individual people, but about the system.

In the first days of my arrest I said that I want to acheive justice
specifically in Russia. I do not doubt that such a time will come, and
the untenability of all the charges made against me - both old and new -
will be established. Unfortunately, this will not be as soon as I would
like.

In connection with the above, I apply for the replacement of the entire
investigative group of the Procuracy-General of the RF conducting the
investigation with respect to criminal case No. 18/41-03, the membership
of which was announced to me on 27 December 2006.

28 December 2006
Mikhail Khodorkovsky

Christophe de Margerie, the new CEO of Total - the world's sixth largest oil company - is set to take the reigns of the company in 2007, despite being under investigation for overseeing oil-related bribery schemes in places such as Iraq, Iran, and Russia.

Christophe de Margerie, allegedly no stranger to bribery

From a Holman W. Jenkins column in today's Wall Street Journal:

Mr. de Margerie, for what it's worth, has a walrus mustache and a reputation as a genial, even fun-loving, oilman. He didn't graduate from any French école; though a scion of the Taittinger champagne family, he made his mark in the trenches, leading the company's dealings in the Middle East. His legal problems today arise as a direct consequence of Total's strategy for differentiating itself from other oil companies in how it deals with oil-producing states.

Total prides itself on being a non-"Anglo-Saxon" partner in developing resources increasingly under the control of authoritarian or populist leaders around the world. Mr. de Margerie has gleefully acknowledged that Total overruled its own lawyers in negotiating with Saddam. He tweaks rival BP over its slogan "beyond petroleum," saying Total is "beyond old petroleum practices," i.e., willing to partner on less-advantageous terms with government-run oil companies and step away from its core competencies to help out with education, electrification, whatever host countries want.

You can't argue with financial success. Under Messrs. Desmarest and de Margerie, Total has grown from also-ran to global player. This year, it will likely report more than $12 billion in profit. On the other hand, its strategy of being an understanding friend to radical regimes didn't stop Venezuela's Hugh Chávez from confiscating its Jusepin oil field or unilaterally rewriting the terms of its Sincor heavy crude project. It hasn't stopped Russia from targeting its Khariaga project with the same sort of "environmental" complaints that saw Shell driven out of the country last week.

If the reported suspicions of investigating magistrate Philippe Courroye are correct, Total's strategy may also have involved a certain amount of bribery of local officials and perhaps kickbacks to French politicians, for which the company may yet face painful accounting. Indeed, Total may have been guilty of a serious miscalculation in supposing that being French somehow gave it extra leeway in negotiating the increasingly stringent norms of global corporate behavior.

In today's Moscow Times front page story on the possibility of new charges against Mikhail Khodorkovsky, Alfa Bank chief strategist Chris Weafer speculates on the PR objective of new, trumped up charges:

Alfa Bank chief strategist Chris Weafer said the timing of the possible money-laundering charges was not a coincidence, given the impending sell-off of Yukos' remaining assets.

The Moscow Arbitration Court in August ordered the once-great oil giant's bankruptcy and liquidation.

The money-laundering charges would give authorities a chance to portray the Yukos dismemberment as the Russian equivalent of the United States' Enron case rather than a state assault on a private firm, Weafer added.

Today the New York Sun is running an opinion article by Bob Amsterdam:

The Khodorkovsky Connection

BY ROBERT AMSTERDAM

The New York Sun
December 26, 2006

In the latest news coming out of Russia, Mikhail Khodorkovsky has been transferred within Siberia from a gulag to a pre-trial detention center in Chita for what may be the application of further bogus charges against him. And on Friday, police officials took his father, recently released from hospital, for interrogation.

Although you may not have remarked upon it, even before this news, the name of my client had taken on new significance. For his is one of a handful of names to appear recently in two otherwise seemingly unrelated stories out of Russia: the mysterious poisoning of the former Russian spy, Alexander Litvinenko, and the decision by Royal Dutch Shell to give in to Kremlin pressure and offer up a large stake in the Sakhalin-2 natural gas project.

While both events received publicity, few noted the Khodorkovsky connection, and many in the press and policy communities have yet to understand the precedent-setting significance of his story.

More than 3,000 miles away from Moscow serving a nine-year sentence on tax evasion, the former oil billionaire links the Litvinenko poisoning and the increasingly confrontational and aggressive energy politics of the Kremlin. Mr. Khodorkovsky connects these events not because of a shady conspiracy theory and not because of accusations against the president of Russia in the London poisoning. My client's story explains the relationship of the dissident's death to the Sakhalin heist for another reason altogether: His political persecution and imprisonment and the theft of his assets set the gold standard for Russian impunity.

The expropriation of Mr. Khodorkovsky's oil company, Yukos, was the first in a series of unlawful energy expropriations by the Kremlin, which have created international tension on a level not seen since the Cold War. As Elena Bonner, the widow of Andrei Sakharov, said to me, even in the days of Nikita Khrushchev and Leonid Breznhev, a family member would not have been pulled in for questioning. Success in acting against Mr. Khodorkovsky gave the Kremlin a model to follow in crushing political opposition and seizing property.

The Kremlin also believed it had the tacit permission of the world community to so act. After all, if the West failed to react to the plight of Mr. Khodorkovsky — imagine President Bush imprisoning Bill Gates on tax charges and then nationalizing Microsoft — then Russia could believe that the West would tolerate even more outrageous conduct. For this reason, Mr. Khodorkovsky's legal status is important not only to Russia, but also to Americans and Europeans.

Many view Mr. Khodorkovsky's persecution as a key moment in Russia's anti-democratic backslide. His show trial and imprisonment laid the foundation for Russia's current lawless environment, characterized by the unsolved murders of a prominent journalist and a central banker. While I was one of the first to say that President Putin is entitled to the presumption of innocence in the Litvinenko case, there is little doubt that the dramatic transformations that have occurred under his rule helped create the lawless culture that prevails today.

The assault on Yukos's assets was an assault on both Russian and foreign investors. Yet not only were Russian authorities responsible. The Kremlin had several accomplices, including some powerful foreign friends. Major Western financial institutions such as Dresdner Kleinwort Wasserstein and ABN AMRO participated in the initial public offering of Rosneft, a Russian state company whose core oil producer, Yuganskneftegaz, was expropriated from Yukos and sold at a fraction of its value in an illegal auction. Thanks to the complicity of members of the international financial community in this transaction, the Russians now have the confidence to continue pillaging private businesses such as Royal Dutch Shell.

The consequences for energy relations and geopolitics are potentially disastrous, as the Khodorkovsky case has fundamentally turned the Russian state into a cabal of resource nationalists. There are people in the Kremlin willing to use Russia's gas and oil resources as weapons to advance a political agenda, as demonstrated by punitive energy policies toward pro-Western former satellite states such as Ukraine and Georgia, and projects such as the North European Gas Pipeline, which significantly threatens Poland's energy security.

Instead of running the pipeline through Poland, which would be relatively inexpensive, Russia has chosen the more expensive route under the Baltic Sea. This would keep Poland from collecting transit fees and moreover would allow Russia to cut off Poland's gas supply without endangering Germany. According to Andrei Illarionov, a former economic adviser to Mr. Putin and current fellow of the Cato Institute, there are also individuals within the administration using their control over oil and gas for personal enrichment.

Not only should Mr. Khodorkovsky's name resonate with Americans when they top off their tank at the gas pump, but it should also sound when the Venezuelan president, Hugo Chavez, insults America, and when the Iranian president, Mahmoud Ahmadinejad, compromises the security of the Middle East and holds conferences to deny the Holocaust. The former has just closed major arms and energy deals with Russia, and the latter enjoys Russian protection at the United Nations. The three presidents share a vision of a multipolar world to counter America. Theirs is a disturbing alliance made possible by power gained from the seizure of Yukos and other private energy assets, by Western acquiescence, and by ongoing acts of energy imperialism.

This is the fourth holiday season that Mr. Khodorkovsky will spend in prison, far from his wife and children. He is in danger, exposed to threats to his physical safety — earlier this year he survived a stabbing by a fellow prisoner who tried to gouge out his eye as he slept. Once Russia's leading businessman and philanthropist, Mr. Khodorkovsky is now a "prisoner of conscience," as described by Mark Medish of the Carnegie Endowment. His story reveals the relationship of big energy deals, human rights, and political dissidents. His fate, for better or worse, is determinative of Russia's future in the international system.

Mr. Amsterdam, a founding partner of the law firm Amsterdam & Peroff, writes a blog at www.robertamsterdam.com.

This editorial ran in yesterday's Telegraph:

Time to stand up to the Russians

Vladimir Putin is making himself our problem. There is a difference between persecuting political opponents at home and doing so in neighbouring states; between presiding over the murder of dissidents within your borders and sanctioning their death abroad. The moral distinction may be slight, but the legal distinction is vast: the international order rests on the principle of territorial jurisdiction.

The latest country to suffer the Kremlin's bullying is Georgia. Since electing Mikhail Saakashvili on a pro-Nato ticket in 2003, Georgians have been roughed up by their giant neighbour. Their exports are impounded, their citizens rounded up and deported. President Putin backs separatist rebels in South Ossetia, a stance that sits oddly with his insistence that the bestial repression of Chechen separatism is an internal Russian matter. Now, Russia has doubled the price of its gas.

Georgia is only the latest country to feel the weight of Russian energy diplomacy: Azerbaijan, Belarus, Bulgaria, Moldova, Romania and Ukraine have suffered similarly. Mr Putin's foreign belligerence, like his domestic authoritarianism, is fuelled by oil and gas. Earlier this year, Russia overtook Saudi Arabia to become the world's largest oil producer. At the same time, Gazprom overtook Shell and BP; but it differs from them in being largely run by the state. Kremlinologists point out that Moscow's assertiveness correlates closely with oil prices. In 1979, during the last boom, the USSR sent its tanks into Afghanistan. In 1991, when oil collapsed, the Soviet Union broke apart.

Why, though, is this Britain's problem? We are a long way from Russia, and less dependent on energy imports than other EU states. The answer is that when Mr Putin seizes control of parts of Shell, as he has, he strikes at our livelihood. When he harasses our diplomats, he deliberately insults us. If it turns out he winked at the assassination of Alexander Litvinenko, he will have committed an act of war. The reason Mr Putin treats us this way is because he sees us as a base for anti-Putin exiles.

While we are in no position to defy him directly, we can at least stop supporting him. It is absurd that we hold back from condemning what is happening in Chechnya. It is ludicrous that we admit Mr Putin to the G8, when Russia qualifies neither economically nor politically. It is preposterous that we give him dinner at Buckingham Palace. Yes, Russia is an important energy supplier; but we are an important customer. We should stand up to him. We should, in short, treat him just like any other dictator.

Today the Washington Post is running the attached column by Jackson Diehl which criticizes the surprising lack of action of behalf of Western governments and corporations in dealing with aggressive energy conduct from Russia. This follows an interesting column in yesterday's Post by Peter Baker titled "Which Way Did Russia Go?"

Sen. Richard Lugar says an "attack using energy" should be treated as a conventional military attack

The New Threat To Europe By Jackson Diehl Monday, December 25, 2006; Page A29

This year began with a European energy crisis caused by Russia's cutoff of gas supplies to Ukraine, where a democratic government not to the liking of Vladimir Putin had taken power. Because Russian gas passes through Ukraine on its way to Western Europe, the pressure also dropped in Paris and Vienna and Rome -- and Europeans suddenly realized they were dependent for electricity and warmth on an autocracy that was prepared to use energy as a tool of imperialism.

It looks like the year will end the same way. Georgia and Azerbaijan, two other Russian neighbors that have chosen not to kowtow to Putin, are scrambling to find gas supplies by Jan. 1 to make up for Russian cutbacks or to avoid a huge and predatory price increase. So, oddly, is Belarus, which until now has been a Kremlin client -- but which has resisted a Russian demand that it turn over ownership of a key gas transit pipeline. Western energy companies that have invested in Russia are meanwhile reeling from a crude campaign of bullying designed to force them to give up majority stakes in oil and gas fields to Kremlin-controlled companies. Shell has already caved, allowing Gazprom to take a 50 percent stake in a huge offshore gas field.

It would be nice to report that in the intervening months Western governments have taken steps to ensure that Russia, which supplies anywhere between 30 and 100 percent of the gas consumed by European Union countries as well as much of their oil, is not able to use this leverage for political or economic extortion. Sadly, the opposite is true: Though "energy security" has become a favorite topic for discussion at E.U. and transatlantic summits, next to nothing has been done about it.

That's partly because solutions aren't easy. Weakening Russia's hold over European energy supplies requires measures that would be costly and difficult, such as building new terminals for importing liquefied natural gas or new pipelines to carry oil and gas from Central Asia and the Caucasus to Europe.

There's a less excusable problem, however: the failure of European Union governments to agree on either a common energy strategy or a policy for responding to Russia's growing aggressiveness. Some politicians, like German Foreign Minister Frank-Walter Steinmeier, propose a new Ostpolitik that would entice Russian cooperation with offers of economic and strategic partnership. Others say the E.U. should refuse to renew an expiring economic pact with Russia unless it stops trying to monopolize European energy supplies.

Though it has a vital stake, the United States has been mostly missing from the discussion. That's one reason a recent speech by Sen. Richard Lugar (R-Ind.), the outgoing chairman of the Senate Foreign Relations Committee, was intriguing. Lugar has been a pioneer of some of the most farsighted U.S. policies toward the countries of the former Soviet Union, including the Nunn-Lugar program for securing and dismantling nuclear weapons and materials.

Now he's proposing that the NATO alliance formally adopt "energy security" as one of its central missions. NATO, he told a German Marshall Fund conference alongside the recent NATO summit in Riga, Latvia, is "used to thinking in terms of conventional warfare between nations. But energy could become the weapon of choice for those who possess it.

"A natural gas shutdown to a European country in the middle of winter," he added, "could cause death and economic loss on the scale of a military attack."

NATO, Lugar said, should resolve to treat "an attack using energy" the same way it would a land attack by conventional military forces -- that is, an attack on one country would compel a response by all. That doesn't mean military action, he said; "rather, it means the alliance must commit itself to preparing for and responding to attempts to use the energy weapon against its fellow members."

Lugar pointed out that NATO used to hold exercises to prepare for the logistical and supply challenge of responding to a Soviet attack. A new exercise, he said, "should focus on how the Alliance would supply a beleaguered member with the energy resources needed to withstand geo-strategic blackmail." This wouldn't be easy, he acknowledged: In fact, "the energy threat is more difficult to prepare for than a ground war in Central Europe." Guarding against an energy cutoff by Russia will mean massive investments in new supply lines and reserve supplies, as well as the means to distribute them in a crisis.

That sounds daunting at a time when NATO has its hands full trying to fight a war in Afghanistan. But the energy threat goes to the alliance's historic purpose: defending democratic Europe from attack by the autocratic and belligerent power on its Eastern frontier. And, as Lugar pointed out: "The use of energy as an overt weapon is not a theoretical threat of the future. It is happening now."

From Kommersant:

YUKOS Auditors May Face Criminal Charges

Tax inspectors have accused PricewaterhouseCoopers Audit of aiding YUKOS evade taxes. Lawyers say that the suit filed by the tax inspectorate may result in the auditor, whose clients include Gazprom and the Central Bank of Russia, losing its license and its employees facing criminal charges.

Last week, the Arbitration Court of Moscow accepted a suit by Moscow Tax Inspectorate No. 5 claiming that ZAO PricewaterhouseCoopers Audit abetted YUKOS in tax evasion. The tax inspectorate is demanding that PricewaterhouseCoopers Audit's 2002 contract with YUKOS be invalidated as “ a deal concluded with the a goal contrary to the bases of lawfulness and morality.” The case will be heard by Judge Pavel Markov, the chairman of the bankruptcy judges, who heard the YUKOS bankruptcy case.

PricewaterhouseCoopers Audit is a subsidiary of PricewaterhouseCoopers and is one of the “big four” consulting companies. The other three are Ernst & Young, Deloitte & Touche and KPMG. PricewaterhouseCoopers Audit conducted audits at YUKOS between 2002 and 2004.

The suit against PricewaterhouseCoopers Audit claims that the company produced double audit reports for YUKOS – one official and an separate, internal audit for the oil company's executives. The official audit mentioned the accuracy of YUKOS' financial records and its compliance with Russian law. The internal audit report stated that the company's establishment of a fund for the support of production was illegal and questioned operations with securities. The suit claims that the official audit report was intentionally misleading, which under article 11 of the law “On Auditing Activity,” is grounds for rescinding the auditor's license.

PricewaterhouseCoopers general director Mike Kubena told Kommersant that “written information for the management of a client company is not a double standard but an official audit report… In the written information, we suggested that the management remove the shortcomings mentioned.”

Public relations manager for Deloitte & Touche CIS Evgeny Freidinov told Kommersant that double reporting is prohibited by that company's code of ethics. In May 2003, the U.S. Securities and Exchange Commission fined PricewaterhouseCoopers $1 million for irregularities in its audit of SmarTalk TeleServices in 1998 and company audit partner Philip Hirsch was banned from working in the industry for a year. In Russia, tax charges of 290 million rubles have been made against PricewaterhouseCoopers Audit this year and found legal by three courts.
Olga Pleshanova, Dmitry Butrin, Maxim Shishkin

These two videos illustrate the considerable gap between the two perceptions of Russia - the first, overwhelmingly patriotic, while the second, paranoid and suspicious (complete with Star Wars soundtrack - so it is much more of a joke than a real statement).

Representatives from Human Rights Watch and Memorial are reported to have met with the German Embassy in Moscow, which promised them a more critical approach to Germany's diplomatic relations with Russia.

From the IHT:

Over the grilled meat, hot vegetables and fresh salads, Alexander Petrov, deputy director of the Moscow branch of U.S.-based Human Rights Watch, was candid. "We can function," he said. "We are not under surveillance. But we are regarded as American spies."

Memorial is a charity and human rights organization that monitors human rights abuses in the Russian provinces, particularly in the Caucasus, where independent humanitarian agencies are often harassed and expelled. Nothing is certain in Putin's Russia, said Grigory Shvedov, a Memorial board member.

"You spend all your time dealing with the state," explained Shvedov. "If you change address, it used to take just a few weeks to register it. Now it takes several months. Often, nothing is written down. A lot operates on an oral basis." ...

Independent politicians who have established their own parties to challenge Putin's grip on both the Kremlin and the Duma, or Parliament, have been subject to pressure and intimidation, too.

One was Garry Kasparov, the former world chess champion who now leads United Civil Front, a new political movement; his Moscow offices were raided recently by a counterterrorist unit of the police. Human rights groups said that this was a warning to him and others intending to challenge the Kremlin despite their limited means. "Kasparov has no means to convey his ideas," Petrov said. "How can he when there are no free media?"

So the Russian civil-society movement is looking to Germany. Some see a glimmer of hope. "The German-Russian relationship is so important," said Shvedov. "Here is a chance for Germany and Europe to speak out." ....

When Steinmeier met Kasparov and several leading human rights organizations in Moscow later that Thursday, the German media was kept well away. The Foreign Ministry even kept secret the names of the nongovernmental organizations until the visit was over, with officials giving different reasons. One said that the list of participants had not been confirmed until the last minute. Another said that Steinmeier liked to do things discreetly.

It is not just style, but ideology, that differentiate the German chancellery and Foreign Ministry. The Social Democrats who dominate the Foreign Ministry continue to believe that an "Ostpolitik," or Eastern policy, toward Russia will one day bring Germany's big eastern neighbor much closer to Europe, not just economically but in terms of values as well.

Merkel, judging from her more outspoken public and private meetings with Putin, believes Germany should adopt a more critical stance toward the Kremlin, if Europe's values to have any meaning for Russian civil society.

The result of these different approaches is that Germany's Russian policy, at best, is confused.

In the view of Russian human rights activists, it would help if both the chancellery and the Foreign Ministry listened more closely to those they meet here, be it openly or behind closed doors. "A lot could be done by being in constant contact with the nongovernmental organizations outside of Moscow, especially in the Caucasus, and establishing close partnerships," said Shvedov. "It could provide some kind of protection for them."

The NGOs also suggest that any German assistance should be much more closely monitored so that the funds reach the right people and do not disappear into government channels.

But their biggest request is that Berlin should "keep asking questions. The whole time," said Shvedov. "Ask how many people have disappeared. Ask how many people have been charged and why. Keep tracking the proceedings and results. If European countries are based on the rule of law, it is what we want here."

Just a quick note to wish a happy holiday season to you and yours. As Hannukah has just ended, and while most in Russia will celebrate Christmas on January 7 (apart from Russia's catholics), we wish a happy Christmas to all those in the West and beyond.

Happy New Year, Country!
By Grigory Pasko, journalist

On December 20, Mikhail Khodorkovsky and Platon Lebedev were transferred to Chita: one from Krasnokamensk in Chita Oblast, the other from the settlement of Kharp in the Yamalo-Nenetsk Okrug. The official story is that this was done for the conducting of some kind of “investigative measures” within the framework of the continuing criminal case with respect to employees of the YUKOS oil company.

Why was it decided to conduct the investigative actions right at the end of December and not some other time? What happened that the authorities suddenly remembered about Khodorkovsky and Lebedev again? What could be the goals and motives of those people who took upon themselves the responsibility for deciding the fates of other people?

The administrators of the gulags tend to apply additional psychological pressure during the holidays.

First of all, I think that nobody is going to be conducting any investigative actions in Chita, either in the remaining days of December or in the first half of January. The procuracy’s investigators, just like all the citizens of the Land of the Soviets, are going to be drinking vodka non-stop for the next three weeks as they celebrate one holiday after another: the Catholic Christmas, New Year, the Orthodox Christmas, and the “Old New Year” on January 13-14… The lawyers for Khodorkovsky and Lebedev have been summoned (or in the argot – “dragged off”) to Chita for December 26 and 27 only to show the appearance of furious activity before the bosses: look how zealous we are, even working during the holidays, with nary a concern for our own well-being. (Although all that freebie cognac already sloshing around in their
livers probably tells much more about just how concerned they are for
their well-being).

The whole point of convoying the famous prisoners like that is to break their psychological state of mind once more. Khodorkovsky recently had a long conjugal visit. The man is still under the influence of having seen his loved ones. His routine in the penal colony has become more or less established; he hasn’t even had any reprimands for nonsensical contrived violations of the rules in a long time. He’s already grown accustomed to the surreal and stupid situation he finds himself in. He’s lost weight, his hair has turned gray, but still, he’s gotten used to the situation. No doubt he’s learned how to laugh at the manifestations of idiocy all around him.

The people assigned to keep a constant watch on him see all this; they record it and then report it where they’re supposed to. Where they’re supposed to, the lips of Procurator-General Chaika have already voiced the idea of continuing the investigation in the criminal case of the “YUKOS figurants”. (I’ve come to the realization that with the arrival of the new boss, the Procuracy-General has but three duties left to perform: the extradition of Berezovsky and Zakayev, the YUKOS case, and close cooperation with the Russian government).

And so, now that Mikhail Khodorkovsky and his “partner in crime” Platon Lebedev” have set their minds at rest a bit as the end of the year approaches, it was decided to “jerk them out” for another convoying – just so they wouldn’t start thinking that life is a bowl of cherries! This is the only purpose of such actions. Of course, the investigative organs are going to go through some motions and show some signs of life. But not in December and not in the beginning of January of the coming year.

And why will they need to show some signs of life? In order to underscore something that everybody has known for a long time already anyway: that Khodorkosky has and can have no hope of early release on parole. That is, technically speaking he does have such a right: half his term will be over in a year. But next year will be the year of elections to the State Duma, and in another year – the operation to replace the president will be conducted. There’s clearly no room for Khodorkovsky on the inside of all these games. So he has to remain behind bars. Under any pretext, on any unlawful grounds.

…And the method for putting psychological pressure on people during the holidays is a very old one indeed. Just look at my own experience. In the Vladivostok prison, I was held in one and the same cell for two months during the investigation. When I became accustomed to the faces, smells, and regime of this cell, when I received a holiday package from the outside, I was transferred just a couple of hours before midnight on New Year’s Eve to a new cell, which held forty people instead of ten like it was supposed to. I remember thinking then: dragging you from the cell where you’ve gotten used to the nightmare and throwing you in another cell just before the New Year is a very cheap move. And you’ve probably guessed already that many of the things I’d managed to acquire in my two months in the previous cell (not to mention the holiday package) remained in the old cell.

But I was already an experienced “zek”. I didn’t let it upset me; I quickly made the acquaintance of my new cellmates, got into the rhythm of things in this cell, and even took part in the making of a New Year’s cake. In case you’re interested, here’s the recipe so you can jot it down for yourselves: one handful of breadcrumbs made from brown or black bread (whatever happens to be at hand), a couple of spoonfuls of powdered milk, water, and sugar. If you’ve got some condensed milk or a spoonful of honey, that’s super. Mix it all together, set it out in the winter cold next to the window bars for 20-30 minutes, and voila, your holiday cake is ready. So tasty you’ll be licking your fingers!

Mikhail and Platon won’t lose their cool. They’re experienced already; they’ve got the scuffs and scrapes to prove it. And they will find the inner strength, even in their new surroundings, to celebrate the holiday and to look condescendingly upon the efforts of today’s Russian power to psychologically destroy them.

This we can survive– we’re much stronger than they are psychologically.

It will be worse if they start destroying people physically out of their own sense of helplessness.

Come to think of it, they’ve already started doing that, haven’t they?

Following the announcement that Georgia has been forced to accept a two-fold increase in natural gas prices from Gazprom, senior Tories have come forward to propose a NATO-style energy pact to bolster European energy security.

Liam Fox urges action to protect energy security

According to the Telegraph, Liam Fox, the shadow defense secretary, said the following in regards to Russian energy bullying:

"While the West has been focused on the Middle East, we have seen the resurgence of Russian nationalism and a willingness to use natural resources as a political weapon," he said. "Given the nature of Russia's political leadership, this is hardly surprising. Following events in Ukraine, and now Georgia, it is high time for a wake-up call to western politicians. We have been warned."

Blaming Gazprom is only half of the story

Derek Brower, Journalist

AND so another squabble ends with Gazprom the victor. Shell, once the kind of company that dictated terms to others, got a taste of the new medicine. The Kremlin is the alchemist, and its gas monopoly the distributor.

The deal signed in Moscow on Thursday over Sakhalin 2’s liquefied natural gas (LNG) project puts Gazprom in control of it. The Kremlin will now have full oversight of the project’s costs. And sometime soon the gross collection of ecological charges against Sakhalin Energy, the consortium developing the LNG plant, will be either dropped altogether or converted into a light fine for the operator. Along with its medicine, Shell swallows a great deal of pride.

It has become a familiar pattern. Western or independent Russian companies think they have a won a good deal, and then Gazprom decides otherwise. In the Barents Sea, a handful of western firms fought for a slice of the Shtokman field – another mooted LNG development – and then Gazprom cancelled the tender and said it would develop it on its own.

And it doesn’t just happen on Russian territory, either. In Central Europe, a project called the Nabucco pipeline (in honour of the Verdi opera) would have brought natural gas from the Middle East and Central Asia into Europe. For politicians in Europe panicking about the continent’s ever-rising dependence on Russian gas, it was a beautiful idea.

And then Gazprom wrecked that project, too. In the summer, the Russian company signed a deal with Mol, Hungary’s national energy firm, to develop a pipeline that would target the same markets in Central Europe as Nabucco. That put the EU’s “anti-Russian” line in doubt. In November’s Petroleum Economist I revealed that Nabucco’s partners had, in response, now started to negotiate with Gazprom about taking Russian supplies through a pipeline whose original strategic purpose was to avoid exactly that. Once that story broke, even politicians in Brussels started to cool towards the project.

And then there is “Nord Stream”: another pipeline – and another victory for Gazprom. Without even a feasibility study crossing the desks of planners in Brussels, that line between fields in northwest Siberia and Germany was presented last year as a fait accompli. It goes under the Baltic Sea, avoiding Poland and other Baltic transit countries. And that means that it is both a potential ecological nightmare and a project that fundamentally endangers the security of energy supply in the countries between Russia and Germany.

Do we need more examples? How about the new Balgzand-Bacton pipeline (BBL) between the Netherlands and the UK? Gazprom has said it wants a position in the UK’s lucrative downstream market. Now, through a deal with the Netherlands’ Gasunie, it has a stake in the BBL, and with it an increased presence in the UK. Or what about Central Asia, at the other end of the supply chain? The EU got a rare strategic victory this month when the South Caucasus Pipeline (SCP) came on stream, taking gas from Azerbaijan to Turkey – and eventually Europe. But Gazprom already has the means to make that line insignificant. It can prevent Turkmenistani and Kazakhstani gas flowing through the SCP by blocking any attempt to build a pipeline under the Caspian Sea. And, elsewhere in the region, it has already stopped Iran from exporting its gas through Armenia into Georgia and Ukraine – and eventually Europe.

Ruthless and efficient
All of these victories for Gazprom and its masters in the Kremlin have two themes in common. The first is Gazprom’s ruthless efficiency in executing its strategy. The company’s executives long ago latched onto Europe’s language about “security of supply” and threw it back in the faces of Brussels’ bureaucrats. “You want security of supply,” one senior Gazprom executive told me a few weeks ago. “We want security of demand.” What Gazprom wants is markets. What Gazprom does is secure them.

There are lots of legitimate complaints about how it executes this strategy. The most basic is that Gazprom shows little regard for legally binding agreements. On Sakhalin, the Kremlin threatened to revoke a production-sharing agreement (PSA) unless Shell cave in and give Gazprom a stake. The eco-charges that Oleg Mitvol and his minions at Rosprirodnadzor, the environmental watchdog, brought against the consortium applied pressure – $30bn of pressure – from another angle. But those Gogolian charges were absurd. Few doubt that Shell and its partners were guilty of many environmental abuses. But the decision to prosecute Shell, and not a thousand other abusers in a land of rampant ecological destruction, was political.

So was the decision about Shtokman. Russia was under no obligation to form a joint venture with any of the companies that had bid to participate in the field. But reneging on an agreement to do so was more evidence that signatures on contracts in Russia mean very little when the government – or Gazprom – decides it made a mistake signing up in the first place.

The deal with Mol was another example of Gazprom’s ability to execute its market strategy. The EU upped the ante with Nabucco. So Gazprom called Brussels’ bluff. Unlike Nabucco, Gazprom already has gas to send down any new pipeline it builds to Central Europe. That is enough to kill the EU’s project. As Aleksandr Medvedev, head of Gazprom’s foreign arm Gazexport, told me recently: “Unlike the Verdi Opera, there will be no execution in this Nabucco.”

As for the now-notorious deal-making of Nord Stream, what better way could there have been to ensure the progress of that project into Germany – which Gazprom now calls a “hub state” – than to corrupt one of the EU’s greatest chancers, Gerhard Schroeder? Thanks to Schroeder, the Nord Stream consortium won preferential credit from German banks. Thanks to Schroeder, now an executive at the same consortium, Gazprom gets a line into its hub state – and compromises its neighbours’ security in the process.

Kto vinovat?
But should the EU or anyone else really blame Gazprom for all of this? Gazprom is not ExxonMobil. Had the US company pursued a policy of expansion in the same way its public image would now be in tatters; its reputation as a safe company to deal with would be shot; it would be facing legal challenges on a number of fronts; and its share price would have fallen into the Gulf of Mexico.

Gazprom, though, is different. Blaming it for ruthlessly trying to secure markets for its gas is like blaming a security service for poisoning someone it doesn’t like, or blaming Schroeder for being corrupt. Or blaming a leopard for its spots.

As the foreign economic arm of the Russian state, Gazprom has been charged with winning Russia the influence it craves on the world’s stage. It does it brutally at times. It does it successfully, too.

But the failings of the companies and politicians who deal with Gazprom also give the Russian company a head start. That is the second thing Gazprom’s successes have in common. On Sakhalin, for example, Gazprom was helped by Shell’s incompetence. The rise and rise of Sakhalin 2’s costs – which my sources tell me now stand at $26bn, compared with the $10bn Shell originally projected or the $20bn it is now owning up to – was a red flag to Russia’s bull.

That’s one example of a Western company shooting itself in the foot when dealing with Gazprom. But what about the EU? Brussels seems to have made a pastime out of its incompetent relations with the company. Indeed, instead of making a scapegoat out of the Russian company, the EU and others should start attributing blame closer to home. And then it should do something about it.

Enough of the slogans, already
Doing, though, is not what the EU does best. Andris Piebalgs, the EU’s energy commissioner, and all the other luminaries of the European energy mess are much better at talking. Like a mantra, the same words come tumbling out of their mouths. To secure energy supplies, Europe needs more liberalisation, they say. Europe needs a common energy policy, they argue. Europe must start speaking with one voice to its suppliers.

Fine words, all of them. But the EU has been saying the same thing for more than a decade. And the common voice, common energy policy and common liberalised energy market have not emerged.

And while Europe has been stuck in its rhetorical game, Gazprom has exposed the deficiencies on the ground, using what Robert Amsterdam calls a policy of “disaggregation”, the old technique of divide-and-conquer.

Pulling Mol away from its partners in the Nabucco project was a classic example. So was the decision to turn Germany into a “hub state”. Both successes for Gazprom relied on the company appealing to the narrow interests of Budapest and Berlin. Politicians in both countries know who votes for them. And they don’t want those voters to be without gas to heat their homes the next time Gazprom cuts off supplies to Ukraine.

And those politicians manifestly do not care about their neighbours, either. Routing the Nord Stream pipeline under the Baltic Sea to Germany, instead of overland along a cheaper established overland route through Poland, means the Baltic States will remain at the mercy Russia and Germany for their energy. Russia has already cut oil supplies to the Baltic countries, so politicians in Riga, Tallinn and Vilnius are justifiably worried. Mol’s deal with Gazprom will turn Hungary into the next “hub state”, much to its neighbours’ irritation.

Meanwhile, in the realm of jargon, Europe’s insistence on “short-term liquid” contracts, with “third-party” access to all infrastructure, has had two disastrous consequences. The first is that it has encouraged Gazprom to seek long-term contracts with suppliers it already has in its pocket, like the German companies involved in Nord Stream. Gazprom knows that with Germany and its biggest companies – and political donors – on side, exemptions to the “third-party” access rule will probably be rubber-stamped. It will help, when those decisions come to be made early next year, that Germany takes up the EU presidency next month.

In any case, the third-party-access rule has also allowed “speculators” into Europe’s strategic energy supply sector. That word belongs to Medvedev, and it cuts to the heart of Europe’s problem. By allowing small companies to get access to big pipelines, traders with no real market of their own have been able to buy Gazprom’s gas. When they can’t sell it on – because they don’t have customers – they sell it back. To Gazprom. And Gazprom passes that cost onto customers. That has been happening for sometime on the TAG pipeline in Austria. Gazprom doesn’t like dealing with these companies. And nor should European customers who end up paying more for their gas because of them.

In the background to Gazprom’s objections to Europe’s half-baked liberalisation are its own problems in the upstream. The company hasn’t been spending enough to develop the big fields on the Yamal peninsula, historically the source of its exports. The International Energy Agency believes that Gazprom is under-investing in the upstream by $10bn a year. That means Gazprom must rely on Central Asian gas to meet its own internal Russian demand, as well as its export commitments; making its strategy to prevent Central Asian gas reaching Europe all the more vital.

But Gazprom’s need for money in the upstream also forces it to seek long-term contracts with European partners. That is established business logic – but it is logic that is not endorsed by the EU, which is still stuck ideologically insisting that a common, liberalised energy market is the way to secure long-term energy supplies.

2007: More of the same
The EU has an opportunity to address all of this in a couple weeks, when on 10 January the Commission unveils its new Energy Review. Its findings will be covered on this blog. But what my sources in Brussels tell me is not encouraging. Genuine alternatives to the zero-sum game of ever-increasing liberalisation will not be part of the Review. There will be no widespread push to develop different energy sources, such as a renewed programme of nuclear energy, clean coal, or strategic prioritisation of LNG terminals. All of those policies would allow Europe to pursue its liberalisation hobbyhorse while at the same time consolidating genuine diversity of supply. But those policies are unlikely to feature in the Review.

The Review will probably create a new common energy regulator. And there will be another attempt to force big companies like Eon and RWE to “unbundle” assets in the name of liberalisation. It will call on Russia to open its own energy markets and ratify the Energy Charter.

But what it won’t do is get Europe out of its mess. To persuade companies like Mol, E.On or Gasunie to act against their shareholders’ interests and in favour of Europe’s fuzzy strategic goals will require more than fine words about deregulation.

That means that 2007 is likely to bring more of the same: Europe worrying about Gazprom, and Gazprom dominating Europe. Europe worrying about its approaching gas supply crisis, and Gazprom repeating, as Medvedev said to me recently: “We are the guarantors of supply.”

And so Europe will get more, not less, of Gazprom next year. But what it needs is more, not less of Gazprom’s ability to adopt a strategy, and then execute it. If the EU really wants to know how to build a common foreign energy policy, it shouldn’t be looking to its bureaucrats in Brussels to develop one. It should be watching Gazprom, learning, and then copying.

Climate change: bad, but not a disaster … yet

By Tom Nicholls

There are a few global-warming deniers still out there, but they form an increasingly marginal – and eccentric – minority. Scientific opinion overwhelmingly supports the idea that rising concentrations of greenhouse gases (GHGs) in the atmosphere is leading to a dangerous warming in the earth’s temperature. And that includes the national academies of all the Group of Eight countries.
So far, so good. But the fact that the consensus is growing over the science means little unless it is accompanied by co-ordinated global action, given that the problem is not one that respects national boundaries.
A great deal more needs to be done if GHGs are to be brought to levels that are manageable over the long term, but, encouragingly, there are signs that relevant action is being taken at a political and corporate level. Examples include: new tougher emissions targets under the European Union’s Emissions Trading Scheme (ETS), the breakaway of some US states from the anti-Kyoto federal position and a burst in interest in the money side of carbon schemes by some of the world’s biggest finance houses.

The bad news first …
The gloomiest projections for what might happen if we do nothing about climate change are about as apocalyptic as it gets: flood risk because of melting glaciers, widespread population displacement, water shortages, reduced crop yields, a rise in disease and widespread death from malnutrition and heat stress. The developing world would be hit hardest, but every country would feel the effects.
The Stern report, commissioned by the UK government (compiled by Nicholas Stern, the government’s chief adviser on the economics of climate change), predicted that a staggering 20% of the world economy could be destroyed by the middle of the century if no action is taken to mitigate climate change. It warned of irreversible social and economic disruption on a scale similar to the great wars and the economic depression of the first half of the 20th century.

Now the good …
Bad, yes. But the good news is that it’s not a total disaster. Not yet, anyway. The same report said there is still time to bring carbon emissions – and therefore global temperatures – under control. It projected that putting the right measures in place would cost 1% of GDP: a hell of a deal if Stern has got his sums right. In effect, Stern has converted the global-warming debate into a valuable new currency – and one the US understands: money.
Other people have said broadly the same thing. A report by PricewaterhouseCoopers earlier in the year came to many of the same conclusions – that, on present form, we’re heading towards catastrophe, but that there’s still time to avoid it. Similarly, International Energy Agency executive director Claude Mandil recently said that “the energy future we are facing today, based on projections of current trends, is dirty, insecure and expensive”, but that it doesn’t have to be that way. “New government policies can create an alternative energy future which is clean, clever and competitive.”
In short, looked at from a negative point of view, climate change could cost the world up to $7 trillion and leave 200 million people as refugees because of drought or flood. Looked at from a positive point of view, tackling climate change is the way to safeguard economic growth in the long term.

The cure
So, what needs to be done? The main thing that has been lacking is co-ordinated, comprehensive international co-operation. The Kyoto Protocol was a good idea that was undermined by the non-participation of too many big carbon emitters. No global carbon-reduction scheme will work properly without the involvement of the US, which produces 25% of the world’s pollution. But Washington did not sign up. China is another conspicuous absentee.
And herein lies a political impasse: the White House won’t sign up to Kyoto unless China and India do too. But even though China is expected to overtake the US as the biggest carbon emitter by 2010, Beijing justifiably wonders why it should face emissions curbs in the same way. After all, the West achieved its lofty living standards without a thought to the environment.
There is always a chance that the US, which has resisted emissions caps on the grounds that it could harm the competitiveness of US companies, may change its position – possibly after the 2008 presidential election.
In addition, although Washington is inflexible at the moment, the actions of individual states and many companies suggest the necessary sea change in attitude is already under way and that US global-warming movement now has unstoppable momentum. In September, California became the first US state to impose an emissions cap. Seven states in the northeast have formed the Regional Greenhouse Gas Initiative to reduce emissions through a cap-and-trade system.

Green: the colour of money
The investment community is also placing green bets. US investment bank Morgan Stanley plans to invest in $3 billion of carbon emissions credits, projects and other initiatives related to GHG emissions reduction over the next five years. A year ago, Goldman Sachs said it would plough $1 billion into projects that generate energy from alternative energy. UK investment banking group Climate Change Capital, which is dedicated to clean-energy and low-carbon investments, has raised a carbon fund of around $1 billion. Significantly, hedge funds are now entering the market.
Emissions trading is already big business and is turnover is rising at an exponential rate. No-one, especially not Wall Street, is likely to miss out.

The sky’s the limit
The dawn of a low-carbon economy presents an attractive business opportunity for companies willing to embrace the technology now. It is thought that markets for low-carbon energy products could be worth at least $500 billion a year by 2050.
Take China and India. Between them, they are building something like one power station a week – mostly fired by dirty coal. These need to be built so that they can be retrofitted with technology to store the carbon they produce and to burn the fuel as cleanly as possible. That, in theory, constitutes a staggeringly large market gap for companies with the right technology.
The Pew Center on Global Climate Change, a non-profit organisation that promotes awareness on global-warming issues, recently published research that it says shows a growing consensus among corporate leaders that taking action on climate change is a sensible business decision.
Some of the biggest energy companies have already clearly signalled that that is their belief too. Oil major BP, for example, plans to invest $8 billion over the next decade on its new low-carbon business. Last year, Richard Branson’s Virgin company pledged to invest $3 billion on renewable energy schemes and technologies over the next 10 years – all the profits from Virgin’s travel businesses over that period.

The EU turns up the heat
Then there is the European Union’s groundbreaking ETS. Launched in 2005, the ETS has, so far, had mixed reviews. Initially, European governments set the bar far too low for big polluters, handing out too many carbon credits to their companies and failing to provide sufficient incentives for them to cut emissions. Also, the ETS doesn’t yet cover all of the big carbon-emitting business sectors; aviation, for instance, is exempt.
Yet, again, there’s reason for optimism. The EU has just made got tougher with its carbon targets in an effort to meet its commitments under the Kyoto protocol. By cutting the number of carbon credits, it hopes to force companies to become greener, push up carbon prices to a level that will encourage investment in carbon-mitigation technologies and to avoid a repeat of last spring’s carbon-market fiasco, when the excessive number of permits caused a slump in the carbon price and triggered claims that the scheme had been mismanaged.
And, despite its flaws, the ETS shows that a carbon market is a feasible concept and could be expanded elsewhere. The much-maligned Kyoto process also provides valuable lessons.
But the success of such schemes in the future ultimately depends on one thing: uncompromising decisions by politicians. In 2005, the G8 leaders signed a communiqué that included a political statement and an action plan covering climate change, clean energy and sustainable development. It’s a question of following that up with the incentives that will encourage the right practices.

Back in April, Der Spiegel broke a big story which found that Deutsche Bank may have been used by the recently deceased Turkmenistan dictator Saparmurat Niyazov to funnel hidden proceeds from gas deals to the tune of hundreds of millions of dollars a year.

The Turkmenbashi preferred to bank in Germany

The Spiegel report noted:

One stark example of just how much is contract no. 14/404, dated May 14, 2001. The nine-page document defines the terms of Turkmen gas deliveries to Ukraine over a five-year period. The treaty was expected to generate revenues of $1.68 billion for 2002 alone, a princely sum for Turkmenistan, a country where about half the population lives in poverty. But the deal contains one important detail of which the Turkmen people are probably unaware -- information about the transaction bank account. This little nugget of critical information can be found at the bottom of the last page: "Central Bank of Turkmenistan, Acc. No. 949 924 500 DEUTSCHE BANK AG, Frankfurt am Main, Germany, Taunusanlage 12-21...Swift: DEUTDEFF."

Following the death of the Turkmenbashi, a document was leaked to the Financial Times, proving that Deutsche Bank manages billions of dollars in accounts for Turkmenistan, provoking calls for an official probe among the exile community.

Turkmen exiles seek Deutsche probe By Hugh Williamson in Berlin and Isabel Gorst in Moscow

Deutsche Bank, the German bank, was on Friday under pressure over claims it was holding billions of dollars in accounts formerly controlled by Saparmurat Niyazov, the autocratic president of Turkmenistan who died suddenly on Thursday.

In a document obtained by the Financial Times, the German bank is shown to hold an account for a $1.68bn Turkmenistan government contract, signed in 2001, to export gas to Ukraine.

The document says the account is managed by the bank for the Turkmenistan central bank.

Much of the country’s central bank funds were under the personal control of Niyazov, according to finance experts. A report in June stated that the European Bank for Reconstruction and Development had warned that funds in the Turkmen central bank were under the “discretionary control of the president without appropriate regulation and transparency”.

Niyazov, whose funeral is to be held tomorrow, maintained a personality cult that impoverished his country and oppressed opposition groups.

Leaders of a Vienna-based opposition group wrote on Friday to Angela Merkel, the German chancellor, demanding an “official investigation” into Deutsche Bank’s role. The letter from the exiled Republican party of Turkmenistan cites an estimated $3bn (€2.3bn) held by Deutsche Bank and other foreign banks.

It said there “are further questions about money-laundering” [and] “violations of European Union banking standards on transparency”.

Deutsche Bank in Frankfurt declined to comment.

Speculation over Deutsche Bank’s involvement with Niyazov has been circulating for months in Turkmenistan, according to oil industry workers in the region. Global Witness, a London-based non-governmental group that reported this year on Deutsche Bank’s involvement in Turkmenistan, last night said: “Deutsche Bank should come clear on the Niyazov funds it holds, and if necessary freeze the accounts to ensure the money is not stolen.”

Alexander Zhadan, Niyazov’s private secretary, controlled his financial affairs. Mr Zhadan has not been seen since the the day before Niyazov died, according to unconfirmed reports.

Andrei Grozin, an expert on central Asia in Moscow’s Institute of the CIS, said it was “naive” to think European banks would return the funds to Turkmenistan. He added that Russian officials set to attend Niyazov’s funeral, including Mikhail Fradkov, the prime minister, and Alexei Miller, the head of Gazprom, the gas monopoly, were expected to remain for talks about gas supplies and revenues.

Today CFR.org is running a nice synopsis of the Turkmenistan energy situation following the unexpected death of the "Turkmenbashi."

Which Way Will Turkmen Gas Flow? December 22, 2006 Prepared by: Carin Zissis

Peculiarities marked the career of Saparmurat Niyazov, the hard-line dictator who ruled Turkmenistan for twenty-one years until his unexpected death on December 21 (AP). Even as nearly 60 percent of this gas-rich, largely Muslim Central Asian country lived in poverty, Niyazov funded lavish projects (Guardian), including an ice palace outside the capital, Ashgabat, and a manmade lake in the middle of a desert. But the self-obsessed Niyazov, architect of one of the world’s most bizarre personality cults, failed to name a successor. This raises questions about the prospects of a reprieve for the country’s beleaguered citizens, and leaves in doubt Europe’s energy security (FT).

Obituaries have emphasized that Niyazov—known as Turkmenbashi, or ruler of all Turkmen—governed the nation with the fifth largest national gas reserves (BBC) in the world. His decision to invest in gilded statues of himself rather than infrastructure left Turkmenistan reliant on Soviet-era pipelines run by Gazprom, Russia’s largest company and the world’s biggest natural gas producer. Only Russia and Iran directly purchase gas from Turkmenistan (map). But the broader importance of the Central Asian energy source was underscored during a near crisis last winter. In a January 2006 gas price row with Kiev, Moscow cut off supplies to Ukraine and European deliveries were also imperiled. A complex deal provided Ukraine with adequate, and relatively cheap, supplies from Turkmenistan (RFE/RL).

Niyazov spent the past few years working up pipeline agreements to try to end dependence on Russia . One plan involved plugging into the Nabucco pipeline (FT.com), running from Azerbaijan through Turkey and five EU countries, to weaken Russia’s control on European gas supplies. Radio Free Europe/Radio Liberty reported that during German Foreign Minister Frank-Walter Steinmeier’s visit to Ashgabat in November, Niyazov informed him that a new giant gas field had been discovered in Turkmenistan and invited Germany to participate in pipeline construction. In April 2006, China and Turkmenistan signed an agreement in which Beijing agreed to fund a pipeline that would potentially threaten Gazprom’s regional standing (PDF), writes Eurasia expert Kathleen J. Hancock in the China and Eurasia Forum Quarterly .

Still, Gazprom succeeded in reasserting control (Asia Times) over Turkmen gas in a September deal that guaranteed Ashgabat a 50 percent price increase. Niyazov’s death now raises questions over where the gas may end up. A Statfor report suggests keeping an eye on whether Russia and Iran clash over shared claims for the resource. There is also speculation about whether the dictator’s death could shed light on the murky world of natural gas deals in Eurasia. Turkmen gas travels to Ukraine through Gazprom’s pipelines by intermediary companies, which lack corporate oversight, according to an April report by London-based watchdog group Global Witness.

While neighboring countries worry over gas supplies, the direction for this nation of five million people remains unclear. The government is deeply corrupt—ranking 142 out of 163 countries in Transparency International’s annual Corruptions Perceptions Index —and its citizens isolated by clampdowns on press freedom. The Committee to Protect Journalists reports that only the country’s wealthy—who have satellite dishes—can access foreign news. Only North Korea garnered a worse press freedom ranking from Reporters Without Borders. The U.S. State Department said Turkmenistan’s government in 2005 carried out “serious abuses and its human rights record remained extremely poor.”

Khodorkovsky Lawyer Warns of New Fabricated Charges
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LONDON, December 22 – Mikhail Khodorkovsky has been moved from his prison to a pretrial detention facility, and new charges may be brought against him. The Russian prosecutor has informed Khodorkovsky’s legal counsel that investigatory hearings on a new criminal case will commence at a pretrial detention facility in Chita, southeast Siberia, on December 26.

Robert Amsterdam, Khodorkovsky’s international defense counsel, stated: “What we can expect are trumped-up charges designed to keep a political prisoner in Siberia at a time when international alarm over the deterioration of human rights and the rule of law in Russia is increasing. In the face of growing worldwide concern about Mr. Khodorkovsky, the Kremlin’s response may be to try to deflate sympathy for him by introducing totally unfounded new charges as a means of character assassination. In reality, Mr. Khodorkovsky’s only crime was to oppose the Kremlin on matters of corruption, democracy and the free market.”

Mr. Amsterdam added that new charges would be the Kremlin’s way of providing moral cover for its expropriation of the Yukos oil company, which was the opening act of the Kremlin’s attack on private property rights in the energy industry.

International political leaders, including Chancellor Angela Merkel of Germany and the President of the European Commission, José Manuel Barroso, and respected figures such as former Czech President Vaclav Havel, former Polish President Lech Walesa, and former Irish President Mary Robinson, have raised concerns about Mr. Khodorkovsky’s case. The Kremlin has blatantly disregarded these concerns at a time when international esteem for Russia’s rule of law is at an all-time low.

Mr. Amsterdam said: “This regime has lost its moral authority to dispense justice. If new charges come to light, no one doubts that they would be purely politically motivated. What needs to be examined today is the criminality of certain people in or near the Kremlin.”
Mr. Amsterdam stated that while he would be appalled by new charges, they would not surprise him. “They arrested an innocent man. They put on a show trial reminiscent of Stalinist tactics for dealing with political opponents. Defense lawyers were threatened with disbarment or deported. They sent Mr. Khodorkovsky to the gulag in a remote location in Siberia. They destroyed his company with absurd tax charges, amounting to eight dollars of tax per dollar of revenue in 2004. They forced the closure of his charitable Open Russia Foundation, the first example of modern Russian philanthropy. They sent masked officers armed with machine guns into the orphanage for war victims run by his parents, turning over every last stone in their search for his remaining funds. They announced the seizure of his house, threatening to throw out his wife and school-aged children. Should anyone be surprised by new charges designed to bury Mikhail Khodorkovsky?”

Mr. Amsterdam also drew attention to the timing of Mr. Khodorkovsky’s transfer to the pretrial detention facility, which occurred on December 20, and the opening of the hearings scheduled for December 26. “The people behind some of Russia’s recent outrageous acts of state criminality have long demonstrated skillful timing and an acute understanding of the news cycle, choosing the most opportune moments to carry out their malicious deeds while minimizing international attention,” he said.

Robert Amsterdam, founding partner of Amsterdam & Peroff, is international counsel to the political prisoner Mikhail Khodorkovsky. He writes a blog at www.robertamsterdam.com.

Interesting article on the spy situation in the New York Times today.

President Vladimir V. Putin said foreign spies in Russia had been “showing heightened interest in classified economic information,” the latest Kremlin expression of its worry that it has been under a growing threat from outside intelligence services. Mr. Putin’s remarks, made on Security Services Day, followed public comments Tuesday by Nikolai P. Patrushev, the head of the domestic intelligence agency, who said foreign news media bureaus were increasingly being used by spies. Public hand-wringing about spies has been used to justify crackdowns against groups or classes the Kremlin deems as threats, including foreign nongovernmental organizations, whose activities were restricted and more closely regulated with a new law that took effect this year.

The complete article from the FT:

Gazprom strikes $7.45bn Sakhalin-2 deal Arkady Ostrovsky in Msocow

Gazprom, Russia’s state backed gas giant, on Thursday agreed to pay $7.45bn for majority control in Sakhalin 2, the $20bn oil and gas project led by Royal Dutch Shell, cementing the Kremlin’s grip on the country’s energy resources and ending months of sustained pressure on foreign investors.

Shell, which owned 55 per cent stake of the project, and its two Japanese partners – Mitsui and Mitsubishi – agreed to halve their stakes to give Gazprom control and unblock the project, which was almost stalled by Russian authorities.

The price paid by Gazprom for its control – 50 per cent plus one share – was much higher than many analysts expected. “It is a fair price and it should reduce the shouting about expropriation [of assets],” said Al Breach, chief strategist at UBS Russia.

Shell will remain the operator of the project, which involves bringing oil and gas from offshore and transporting it through twin pipelines across the length of the Sakhalin island to an oil terminal and a liquefied natural gas plant, the first in Russia.

The highly political deal was negotiated with the help of three governments – UK, the Netherlands and Japan – and sealed by Vladimir Putin, Russia’s president. It follows months of public threats by Russian officials to withdraw licenses from Shell on environmental grounds.

In return for gaining control in Sakhalin, Russia approved an increased budget for the project and effectively dropped a series of environmental complaints against it, suggesting these had been little more than an negotiating tactic.

Mr Putin said: “I am very pleased that our environmental agencies and our investors have agreed about the resolution of the questions which have arisen.” He also thanked foreign companies for their “flexibility in the course of negotiations”.

Russia also agreed to double the cost of the project to $20bn, something it had opposed for months. “The project is becoming more expensive and there are objective reasons for this,” said Victor Khristenko, Russia’s Minister for Industry and Energy, who had argued just a few weeks ago that cost over-runs were unjustified.

Jeroen van der Veer, Shell’s chief executive of Shell, said in a statement that the company’s priority was “to get Sakhalin-2 up and running”, describing the agreement as “an important step foward.” .

The deal eliminates one of the biggest anomalies in Russia’s energy sector and irritants to the Kremlin – a large project developed without Russian participation and in defiance of Gazprom’s export monopoly. The deal was negotiated in the mid-1990s, when the oil price was low and Russia’s bargaining hand weaker, on terms which were seen as advantageous to foreign companies.

Clawing back control over Sakhalin 2 is seen by the Kremlin as “restoring justice”, one senior Russian official said. “The only problem is that in Russia the law and justice are not the same thing,” he added.

[Translator's note: In general, when Russians speak of the "Far East" or use the word "Maritime", they're not talking about Japan or Nova Scotia, but about the RUSSIAN Far East, which is historically and culturally somewhat distinct from Siberia. It's the whole area along the Pacific Coast, including such places as Vladivostok, Khabarovsk, Sakhalin, etc.]

Regional update

The Far Fringes
Grigory Pasko, journalist

The Far East must be integrated into Russia, but in its present lamentable state the region represents a “threat to national security”, declared president of Russia Vladimir Putin at a session of the Security Council this past Wednesday.

It just so happened that I was in the Far East in the days preceding the session: in the cities of Ussuriysk, Spassk-Dalny, and Vladivostok.

What I saw and heard forced me to recall the words of Vladimir Lenin about how the city of Vladivostok may be far away, but it’s still “ours”. That is, the Far East is supposedly “ours”, but many factors suggest that it is breaking further and further away from the central and European parts of Russia.

Here are but a few examples of today’s reality on the far fringes.

In the central hotel of the city of Ussuriysk, you can watch 5 Russian channels on the TV – and 8 Chinese ones. Why this is so is easy to understand: there are very many Chinese in Ussuriysk, who bring goods here and sell them at the famous market. The entire Maritime region gets its goods at this market.

The menu in the restaurant and many signs in the hotel are written in Chinese. The working girls are awaiting Chinese customers. The Chinese drive around in expensive foreign cars.
There are also many Koreans in the city. They’ve even built a new Evangelical church – big, beautiful, with solid and expensive furniture. The congregation includes not only Koreans, but Russians as well. I ask a Russian girl named Lena why she became an Evangelical. “It just happened that way,” she says quietly. “But actually, formerly I professed Orthodoxy…”

In one of the finer hotels of Vladivostok – the “Versailles” – you can watch an Israeli channel on TV, and a channel in… the Ukrainian language. I asked the manager what had prompted such a choice. He shrugged his shoulders: “I dunno”.

I think I do know why nearly all the Maritimers choose Japanese automobiles: the excellent quality of these cars and the good price. Many say: “If a Lada were of the same quality and the same price, we would take the Lada”. At the same time, they point out that none of them believes in the quality of Russian cars in the next few decades.

I spoke with the director of the Institute of History, Archaeology, and Ethnography of the Peoples of the Far East, Professor and Doctor of Historical Sciences Viktor Larin. He is convinced that Russia lacks an intelligible and clear foreign policy in this region. Hence the non-stop hysterical shrieking about “Chinese expansion”, and the very real problems with the development of the region and its integration into the economic system of the countries of the Asia-Pacific region.

To this ought to be added that the domestic policy of the state with respect to the Far East remains a mystery to many as well. People don’t have the desire to remain in the region. Many are leaving for the western part of the country.

Sergey Petrovich, the driver of a private taxi, says: “Look at this road that we’re driving on (Federal Highway M-60 from Vladivostok to Khabarovsk). This is a nightmare, not a road.. And nobody cares”.

The road really is a nightmare: potholes, narrow lanes, bad asphalt pavement, a minimum of road signs…

My traveling companions and I decided to have breakfast in Spassk-Dalny. The manager of one of the two hotels looked at us suspiciously, then chewed us out and said: “What’s the matter, you don’t got nothing to do or you just looking for someone to talk to? What do you mean ‘breakfast’? – it’s Saturday”. We found out later that you could only get supper in the evening, in only one of the restaurants.

With such “trifles”, it’s clear that foreign investments aren’t going to be flowing into the region.
At the same time, in Grodekovo, at the railroad station, we saw trainloads of timber being taken to China. And in Pogranichny, crowds of our “shuttlers” bringing consumer goods from the neighbouring country. Everybody’s doing their business at different levels and in different ways. Some by thievery with the collusion of forestry officials. Others through small-scale wholesale trade. Only one thing’s for sure – the government is taking minimal part in this. And if it does start to concern itself with something, then it only makes things worse for people, as has already often been the case with respect to cars with right-side steering wheels. The fact is that specialists estimate that there are around 10 million people in Russia engaged in the right-side steering business. Among these, just owners of such cars alone number in excess of 2 million people. If the government were to prohibit the operation of such cars, it would find that it has acquired millions of active and conscious opponents.

They say that a decision has been adopted on the creation in the region of a zone for the gaming business. The session of the Security Council at which it was decided to build a metallurgical plant and gas and oil refining and petrochemical enterprises in the Far East testifies to the fact that the country’s leadership does, after all, understand: without a sensible policy, it may cut off the Far East from the rest of Russia for a long time.

This week the actor and former Nixon advisor Ben Stein appeared on the Fox News Channel to discuss Europe's reliance on Russian energy.

Judge for yourselves, but I think Stein's use of the terms "evil" and "barbaric" play right into the hands of Russia's apologists, who promote the Russia-as-victim metanarrative, and uphold the image of Russia being subject to irrational fear and undeserved suspicion from the West. To put the energy imperialism discussion in these black and white moral terms, Stein is doing for Russia what George W. Bush did for international relations following the Axis of Evil speech - all populism and no progress.

I am critical of Russia's energy policies because 1) they break international rules and norms, 2) they violate property rights and are in flagrant breach of contracts, and 3) they are overtly used a political lever, especially toward the former satellite states. These issues are more than enough to motivate a response - it is not necessary to pass moral judgments.

In my view, the entire discussion on Russia going off the rails - it has become way too emotive, way too pejorative, and there is no doubt that it is absolutely helping the radical forces within the Kremlin gain more and more influence.

List of Political Prisoners in Russia is Growing
Human Rights Congress in Moscow Adopts Resolution
Grigory Pasko, journalist

The human rights congress that recently ended in Moscow adopted a resolution on political prisoners in Russia. Among other things, it says: “In recent years in Russia, as in the USSR in its time, criminal cases are being fabricated, initiated by the special services on the orders of the political power of the country, spy-mania is being intensified. Officially recognised political prisoners have appeared … in a country that considers itself to be democratic.”

Let me remind you that the following have been recognized as political prisoners and prisoners of conscience in Russia in recent times:

- victims of spy-mania – the scientists Igor Sutyagin and Valentin Danilov;
- victims of the “YUKOS affair” – the businessmen Mikhail Khodorkovsky and Platon Lebedev, the lawyers Svetlana Bakhmina and Vasily Alexanian, Alexey Pichugin and others arrested in this case;
- lawyer Mikhail Trepashkin – victim of persecution for having exposed unseemly acts of the authorities, including during the time of terrorist acts (the bombings of houses in 1999 in Moscow, the terrorist act on Dubrovka (“Nord-Ost”);
- Zara Murtazaliyeva (a Chechen co-ed who became a victim of a provocation of the special services);
- activists of the “National-bolshevik party”, who are currently in investigative isolators and correctional institutions of the RF – for participation in peaceful protest campaigns;
- victims of the trials of “revolutionary organisations” – Nadezhda Rake, Olga Nevskaya, and Vladimir Belashov;
- Muslim activists not associated with an ideology of hate, violence, and calls thereto, accused of “Wahhabism” and “Hizbut-Tahirism” (investigators’ term).

Danilov was imprisoned on specious charges of espionage

The resolution likewise give examples of persecution of people without actually imprisoning them, but for political motives: thus were convicted the scientists Anatoly Babkin, Oskar Kaibyshev, and Vladimir Shchurov, as well as human rights advocates Yuri Samodurov and Stanislav Dmitrievsky.

It is likewise pointed out that the creation of an Anti-Terrorist Committee headed by the FSB has led to the appearance of a structure endowed with extraordinary powers, standing above the official government of the country. Edict No. 90 of the President of the RF of February 11, 2006 has introduced a regime of global secrecy in the country. By this Edict, the methods for conducting an investigation with respect to persons charged with crimes “against the foundations of the constitutional order, the security of the state, the peace or the security of humanity...” are recognised as being secret. The requirements of the Code of Criminal Procedure of the RF relative to methods for conducting an investigation have been rendered null and void.

In recent years, we have seen the murders of Galina Starovoitova, Sergey Yushenkov, Yuri Shchekochikhin, Anna Politkovskaya, Zelimkhan Yandarbiyev, Aslan Maskhadov, Alexander Litvinenko, and a large number of businessmen and middle-tier government officials. 800 murders for hire have been recorded in the first 11 months of 2006 in the capital and other large cities of the Russian Federation. In the time that Putin has been in power, over 100 journalists have been killed in the country.

Scientists, environmentalists, and representatives of the native nationalities of the Caucasus and the republics of Central Asia are being subjected to groundless persecutions today. Beatings and torture are becoming the norm.

Human rights activist Ernst Cherny

In the opinion of one of the authors of the resolution, the human rights advocate Ernst Cherny, the employees of the special services who are engaged in the fabrication of spy cases are receiving awards and being promoted in rank and position. The institution of “curators” has been resurrected, and snitching is encouraged among government workers.
The special services, which managed to avoid fundamental reforms, are capable of any kind of lawlessness and are prepared to repeat the past.

The resolution advances demands to the authorities: to bring the persons involved in the fabrication of criminal cases to justice and immediately dismiss them from their posts; to release citizens convicted on political motives and restore justice with respect to them; to stop politically motivated trials and liquidate political prosecution in the country.

Slices of Life: Names Matter
By Grigory Pasko, journalist

Remember how Zhvanetsky hinted about the conservatory: how they’re saying maybe something’s not right there, if certain individuals keep having problems coming all the time.

I recently was engaged in creative labour: I was entering the addresses of the heads of the regions of our beloved Russia on the computer. I discovered something amazing: in half of the regions, the residences of the heads of the Republics, Krays, Oblasts, and Okrugs are found on V.I. Lenin Street (or derivatives thereof – Red, Soviet, Communist, Internationale Street…). And I’m not even counting the streets named after Dzerzhinsky, Kuibyshev, Kirov, Smidovich, and other famous and not-so-famous figures from the Party of the Bolsheviks.

Linguists and psychologists will no doubt find a certain connection between the past and the present if they proceed from the fact that in many of Russia’s regions, renamings never did affect the streets, squares, cul-de-sacs, and alleys. And it seems to me that there is definitely a sign in the fact that they did not affect even the main streets and main squares: it’s hard to wait for the arrival of democracy on Lenin Street – not to mention on Dzerzhinsky Street.

Of course, this is all but trifles. And I speak about it with tongue prominently in cheek. The breakdown, as Professor Preobrazhensky used to say, is in the heads, and not someplace else…

And yet… What stood in the way of renaming the streets? What is this brake or anchor? Is it the people who are not ready, or the little tsars who run things?

On the other hand, there are also facts of another kind. Behold, in Kyzyl the authorities are on Chuldum Street, in Vladivostok on Svetlanskaya (formerly Lenin Street, by the way), in Chelyabinsk on Zwilling Street, in the Aginsky Buryat Autonomous Okrug (Urban-Type Settlement Aginskoye) on B. Rinchino Street, and in Anadyr on Vitus Bering Street…

So not all, as they say, is lost. Or perhaps just the opposite – not all has been renamed the wrong way? The thought of re-erecting the monument to Dzerzhinsky in its former place on Lubyanka Square, like the ghost of Hamlet’s father, continues to haunt and haunt certain restless minds. So maybe they were right, those who didn’t rush to rename the past into the present?

True, if a connection is discovered after all between the old names and the yearning for the old – in the sense of the former, socialist – life, then we probably shouldn’t be amazed at why we live the way we do, and not some other way.

Transcript text from a December 18th cabinet meeting. President Vladimir Putin discusses the privatization of Russia's second largest bank, Vneshtorgbank (which recently purchased a 5% stake in the defense group EADS), with Economy Minister German Gref. This cabinet meeting comes two days after news that EADS executives "want to get rid of their government shareholders, claiming that political influence is hindering attempts to win business in the United States."

VLADIMIR PUTIN: Good. What decisions have been made regarding Vneshtorgbank?

GERMAN GREF: We plan to discuss the question of an additional initial public offering by Vneshtorgbank at a Government meeting. The plan is to place an issue of additional shares for a total of between 90 billion and 120 billion roubles on the open market. This share issue would have two purposes.

First, Vneshtorgbank has acquired banks in the past and a part of this issue would need to be spent on consolidating these banks’ shares into a single Vneshtorgbank share. The other part of the revenue generated by the issue would be used to capitalise the bank in order to ensure its sustainable development and ability to provide credits in the years following 2007.

Currently, 99 percent of Vneshtorgbank’s charter capital is in state hands. After the IPO, around 20-22 percent would be placed on the market and the state share would decrease to 78-80 percent.

VLADIMIR PUTIN: Which trading floors are you considering for the IPO?

GERMAN GREF: We will carry it out on two trading floors. Depending on domestic market capacity part of the issue will be placed on Russia’s domestic market and the other part we plan to place most likely on the London Stock Exchange.

VLADIMIR PUTIN: Will Russian citizens be able to buy these shares?

GERMAN GREF: Absolutely. We are planning the Vneshtorgbank and Sberbank IPOs in such a way as to make the minimal share price affordable for Russian citizens.

Next year, according to preliminary plans, electricity generating companies will also carry out IPOs for a total of around 250 billion roubles and Vneshtorgbank for around 120 billion roubles. The savings bank, Sberbank, is also planning an additional share issue. This will be the biggest issue in a decade.

VLADIMIR PUTIN: The Rosneft IPO showed that our citizens are eager to buy liquid securities issued by Russian companies, and Sberbank and Vneshtorgbank are certainly of this number. We need to make it technologically possible to give people the chance to buy these shares.

GERMAN GREF: We want to make it a principle of these share issues that in the event of over-subscription priority would go to private individuals.

VLADIMIR PUTIN: That’s the right approach.

This is an article from the present edition of Petroleum Economist:

OMV plays down potential Gazprom involvement in Nabucco

By Tom Nicholls

OMV's chief executive has played down the significance of Gazprom's potential inclusion in the Nabucco pipeline consortium, saying the Russian gas company would end up with a minority share only. He also claimed the chances of the pipeline being built have "increased substantially".

In an interview with Petroleum Economist, Wolfgang Ruttenstorfer said the main sources of natural gas for Nabucco would be the Caspian region and the Middle East, but that Russia "should not be excluded". And he claimed Russian involvement would not undermine the strategic purpose of the pipeline, although the EU is encouraging the project to reduce its reliance on Russia. "It's a question of the share," said Ruttenstorfer.

For now, there is only one realistic source of gas for Nabucco: the South Caucuses Pipeline (SCP). Due to start up around the end of the year, the 690 km pipeline will export gas from Azerbaijan, through Georgia to the Turkish border – along the same corridor as the Baku-Tbilisi-Ceyhan oil pipeline. It will be supplied largely from Azerbaijan's Shah Deniz field, in the Caspian Sea. Flows are expected to be in the region of 7bn cm/y initially, rising to around 16bn cm/y after 2012, says BP, the operator of Shah Deniz.

Ultimate throughput capacity in SCP will be 20bn cubic metres a year (cm/y) and any excess, once Turkish needs are met, would be available for onward transportation. The Nabucco consortium would be "highly interested" in incremental supplies through the SCP, according to Ruttenstorfer.

The infrastructure, commercial agreements and political support for flows from other sources, however, remain to be established. Theoretically, says Ruttenstorfer, they include all the countries around Turkey that have sufficient gas to export – Russia, through the under-utilised Blue Stream pipeline, Turkmenistan, Kazakhstan, Iran, Syria and Iraq. But there is no direct infrastructure to tie gas from Turkmenistan and Kazakhstan into Nabucco and there are doubts about how much spare gas Turkmenistan has. There is also no infrastructure to bring gas from Iran, Syria or Iraq to Nabucco and political circumstances are unfavourable in all three cases.

However, Ruttenstorfer remains optimistic about Nabucco's prospects, claiming that Europe's concerns over its gas-supply security should encourage the development. "The probability of Nabucco has increased over the last year because of the supply concerns of Europe and, therefore, I think this pipeline will come."

The consortium plans to take a decision on the pipeline next year and is still targeting first gas in 2011. Nabucco's developers are OMV, Turkey's Botas, Hungary's Mol, Bulgaria's Bulgargaz and Romania's Transgaz, each with a 20% stake. Capacity would be at least 8bn cubic metres a year (cm/y) in 2010, rising to as much as 31bn cm/y in 2020. The pipeline would originate close to Turkey's eastern border. Half the capacity would supply countries the line crosses, with the remainder reaching a supply nexus at Baumgarten, Austria, from where the gas could enter Austrian, German and Italian markets, accounting for 9% of total European gas demand.

Interesting report in the Wall Street Journal about how the United States is severely lacking in alternatives to alleviate potential disruptions of the oil supply. Some of the sources interviewed highlight the military approach toward energy security, and the website features a great interactive feature:

Today, back in Washington, he is pushing for a complete redefinition of energy security, one that urges the U.S. to consume less oil and consider the security implications of global warming such as the possible need to beef up disaster readiness.

"From a military perspective, you respond to threats with air and naval forces. That's kind of the traditional things that we've done in the past," says Gen. Wald, 57 years old, who is working with a handful of research and lobby groups. "Our thought was, we need to change the paradigm."

Three years into the sharpest spike in oil prices in a generation, policy makers and military leaders across the globe are grappling with the implications of fundamental change in energy geopolitics. One such leader is the new U.S. defense secretary, Robert Gates, who took part last year in a war game simulating disruptions to the oil trade. It concluded the U.S. had few short-term fixes if supplies were jolted.

Supply lines are longer and oil fields more numerous than a generation ago. New threats have emerged, from rebels in West Africa to terrorists targeting Saudi Arabia. With supply and demand tightly balanced, even small disruptions can cause big price swings, endangering economic growth. Nationalistic fossil-fuel powers such as Russia have shown willingness to brandish energy as a weapon. The war in Iraq has hammered the oil industry in the world's third-largest holder of conventional oil reserves. ...

Zbigniew Brzezinski, who authored the Carter Doctrine as national security adviser to President Carter, says a 21st-century energy-security strategy must address "far more diffuse and interwoven" threats than the Soviet threat he was targeting.

Gen. Wald believes the Pentagon needs a centralized energy-security policy covering all the military's branches. Currently the issue is mainly left up to individual regional commanders or to service branches such as the Navy or Army. "We've kind of avoided talking about military power and oil," Gen. Wald says. "It's a major issue for the Department of Defense to look at and plan for, and I don't think they've done that."

Energy Negotiations, Russia Style

In reviewing the media coverage of Shell and Gazprom’s “business negotiations” over the Sakhalin-2 natural gas project this week, one would be led to believe that these were fair and equitable talks, held by two partners within a constructive and rules-based framework.

This obscene characterization by the Canadian press in particular is a travesty – a euphemism used to conceal a crime of appropriation without compensation.

The fact is that we should all know we are dealing with state-sanctioned criminality here, and while a corporation is held a gunpoint by the opportunists of Gazprom and their friends in the Kremlin, and the media does the business and political community a great disservice by reporting the story the way many of them they are.

What we are really witnessing here is essentially a hostage-taking, not business negotiations. We would be closer to reality if we imagined armed troops storming the Sakhalin-2 platforms and pipeline routes – rather than businesspeople sitting at a negotiating table.

Can we just call a spade a spade, please?

The Wall Street Journal today published one of the more thorough articles about the Kremlin's one-man ideological engine, Vladislav Surkov. Later this week, we will blog a series of posts on the Ideology of Russian Energy Imperialism.

Propagandist by day, death metal by night

Some excerpts from the WSJ piece:

Putin's Pitchman Inside Kremlin as It Tightens Its Grip: Ex-Aide to Tycoons Domestic Adviser Surkov Hails Concentration of Power As 'Sovereign Democracy'

'There'll Be No Uprisings Here'

By GREGORY L. WHITE and ALAN CULLISON

MOSCOW -- In 1987, 23-year-old Vladislav Surkov dropped out of drama school and helped invent a new business for the crumbling Soviet Union: advertising.

Central planners saw little need to pitch products. But Mr. Surkov was working for one of the country's newly legalized private banks, Menatep. He got its primitive logo splashed on prime-time television news and the sides of buses. The campaign was so successful it set off rumors the Communist Party was stashing its secret riches at Menatep. By the time the U.S.S.R. collapsed a few years later, Menatep was a household word.

Today, Mr. Surkov is selling a different product: the iron-fisted rule of Vladimir Putin.

As the Russian president's domestic-policy chief and a deputy chief of staff, Mr. Surkov is the architect of an ideology the Kremlin is using to justify its reassertion of control over the state and the economy. Mr. Surkov calls this "sovereign democracy," with the emphasis, he has said, on "sovereign."

He has penned manifestoes defending the Kremlin's muzzling of critics, monopolization of politics and crackdown on politically ambitious billionaires. He has helped set up pro-Putin youth groups that push the Kremlin's agenda in Russia and abroad. He denounces Mr. Putin's remaining opponents as Western stooges or neo-Nazis, and accuses Western nations of plotting to steal Russia's oil and minerals. "When they talk to us about democracy, they're thinking about our hydrocarbon resources," he told a rare briefing for foreign reporters in June. ...

In parliament, Mr. Surkov maintained iron discipline. That summer, he summoned some freshman legislators to his office and berated them for "behaving like they were elected representatives," says one of the group, Anatoly Yermolin. "Just vote like you're told," Mr. Surkov said, according to Mr. Yermolin. Those considering disobedience "should have a good look at what's happening to Yukos," the Khodorkovsky-led oil company whose officers were being arrested.

Mr. Yermolin, who had worked for Yukos affiliates, later complained about the tone of the meeting in a letter to prosecutors. "It was like a Mafia sit-down," he says. Mr. Yermolin was kicked out of the pro-Kremlin party within days, but still has a seat in parliament. ...

At his June briefing for foreign reporters, Mr. Surkov said the West should understand that because of its unusual past, Russia has to build democracy its own way, from the top down. "The bottom-up model is an ideal which we should all strive to achieve," he said. "But real life is more complicated."

Not a day goes by without some columnist, reporter, or editor in the global media talking about the "resurgence", the "nascent strength", and the West's uncertainty of how to deal with the new "strong Russia."

But how does all the hyperbole measure up to the perceptions of stability within Russia? Is there a gap between how strong the West believes Russia is and how confident the Russians actually feel? In the past we have posted on the increasing reverse capital flows as a sign of rising political risk, and today, a report in the FT further elaborates on how succession doubts are creating problems in the Kremlin.

Putin succession doubts unsettle the Kremlin By Quentin Peel

... Yet the mood in Moscow is far less confident than the government's international image would imply. It is both nationalist and defensive. The reason seems to be that speculation about Mr Putin's succession in 2008 is starting to destabilise the political establishment.

It was ever thus in Russia, before and after the revolution. The factions are starting to squabble in the opaque power struggle that will nominate a new tsar.

On the face of it, everything is under control. United Russia, the pro-Kremlin party that controls the State Duma, combines the resources of the central government and the (Putin-appointed) governors of the Russian regions to see off any serious opposition in next year's parliamentary elections. The parties of the liberal right are in disarray, tainted by identification with the painful economic reforms of the 1990s.

To contain the challenge of the ageing but still vigorous Communist party, the Kremlin has inspired the creation of a new party, Russia of Justice, to occupy the ground on the centre-left. On the far right, there is still the xenophobic Liberal Democratic party, founded by Vladimir Zhirinovsky in 1990 with the support of the KGB.

It is all very well "managed", precisely because fears linger of a social revolt from the provinces, where little of Russia's energy cash has been spent. But the presidential election in March 2008 matters most: that will determine who controls oil and gas after Mr Putin, if he quits as he seems determined to do. ...

So far, Mr Putin is resisting all efforts to persuade him to stay, but the pressures are mounting. He has promised to remain closely involved - but Russia has never been run successfully with a division of power in the Kremlin.So the speculation remains. That is why they would like to blame dark foreign forces.

In regards to the earlier post featuring footage of this weekend's protests in Moscow, Julian Evans provides a first hand account of the events on Eurasian Home.

This article first appeared in Business New Europe. The complete article can be read here.

Gazprom's winning its Caucasian chess game with EU
Derek Brower in London

The imminent opening of a new natural gas export pipeline from the Caspian Sea to markets in the West may be a victory for Europe's strategic interests in the region. But, as ever, Gazprom is ensuring that it stays one step ahead of the EU. Through a series of deals in Armenia and Turkey, the Russian gas monopoly has moved to shore up its position in the transit countries that lie between Central Asia and markets in Europe.

Oil major BP, which is leading a consortium of companies developing the Caspian Sea's Shah Deniz gasfields, told bne this week that the South Caspian Pipeline (SCP) would be on stream "imminently." Although the SCP's throughput will initially be modest – around 8.6bn cubic metres a year – exports will rise as more production comes on stream at Shah Deniz. Capacity could reach 20bn cubic metres a year (cm/y) by 2012.

That is good news for planners in Brussels, who continue to see Central Asia's oil and gas as key to the EU's goal of widening it sources of supply. A spokesman for Andris Piebalgs, the EU's Energy Commissioner, told bne that the line was a "welcome new supply route for Europe, which will help to diversify the continent's sources" of energy.

Piebalgs believes that the SCP will be part of a new "energy corridor" from Central Asia to Europe. That strategic goal is behind the EU's Neighbourhood Policy, which seeks to use soft politics – promises of investment, pledges to support applications for EU membership, and other nice words – to persuade the transit countries around Europe quietly to get on with the business that Brussels wishes them to get on with: transiting energy to the EU.

They might do that. But not if Gazprom has its way. The company has been fighting – and winning – more prominent energy battles like in Sakhalin, but in the meantime Gazprom has also been busy extending its domination across Russia's southern flank. While the EU's strategy in the same region has been slow and, with the exception of the SCP, largely futile, Gazprom's has been swift and effective.

Having seen the SCP come to market, Gazprom's now wants to ensure it won't become the pipeline Europe hopes it will. That means stopping another proposed pipeline, the Trans-Caspian Gas Pipeline (TCP) from coming on stream. That project, an ambitious sub-sea development, would connect gasfields in Turkmenistan and Kazakhstan with the SCP. Ashgabat and Astana say that the combined export potential of both lines would be up to 30bn cm/y.

Gazprom doesn't like the idea. After all, as long as it controls Central Asia's main export routes, as it does now, it can buy gas cheaply from Turkmenistan and sell its own gas more expensively to Europe. Without Turkmen gas, says Russia's own Institute of Energy Policy, Gazprom would be unable to meet its domestic and export commitments by as early as 2012. ...

The Armenian front
But the TCP is just one of several fronts on which Gazprom is fighting to hem in rival exporters' plans. In Armenia, a country with no oil or gas of its own, Gazprom's chess game in the Caucasus is opaque and blunt, in equal measures. There, it is about keeping out Iran.

While Iran, which has the world's second-largest gas reserves after Russia, is an ally of Moscow in the dispute over the Caspian Sea's development rights – Iran also says all five states must approve any infrastructure – in Armenia it is an enemy.

That goes back to 2004, when Tehran signed a deal to supply Armenia with piped natural gas. A pipeline between the two countries is due to come on stream by the end of this month. Iran envisaged the opening of a new export route that would supply Armenia, Georgia, Ukraine and markets further west. Tbilisi, in particular, had hoped that the line would break its dependence on Russian gas imports.

Then Gazprom stepped in. Allowing Iranian gas into Georgia and Ukraine would, naturally, have weakened Russia's influence on both countries. It could also have undercut the price of Russian gas in its own backyard. Moscow's gaze settled on Armenia as the key piece in the jigsaw and, playing on good relations between the two countries, encouraged its companies to begin investing in its ally.

During a visit by Armenian President Robert Kocharian to Moscow at the end of October, Russian President Vladimir Putin claimed that his country's investment in Armenia was insufficient – a fact he described as both "strange and shameful."

Strange it may be, but insufficient it is not. As one commentator in Yerevan put it to bne, every time Kocharian visits Moscow, another chunk of his country's economy is sold to Russia.

After October's visit, for example, Armenia's telecommunications monopoly fell into Russian hands. Then Russia's Vneshtorgbank announced that it would buy from Mikhail Baghdasarov, a shady local oligarch with solid political connections, the remaining 30% of shares in Armenia's Savings Bank that it didn't already own. By the end of September, UES, Russia's state power company, had completed its acquisition of Armenia's electricity sector.

Gazprom has also joined in. It bought unit five of the Hrazdan power plant in April, and said it would invest some $190m to develop it. But that deal, like many others, say locals, was bizarre, given the high price paid for a unit that is not yet operating and will only ever serve a tiny domestic market.

According to local sources, the Hrazdan deal enables Gazprom to charge Armenia the same "FSU rate" for its gas – $110 per thousand cm – that Russia's other neighbours pay. Only, because Gazprom and other Russian companies are subsidising the Armenian economy by different means, Armenia's true rate is far lower. "Gazprom is doing in Armenia what it does in Belarus," one analyst said. "It is subsiding an ally's gas."

Georgia and the other countries that pay the real FSU rate know this, of course. That is why Georgia, in turn, "steals" much of the Russian gas that it transits to Armenia for a fee, much to Yerevan's disgust. And that, in turn, is why Armenia originally sought its deal with Iran: to diversify its own sources of energy.

But the details of Gazprom's involvement in Armenia get even murkier. In exporting gas to Armenia, Gazprom is now effectively selling the gas to itself, given that it recently increased its stake in Armenia's state gas company, ArmRosGazprom, from 45% to 58%. The Armenian government's stake has fallen to 32%, with the remaining 10% in the hands of Itera, a company long suspected of acting as a Gazprom proxy.

Next stop, Turkey
Meanwhile, Turkey has jumped to the top of Gazprom's Christmas wishlist. Until Turkey's economy collapsed in 2001, the country had been considered a destination market for gas in itself. Botas, the state pipeline company, had predicted wild growth in demand for gas on the back of forecasts for rapid growth in gas-to-power generation.

It didn't happen. That left Iran and Russia, which had both built ambitious pipelines into the country, with spare capacity.

Now the geopolitical balance has changed again, with Turkey's emergence as a potential hub state for natural gas imports into Europe. The EU hopes its long-planned Nabucco pipeline will gather gas brought to Turkey from Central Asia and the Middle East, and bring it across the Bosphorus into the EU. And Iran could use its existing pipeline to Turkey to ramp up its exports through the country.

Gazprom has already said that it intends to use its Blue Stream pipeline, which crosses the Black Sea from Russia into Turkey, to supply Nabucco or other pipelines into Europe. Now it is proposing to build more infrastructure that would criss-cross Turkey and offer Russia other export routes for its gas.

It needs to win Turkey's approval for such plans and, consequently, has launched its own charm offensive on the country. Ankara has been receptive, say analysts, partly in response to Moscow's clever backing for Turkish foreign policy goals in Cyprus and in Iraq. Russia, for example, has endorsed Iraq's claims to "territorial integrity" – meaning, in Turkey, no independent Kurdistan.

And Ankara also knows that the notion of Russian influence in Turkey also gives the country more bargaining power with Brussels in any accession debate. Russia has recognised this. Before November's NATO summit in Latvia, the Kremlin invited a Turkish delegation to visit Gazprom and the foreign ministry in Moscow. At that meeting, Russia's deputy foreign minister, Alexander Grushko, said that the two countries' "relations in the fuel and energy sector play a crucial part in our cooperation". When the delegation met Gazprom, they learned that the Russian company would help Turkey build its own liquefied natural gas export project, presumably sourced from Russian imports.

And the company added that it wanted to build other gas infrastructure in Turkey, too. Igor Torbakov, an analyst at the Jamestown Foundation's Eurasia Daily Monitor, says that Gazprom has already endorsed plans to begin feasibility studies of new pipelines in the country. One pipeline would cross Turkey from east to west; a second would run from north to south. Bringing either on stream would shore up the company's position in Turkey – and help keep Iranian exports, or European transit plans, well within Gazprom's sphere of influence.

Canada's Globe and Mail and France's Le Figaro recently published an interesting article by Edward Luttwak of the Center for Strategic and International Studies.

Mr. Putin's Russia Instead of Western legality, we have Eastern tyranny EDWARD LUTTWAK

The murder of Russian exile and former spy Alexander Valterovich Litvinenko is now being complicated by new accusations. Perhaps they reflect the natural complications of exile politics -- there are many quarrelling Russians in London -- but perhaps we are witnessing a classic disinformation campaign.

Because the accusation that Mr. Litvinenko was poisoned by his former colleagues to stop his denunciations of Russian President Vladimir Putin is all too plausible, denials are not enough. Instead, the original accusation is being diluted by other theories. It hardly matters that none is very credible -- they still divert attention from the simplest explanation. ...

When Mikhail Khodorkovsky, then Russia's richest man, campaigned for the presidency in 2003, he was arrested and charged with tax evasion. In the ensuing trial, the judges rejected almost every defence motion, accepted almost every prosecution motion, and their 662-page verdict rendered in May, 2005, repeated the prosecution's accusations almost word for word. A few months later, Mr. Khodorkovsky announced from prison, where he was serving a nine-year sentence, that he would run for parliament. He was legally entitled to do so while his case was still in the appeal court, a process that usually takes a year or so. Instead, the final verdict came in just two weeks, a wholly unprecedented speed, precluding any parliamentary campaign. By this time, nobody could believe in either Mr. Khodorkovsky's innocence, nor in the independence of the courts that found him guilty.

Meanwhile, even as Mr. Khodorkovsky's giant oil company Yukos was taken away from him and other shareholders by further court actions of dubious legality, Western oil companies continued to invest vast sums in Russian oil and gas ventures. They may come to regret that -- and soon. Russian authorities have now begun accusing these companies, which have invested some $37-billion (!) in Sakhalin, of ruining the environment. This could be true, of course, except that the concerted Soviet-style propaganda campaign now under way to take away their property is based on showing repeated TV footage of dead salmon -- salmon that die every two years in a regular spawning cycle. Other Western oil companies are being accused of tax evasion, Mr. Khodorkovsky's crime. That accusation could also be true, of course, except that production consortia include Russian companies and, yet, it is only the Western partners being accused. ...

Instead of Western legality there is the spirit of Eastern tyranny in this, as in Mr. Putin's own aborted attempt to cut off Ukrainian gas supplies last year. He had obviously forgotten that Russian gas supplies to Italy and the rest of southeast Europe must go though the Ukrainian pipeline. And, most significantly, none around him in the Kremlin was willing to contradict Mr. Putin by showing him a map. It is such servility that makes tyrants. So, after all, it really does not matter who killed Mr. Litvinenko, and whether it was to please Mr. Putin that the deed was done.

Edward N. Luttwak is a senior fellow at the Washington-based Center for Strategic and International Studies.

Ria Novosti has an interesting photo essay online entitled "Leonid Brezhnev’s Russia– Détente and Stagnation (1964-1982)." (hat tip ZheZhe).

The Soviet leaders were criticized for the Afghan war not only in the West, but also at home. In December 1979-January 1980, outstanding physicist and Nobel Prize winner Andrei Sakharov made several statements against the presence of Soviet troops in Afghanistan. Subsequently, he was deprived of all awards, and exiled to Gorky (now Nizhny Novgorod) without a trial, where he was put under home arrest. On the photo: Andrei Sakharov, member of the U.S.S.R. Academy of Sciences. 1972.

According to news reports this weekend, about 2,500 supporters from The Other Russia, a coalition of opposition party members of the United Civil Front, the People's Democratic Union, the unregistered Republican Party, and several independent trade unions, marched in Moscow on Saturday to protest the current regime. Led by Garry Kasparov and Mikhail Kasyanov, the protests were contained and severely limited by heavy riot police presence, which some say cut off traffic to prevent more from joining, and arbitrarily arrested known activists, according to the Reuters report.

Here you can view the raw footage, and click here for the correspondent's report.

From the Moscow Times report:

A motley crowd of 2,500 opposition activists on Saturday descended on Triumfalnaya Ploshchad chanting "Freedom!" and "Russia without Putin!" only to be overwhelmed by riot police.

The Other Russia, a coalition of liberal groups that agree on little except that they oppose President Vladimir Putin, had promised a March of Dissent from Triumfalnaya Ploshchad to Teatralnaya Ploshchad.

But the 8,500 OMON riot police, accompanied by helicopters, trucks and buses, deterred demonstrators from straying beyond their tight security ring.

"We decided to spare your heads," Eduard Limonov, head of the unregistered National Bolshevik Party, told the crowd, explaining why plans for the march had been dropped. ...

"This government squashed our liberties," Kasparov declared. "We need another Russia."

Limonov called for the resignation of Federal Security Service chief Nikolai Patrushev, Justice Minister Vladimir Ustinov and Central Election Commission Chairman Alexander Veshnyakov.

Kasyanov asked Russians to unite behind opposition candidates in the 2007 State Duma elections and the 2008 presidential race. Opposition leaders said Saturday that The Other Russia would nominate a presidential candidate in 2008.

"We've got 15 months until the change of government," he said. "If this government continues with their policies, the country will fall apart."

As the former prime minister spoke, a trio of elderly men argued beneath the monument to Vladimir Mayakovsky about whether it would be better to burn Putin alive or hang him.

Kasparov warned protesters to avoid confrontations with the police, saying there were subversives among them seeking to provoke a scuffle.

Indeed, as Kasparov spoke, a group of men unfurled a banner reading "Stalin Beria Gulag" and shouted, "Fascists!" They were quickly ushered away.

"This is a classic provocation," Kasparov said of the group of men. "Today, the television will show them, saying it is we who are the extremists."

The Washington Times is running an extensive report on Russian energy, the second of a two-part series. The first article can be read here.

"By putting energy companies in the hands of rival bureaucratic factions in the Kremlin, profit is suppressed, investment is suppressed," said Robert Amsterdam, attorney for jailed Yukos executive Mikhail Khodorkovsky. The biggest loss has been the rule of law, he said.

"The attack on the rule of law in Russia leaves casualties. Men are imprisoned. Journalists are killed," and now Western oil companies are coming under attack, he said. The West deserves much blame for not forcefully condemning and trying to stop the state's expropriation in 2004 of Yukos' key assets, he said.

"The attack on Yukos was an attack on property rights," he said. "That attack has left us reeling, has left BP reeling in Kovytka, Shell reeling in Sakhalin, and left Exxon under the gun."

Andrei Illarionov, a former Putin economic adviser who declared that Russia was no longer free and who left the government after Yukos was dismantled, said the company was targeted because it was committed to openness and free markets in a way that was antithetical to powerful officials in the Kremlin.

It is symptomatic of the loss of freedom and transparency in Russia that foreign investors and observers have become confused by frequently changing rules and positions, he said.

As many as 15 theories emerged as to why Yukos was destroyed, he noted, and legions of analysts continue to scrutinize the Kremlin's words and actions to try to guess its intent and to find clues about what is coming next.

"It requires a new kind of Kremlinology to figure out what's going on -- a science for understanding a nonfree country," he said.

Matthew Lynn of Bloomberg does an opinion column about how the Sakhalin grab could backfire and scare away new investors:

Global Investors Should Think Again About Russia: Matthew Lynn

Dec. 18 (Bloomberg) -- How much provocation does big business need before it has doubts about Russia?

Anglo-Dutch oil company Royal Dutch Shell Plc has been threatened with lawsuits from the Russian government, which is tightening its grip on the country's energy industry.

Companies as diverse as Swedish furniture chain Ikea AB and German retailer Metro AG are also finding that Russia can be a tough place to do business.

Yet Western companies are still pouring money, energy and expertise into Russia. They are attracted by a high-growth, low- tax economy offering the chance to make a lot of money quickly.

It is time they wised up. Sure, you can make a quick buck in Russia. The trouble is that you can lose it just as fast if the government bullies you out of what you have created. Until Russia starts playing by the rules as part of the global economy, foreign investment should be shifted elsewhere.

"Investors need to start holding executives to account for giving in to this kind of extortion," Robert Amsterdam, a lawyer for Russian oil tycoon Mikhail Khodorkovsky, said in a telephone interview. Khodorkovsky, who says he was targeted for supporting opponents of the Russian government, is serving an eight-year prison term for fraud and tax evasion.

Click here to read the full article.

The Wall Street Journal has published some translated excerpts from an Ekho Moskvy interview with Andrei Lugovoi and Dmitry Kovtun. Complete transcript in Russian available here.

Host: What are the parameters of your partnership with Mr. Litvinenko?

Lugovoi: ...We've known each other for 10 years. However, before he left the country we just knew each other, we were acquainted, nothing more. We had neither business, nor personal contacts. He communicated with Boris Berezovsky and during that period I headed the security service of the public Russian television [ORT], and Boris Abramovich [Berezovsky] was the major shareholder of ORT then, so, naturally, I met with him [Litvinenko] to a certain extent. Then he left the country, and there were no contacts, no communications. Approximately a year ago he phoned me, and this was an absolutely unexpected call. He asked whether I ever come to London. Yes, I visit London quite frequently. I was there on 12, 13 occasions this year. He suggested that we should meet the next time I visit London. We met. He told me that he was ready to introduce me to certain British companies. Due to ethical considerations I'd rather not name them now. These are the companies which are interested in the Russian market, in investing in the Russian economy. After I told him about my business he decided that I could be of interest to them, could be useful to them. On the other hand I also take a certain interest in Britain. That's why, so to speak, our relations were limited to the following: Whenever my meetings with business partners were prepared and I came to London he accompanied me and attended these meetings, because he thought he could earn money in these situations, as well. Most likely, he wanted to try himself in business.

Host: What was Litvinenko's sphere of activities, what did he do?

Lugovoi: I don't have any idea about what he did, with the exception of what we discussed with him. Moreover, you have to understand, that in spite of the fact that over the past two to three years there wasn't much talk about him … maybe he was already … Nevertheless, a certain plume of scandal always existed. I tried not to go beyond the scope of business issues in my relations with him.

Host: So you didn't ask him personal questions?

Lugovoi: I never asked him personal questions, and, frankly speaking, he didn't bother me [about that] either.

...

Host: Did Litvinenko seem to you a person who was concerned or scared of something?

Kovtun: You know … how to put it better … Certainly there was a slight shade of paranoia. But nothing more than that.

Host: What's that? Please, explain.

Kovtun: There was some nervousness, tension in his behavior.

....

Host: Can you tell us about your last meeting on Nov. 1? How did it go?

Lugovoi: Very simply. On Nov. 1, I met with Dmitry [Kovtun] to talk about our project. By the way it wasn't far from the hotel. I had a telephone conversation with Alexander [Litvinenko], he knew that I was coming to London. I don't remember one thing: who phoned whom on the morning of Nov. 1. In the course of our telephone conversation he suggested that we should meet the same day -- on Nov. 1. I told him: "Listen, I'll meet with [Dmitry] today, then we'll attend a soccer game, and I'll be with my family [there]." There were plans to have a dinner before the soccer game, the pre-game, as we say in our soccer crowd. It's when gentlemen get together and drink beer, whisky, gin. And after a soccer game they also meet -- for a post-game.

However, he [Litvinenko] insisted: "Let's meet today, because I need to talk to you." I answered: "OK. But we'll meet in the hotel and only briefly." I came there with Dmitry, we called him, because we expected him [Litvinenko] to be in the hotel already, and we came a couple of minutes earlier. We sat down, ordered only some drinks to ourselves, no meals … We drank something … I think it was gin, something like that. He called me and said that he was there. I think that I even went to the entrance to meet him. We sat down.

Host: You don't remember now, or do you?

Lugovoi: I cannot tell you for certain. I wrote about it in the British Embassy very simply: "I think that there are video cameras in the hotel, please, pay immediate attention to this fact to avoid extra questions." I emphasized this. We sat down and talked for 20 to 30 minutes. I can assure you with 100% certainty that he didn't order anything, and we didn't offer anything to him either.

Host: So, he didn't eat anything during this meeting?

Lugovoi: Neither did we. The point is that my family went on an excursion with Vyacheslav [Sokolenko], and we were waiting for them to return, to change clothes for something warmer, for sweaters ... After that we planned to have dinner -- around [5 or 6 p.m.] -- before the soccer game. By the way, we did have a dinner in Piccadilly … in a steak house, and after that we went [to a soccer game]. So I can tell you that he ordered nothing, that we poured no drinks for him, and as regards more details, I, as a matter of fact, cannot recall any. Although, when we meet with the British police we'll certainly analyze this meeting in detail....

Host: If it's all that simple, what is there to analyze?

Lugovoi: They will certainly ask us which table we sat at and where exactly each of us was sitting. I must tell you that during this meeting my eight-year-old son ran to our table and I introduced Alexander to him. We stood there for some time talking and joking. Afterwards we left [the hotel] together … I think that my wife was standing right here. She knew Alexander and she greeted him. We agreed that … Yes, it's true, he came there. We didn't discuss anything in particular. He said that tomorrow we'd meet at 10:00. And I told him: "Sash, you could have told me about it on the phone, we could have arranged a meeting." The next day he called me at 7:30 in the morning, when I was just waking up. And he told me … but I've already told you about it.

...

Host: So, you asked him [Litvinenko] to keep politics out of the course of your joint activities?

Lugovoi: I didn't ask him about it. I simply told him one thing: "Sash, you have to understand one simple thing. If the proposals which you are trying to implement, are finally implemented, you need to make a principal decision: What do you want to do with your life?"

Host: Why did you tell him this? You suggested that he should make a choice?

Lugovoi: Why did I tell him this? Because, first of all, he after all … made really serious statements earlier. He formally … Although I said that there were no court rulings … and that everything related to his flight from Russia … whether it was betrayal or not … technically, it could be anything. No business would like to be involved with anything even slightly crime-related. Existence of criminal cases etc. -- in any event, it's a crime-related issue. Not from the point of view of politics, but from the point of view of mere existence. If any Western company starts business with someone and then understands that there are some law-related problems, it's not good. It's like that in any country. I had such problems myself when in 2002 it became known to everyone that I had spent one year and two months in Lefortovo [a Moscow prison, after being accused of conspiring to help a critic of Putin escape from prison]. I had problems.

Stephen Fidler has an interesting oped coming out in tomorrow's Financial Times titled "It would not be the first time, Mr Putin."

Further insight into old Russian practices, now obviously abandoned, comes from a CIA memo of 1964, now declassified: Soviet Use of Assassination and Kidnapping. The memo looks into the techniques known in the KGB as “liquid affairs”, carried out by the agency’s Department 13, which was indeed unlucky for some. Within it were two secret installations, one producing special weapons and explosive devices and the other developing drugs and poisons.

“The large numbers of former citizens of the USSR (and of imperial Russia) living abroad in protest against the Soviet regime have been a continuing cause for concern to the Soviets since the early twenties,” the memo said. “Emigré leaders who participate in anti-Soviet activities have been primary targets of Soviet abduction or assassination operations. Such operations are sometimes designed to demonstrate that the Soviet regime can strike its enemies anywhere in the world. The Soviets hope thereby to create fear, unrest, confusion and dissension within emigré organisations and at the same time deter other emigrés from joining their ranks.”

Today Wonkette puts forward the unconventional theory that Alexander Litvinenko was poisoned by the Main Intelligence Directorate (Glavnoye Razvedyvatelnoye Upravlenie, known as the GRU), based entirely on the organization's Batman-like logo.

Apparently some comic fans have voted it "coolest government logo."

Certainly consistent with the themes of darkness and blindness...

In light of Bob's earlier post on Belarus-Russia energy relations, I came across this protest video made by the guys at Razam and www.bialorus.tk around the time of Lukashenko's re-election. The production is professional, if not overdone (with heavy metal music), but the raw footage from Belarus is valuable regardless of your viewpoint. The video highlights the media crackdown and the disappearances of numerous opposition leaders.

I am consistently impressed by how dissidents have successfully been using sites like YouTube and Google Video to spread their messages.

If it ain’t one thing, it’s something else
One man’s opinion
By Grigory Pasko, journalist

Fifty-year-old Yegor Gaidar, head of the Institute for the Economy in Transition, started to feel bad while participating in a November 24 conference on Russian-Irish relations at the National University of Ireland in Maynooth, not far from Dublin. He was quickly taken to the intensive care unit of the James Connolly hospital in the capital.

On Sunday, November 26, Gaidar flew back to Moscow, where he continued to receive treatment in one of the capital’s clinics. Almost immediately, reports appeared that he may have been poisoned. Certain commentators on this event rushed to make a link between the symptoms of Gaidar’s illness and the mysterious death of ex-KGB-officer Alexander Litvinenko.
It is noteworthy that the Irish doctors were not able to make a precise diagnosis. At least that’s what we were told by people close to the illness-weakened body of Yegor Timurovich. Or maybe they were able to, but medical ethics or the request of the patient himself did not allow them to publicly announce this.

It is noteworthy that Russian doctors as well did not make any public statements about the results of their examination.

Nor did Yegor Timurovich himself shed any light on the medical aspect of his supposed poisoning when he spoke in the press (The Financial Times) and at a press conference. But he did express a firm confidence in the fact that the poisoning had been an attempt to physically eliminate him. In an interview with the television channel “Rossiya”, Gaidar declared: “The aim was – to kill”. In do doing, as reported by Interfax, Gaidar had expressed the opinion that his poisoning and the death of Alexander Litvinenko are “elements of a single plan” by the opponents of today’s Russian power. In Gaidar’s opinion, in both the one case and in the other, standing behind the murder attempts are “either open or covert adversaries of the current power”, interested in weakening Russia.

“Having given it some thought, I almost immediately reject the theory that the Russian leadership is involved in what happened. After Alexander Litvinenko’s death on November 23 in London, yet another violent death of a well-known Russian taking place on the next day – that’s the last thing in which the Russian authorities would be interested. If we were talking about a bombing or a shooting in Moscow, I would think first of all of radical nationalists. But Dublin? Poisoning? Obviously not their style”, notes the ex-premier.

What do we know for sure about Gaidar’s mysterious ailment? That as a result of an investigation, Irish doctors had determined that the patient had had “radical changes in the vital functions of the organism in a brief period of time”. That’s all.

Let’s turn to the specialised literature: The Practicing Doctor’s Reference says that “poisoning is an illness brought about by poison that has entered the organism”. It also indicates that poisoning brought about by bad food, the toxins of microorganisms, is called food poisoning. It gives examples of colibacillosis – an infectious disease manifested by diarrhoea, attributes of severe intoxication, and the dehydration of the organism.

Of course, I’m no doctor. I’m an observer from the side. A silent observer. Then some journalist colleagues of mine asked me what I thought about Gaidar and his poisoning. I didn’t think anything, I just felt sorry for a person who had found himself in an unpleasant situation. Until Egor Timurovich started talking about enemies of the Motherland, “either open or covert adversaries of the current power”, interested in weakening Russia.

It’s been a long time since I’ve seen any evidence of Russia’s enemies actually accomplishing anything on the “weaken Russia” front. The fact is that the Russian power itself is Russia’s worst enemy, having done more to weaken the country than all its enemies together could have dreamed of.

And to my non-professional eye, it seems that there’s really a very simple explanation to this “poisoning-like” illness: Yegor Timurovich had SHIT IN HIS PANTS. After his statements, it seems he’s done so both in the literal and the figurative sense.
Apparently, the former prime minister just didn’t have the guts to come out and admit this. While making a connection with Litvinenko’s murder and other events while they were hot topics in the news seemed like an attractive explanation for his diarrhoea and vomiting.

A final comment. Just like many-many citizens of my country, I have continued to respect Yegor Timurovich Gaidar to this day, despite all the criticism of him by open and covert “enemies of Russia”. Now, the unpleasant odour wafting from this whole story has seriously gotten in the way of this feeling of respect.

Today in the Herald, an article by Mark Smith titled "Shell Gives in to Kremlin Pressure":

Robert Amsterdam, the defence counsel for Khodorkovsky, said: "The Kremlin has once again used legal pretexts to cover what is essentially an expropriation of private resources in the energy sector.

"No-one should be surprised that this is the result of the environmental review of Shell's project. Extortion is not permissible as a method of acquisition."

The long-standing romance between Belarusian President Alexander Lukashenko and Vladimir Putin appears to be coming to an end, as news reports this week revealed Russia’s plans to drastically raise natural gas prices and apply a hefty export tax of $180.70 per ton on crude oil to their reliably anti-Western neighbor.

Poor little “Bat’ka” Lukashenko – he must be wondering what he is getting out this relationship. When he hasn’t been busy racking up human rights violations and rigging elections, he has passionately applied himself to perfecting the art of cow towing to Moscow. In return, President Putin was one of the first and the few (besides Chavez) to congratulate Lukashenko on his much disputed re-election last March.

But will this loyalty continue without the benefit of energy subsidies? In regards to the price hikes, the FT reports:

The measures could sharply reduce or wipe out the $4bn-plus annual subsidy Russia provides to Belarus, which has helped Alexander Lukashenko, its authoritarian president, deliver higher wages and living standards to his 10m people.

That, say analysts, could make it harder to sustain the support that saw Mr Lukashenko re-elected last March to a third presidential term with 82 per cent of the vote - albeit in a poll international observers condemned as below international standards. It could also drive a wedge between countries that have close cultural and historic links.

"Raising gas prices to [market] levels is equivalent to breaking off relations entirely," Mr Lukashenko recently told Russian journalists visiting Minsk. "We will survive, but you will lose the last ally."

Belarus pays only $46.67 per thousand cubic metres for Russian gas, saving it more than $3bn compared with market prices, but Russia is now pushing to increase the price to $200.

The end of an affair?

The fact that Russia has extended its energy imperialism not only to the Ukraine, Georgia, and other countries with the capacity for a color revolution, but also to their so-called “brother” Belarus, reflects the increasingly tight production margins. Russia is in desperate need of income and foreign investment to develop and mobilize their oil and gas reserves, and following the debacle of Shell-Sakhalin debacle and the endemic inefficient, non-competitive domestic market, it is beginning to feel the squeeze. It’s natural that Russia should seek to progressively cut back on all subsidies to achieve efficiency and market competition, but to break rules, contracts, and agreements in making these adjustments is unacceptable (one Belarusian official says the new tariff violates a 2005 free trade agreement).

Populism backed by resource nationalism is a precarious model – as soon as you lose your low energy prices, you lose your popularity. In Putin’s case, he is sacrificing Lukashenko’s political power to protect his own.

All these considerations aside, we could see these latest energy assaults on Belarus as just the latest Russian energy heist: Belarus could be forced to give up half of its treasured state energy firm Beltransgaz. Talk about pre-emption!

Thomas Lifson, editor and publisher of The American Thinker and a well known Japan expert, just published this op/ed on the Sakhalin shakedown (hat tip RealClearPolitics).

Shell and Russia have not agreed on terms of separation, as it were. They have to negotiate, a lop-sided exercise at best. In the end, Gazprom will probably in theory "buy" approximately half the stakes of foreigners, out of "royalty income." But in practice, it will be a form of expropriation, intended to give Russia operating control of something built and paid for by others. With this control, Russia can better master the complex technologies, and make them its own, as it were.

Shell, Mitsui and Mitsubishi have no choice but to make the best of it. They will smile and talk about great progress being made, hoping that Russia will allow them to achieve some return on their investment, in order to keep their resources available in the future.

We often carelessly assume that the march of progress will continue inevitably, secured by the triumph of market economies. While it is true that capitalism provides a demonstrably richer life for its beneficiaries, many powerful forces in the world do not find themselves advantaged by it. Russia, Islamofascists, and certain Euro-Socialists would rather see market forces confined and a greater number of important decisions in the hands of state or religious bureaucrats.

Russia's move against the Shell consortium is a blow against the regime of international capitalism, in the end. By itself, it is not a major affair, but as a harbinger of things to come from Russia, it is as chilling as the Sakhalin LNG whose shipment will now be delayed by Russia's hardball tactics.

Read the entire article here.

Need I say more? Tomorrow's edition of the Economist pulls no punches. See excerpts below from the lead editorial.

What explains these self-defeating tactics? Mainly Mr Putin's belief that energy is a weapon with which to restore the lost greatness of the Soviet Union. No longer need Russia go to the West cap-in-hand for money, as it did in Boris Yeltsin's day. Now it can stand tall once more, not least in the neighbouring ex-Soviet countries that many in Moscow have never reconciled themselves to losing. Whenever these places seem to look to the West, still more aspire to join such Western clubs as NATO or the European Union, the Russians have reacted petulantly, as they did earlier this year by imposing trade embargoes on Georgia and Moldova. ...

Such authoritarianism, like the muscular use of energy, is driven partly by weakness. Russia's army is chaotic, its population is shrinking and its economy is dangerously dependent on natural resources. That is why Mr Putin is so keen to keep a firm grip on power at home; it is also why he is so anxious to keep Russia's seat at the top table, not just in the UN Security Council but also the G8 club of rich countries.

If Russia continues on this course—and especially if Mr Putin meddles with the constitution to grab a third term—it does not deserve to stay in the G8. But it is also worth noting that Russians, Russia's put-upon neighbours and the shareholders in the Sakhalin project are not the only people who stand to suffer as a result of the Russian economy and political system being mismanaged this way. The Russian state's insistence on developing its oil and gas by itself is bad news for almost anyone in the world who consumes power or fuel.

In the early part of the decade new production from the former Soviet Union accounted for most of the growth in the world's supply of oil and gas. But when Mr Putin began his campaign to take control of Russia's resources, that growth stalled, just as China's demand for energy was taking off. The present high prices for oil and gas are the result. With exploration prospects drying up in much of the Western world, and with the countries of the Organisation of the Petroleum Exporting Countries unwilling to open the taps, Russia is one of the few countries that could produce more oil—if only Mr Putin changed his thuggish ways.

"Everyone's equal," said Oleg Mitvol, the deputy head of Russia's energy watchdog Rosprirodnadzor, last week. He was referring to the charges he was so instrumental in bringing against Sakhalin Energy. However true the allegations of environmental abuses by Shell and its partners building Sakhalin's LNG plant, everyone knew that underneath it all lay Gazprom's ambition to get control of the project. Mitvol, they said, was doing the legwork for the Kremlin.

Now, it seems, Mitvol's words are coming back to haunt him. Everyone is indeed equal in Putin's energy state. And when your use to the state has expired, so has your job.

According to reports from Interfax and Reuters today, Mitvol's boss at Rosprirodnadzor, Sergei Sai, has asked for "disciplinary measures" to be taken against his deputy. The ministry of environment has confirmed the reports. Mitvol is likely to be sacked.

Will the charges against Sakhalin Energy now be dropped? Probably. Gazprom will be happy that the project it now controls will proceed without Mitvol's watchful gaze on it. Conveniently, this will allow Russia to say that Rosprirodnadzor's over-zealous defence of Sakhalin's marine wildlife and forests was just the wild fixation of one eco-warrior. And happily for Gazprom, now the largest shareholder in Sakhalin Energy, it won't have to spend any money paying the $30bn in fines that Mitvol said consortium owes.

All companies are equal in Putin's Russia. But some are more equal than others.

This statement is currently being distributed via newswire.

Royal Dutch Shell’s Surrender to Kremlin Pressure Undermines Shareholders’ Interests, Says Attorney Robert Amsterdam

LONDON, December 14 – Following news of the dismissal of Russia’s chief environmental inspector, Oleg Mitvol, just two days after Shell’s offer to give up a majority stake in the Sakhalin-2 project to the Russian government, Attorney Robert Amsterdam issued the following statement:

“This decision on behalf of Royal Dutch Shell to give in to the extortion of the Russian government is a betrayal of not only their shareholders’ interests, but also an abandonment of those who fight for rule of law,” said Amsterdam. “The Kremlin’s theft of Sakhalin-2, carried out with Yukos-like tactics and veiled by ostensible concern for alleged environmental violations, deserves a stout response from Western corporations, banks, governments – not the complicity and silence currently promoted by the Dutch.”

“The environmental concerns at Sakhalin are just one component of Russia’s established expropriation template, illustrated by the hypocrisy of the North European Gas Pipeline planned for the Baltic Sea, which poses the clearest environmental threat of all Russian energy projects. Not only has Shell given up the largest foreign investment project in Russia without a real fight, they have contributed to Europe’s weakening energy security and emboldened the Kremlin’s impunity to rewrite contracts, ignore property rights, and harass and interfere with foreign investors of its choosing.”

Robert Amsterdam is the founding partner of Amsterdam & Peroff, and represents the former Yukos CEO Mikhail Khodorkovsky. This statement represents his personal views. Mr. Amsterdam writes a blog at www.robertamsterdam.com.

Are Journalists Quietly Going Away?
By Grigory Pasko, journalist

A couple of days ago, some foreign television journalists I know asked me if I happened to know where they could find Elena Tregubova, a journalist who had written a book called Tales of a Kremlin Digger. I told them I’d try to find out. Here’s what I found out: after the murder of Anna Politkovskaya, Tregubova had disappeared. Then she reappeared again for a short while. And now people are looking for her again. For now, it’s only journalists who are looking for her. One acquaintance of mine reported that he had “just now” spoken with Elena and had passed on my request that she touch base with me by telephone. And he hinted that Tregubova is indeed in hiding and that most likely she’s not in Russia.

Judging by what happened with Litvinenko, being outside our beloved Russia is not always a guarantee of safety.

The fact is that the journalist Tregubova really does seem to have reason to fear for her life. It is enough to recall that there has already been one attempt on her life. This was after her book came out in 2004. Here’s what the Grani.Ru website wrote in February 2004:

“…Elena Tregubova was summoned to Petrovka, 38 [the Moscow Criminal Investigation (MCI) Office – Trans.] to make a witness statement in connection with an explosion on Bolshoy Gnezdnikovsky Pereulok. The explosive device had gone off right next to Ms. Tregubova’s apartment on Monday, at around 2 PM. At first, the police categorized the explosion as “malicious hooliganism” and did not show any interest in what the journalist had told them. But on the morning of the next day, Elena Tregubova received a phone call from the MCI and was invited to come in for an interview with an investigator…"

As Ms. Tregubova explained it to Grani.Ru, the questioning was conducted by MCI officer Vadim Romanov… During the questioning, Mr. Romanov wondered whether Tregubova happened to be acquainted with former FSB officer Alexander Litvinenko. She replied that she did not know him, and asked why this would be of interest to the investigator. “Why wouldn’t it be?”, Romanov answered her. “After all, in your book (Tales of a Kremlin Digger – Ed.), you write the same thing that Litvinenko is saying – that Putin is involved in the bombings of the apartment buildings in Moscow.”

In Tregubova’s words, investigator Romanov and another police officer who joined the discussion tried to convince her that the incident shouldn’t be taken seriously. …According to a Grani.Ru source in the law-enforcement organs, the power of the explosive device was equivalent to 60 grams of TNT, and that three batteries and an electric cord about 20 meters in length had been found at the place of the incident.

I remember those times well, and the rumours that the mass media were spewing out then. Some colleagues – and I use the term loosely – even sank so low as to suggest that Tregubova herself had set the bomb for PR purposes.

So it’s perfectly understandable that the news about Litvinenko’s poisoning may have alarmed Tregubova. And no doubt both this death and the murder of Politkovskaya has scared not only her. Tregubova told: “One very much wants to believe that this is just an ordinary explosion… Otherwise, it’s frightening to live in such a country.” It’s doubly frightening to live in a country where people are being poisoned and murdered nearly every week.

I’ve recently begun to notice that the tone of the statements and publications of many journalists has changed: it has become more cautious. If certain particularly zealous critics of the Putin regime completely stop writing the truth, then we will be able to say that the powers have succeeded in their preventive intimidation campaign against the writing fraternity (and not only them). I’ve experienced on my own skin what “pre-emptive arrests” feel like. Apparently, we’ve now come to the era of pre-emptive killings.

From Tregubova’s book Tales of a Kremlin Digger:

“Putin’s reply to my question about the scandalous press conference by Litvinenko and other FSB officers, who had declared that the former leadership of the FSB had forced them to plan the murder of Berezovsky, was also most intriguing:

“ ‘Personally I do not rule out for myself that these people actually did intimidate Boris Abramovich Berezovsky. After all, there had already been an attempt on his life. And it was easy and simple for him to believe that yet another attempt is being planned. But I personally consider that with the help of this scandal, the officers merely ensured themselves a labour market for the future. After all, some of them are now even working in his security detail.’

“Pausing a moment to think, he added:

“ ‘And the story with the press conference, about which you remembered, testifies to the internal unhealthiness of our system. That’s precisely why I completely liquidated this unit, in which the scandal arose’.”

In our continuing efforts to develop this blog into a top source of high quality, original information on Russia, energy, and international affairs, we are proud to welcome two additional guest bloggers, the well known energy journalists Derek Brower and Tom Nicholls.

Derek Brower is an internationally-respected journalist who covers energy politics, the EU, and Russia. His work appears regularly in Petroleum Economist, the global magazine for the oil and gas industry. He has also written for Prospect magazine, The Times, Business New Europe, BridgeNews, Platts, The Calgary Herald, and other publications. His reporting has been translated into several languages. A Russian speaker, he is also completing PhD studies in Russian literature, and has lived in and reported from Russia. He holds degrees from Oxford and London Universities. Brower is a founder and director of geopolitical consultancy BrowerNicholls.

Tom Nicholls is the editor of Petroleum Economist and an expert on global energy politics, reporting from events around the world and speaking at energy gatherings. He has worked for 15 years as a journalist and is a regular contributor to the business pages of the London Evening Standard, in addition to other publications. Fluent in Spanish, he has worked as a foreign correspondent in Madrid for Bridge News, a global news agency. Nicholls is a graduate of Oxford University . He is a founder and director of geopolitical consultancy BrowerNicholls.

Slate.com is running an article by Edward Jay Epstein this week, which argues that much more important than the results of the Litvinenko murder investigation is the story of how the Polonium-210 got into the wrong hands:

If a rogue nation (or terrorist group) obtained access to any quantity of polonium—even, say, a half gram—it could use it as an initiator for setting off the chain reaction in a crude nuclear bomb. With a fissile fuel, such as U-235, and beryllium (which is mixed in layers with the polonium-210), someone could make a "poor man's" nuke. Even lacking these other ingredients, the polonium-210, which aerosolizes at about 130 degrees Fahrenheit, could be used with a conventional explosive, like dynamite, to make a dirty bomb. ...

The diversion could have come from only a limited number of places. Just four facilities are licensed to handle polonium-210 in Russia: Moscow State University; Techsnabexport, the state-controlled uranium-export agency; the Federal Nuclear Center in Samara; and Nuclon, a private company. Although these licensees are monitored by the Russian government, it would not necessarily require an intelligence service to divert part of the supply into private hands. A single employee who was bribed, blackmailed, or otherwise motivated conceivably could filch a pinhead quantity of polonium-210 and smuggle it out in a glass vial (in which its alpha particles would be undetectable). Such corruption is not unknown in Russia.

Or the diversion could have come from outside Russia. A number of other countries with nuclear reactors have been suspected of clandestinely producing or buying polonium-210, including Iran (where it was detected by IAEA inspectors in 2000), North Korea (where it was detected by U.S. airborne sampling), Israel (where several scientists died from accidental leaks of it in the 1950s and 1960s), Pakistan, and China. But whatever its source, the polonium diversion has serious implications. The real problem is not its toxicity, since its alpha particles can't penetrate the surface of the skin and therefore have to be ingested or breathed in to cause any damage. (That can happen if you have polonium-210 on your person or clothes.) The more serious danger is that it could be sold to a country that wanted to set off a nuclear device, clean or dirty.

UPDATE: MT/AP reports that the timing of the Litvinenko attack now in doubt.

(editor's note: following Pasko's first two submissions, reader La Russophobe posted a number of questions in the comments section. Grigory sent in the following response - but given his travel schedule and the logistical challenge of translation, he will not be able to respond to comments on a regular basis.)

1) I think it's rather clear, in light of the Litvinenko and Politkovskaya killings, and the Gaidar attack, that Grigory is now a potential target.

In principle, the author of the question properly understands the essence of what is taking place in Russia. Except that it’s not just I who am a potential victim. Naturally, postings in blogs such as this do not remain unnoticed by those whose job it is to keep track of me. Furthermore, I think that Anna Politkovskaya was killed more not for her articles published in Russia, but precisely for her appearances and books published abroad. But even being aware of all this can not make me refuse any opportunity to speak the truth, to speak that which I see, think, and feel. This isn’t a death-wish or fatalism, it’s what is called –perhaps somewhat grandiosely, but accurately – the duty of a journalist. All I can do is cling to the feeble hope that I’m not at the very top of the list of potential victims.

Suppose an attack were made. What would be the best response the West
could make?

Let’s just suppose that I’m going to live a long and happy life and will one day write a book about winemaking in the countries of the Mediterranean basin. And then the best response of the West would be to buy this book and develop winegrowing in new countries (thanks to global warming).

What can we do now to help protect Grigori, and other Russians like him?

People in my situation are unprotected on a very basic level – we don’t have permanent jobs, and are forced to constantly be on the lookout for a chance to earn some money. One way to help us is to provide us with opportunities to work. I know some top-notch journalists who have been forced by circumstances to leave the profession. That is, to do what is advantageous for today’s power.

Why don't they all get together and create a website where their work can be consolidated and easily found?

That’s a question for those who have the money for publishing newspapers and magazines and for maintaining websites. There are such people in Russia and abroad. But I don’t know why they haven’t consolidated their forces to create influential, united mass media outlets. On the other hand, maybe it’s better this way: shutting down one newspaper is easier than shutting down several.

2) What do you think about the silence of Garry Kasparov as these events have been unfolding? I personally find it appalling, both in terms of what it says about the Kremlin's ability to stifle opposition and in terms of Garry's potential value as a leader. It seems to me he's going the way of Yavlinsky.

Garry is an exceptional person. Kasparov today is smarter and more farsighted than he was yesterday. You already know that on December 12 – Russia’s Constitution Day – Garry Kimovich’s office was searched and books, documents, newspapers, and posters were seized. Before that, he had spoken at the Second Human Rights Congress and at the Civic Forum. I heard these speeches, and certainly didn’t see evidence of any “silence” on Garry’s part in them.

Of course, it’s not difficult for the power to strangle the opposition, ESPECIALLY the kind of opposition we have today in Russia. The main question concerns the ability of this opposition to unite in a meaningful way, not just in words. So far we have not seen such a unification.

So what do we have? Well, for example, the power has registered SPS and “Yabloko”, but not the Republican Party and Limonov’s National Bolshevik Party. In doing so, the power has succeeded in sowing discord in the human rights community, by dividing it into those with access to power and those without. Some members of the opposition say they want to take part in elections, while others don’t. Some are for cooperating with the power, while others are categorically against. And the power is so far adroitly playing these contradictions off against each other.

Unfortunately, the leaders of the opposition so far either don’t understand the meaning of this game, don’t realize how they’re being toyed with by the power, or they are consciously playing into the hands of the power. I believe that Garry Kasparov is one of those who do understand: you can not cooperate with today’s power in Russia, because it will betray you in the blink of an eye.

Who do you think is the most promising leader of opposition in Russia today?

The most promising? Hard to say. Of those who are in the public eye, each one has at least one major flaw. I for one am following the political activities of Vladimir Ryzhkov with great interest.

It looks like I am a few days late to this, but there is this new blog ZheZhe [dot] us, which describes itself as "neither Russophiles or Russophobes, but Russorealists," and has posted an interesting survey of blogging in Russia (hat tip Global Voices).

Seems like an interesting addition to the online conversation.

La Russophobe on the Kasparov Office Raid, Michael Averko (via Sean Guillory) on the disputed territories, David McDuff on the Trepashkin letters, Craig Pirrong on the Shell-Sakhalin-Gazprom debacle, Baku News on a big oil shipment through Turkey, Mound of Sound on the democratic decay of Russia, Once Upon a Time in the West on the pro-Kremlin Youth Groups, and everyone and their mother commenting on the Stephen Cohen piece in the Nation.

Although this video is long overdue (due to technical difficulties), I thought I would post Bob Amsterdam's interview on the Charlie Rose Show, which originally aired October 27, 2006. Fast forward the video to 40:28 for the beginning of the interview.

The transcript of the show is available for download here.

Here is an excerpt from the interview:

CHARLIE ROSE: How much do you fear that he'll die in prison? As someone once said, he'll slip on a banana?

ROBERT AMSTERDAM: It won't be a banana. The man was stabbed four months ago.

CHARLIE ROSE: By?

ROBERT AMSTERDAM: By another inmate.

CHARLIE ROSE: What do you know about that?

ROBERT AMSTERDAM: Well, you know, there are many inferences that can be
drawn. He is in danger. The fact that I'm here and talking to you is --
every time we do anything that's public, everything is a calculated risk.
What they want is silence. That's why he's in Siberia.

CHARLIE ROSE: Then why are you doing it?

ROBERT AMSTERDAM: Because if in fact the lessons we learned from the
refuseniks of 25 years ago is, if you stay silent, they win. So it's a
very difficult line, every day we have to deal with.

CHARLIE ROSE: Sakharov and others.

ROBERT AMSTERDAM: Yes, silence doesn't work. If you read Sharansky's
book, if you look at the lessons of history, you realize that silence
doesn`t work, and that impunity grows where silence exists.

There May Be More Victims of the Regime
Is Trepashkin’s Life in Danger?
By Grigory Pasko, journalist

A few weeks ago, Trepashkin wrote the attached letter to Pasko

A Letter from “There”

“To journalist Grigory Pasko from Mikhail Ivanovich Trepashkin, lawyer of the Moscow collegium of advocates “Mezhregion”, colonel (reserves), veteran and pensioner of the FSB RF, unlawfully convicted on fabricated charges of having committed acts of medium severity – Art. 222 part 1 and Art. 283 part 1 of the Criminal Code of the RF – and sentenced to 4 years in a penal colony-settlement, held under guard in Federal State Institution IK-13 of the city of Nizhny Tagil.

I am writing to you for help in getting press coverage of the essence of my case. They were in such a hurry to get me behind bars that they simply made up nearly all of the charges. …All of my appeals always end up in the hands of those same persons who had fabricated the case. I have only one hope now for a review of the case, and this is broad coverage of the situation in the mass media. …I am confident that through the mass media, it will be possible to attain not only a review of the case, but that certain military procurators and judges might get their epaulets ripped off as well! Why? Because the fabrication is very obvious even to an ordinary citizen who doesn’t have any legal training.

Why were they in such a hurry to lock me up? The trial in the case of Dekkushev and Krymshamkhanov was starting. Where I was supposed to be representing the interests of the sisters E.A. and T.A. Morozova, victims of the bombing of a house on Guryanov street in Moscow in September 1999. There was an FSB directive to do whatever necessary to remove me from the case.

How many charges were there against me? Two under Art. 222 part 1 and two under Art. 283 part 1 of the CC RF.

To whom had I divulged a state secret? I was charged with divulging a state secret to FSB colonel V.V. Shebalin, serving in a secret unit of the URPO FSB RF [the FSB’s organised crime unit – Trans.].

What is omitted is the fact that I met with Shebalin in August 2002 in order to warn him about a terrorist act that was in preparation in Moscow (Nord-Ost). What FSB secrets did I divulge to an FSB colonel in 2002 if I haven’t been serving in the FSB since 1997?

Why is it that a criminal case was initiated in 2002 concerning an event that took place on May 3, 1955, To wit, I’m sitting behind barbed wire for a case for which an amnesty has been issued!

With your help, I’m hoping to break through the informational blockade system that has been created around me and through publications to attain a review of the case. Please note that I’m not asking for a dismissal of the case, but for a review! Because I know that everything’s just “pasted together”, and that there are no grounds for me to fear any “other turns” in the case.

Respectfully, and hoping for a reaction,
Mikhail Trepashkin
November 22, 2006

The text of this letter was scanned from a handwritten original and sent to me by email. There was no need to doubt the authenticity of the letter – the original of Trepashkin’s letter to Litvinenko can be found on many websites, so even a non-specialist can see that the handwriting is identical.

Some first thoughts about this missive: the man must be in dire straits indeed if he is ready to believe even in the power of the printed word in these days. And more: Mikhail Ivanovich doesn’t trust me, and perhaps doesn’t trust anyone at all. And this is right, because he has been in a situation for quite a long time now where excessive trust could mean big trouble for him. Not from a journalist, of course, but from his former friends in that big jar of spiders that goes by the name “KGB."

The Trepashkin case

What do we know about the so-called Trepashkin case? Here’s what Mikhail himself said in a 2003 interview with Grani.Ru:

“The goal of this accusation is to not allow me to render assistance to the Public Commission. After I started in January of this year (2003 – author’s note) to investigate the circumstances of the terrorist acts of 1999 and the tragedy on Dubrovka [Nord-Ost – Trans.] at the request of the Commission, all kinds of charges started to be brought against me. I’m being charged under three Articles. The first: Art. 22 part 1 of the Criminal Code of the RF (‘Unlawful acquisition, transfer, sale, storage, transportation or bearing of a weapon, its principal parts, munitions, explosive substances and exlosive devices’). The case was already initiated in those times when the declarations of Achemez Gochiyayev were publicised during a July 25, 2002 Moscow-London “space bridge” television show. At that time, cartridges were planted on me, and the investigation attempted to prove that they belong to me. Another Article – 283 (‘Divulging a state secret’). It was not established than there had been anything divulged. Then the prosecution brought up the Article about abuse of official position – 285. They recollected the year 1995, when I, being an FSB officer, started to “expunge” caches of Chechen weapons in Moscow. I took several caches, for which I received a medal ‘For valour’. And suddenly a command comes from above, from Patrushev (director of the FSB – author’s note): not to work any further. I was shocked: what did that mean, ‘not to work’? After all, the Raduyevites are operating in Moscow, a cache has been established in Zagoryanka, eyewitnesses of deaths at the hand of Chechen bandits have appeared. I did not reconcile myself to this order, after which a judicial inquiry began, which determined that I had supposedly abused my official position by detaining a band of Chechens. I had to resign. I sued. The court ruled that I was right. I had the warrants. I took the band that was subsequently convicted by the Tverskoy court. After this began a new round of persecutions, now associated with the terrorist acts of 1999 and ‘Nord-Ost’. Now, a new charge will be filed, which, I think, will hardly be the last.”

In May 2004, Mr. Trepashkin was sentenced to deprivation of liberty for four years for divulging a state secret. On August 19, the Tagilstroyevsky district court satisfied Mikhail Trepashkin’s petition on early release on parole. The procuracy did not appeal this decision in the time period established by law, and on August 29, Mr. Trepashkin returned to Moscow. However, on September 16, the procuracy of Sverdlovsk Oblast reinstated the time period for submitting a cassation [appeal – Trans.] and protested the decision on early release on parole. On September 18, 2004, Mikhail Trepashkin was arrested anew and delivered to IK-13 of Nizhny Tagil, where he is to this day.

In his interview, trepashkin did not mention an important detail for understanding everything that started to happen with him (and not only him) – the famous press conference in 1998. At that time, Trepashkin took part in a press conference at which FSB officers Litvinenko, Gusak, Ponkin, and Shcheglov accused the FSB of criminal activity. Trepashkin was present at the press conference in the capacity of a victim.

Other Important Matters

It is known that Mikhail Trepashkin’s military service began in the atomic submarine fleet. After his required tour of duty, he entered the Higher School of the KGB. Since 1976, he was an investigator in the investigation administration of the KGB, specialising in cases of smuggling cultural valuables and works of art.

In the 90s, he worked in the internal security administration of the FSB. His commanding officer was Nikolai Patrushev, today’s KGB boss. Among Trepashkin’s successful cases was the unmasking in 1995 of a criminal group in the FSB and GRU [military intelligence – Trans.], which was engaged in the sale of weapons into Chechnya. However, the case was ordered to be closed. A conflict with the command arose. In that same year, he was dismissed from the organs. In early 1996, he sued the FSB for unlawful dismissal, and the court satisfied his claim. But the decision of the court never was carried out.

In early 1997, Trepashkin was attacked on the street and he was beaten. By this time, he had given several interviews about corruption in the FSB. The former special services officer had also sent a letter to president of the RF Boris Yeltsin on this same subject.

In the middle of 1997, Alexander Litvinenko, who at that time worked in the administration for surveillance of criminal organisations (URPO), got an order to organise an attack on Trepashkin. Subsequently, Trepashkin was mentioned together with Boris Berezovsky and Umar Djabrailov in the complaint to the procuracy that Litvinenko filed against the URPO as a criminal organisation. The latter two were likewise under surveillance by the URPO: they were supposed to kill Berezovsky, and kidnap Djabrailov. (It was after this that he decided to take part in the press conference).

What happened next? It is known that Mikhail Trepashkin next engaged in private law practice for two years. In September 2001, he gave an interview to French journalists who were shooting the film "An Attempt on Russia", in which he told about the activities of the FSB in the context of the bombing of the houses in Moscow and Volgodonsk. Right after this, a search was made of his premises. A criminal case was started up against Trepashkin for divulging a state secret and unlawfully storing a weapon. The second charge was ultimately dropped, but the first one remained.

In early 2002, Trepashkin made the acquaintance of Sergey Yushenkov and started to work actively with him within the framework of the commission for the investigation of the bombing of residential houses in cities of Russia in the year 1999 [Yushenkov was assassinated in 2003, hours after registering his new opposition political party for upcoming parliamentary elections – Trans.]. In that same year, he became the attorney for the Morozova sisters, who lived in the USA (they passed through as victims in the case of the house bombings). In August 2003, Tatiana Morozova visited Moscow, and together with Trepashkin sought to gain access to documents on the bombing case. This was the only attempt on the part of the 1999 bombing victims to obtain at least some kind of information on the case.

Trepashkin’s Life in Danger

On December 4, 2006, the latest press conference dedicated to the imprisonment of former FSB RF officers Mikhail Trepashkin took place in Moscow. At the conference, which was entitled “The public committee in defence of Mikhail Trepashkin begins work," new details about the situation with the political prisoner lawyer were sounded, and his open letters and appeals were presented. Telling journalists about the activities of the new committee were executive director of the All-Russia Public Movement “For human rights” Lev Ponomarev, coordinator of the committee in defence of Trepashkin Mikhail Krieger, human rights advocate Elena Sannikova, as well as M. Trepashkin’s lawyer Elena Liptser.

Here is an excerpt from the appeal by the committee members:

“We have seen how simply, with calm cynicism, paying no regard whatsoever to the huge public resonance, people who uncovered the dark secrets of the war in Chechnya and the crimes of the siloviki were selected to be a victim of terror… We have serious grounds to assume that Trepashkin may become the next victim in a series of summary executions. Therefore, we are establishing a public committee in his defence. The aim of the Committee is activities to ensure the rights of Trepashkin to hospitalisation effective treatment, to repeal of an unfair sentence and rehabilitation."

In the words of the lawyer of the former FSB colonel, her client suffers from an extremely dangerous form of bronchial asthma – third or fourth degree. With such degrees of asthma, a person must be hospitalised straight away. However, an examination and a formal recording of a diagnosis are necessary for the adoption of such a decision. “If Mikhail Ivanovich’s illness were formally recorded, then he would be released from prison. But they are hindering an examination of Trepashkin all the time. Attacks [of the asthma – Trans.] occur nearly every night, and every time a person’s life depends on the speed with which medical assistance arrives”, Trepashkin’s lawyer Elena Liptser told the journalists. According to the information of human rights advocates, narcotic injections are given to the political prisoner in the jail, ostensibly restoring the health of the defendant, but which in actuality, in the words of Lev Ponomarev, are “slowly killing him."

“When Alexander Litvinenko was killed, we understood that now an imminent danger threatens Mikhail Trepashkin as well," said Lev Ponomarev. It is known that Trepashkin, together with service colleagues, in particular the URPO FSB RF lieutenant-colonel A. Litvinenko among others, took part in the famous press conference by officers of the named administration, which took place on November 17, 2008 at “Interfax." At it, the FSB officers told about how the FSB RF leadership had assigned them kidnappings and murders of people. After some time, all the “whistle-blowers” without exception were dismissed from the FSB.

And here is an excerpt from Mikhail Trepashkin’s open letter of November 24, 2006: “Together with A.V. Litvinenko, I was a participant in the press conference of 17 November 1998. I was already no longer an officer of the organs of state security. I was invited as a victim of a murder being arranged by FSB RF officers because earlier I had brought attention to crimes being committed by FSB RF officers with the knowledge of management. For this they fired me from the organs, organized attempts on my life many a time, including with the forces of the URPO FSB RF… I am being held in a SIZO [Investigative Isolator, a pre-trial prison – Trans.], IVS [Temporary Holding Isolator – Trans.], and zone [prison camp – Trans.] for a fourth year already, not having committed anything unlawful against people. My charges are concocted! This can be seen even with the eye of a non-lawyer …Litvinenko, I – we’re not the last in the chain of those being pursued. Think about it.” Likewise, in his letters, Mikhail Trepashkin says that he had warned Alexander Litvinenko as far back as 2002 about the creation of a group for his annihilation.

Convicted ex-colonel of the FSB Mikhail Trepashkin, through his lawyers Elena Liptser and Lev Ponomarev, has conveyed a request to the investigative team from Scotland Yard (which is flying out to Moscow today) to question him about the case of the murder of Alexander Litvinenko.

In addition to this, Trepashkin’s lawyers have expressed the desire that the British investigators question their client precisely now in connection with the fact that Trepashkin is in serious condition in the infirmary of the Nizhny Tagil penal colony.

At the Federal Service for the Execution of Punishments (FSIN) of Russia [the prisons administration – Trans.], they are not planning to organise a meeting of representatives of Scotland Yard with former officer of the FSB of Russia Mikhail Trepashkin, who has been convicted of divulging a state secret and is serving a sentence in a correctional colony in Nizhny Tagil. That “the FSIN of Russia will not tolerate a person convicted of divulging a state secret continuing to appear in the role of a source of information for representatives of the special services of foreign states” was announced by the official representative of the FSIN, Alexander Sidorov.

Alexander Sidorov of FSIN

Latest Events

Recently, the Sunday Telegraph newspaper reported that it had managed, through an intermediary, to contact Trepashkin and that he had provided the name of a colonel in the Russian special services who, he asserts, had played a key role in the poisoning of Litvinenko. In Trepashkin’s words, this is one of the four FSB officers who had appeared together with Litvinenko at the press conference in 1998 and had announced about the attempt being organised on Boris Berezovsky’s life. As the Sunday Telegraph notes, it knows the name of this colonel, but it can not report it. (As a reminder, there were four participants other than Trepashkin himself: Litvinenko, Gusak, Ponkin, and Shcheglov – author’s note).

It is known that in connection with new data that has appeared about threats to Trepashkin’s life, the committee in his defence has decided to conduct yet another meeting this week. The decision was adopted within the framework of the conference “In defence of human rights” which took place on December 10 in Moscow.

Getting Back to the Letter

“…They simply made up nearly all of the charges. …All of my appeals always end up in the hands of those same persons who had fabricated the case. I have only one hope now for a review of the case, and this is broad coverage of the situation in the mass media. …I am confident that through the bass media, it will be possible to attain not only a review of the case, but that epaulets might get ripped off as well…”

I re-read these lines several times. Perhaps like few other people, I am familiar with the sense of desperation and the feeling of helplessness against the FSB/procuracy/court triad. But even I, a semi-civilian person, was not so naïve as to have such a religious faith in a review of the case through publications in the press. The times have changed, Mikhail Ivanovich! Surely you must know the whole extent of the nefariousness and cynicism of your colleagues, who change laws to fit their needs whenever it suits them and have unlimited influence on the procuracy and the courts?

It goes without saying that I will do my duty as a journalist – I will write everything I want to write about your case. But by right of having been a prisoner myself, I’ll offer some advice: conserve your energy and your nerves; you’ll still need them. Try to be cautious and to survive. And more: you have many true friends, who are thinking about you and about how to help you. (It is another matter that the times these days are evil and lawless, so there aren’t all that many ways to help).

In time, everything will fall into its place. And although it is unlikely that we will be able to witness the just punishment of all those who throw innocent people into the prison camps, they will still get what they deserve. If not tomorrow, then the day after.

In response to the news that Royal Dutch Shell has offered to give up control of the single largest energy investment project in Russia, Sakhalin II, to state-controlled Gazprom, observers in Europe and North America have reacted with a healthy amount of skepticism. The Globe and Mail, the Wall Street Journal, the Guardian, and the Times of London (among others) have all characterized the Kremlin's tactics as excessive and brutal.

Jeroen, we have a problem Veer

A breaking story from the Economist has also captured the key issue at stake: how state-sponsored business interference can damage the investment environment - which is the last thing Russia needs.

It is a disturbing and unwelcome development, but it should not come as a surprise. Vladimir Putin’s regime shamelessly dismembered Yukos, an oil firm owned by a political rival. And Russia’s government has made little secret that it regards energy as a legitimate tool of foreign policy in an energy hungry world. The grab for Sakhalin is just the latest tightening of Russia’s grip on its oil and gas reserves. The Kremlin is discouraging foreign participation in the exploitation of energy reserves: legislation is planned to limit outsiders, in future, to minority stakes in energy and precious-metal firms. ...

But where Russia’s government may have had a good case for renegotiating the deal, instead it has resorted to intimidation. Shell had few negotiating levers and had little option but to back down. Though the details of the deal are not clear, some analysts suggest that Shell and its Japanese partners might get $4 billion for the half of Sakhalin II that they will hand over. At least it seems that Russia has not yet torn up the PSA, so Shell can still expect returns on its huge investment. ...

The risk for Russia, of course, is to its reputation. The government is getting a name for disregarding or unilaterally rewriting agreements when the mood strikes. With global demand for energy so high, oil firms may well decide that the risk is still worth it in Russia. But foreign companies considering investment in other sectors may think again. Investors eyeing a slew of forthcoming IPOs (among energy firms and others) may now be discouraged. That is not what Russia needs. Thanks largely to high oil prices, its economy has been growing by an average of some 6.5% a year. The best way to sustain that is not to cede control of oil and gas fields to bureaucratic, inefficient and opaque state energy firms. More foolish still would be to scare away investors from other parts of Russia’s still-creaking economy.

It is argued almost unanimously that President Vladimir Putin's popularity is rooted in the performance of the Russian economy and aided by the cohesive yet toxic combination of unrestrained nationalism. But to what extent are the high oil prices that currently keep the country afloat able drive growth in other industries? Given that so many Russian firms are making for the exit before the next election, what are we meant to understand about political risk?

There are of course legitimate grievances over the Sakhalin II project, and nobody likes to recognize that they chose the wrong time to sell - but to address these grievances, a government must honor contracts and adhere to international norms and processes (a deal is a deal, after all). The attack on Shell increases macroeconomic instability for Russia, which places more pressure on Putin, and makes his grip on power ever more dependent on the growth of the GDP and the price per barrel of crude. It seems even that those who want the President to remain popular should be advocating against this ham-handed energy bullying, lest the Kremlin insiders and Gazprom elites put him between a rock and an even harder place.

The IHT and New York Times have an interesting opinion column by John Vinocur today, in which he argues that the American reaction to Vladimir Putin's recent conduct is shockingly weak. Emphasis added.

For Russia’s Cooperation, a Harder Line May Be Needed By JOHN VINOCUR International Herald Tribune BRUSSELS

Vladimir Putin does not want to be "reviled and isolated," a close adviser to a European government leader was saying the other day.

Could be. But one problem when it comes to mustering opprobrium and ostracism, even in careful doses, is that President George W. Bush and Europe appear incapable of making Putin believe they have the will or the unity to manage either.

So while newspapers were recounting visions of Russia's return to Cold War tactics - murders in London, harassment of the British ambassador in Moscow, silencing BBC broadcasts in Russian - Putin's people went ahead last week further holding up an already defanged UN Security Council resolution on Iran that, if it passes, would only postpone the question of when the world will sanction the mullahs' nuclear program more seriously.

The resolution's delay, now running toward a fourth month, says something. For an Iran expert talking at a symposium, it signifies Iran's strengthening belief that it can get away with anything in moving toward nuclear weapons - with what for some appears to be tacit Russian complicity.

And that without any apparent downside for the Russians, Iran's major supplier of arms and heavy equipment.

In fact, if Russia were somehow producing a Baker Commission report this week on Putin's fulfillment of major strategic goals since 2003, from the point of view of Moscow's nationalist power politics, he would get straight A's.

Putin has pushed and bullied Ukraine and Georgia away from NATO, established and deepened Europe's dependence on Russian energy sources, and elbowed the European Union into near silence in the face of threatened boycotts and Russia's refusal to sign a charter of good conduct between energy suppliers' and their clients.

Through the Security Council, and Bush's current reliance on it, Putin holds a Russian veto and a gatekeeper's prerogatives in relation to the West's hopes to stop Iran. The war in Chechnya, normally a minus-column entry, escapes serious censure because the allies keep quiet about it. A democracy that's flickered out, a fleeting rule of law? To Putin, they're nonproblems, as disposable as paper hats and tinsel.

Alongside Vice President Dick Cheney's supposedly hard-line speech on Russia in Lithuania last May (it reads like softly-softly stuff now), contrast Putin's current behavior and the Americans' faint reaction to it:

Bush meets twice with Putin in the last 30 days and offers him American approval for membership in the World Trade Organization. This, after years of withholding it out of minimal belief in Russia's reform course.

Amazing. For Europe, here was Bush, whose bark is regarded in the European subconscious as ultimate back-up insurance against Russia, giving away something for nothing without a hint of a quid pro quo.

Less than nothing, actually, in terms of Russian contempt. Pocketing the WTO offer, Putin then thumbed his nose at Bush and NATO through an attempt to set up a private dinner with Jacques Chirac in the margins of the Alliance summit meeting in Latvia two weeks ago.

Some Europeans see Bush as cowed. For the most part, they want him to talk directly to Iran. They don't laugh off one American analysis that argues that in refusing the Baker Commission's call to engage Iran directly, Bush seemed to abandon his best route to bypass Putin's barrier at the Security Council and move ahead with or without European allies who will not talk of an eventual military response to Iranian nukes.

In the view of experts at the symposium, the juxtaposition of American and Russian behavior leaves Iran believing it does not have to fear attack. Beyond that, they say, Iran thinks it holds levers over Russia on a number of strategic regional issues, and may be able to buy Russian support as the Iranian nuclear program evolves.

So what to do? The least dismal part in working toward an answer is that the Russians continue to publicly insist that they don't want Iran to have a military nuclear program, and seek the same goal as the Allies.

One response is for the allies to tell the Russians they must stop being a problem on every front. This involves what may seem more like a wish-list than reality.

The official who believes that Putin does not want contempt or a pariah status - without insisting he thinks the West could make this into Putin's fate - enumerated a series of points that could meld into a common European/American admonition.

It would say to Russia that it must be helpful and consistent on Iran, stop attempting to destabilize Ukraine and Georgia, approve a UN resolution giving Kosovo its independence, and accept the idea that the West wants a constructive relationship.

Investment and technical assistance is the carrot. Intensive development by Europe of alternative energy sources to Russia is the precaution.

But getting Putin to move? The answer there, the official said, would be a more united, more coherent front that does not start qualifying the message "when there's a deal in the wind."

He did not mention Bush.

If the Baker Commission argues that Bush is failing in his prosecution of the war in Iraq, the truth is also that Russia's current view of America as its "primary adversary" (the phrase is that of a senior U.S. official two months ago) serves as an accusation Bush has failed as well in his favorable, accommodating judgment of Putin.

Acknowledging this now and acting to reverse it (or just disregarding it) would become an indelible part of Bush's legacy. In any event, Putin's aggressive Russia commands a decision because it's a big part of an existential problem dogging the president's final 14 months: how not to leave office with Iran on track to become a nuclear threat.

For Putin, his favorable legacy at home already looks assured when his time is up (in theory) in 2008. He's the man who retrieved Russia from humiliation and turned it into a nation that counts again.

His reaction to purely verbal contempt coming from abroad? Hah. The only seemingly certain route to shame in Putin's mind would be for him to retreat or show weakness at those points where he's marked out Russia's hard new lines.

Is Everything Fine in Russia's Camps?
Apparently, even the President of Russia wants to know
By Grigory Pasko, exclusive to robertamsterdam.com

Russia’s chief prosecutor, Procurator-General Yuri Chaika, recently held a press conference in Moscow. The government official touched upon many topics, including that ex-YUKOS head Mikhail Khodorkovsky may face new charges, if the evidence can be gathered.

This statement, in my opinion, says more strongly than anything else can to the fact that today’s power in Russia has no intention of leaving Mikhail Khodorkovsky alone, let alone releasing him on parole before his full sentence is up. Furthermore, as passions rise in the run-up to the State Duma elections, and then the presidential elections in 2008, even more radical measures are likely in respect to this disgraced convict.

The recent spate of murders and poisonings of Russian citizens, which has resonated throughout the entire world, gives reason to doubt that president Putin is really in charge of things in the country and in control of the situation. It is obvious that there are people (some call them the “third term party”) who want to get Putin entangled in bloody events so as not to give him a chance to avoid the temptation of becoming president for a third time.

The events unfolding today in Russia make for a depressing picture, despite all the efforts of the propagandists to present reality in a rosy light. Particularly ugly is the situation in correctional institutions. The conditions under which prisoners are held are so alarming that even the chairwoman of the Council to Promote the Development of Civil Society Institutions and Human Rights under the president of the RF, Ella Pamfilova, has begun to speak about them. Recently, she expressed her dissatisfaction with the work of the Federal Service for the Execution of Punishments (FSIN) [Translator’s note: the direct successor of the notorious GULag, the agency in charge of the prison system] to the president of Russia. “The significant increase in the number of complaints in recent times from places of imprisonment is associated with the fact that the system has become more closed. In all previous years, they worked actively with the human rights community, but now, access has become restricted not only to human rights workers, but even to human rights ombudsmen in the regions, human rights representatives”, Pamfilova explained to the president.

In her talk with the president, Pamfilova underscored that the opportunities to file appeals have been reduced for prisoners, and especially for those with respect to who have been unjustly convicted.

A few days ago, representatives of several human rights organizations, including Amnesty International, met in Moscow. They spoke about coming up with proposals which, in the opinion of the human rights advocates, they must bring to the attention of the president of Russia with the aim of changing the situation in the organizational units of FSIN. Among others, these proposals included some such as these:

1. It is necessary to have a constructive dialog between the human rights community, independent experts, and representatives of governments services.
2. To create an expert-consultative council of FSIN with the inclusion in this council of former corrections officers, prosecutors, retired judges, etc., who have a wealth of experience in dealing with the everyday issues affecting the criminal justice and correctional systems.
3. To create a Council of Prisoners’ Relatives, in which the friends of prisoners or their work colleagues could also be encouraged to participate. Such a Council could help quickly solve some of the problems arising in the correctional system and bring prison conditions closer to international standards.
4. The work of receiving citizens with personal questions by various services of institutions must be qualitatively improved.
5. Desk duty by senior officers at centers for receiving citizens and for receiving packages ought to be organized; this will allow for the establishment of relations of trust between the administration of institutions and the relatives of prisoners.
6. In order to reduce the social tension in places of deprivation of liberty and to increase the level of trust by the populace towards the organs, the authorities must have great openness of FSIN.
7. To regularly (on a quarterly basis) conduct joint press conferences by FSIN on questions associated with the state of medical services in correctional institutions.

It is noteworthy that Representatives of Amnesty International recently met with FSIN officials. At the meeting, they expressed concern in connection with the complaints they have been receiving. Among others, they spoke of the so called Premises Functioning in the Regime of Investigative Isolators (PFRSI) – the use of separate buildings in a penal colony to hold persons on remand.

By the way, in November of this year in Geneva, the UN Committee Against Torture (abbreviated CAP) looked at the situation with torture in Russia. In the words of Tatiana Lokshina, a representative of the Moscow Helsinki Group, there were no heavyweights reporting before the Committee Against Torture about [Translator’s note: in?] Russia’s name. The only people who came were deputy departments heads from the Ministry of Internal Affairs and Ministry of Foreign Affairs and the head of the Ministry of Defense legal department. The highest-ranking person in this unimpressive “group of comrades” was the deputy director of the Federal Service for the Execution of Punishments, Oleg Filimonov. And placed at the head of the delegation was Valery Loshchinin, permanent representative of Russia at the Geneva branch of the UN.

Loshchinin, in particular, expressed regret with respect to there not having been coordination with the visit to Russia by Special Rapporteur on Torture Manfred Nowak, and promised that everything would be fine. He told that while there are individual excesses, the state is successfully battling with them. While the murder of Politkovskaya is being actively investigated. And that the state is working together with NGOs. That is, as the hero of one Soviet cartoon used to say, “all is quiet in Baghdad”.

In actuality, of course, the situation in Russian jails and camps continues to remain alarming. And evidence of this are the thousands of complaints from prisoners that have already made it to the International Court of Human Rights.

That is, we are once again witness to a double-handed game: on the one hand, the president seems to be showing concern about the situation in the country’s correctional system; on the other – his officials insist that everything’s normal.

Reports about the conditions under which Mikhail Khodorkovsky is serving his sentence in a penal colony get lost against the background of all these events. But this does not mean that his life and his health are not in danger.

If the Procurator-General is promising a new round of prosecutions with respect to someone who has already been convicted, then you can be sure of one thing – this round will take place. All the more so in light of the fact that, in Chaika’s own words, “investigation of the main criminal case continues”.

Marina Litvinenko, the widow of the murdered former FSB officer Alexander Litvinenko, broke her silence this weekend in a heartbreaking interview with Sky News, recounting her husband's final days.

See Bob's comment on this news below.

Today the FT is running an op/ed about the latest news out of Sakhalin. Here are some excerpts:

Gazprom’s gas grab

The Kremlin has once again forced the owners of a prize Russian energy asset to cede control. This time, the victims are Shell and its partners in the $20bn Sakhalin-2 gas project who have been pressed to surrender a majority stake to Gazprom, the gas monopoly.

Shell is still negotiating the terms with Gazprom, but should expect no favours. The Russians have the whip hand, and they know it. It is another poor day for the rule of law and the sanctity of contract. It bodes ill for other foreign groups in the Russian energy sector, not least BP, which through its BP-TNK joint venture controls the giant Kovykta gas deposit – another asset coveted by Gazprom. ...

Russian officials also claim Shell broke environmental rules. Doubtless, there were infringements. There always are in such huge schemes. But there is no evidence of large-scale law-breaking, even though Sakhalin-2 is Russia’s most closely monitored investment. The charges were little more than a public relations campaign aimed at softening up the target and concealing the Kremlin’s real motives, which are to secure control for Gazprom.

President Vladimir Putin sees Gazprom as the undisputed master of Russia’s gas, including all large new gas projects such as Sakhalin-2 and the Shtokman field in the Barents Sea. Next in line is likely to be Kovykta.

Quite aside from the legal and moral issues involved, this strategy risks damaging Gazprom and Russia. Gaz­prom lacks the managerial resources to run its existing project portfolio, let alone take on new ones. It is already too cumbersome to be properly managed. It needs to be smaller, not bigger. Gazprom has itself admitted it will soon struggle to meet growing export and domestic demand. Russian officials argue optimistically that they can close the energy gap by boosting non-gas energy sources and increasing consumer efficiency. Perhaps they can. But it would be unwise to stake Europe’s energy future on it.

The Kremlin has once again used legal pretexts to cover what is essentially an expropriation of private resources in the energy sector. No one should be surprised that this is the result of the environmental review of Shell’s project.

Extortion is not permissible as a method of acquisition. The Kremlin ought to cease this behavior if it wishes downstream asset acquisitions in Europe to be welcomed.

The IHT is running a year end wrap-up article about the biggest conceptual developments in business and economics that have helped shape our world in 2006. Among the most notable and troubling developments in 2006 was the return of the corporate state, as originally described by Andrei Illarionov (see Sean Guillory's balanced summary here)

Return of the corporate state

Karl Marx wrote that the state was nothing more than the executive committee of the bourgeoisie. But in Russia, President Vladimir Putin has stood Marx on his head: the state dominates many of the most important businesses, not the other way around. A new hybrid of country and corporation has been created, fusing the public and private sectors to serve the Kremlin. Andrei Illarionov, who in December 2005 resigned as an economic adviser to Putin, calls it "a corporate state."

This goes way beyond mere cronyism. Dmitri Medvedev is both a deputy prime minister and the chairman of the state natural gas monopoly Gazprom, which controls one-fifth of the world's natural gas reserves. Igor Sechin, Putin's deputy chief of staff, was appointed chairman of the sprawling state-owned oil company Rosneft. The Kremlin has also tightened its control over other industries. In February, Putin consolidated Russian aircraft makers into one state-owned corporation. Last month, the secretive state arms trader Rosoboronexport grabbed a controlling stake in Vsmpo-Avisma, the world's largest maker of titanium, with Rosoboronexport's director, Sergei Chemezov, becoming the company's chairman.

As Illarionov put it, "There is no free economic space remaining anywhere in Russia."

The corporate state is more than a way for Putin apparatchiks to get rich — although it is certainly that. According to Keith Darden, a Russia expert at Yale University, it is in large part a solution to an enduring political headache for authoritarian rulers: how can you maintain enough of a market economy to generate wealth without allowing the creation of independent businesses that could grow to challenge your authority? First, Putin cracked down on oligarchs who had dared to cross him. Now the Kremlin seems to be consolidating control over the remaining potential bases of opposition.

The corporate state shows no signs of withering away. Medvedev, the Kremlin's man at Gazprom, may well be Putin's pick to be the next president of Russia.

— Gary J. Bass

I think that this short IHT article underscores one of the primary misconceptions about the theft of Yukos, the Kremlin's aggression toward private businesses and organizations, and the growing role of the state in general: people actually believe that these assets are being "nationalized" for the "public good." This is actually not quite accurate. As Andrei Illarionov pointed out during a speech at the Cato Institute last month, in the case of Yukos, these energy assets were transferred by illegal means not from one private owner to the people, but rather from one group of individuals to another group of individuals. It is absurd to pretend that this is a real nationalization when it is only a small group of private individuals within the government lining their pockets with the rents from these businesses. In regards to the mechanics of this new corporate state, Pavel Baev writes the following:

A particularly striking feature of this systemic corruption is the positive identification of personal profit with the passionately proclaimed “state interest.” This is typical for the St. Petersburg cadre that Putin brought into the colossal bureaucratic pyramid in order to enhance his control. These “Putin people,” with backgrounds in the special services, were expected to show discipline, efficiency, and above all clan loyalty. The resentment of losers in the privatization of the 1990s sustained their zeal in restoring the power of the state, but they were not immune to the temptation to mix business with pleasure. Easy access to overflowing streams of money has eroded discipline and efficiency, but it is the very real p rospect of Putin’s retirement that has deeply undermined their loyalty (Ezhednevny zhurnal, September 20). The so-called siloviki, or “power guys,” have turned into feuding gangs that settle their scores in the long Kremlin corridors.

This war to capture the unraveling networks reached a climax in June, when one group of “loyalists” convinced Putin to sack the over-zealous Prosecutor-General Vladimir Ustinov, and another “team” quickly arranged his reassignment as minister of justice. After the summer break, the battles acquired a new intensity, as the cadre reshuffling in the judicial system has taken down Ustinov’s lieutenants who supervised the rigged investigation against the oil giant Yukos and its owner M ikhail Khodorkovsky (Kommersant, September 21). No explanation has been given for the chain of resignations and firing in the FSB central apparatus, but the leaks about internal corruption investigations and corruption in the department of internal investigations are growing into a deluge (Ezhednevny zhurnal, September 18).

More attention should be paid to how private interests are being advanced in Russia under the mantle of “the public good.”

The Wall Street Journal is running an interesting article today about Novaya Gazeta, one of Russia's few remaining independent newspapers and the former employer of the slain journalist Anna Politkovskaya.

Some excerpts:

As opposition voices are slain, exiled or intimidated into silence, Novaya is one of the last outposts of free speech left in Russia -- a status that has earned it influential friends in the West. On a trip to Moscow in October, U.S. Secretary of State Condoleezza Rice pointedly invited the paper's editors to her hotel. "I want to stress that you are not alone in your struggle," she told them.

Novaya Gazeta's past isn't free of taint. Like the vast majority of Russian newspapers, it has printed articles paid for by influential politicians and businessmen, former Novaya journalists say. Today, one of its biggest fears, in an overwhelmingly pro-Putin nation, is irrelevance. The paper's strident antigovernment line puts it out of touch with the masses and the wealthy alike, leaving it to drift increasingly to the margins of Russian life. ...

More alarming, the paper's journalists were coming under physical attack. In May 2000, Igor Domnikov, whose articles alleged corruption in the southern region of Lipetsk, was beaten with a hammer in the entrance of his apartment block. Two months later he died of his injuries. His accused killers are currently on trial in central Russia, but authorities haven't said who ordered the killing.

Later that year, Ms. Politkovskaya, whose reports from Chechnya exposing atrocities committed by Russian troops led to a slew of criminal investigations, had to be placed under armed guard after receiving death threats. She was then sent into hiding abroad.

In 2003, Yuri Shchekochikhin, Novaya's deputy editor, fell ill with a mysterious ailment. A liberal lawmaker, Mr. Shchekochikhin had been investigating tax-evasion allegations against two Moscow furniture stores with links to senior figures in Russia's security services. In June, he was admitted to the hospital with an "extreme allergic syndrome." Ten days later he was dead. To this day, authorities have refused to divulge details of the autopsy, designating them a "medical secret." Family and friends insist Mr. Shchekochikhin was poisoned.

Strange incidents continued to dog Novaya's staff, especially Ms. Politkovskaya. No longer just a reporter, she was emerging as a human-rights advocate, often volunteering to help ordinary Chechens whose relatives had gone missing. That earned her enemies in Russia's security apparatus, according to colleagues. In the fall of 2004, she became violently ill and had to be hospitalized after drinking tea on a plane to southern Russia, where she was traveling to cover the Beslan hostage crisis. She claimed she had been poisoned.

Then in October this year, Ms. Politkovskaya was shot dead in the elevator of her apartment building. Before her death, she had been investigating cases of torture allegedly committed by the pro-Kremlin authorities in Chechnya.

The death reverberated around the world. Ms. Politkovskaya, 48, was the 13th reporter to be slain in a contract-style killing since Mr. Putin came to power in 2000, according to the New York-based Committee to Protect Journalists.

At this time, the last remnants of Russia's free press were being scooped up by Kremlin-friendly business groups. Gazprom bought Izvestia and later Komsomolskaya Pravda. A steel magnate loyal to Mr. Putin acquired Kommersant, one of Russia's last big independent newspapers.

The BBC has posted a short streaming segment of the Litvinenko funeral today in London (click the link in the upper right hand corner).

In a column set for tomorrow's edition of the Financial Times, Mark Medish, Vice President of the Carnegie Endowment for International Peace, lists three things Vladimir Putin should do to improve his legacy: 1) release Mikhail Khodorkovsky, 2) Bury Lenin, and 3) Invite the Pope to visit.

Again, Russia is waiting for Godunov By Mark Medish

Russia has entered its political season a little early. Although elections are more than a year away, Russians talk seriously about "the 2008 question". This question refers to who will succeed President Vladimir Putin, who is constitutionally barred from a third consecutive term. Kremlin succession has been a vexing issue for Russia for centuries, partly because institutions and the rule of law are weak. Will Russia remain trapped by its troubled history?

After its first dynasty died out in 1598, Russia was plunged into a succession crisis. Speculation centred on Boris Godunov, who had been chief minister to his brother-in-law Tsar Fyodor, son of Ivan the Terrible. Godunov had killed the only male heir, Ivan's son Dmitry. Russia's bard Alexander Pushkin wrote about this historic drama. The play and its author were viewed with official suspicion when it was first performed in the 1830s. Who knows what would happen if Pushkin published his play today, especially in the wake of mysterious poisonings.

In the opening scene, Godunov has sequestered himself in a monastery. The nobles in the Kremlin are intriguing. One asks: "How do you think it will all end?" The reply was prophetic: "The people will plead with him. He will put on a long face and play hard to get. Finally, from the kindness of his heart, he will accept the crown and continue to rule us as before."

History often finds ways to cast long shadows – through habits of mind and culture. If it were put to a plebiscite in Russia today, the constitution would be amended and Mr Putin drafted for a third term. The risk of a "colour revolution" demanding change is remote. To the contrary, this is a time of nationalist fervour in Russia.

Presiding over a stable and resurgent Russia buoyed by oil and gas exports, Mr Putin is widely popular among his countrymen. His competence and swagger appeal to their sense of restored national pride. What is more, the vested interests deem him the guardian of a complex web of power and wealth sharing arrangements. Under Mr Putin, the freewheeling oligarchs of the Boris Yeltsin era were domesticated. The process started with a warning to them to stay out of politics and culminated with the Kremlin reasserting control over strategic economic assets.

Now the search is on for a reliable guarantor of the Putin system. Current rumours favour Dmitry Medvedev, the young deputy premier with ties to state gas giant Gazprom. Another candidate is defence minister Sergey Ivanov, a Putin confidant with solid KGB credentials. All known contenders are beholden to the president. In Soviet style, Mr Putin has ensured that there are no independent political figures of consequence. Credible alternatives such as former premier Mikhail Kasyanov have been sidelined.

Remindful of Pushkin's play, the rivalrous Kremlin factions have visited Tsar Vladimir, even at his Black Sea refuge in Sochi, where he often holes up weighing his options. The anxious courtiers have beseeched him to stay in power. Mr Putin has so far demurred, while reassuring the public that he will "retain influence" after he steps down.

Succession will test whether Russia can make progress with political modernisation. Underlying this is a deeper question about the country's moral direction. Mr Putin may have restored Russia's power and prestige, but without a clear vision of Russia's national identity or its role in the world as a force for good. Can Mr Putin articulate a more inspiring vision for Russia? Will the Russian people have a real choice of candidates and a stronger say in the matter? Or will Mr Putin keep the helm to himself or an appointed clone?

In advance of 2008, if Mr Putin were looking to improve his legacy – and I am under no illusion that he is – he might consider three moves. He should release Mikhail Khodorkovsky, the jailed oligarch, bury Lenin and invite the Pope. Each move would erase a dark shadow of Russia's history. The first would close the book on the vicious power struggles of the past decade. Mr Khodorkovsky is accused of evading taxes but his exile in Siberia has made him a prisoner of conscience.

In the same vein, Mr Putin should pursue a full investigation of recent high profile murders and bring those responsible to justice. These cases include American journalist Paul Klebnikov, central banker Andrey Kozlov and reporter Anna Politkovskaya, all assassinated on the streets of Moscow.

The second bold move – burying Lenin – would help diminish Soviet and Stalinist nostalgia by interring the Bolshevik founder, whose embalmed corpse lies on Red Square and whose Jacobin ideas haunt Russia today.

The grandest gesture – inviting Pope Benedict XVI to Russia – would repair the east-west rift within Christianity. The church schism of 1054 separated Russia spiritually from the flow of European development. The pontiff seems poised to extend his recent Ostpolitik from Turkey to Russia.

Acts of reconciliation should appeal to Mr Putin, who often mentions his Christian faith. Symbolic gestures alone will not change Russia. What such moves can do is show that Russia is not a prisoner of its past.

The writer is vice-president of the Carnegie Endowment for International Peace. He served on the US National Security Council as senior director for Russian, Ukrainian and Eurasian Affairs

This afternoon I will be participating in a symposium held at the University of Pennslyvania's Law School entitled "Human Rights and Political Prisoners in Russia: A View from the Khodorkovsky Case."

The other participants include Michael Fitts, Penn Law Dean, William Burke-White, University of Pennsylvania law professor, Mary Holland, New York University Law School research scholar, Benjamin Nathans, University of Pennsylvania history professor, Roger Clark, Rutgers Law School professor, and other members of the Mikhail Khodorkovsky's legal team including John Pappalardo, Sanford Saunders, Pavel Ivlev, and Elena Levina.

WHAT:Human Rights and Political Prisoners in Russia: A View from the Khodorkovsky Case

WHEN:Dec. 7, 2006

4:30-6:30 p.m.

WHERE:University of Pennsylvania Law School

34th and Chestnut streets

The symposium will examine recent legal, political and human rights trends in Russia and discuss whether Russias courts and intelligence services are being used by the Russian government to silence opposition political forces.

Symposium participants will focus on the trial and conviction of Mikhail Khodorkovsky and Platon Lebedev, Russian business leaders sentenced to eight years in Siberian labor camps, and also on the recent murders of former Russian KGB officer Alexander Litvinenko and journalist Anna Politkovskaya.

Khodorkovsky's prosecution and conviction are considered by many international journalists, politicians and businessmen as politically motivated by Vladimir Putins government. Khodorkovsky is the former head of the Russian oil company Yukos.

The Streetwise Professor: Robert Gates Demonstrates Awareness of Gazprom Threat
A Step at a Time: What's Behind the Litvinenko Smear?
Sean Guillory: Voting for Bad Democracy, Bush 32%, Putin 19%
La Russophobe: Russia Blackmailing Britain for Cooperation in Murder Case
Global Berlin: Barroso Visits the Bundestag
The Oil Drum: CFR Report on Oil Dependency
Global Voices: Stunt Protests for Russian Democracy
Plubius: Krime, Konspiracy, and Korruption at the Kremlin
The Social Affairs Unit: Litvinenko Spoils a Dinner for Alex Deane

Max Boot, a CFR fellow and author, has penned a column in the Los Angeles Times today regarding the U.S. foreign policy stance toward Russia. Here are some important excerpts:

Don't play dead for Putin What the West can do help stop the authoritarian Russian president from garnering too much influence in the world.

By Max Boot

There are a lot of ways to make a man's death look like an accident, suicide or a street crime. That wasn't the intent of whoever murdered former KGB agent Alexander Litvinenko in London. By using such an exotic murder weapon — a radioactive isotope known as polonium-210 — his killers sent a message: Don't mess with the powers that be in Russia.

The identity of his murderers is likely to remain unknown, but in all probability Litvinenko was poisoned because of his campaign against Russian President Vladimir V. Putin and the KGB's successor, the FSB. He is only the latest to pay with his life for offending Russia's ruling clique. The list of prominent people murdered in the last few years includes crusading journalists such as Anna Politkovskaya (whose death Litvinenko was investigating), politicians, executives and government officials. Others, such as Ukrainian President Viktor Yushchenko, have narrowly survived assassination attempts or have been exiled or silenced with threats of violence or legal charges.

Alleged tax evasion has been a favorite tool of intimidation. Wielding such dubious accusations, the Kremlin was able to consign Russia's richest man, Mikhail Khodorkovsky, to a Siberian prison camp and to expropriate his giant oil company, Yukos. Whatever the state of his taxes, Khodorkovsky's real sin was to bankroll opposition to Putin. ...

Western governments can also signal to Western companies and financial markets that investing in Russia is not a good idea. Russia's oil and gas industry, its major exporter, remains dependent on expertise and capital from abroad; a slowdown of such investment would be costly for Moscow. Russia is financially dependent on the West in another sense: Putin's cronies (and probably Putin himself) are thought to stash their ill-gotten gains in havens such as Switzerland. If the U.S. Treasury Department and foreign financial watchdogs were to launch investigations and start tossing around phrases such as "money laundering" and "asset freezes," Kremlin insiders would feel the heat.

This is something that could be done behind the scenes. At the same time, public pressure could be applied to deny Putin the international legitimacy he so obviously craves. President Bush could stop holding summit conferences with him and stop including him in high-profile meetings such as the G-7.

Above all, what's needed is a change of mind-set in Washington. We need to stop thinking of how to cozy up to Putin and start thinking of how to frustrate his illiberal imperial designs.

The media is reporting that Russia has set forth serious restrictions in regards to its cooperation with the Scotland Yard investigation of the Alexander Litvinenko poisoning. At the moment in which Russia should be setting a precedent with a new level of transparency and cooperation, instead the Kremlin is viewing the investigation as an opportunity to push forward their requests for extraditions.

The WSJ reports:

But a day after investigators from London's Metropolitan Police, as Scotland Yard is formally known, arrived in Moscow to pursue their probe, Yuri Chaika, Russia's prosecutor general, set clear limits on their reach.

He said only Russian police would be able to question suspects, though British police can listen. He said no Russian could be brought to the United Kingdom for questioning or trial since the two countries have no extradition treaty. He ruled out questioning leaders at the FSB, Russia's state security service. "Why question the FSB leadership?" Mr. Chaika said. "We'll end up having to question everyone in Russia." ...

Still, Russia's response to Mr. Litvinenko's death is raising concerns. "It is my view...that the Russian side also must make its contribution" in clearing up the case, said German Chancellor Angela Merkel. And French President Jacques Chirac, meeting with Ms. Merkel in Germany, said Russia "must provide perfectly transparent cooperation."

Russia's relations with the West have cooled dramatically in the past several years as the Kremlin has become more assertive abroad and Western criticism of Kremlin domestic policies has sharpened. In one high-profile sign of friction, Moscow has continually frustrated Washington's efforts to impose tighter sanctions on Iran to curb that country's nuclear program.

Russia's efforts to convert its vast oil and gas resources into political capital have raised tensions and spurred European governments to look for alternative fuel sources. The Kremlin's efforts to pressure neighboring governments it views as unfriendly and support those it sees as allies have provoked harsh reactions in Europe and the U.S. ...

Indeed, Russia's state-run television began its prime-time newscast last night by saying that Russia had amassed enough evidence against British transplants Mr. Berezovsky and Akhmed Zakayev, an alleged terrorist, to prosecute them, but that Britain wouldn't extradite them to Russia. The newscast didn't specify their alleged crimes.

Today the Financial Times is running a lead editorial titled "The Kremlin is Killing Russia's Rule of Law."

Here are some extracts:

Russian president Vladimir Putin took power in 2000 with promises of recreating a strong, law-abiding state. The killing of Alexander Litvinenko, the former spy, and a spate of other assassinations suggest Mr Putin's Russia may well be strong - but it is far from being law-abiding.

Nobody has been charged over Mr Litvinenko's death. The range of possible suspects, including present and former security officers, businessmen and gangsters, is wide.

The Kremlin bluntly denies any involvement. But Mr Putin cannot reject responsibility for contributing to the creation of a state in which assassination has become commonplace. Nor can he deny that recent targets have included Kremlin opponents such as Mr Litvinenko himself and Anna Politkovskaya, the murdered campaigning journalist - and also, quite possibly, the soft critic Yegor Gaidar, a former prime minister who this week survived what seems to have been a poisoning attempt. Other high-profile murder victims include a state news agency manager, a Chechen commander linked to the FSB security services, and a senior central bank official. Russian public life has suddenly become very dangerous. ...

Mr Putin would argue that in the process he has recreated the rule of law. However, this does not mean law as applied by independent courts, but law as imposed by the Kremlin. The state can resort even to gross violations of human rights without fear of legal challenge, as with the recent mass deportation of Georgian migrants. Might, not right, has triumphed.

As a result, growing numbers of those with power and money feel no need to respect the law. Some seem to think they can bully their way out of any trouble - even to the extent of killing their enemies. The recent assassinations may have varying origins but there is a common thread - a settling of scores among the powerful.

The Sunday edition of this British paper features numerous articles on Russia. There is a piece on the spy threat to England, a story about Evgeni Limarev, and an article on the luxury and security preferences of Russian emigres in London.

One of the most important articles comes from Patience Wheatcroft, titled "Putin's poisonous nature is now plain to see":

Mikhail Khodorkovsky has not been killed with a dose of polonium-210 but there may be occasions on which he feels that his fate is little better. He has now served three years in a Siberian penal colony and, after a Moscow court on Friday refused to hear his appeal against sentence, he must contemplate another five years of misery there.

Krasnokamensk, where winter temperatures can fall as far as minus 40C, is 3,000 miles away from Moscow, where Khodorkovsky had enjoyed a luxurious lifestyle. The dramatic reversal in his circumstances is the direct result of his political opposition to President Vladimir Putin. Although he was sentenced for tax evasion and fraud, there seems little doubt that Khodorkovsky might still be living the high life of a Russian multi-millionaire had he not become a public enemy of the President. An infuriated Kremlin exacted revenge on the former oligarch by bankrupting the company he headed, Yukos, and sending him to the steppes. That this treatment was meted out through the courts should have sent out the starkest of messages to the west. If the courts were prepared to follow the will of the President rather than the writ of the law, then nothing and no one was safe.

Yet there were plenty of people who chose to view Khodorkovsky's punishment as an exceptional case. They chose to believe that Mr Putin was a reasonable man who had just been pushed too far by a hot-headed rival. They closed their eyes to the unfortunate deaths that befell journalists who asked too many questions, or those who protested too loudly about the abuses committed by the pro-Moscow Chechen government. Largely, they persisted in their blind optimism because of the money to be made in Russia.

But now, even those who have struggled most fervently to cling to the idea that President Putin is a modern leader with whom the west can do business, rather than an old-fashioned Kremlin commissar who cannot be trusted, must be feeling queasy. The extraordinary death of Alexander Litvinenko is the work of professional assassins with access to the most deadly of radio-active materials. Whatever efforts Moscow makes to point the finger at others who might have perpetrated such a crime, the overwhelming suspicion is that the commission to kill came straight from the Kremlin.

If the reports on Mr Litvinenko's ghastly death, his shady associates and meetings in hotel rooms and restaurants, read more like the early novels of John le Carre than accounts of what we expect to happen in contemporary London, it is because President Putin's regime is still behaving as it did during the Cold War. Glasnost may have been celebrated but, as we report today, Russian spies are still alive and well and working in Britain. The difference is that now they are not only spying on Britons but on those who have left Russia for a more congenial life here, many bringing their newly minted fortunes with them.

Mr Putin has staged some lavish public relations exercises to try to show the world that he presides over a very different country to that of his predecessors. There have been glitzy galas at the Royal Albert Hall and family-friendly fairs in Trafalgar Square. And Russia is now, economically, a world away from the country of Krushchev. Its rich supply of natural resources has seen the economy grow at an average of 6 per cent a year for the last seven years.

But Putin remains at heart the KGB man he once was, and he now presides over an old-style autocracy that will brook no opposition. Later this week the law school at Pennsylvania University will host a symposium on "Human Rights and Political Prisoners in Russia", taking as its base the apparently politically-motivated prosecution and punishment of Khodorkovsky. The likelihood is that Western governments and the business people who have invested heavily in Russia will not take part, nor will they wish to learn of the verdict. They have too much resting on the regime behaving itself.

Yet the positions of those businesses that have staked fortunes in the country look increasingly precarious. Quietly last month BP's Russian joint venture, TNK-BP, settled a bill for back tax that the Russian government had demanded but which the company had insisted was unjustified. This is just the first of several unexpected tax bills which have landed with the company, and with Shell and the other oil giants that thought the pull of Russia's resources outweighed the political risks.

They cannot now be feeling so sanguine. There are threats that if they do not comply with this demand for tax or that demand for compensation for some perceived offence, then their licences may be redrawn. Blackmail? None of the brave corporate chiefs is going to say so. They are well aware that it was an unreasonable, and resisted, tax demand on Yukos that started the process which eventually sent Khodorkovsky to the prison camp.

Companies such as BP and Shell now have too much invested in Russia to pull out and they may feel that they will have the backing of the British government should they encounter difficulties. Mr Putin, however, has already made clear that he cares little for the opinion of fellow leaders. When he temporarily turned off the energy supplies to the Ukraine at the beginning of this year, he demonstrated his preference for being seen as a bully rather than beneficent.

Whatever the Kremlin says about the death of Alexander Litvinenko, it should awaken a wider acknowledgement of the nasty realities of Putin's regime.

Edward Lucas has a great post on his blog today on the poisoning of Yegor Gaidar.

He writes:

“Nyet faktov, tolko versii” [No facts, only theories] is a Russian saying that captures perfectly the difficulty of trying to fit the attempted murder of Yegor Gaidar, a former prime minister, together with the poisoning of Alexander Litvinenko (a defector from Russia’s FSB security service) and the shooting of Anna Politkovskaya, a campaigning journalist.

They could hardly be more different. The other two were outspoken figures who already lived in fear of their lives. Mr Gaidar was widely respected in Moscow: at most a moderate critic, at least in public, of Vladimir Putin’s regime. Unlike most retired Russian politicians, he cared little for personal wealth: his energies were devoted to his free-market thinktank, where his rotund figure and beaming smile contrasted with his spartan office: undecorated, when I last visited, except for a pile of economic journals and a solitary holiday postcard. ...

The most terrifying explanation is that the Kremlin, or some other powerful faction in Russia, is systematically intimidating every kind of critic. Ms Politkovskaya because she was their best-known critic in the media, both at home and abroad. Mr Litvinenko because he was a defector. Mr Gaidar because his brainy liberal views undermine the Kremlin’s authoritarian and incompetent rule.

The Globe and Mail is reporting that Petro-Canada is considering giving up a part of a Quebec LNG project in exchange for participation in a St. Petersburg project with Gazprom. During his press tour in the United States, Alexander Medvedev noted that Gazprom may prefer doing business with Canada, because they are less likely to raise any hackles with energy asset acquisitions, or be critical about the company's close relationship with the Kremlin.

Shawn McCarthy writes:

"I believe that ownership of infrastructure is a key to the market because we saw a lot of cases where absence of infrastructure access or ownership leads to a lot of risk or risk for energy security," Mr. Medvedev said.

"We, as the responsible supplier, would like not just to produce or to leave the product somewhere in the middle between the producer and the consumer but to be as close to possible to consumer to meet the needs of consumers."

The Russian executive acknowledged the company may face political opposition if it attempts to make major acquisitions of energy companies or assets in the United States.

He noted two recent cases in which U.S. political opposition derailed foreign investments -- Chinese National Offshore Oil Company's attempted takeover of Unocal Corp., and Dubai Ports World's effort to acquire management of U.S. ports. ...

Gazprom is widely considered in the West to be an arm of the Kremlin, with 50-per-cent-plus-one of its shares owned by the state and the government appointing the majority of its board. The company acquired major assets of bankrupted OAO Yukos in a controversial fire sale that was forced by the government when it jailed former Yukos chairman Mikhail Khodorkovsky. ...

"We are a commercially driven and value-driven enterprise, he said. "And all of the accusations that say we are manipulated by the Kremlin are absolutely absurd," he said.

The Gazprom executive said Canadian officials appear to be more welcoming than the Americans, and he would anticipate no problems with Russian investment in Canada.

However, the Conservative government recently signalled a tougher review procedure for foreign state-controlled companies that want to make major acquisitions in Canada.

Mr. Medvedev said Gazprom is looking to expand its reserve base beyond Russia ands become a full-fledged international energy company.

He said the company has exploration programs in India, Vietnam, Algeria, Libya and Venezuela. "Why not the United States and Canada?" he said.

On the Baltic LNG project, Gazprom is negotiating with a group of companies -- including Petrocan -- and will soon narrow down that slate to two or three companies with which it will form a consortium.

Petrocan is counting on the Baltic project to supply the $500-million LNG terminal in Gros-Cacouna, Que., project that it is developing with its partner, TransCanada PipeLines Ltd.

The Washington Post is reporting on a U.S. press tour this week by Gazprom's Alexander Medvedev, capped off by a friendly hockey game between a Gazprom sponsored team and former NHL stars from the Boston Bruins. According to a Bruins press release, "The Boston Bruins Alumni will play Gazprom Export during Gazprom’s 2006 winter tour with proceeds benefiting The Boston Bruins Charitable Foundation. The Friendship Cup will spotlight Gazprom Export’s efforts in the global energy market with four teams featuring both Olympians and NHL Hall of Famers."

The Post article goes on to report that Gazprom is undertaking an aggressive effort to improve their image in the United States, especially in Houston, where they maintain an office to drum up investment opportunities - some of Gazprom's largest shareholders are emerging market mutual funds. According to Gazprom's entrepreneurial acumen, purchasing Pravda is a good business decision!

The Post reports:

"We are not an instrument of policy because it cannot comply with our commercial structure," Medvedev said in an interview yesterday.

But ever since a contract dispute with Ukraine led to a cutoff of Russian gas exports on New Year's Day, Europeans who rely heavily on Russian gas have worried about security of supply. Russia, meanwhile, has argued that Gazprom needs to expand into the European and U.S. distribution business to assure Russia of "security of demand."

Many experts say that Gazprom is unwieldy and poorly run and will have trouble meeting gas delivery obligations regardless of the politics of supply. Vladimir Milov, president of the Institute of Energy Policy in Moscow and former deputy energy minister, said yesterday that Gazprom had spent $18 billion in the past three years on acquisitions outside the gas sector, more than it has spent in the past decade to increase gas production. ...

When Gazprom does invest, it often does so inefficiently. Much of the company's recent spending has gone to building new pipelines and repairing aging ones. Yet one study Milov quoted said that every mile of new pipeline built by Gazprom costs two to three times as much as those built in the rest of the world.

Gazprom's Medvedev defended the company's non-gas ventures, calling the newspaper it bought, Pravda, a "pure commercial decision" and not a tactic for controlling public opinion. He said many of the non-energy ventures were being managed by Gazprombank.

During the hockey + Harvard Business School press tour, Medvedev also did an interview with Forbes:

So why did Statoil, for instance, express surprise? [in regards to Shtokman]

The market is changing. It's inevitable. Also, you should not take everything for granted what everyone is telling you. I can imagine the level of disappointment, that they were so close. But due to the change in the market, we have reconsidered. To us, the discount rate for Russia is substantially higher than the discount rate for Libya or African reserves. It's not fair.

At the same time the announcement was made, it appeared to many that Russian energy companies were attempting to push aside Western companies doing business in Russia, particularly in Sakhalin.

I believe these allegations are not fair. In Sakhalin, we have been in negotiation with Shell. We signed an agreement with them. The next day, we saw a doubling of the capital costs and operational costs. Second, we saw that 50% of the ecological requirements had not been fulfilled, and some of them were very serious.

It seems there is a wide gap between your view of Gazprom and the conventional wisdom. What do you do to close that gap?

We appreciate we could do a better job in this respect, meeting with the media and the investment community. We are making progress on that. My presence here is part of that. What I don't like is just to be in a defensive position. We should have a regular communication channel.

Last week, the National Public Radio affiliate in Houston, KUHF, broadcast an interview with me addressing some concerns regarding Gazprom's Houston presence. Click the link and it is possible to listen to the interviews.

Today's Economist has an article analyzing how the "fever pitch" of conspiracy theories following the Litvinenko poisoning is helping to drive the thaw between Russia and her neighbors:

That Mr Putin should be so anxious to strengthen Russia’s weakening ties with its “near abroad”, and with his few remaining Western allies, is understandable. The radioactive fall-out from the death last week in London of Alexander Litvinenko—a former KGB agent who was apparently poisoned with polonium—may have been small (although radioactive traces have been found on aircraft that flew between Moscow and London before Mr Litvinenko’s death). But the diplomatic fall-out could hardly have been bigger.

Conspiracy theories in Moscow about who killed Mr Litvinenko have reached a pitch of dialecticism that is scarcely intelligible to outsiders. It was done either by Mr Putin, or to discredit him; to promote one of his possible successors as president, or to force him to stay in office. The polonium was either an intentional warning or a cock-up. Mr Litvinenko was murdered by the same forces who killed Anna Politkovskaya, a journalist, in October; or somebody saw her shooting as an opportunity to settle other scores. Mr Putin’s allies point the finger at Boris Berezovsky, a renegade Russian oligarch who lives in London and sponsored Mr Litvinenko. His alleged goal? To disgrace Mr Putin and ultimately force his clique from power.

The Russians have agreed to co-operate with a British investigation. But whoever did it, Mr Putin has been vilified in the West’s media. It emerged this week that Yegor Gaidar, a former prime minister, fell violently ill in Dublin on the day after Mr Litvinenko died (Mr Gaidar is now apparently recovering). Although a critic of some of Mr Putin’s policies, Mr Gaidar is a highly unlikely target for the Kremlin. But his plight can only add to the impression, widely held west of Minsk, that Russia is an increasingly dark place.

Today the Financial Times is running an interesting article about how Peter Hambro Mining lost £100m in market value overnight because of threats from the Russian government to revoke mining licenses. The environmental claims, like the Sakhalin gambit, appear to be totally bogus, and representatives from Hambro are telling the press they have broken no rules.

At what point will the authorities realize that these kinds of assaults on both foreign and domestic companies are bad for business, and that this elevated political risk will eventually scare away foreign investment? Not any time soon, because Western banks and corporations are sending the message that there is no consequence for this kind of economic gangsterism - investment has shot up to $35.3bn in the first nine months of this year.

From the FT:

The biggest political risks are in natural resources as Russia pushes to retake state control over strategic assets. That drive seems to be spreading from oil and gas into areas such as metals and mining.

At the same time, Russian authorities are systematically reviewing licences to exploit natural resource assets and penalising those not sticking to the agreed development timetables. ...

"Peter Hambro Mining is rather high profile, which has served them well but this has also made them a target," he says.

PHM may have become a victim of its visibility and the crackdown on companies the government feels are not developing fields quickly enough.

If foreign companies are seen to be sitting on projects, the government prefers to have someone else - preferably Russian - take over, speeding up job creation and tax generation. Even Russian companies, such as Lukoil, have suffered similar threats to withdraw licences. ...

Outside natural resources, the biggest difficulties businesses face are red tape and corruption. Labyrinthine requirements for permits and licences create plenty of opportunities for officials to demand bribes.

"Corruption is probably the most immediate threat and difficulty that any business faces in Russia - and the trend is increasing," says Carlo Gallo, Russia analyst at Control Risks, the business risks consultancy.