Robert Amsterdam

Last night, it was Belarus

By Derek Brower, journalist

THEY left it late, to within two minutes of the midnight deadline for a deal, but Gazprom and Minsk reached an agreement last night to keep Russia’s gas flowing to and through Belarus. Once again, Gazprom used a brutal tactic – the threat to cut gas supplies to a relatively poor country in the middle of winter – to win a strategic battle. Once again, the security of energy supply of Russia's customers was at stake.

And having threatened to cut off supplies to a neighbour that has been Moscow’s most loyal ally in the past five years, Gazprom got what it wanted: control over Beltransgaz, Belarus’ state-owned gas transmission company.

Gazprom pretended that the latest crisis was about the price it gets for its gas. On those terms, the company has every right to complain – and so do Gazprom’s European customers. Gazprom should not be subsidising Aleksandr Lukashenka’s regime in Belarus by charging Minsk a fraction of the price Western Europeans pay for their Russian gas.

That arrangement stinks for several reasons. First, it keeps Belarus’ economy artificially afloat on cheap energy. That helps to keep the country’s dictator in power. Second, the low prices for Gazprom’s gas paid by countries like Ukraine and Belarus hurt all of Gazprom’s customers: it gives the company less money to spend in the upstream developing its reserves. Of Russia’s FSU neighbours, only Azerbaijan and Georgia pay the kind of prices ($235 per 1,000 cubic metres) that Western Europeans pay.

And Europe has no real right to complain – as it did during the so-called “Gas War” between Russia and Ukraine a year ago today – about Gazprom increasing these prices. It is a stipulation laid down by the EU and the US, among others: that Russia increase its natural gas prices before it can join the WTO.

But it ain’t about the gas prices
But whatever Gazprom says, its battle with Belarus – like the Gas War with Ukraine – is not really about the price of gas. And it will be difficult to quantify how much money Gazprom makes through the increased price, anyway. Russia will continue to subsidise Belarus’ economy in other less obvious ways as a means of softening the price increase. That is an established means of Russian operations in Belarus, as it in other allies, like Armenia.

But securing control of Belarus’ state-transmission company, Beltransgaz, was the true prize on the table at last night’s high-stakes poker game. According to the deal signed between Gazprom and Minsk, Belarus will pay $100 per 1,000 cubic metres of gas – more than double the rate it was paying previously, but half the rate paid in Western Europe. But part of the $100 will be paid in shares of Beltransgaz until Gazprom owns 50% of the company.

Gazprom says that at 50% its stake will not be a controlling one. Nonsense. As it fills the company’s pipelines with gas, Gazprom was already Beltransgaz’ dominant partner. Added to that, the new share structure makes it a dominant owner, too.

Gazprom also says that it generously accepted a “high valuation” of Beltransgaz that priced the company at $5bn. That valuation came from ABN Amro, one of Gazprom’s favourite banks. But control over Belarus’ transmission network has a value for Gazprom that is difficult to quantify, given that it secures some 24% of the company’s exports of gas to the EU. It is surely worth more than $2.5bn, however.

So what’s next?
Had Gazprom shut off exports to Belarus this morning, Minsk would have shut down the onward supplies to the EU, as Ukraine did last year for the same reasons. It wouldn’t have been as dramatic – Belarus transits a quarter of Russian exports to Europe, not three-quarters as Ukraine does – but it would have hit European consumers. Again.

Has a new New Year’s tradition been established? Will supply threats to Russia’s neighbours become as much a part of the season as a re-run of Ironiia sudby, the classic Soviet romantic comedy watched by Russians every New Year’s Eve?

Not likely. Arguably, Gazprom has now thwarted its two problem countries. Last year’s Gas War gave it control – through RosUkrEnergo – of supplies through Ukraine. Last night’s show-down gives it control of Belarus. But Ukraine’s transmission network is still up for grabs. Ukraine wants Western firms to help modernise it. Russia wants Gazprom to do it. That is a future battle in the making. And despite Kyiv’s greater leniency to Russia these days, it is unlikely to cave in so easily to Gazprom’s demands for infrastructure.

But last night’s events should have ramifications in Europe. The supply cut was averted – just. But 10 days ahead of the EU’s Energy Review, Brussels got another reminder about its security of supply problem. This year’s crisis centred on Belarus – the forgotten country of Europe – and not Ukraine, so it got less coverage. But a crisis it was. And it should have reminded the EU of Gazprom’s nature.

It is a company addicted to conflict. And one whose confidence in its own power is so great that it remains unworried about how these conflicts damage its reputation. That is a combination that should continue to worry Europe.

Today the Wall Street Journal is reporting that the European Bank for Reconstruction and Development is likely to abandon a loan to Sakhalin-2 following the Kremlin's bullying and extortion through the use of trumped-up environmental investigations.

Europe Wary of Sakhalin Loan By GUY CHAZAN January 2, 2007; Page A4

MOSCOW -- A potential about-face by the former Communist bloc's biggest single investor over a massive Russian energy project comes amid rising Western concern about increasing state control of that nation's energy sector.

The European Bank for Reconstruction and Development is likely to abandon a loan to Sakhalin II, the huge energy project in the far east of Russia, after Royal Dutch Shell PLC and its two partners were forced to sell a 50% stake in the venture to Russian natural-gas giant OAO Gazprom. The European development bank -- set up in 1991 by Western governments to support the private sector in former Communist states making the transition to a free market economy -- had planned to lend Sakhalin II about $300 million.

Many observers saw Gazprom's entry into Sakhalin II as tantamount to nationalization. The mandate of the European bank, known as EBRD, would probably preclude it from lending to a project now dominated by a state-run company like Gazprom. "It doesn't invest in projects that have just been nationalized," said a banker familiar with EBRD's work.

A decision not to approve the loan likely won't jeopardize the $22 billion project. Furthermore, it likely won't threaten overall funding for big Russian energy projects, as Western investors remain interested in Russia in general and its vast natural resources in particular.

But the bank's potential change of heart shows the repercussions in the West over increasing state control in the Russian oil and gas industry and the Kremlin's treatment of foreign investors.

The emergence of Gazprom as a shareholder was "a new development and it makes things more difficult," said Anthony Williams, a spokesman for the EBRD. "It might mean the bank is less needed now," he added. He said no decision on the loan had yet been taken.

Last month, Gazprom announced it was paying Shell and its two Japanese partners, Mitsui & Co. and Mitsubishi Corp., $7.45 billion to take a stake of just over 50% in Sakhalin II. The move came after nearly a year of sustained attacks on the project by Russian regulators regarding cost overruns and alleged environmental violations.

A few days after the deal was announced, it emerged that the three foreign shareholders would have to pay for a third of Sakhalin's cost overrun by themselves. Shell, Mitsui and Mitsubishi will be required to absorb $3.6 billion of the additional costs, and will have to give the Russian government a share of Sakhalin's production earlier than they had hoped.

The deal reflected Kremlin frustration over the fact that the ballooning cost of Sakhalin II meant the government would have to wait much longer for tax and royalty payments.

Shell announced last March that it was hoping for funding of up to $7 billion for Sakhalin II from international financial organizations, including the EBRD, the Japan Bank for International Cooperation, and the Export-Import Bank of the U.S. But the banks delayed disbursal of the funds after a barrage of complaints about Shell from environmental groups. They worried about Sakhalin II's impact on the feeding grounds of the endangered gray whale and the wild salmon population of Sakhalin Island.

Those complaints grew more serious last fall when Russian regulators stepped into the fray, warning they might withdraw key permits from Sakhalin II and even threatening criminal investigations over alleged environmental damage. The EBRD had expected to take a decision on whether to approve its loan to the Sakhalin consortium last September but put it on hold as Shell's regulatory problems piled up.

Analysts say an about-face by the bank would have little impact on the financing of Sakhalin, Russia's biggest foreign investment. The loan was seen as an important stamp of approval by a bank that requires borrowers to meet strict environmental standards. But President Vladimir Putin, presiding over the deal last month that brought Gazprom into the Sakhalin consortium, said the project's regulatory problems were now resolved. "That means commercial banks will be queuing up to lend to Sakhalin II," said one Moscow banker.

Vladimir Socor at EDM has posted a column on the Russian military withdrawal from Tbilisi.

GEORGIA’S HARD-EARNED CHRISTMAS PRESENT: RUSSIAN MILITARY OUT OF TBILISI

By Vladimir Socor

Tuesday, January 2, 2007

On December 25, 2006, the last personnel of Russia’s garrison in Tbilisi and the rump Headquarters of the Group of Russian Forces in the Transcaucasus (GRVZ) pulled out of Georgia’s capital and of the country altogether. Their unwilling, though ultimately precipitate, withdrawal crowns 15 years of Georgian efforts toward this goal. Moreover, the evacuation brings to a close more than 200 years of the Russian garrisoning of Tbilisi. The imperial Russian army under General Ivan Lazarev occupied Tbilisi in November 1799, using an invasion route from Ossetia (Itar-Tass, December 24). ...

In a year-end address to a business audience, Saakashvili reviewed overall Russia-Georgia relations in 2006: “Their idea was to shake Georgia until it finally collapsed,” he noted, listing: The energy blockade in the coldest winter on record, January/February 2006; the series of embargoes on Georgian fruit and vegetables, wines, and mineral water, the full closure of Russia’s market and the transportation blockade against Georgia, the orchestrated propaganda against the country, recruitment of shadowy politicians “hoping to return criminal chaos to Georgia,” the incidents staged in Abkhazia and South Ossetia and the freezing of the negotiations on those conflicts. Nevertheless, Georgia succeeded in preserving democratic stability, developing transport infrastructure, creating attractive conditions for business, and pursuing its Western course (Rustavi-2 TV, December 27).

Read the complete article here.

Interesting Forbes piece today addressing the "free market stimulus" being administered to Belarus via Moscow's decision to muscle through a big price hike.

Belarus May Face Problems From Russia Gas Deal Parmy Olson

Belarus has long propped itself on heavily subsidized raw materials from Russia, but today its former Soviet sugar daddy is dishing out a cold, harsh lesson in market economics. ...

Mechislav Grib, a former head of the country’s parliament, told the AFP news agency that, “after Moscow’s latest decisions, Belarus’ so-called economic miracle will break down.”

Denis Maslov, an analyst for Europe and Eurasia at Eurasia Group, told Forbes.com that the deal would make things difficult for Belarus' economy, but in the long run it could help make its industry more competitive. "The phasing out of Russia's subsidies on energy might give Belarus' leadership more ideas to help reform the economy," Maslov said.

The problem is, Belarus doesn't have the domestic economic mechanisms to respond to changes in the market, and its president may not be willing to push through changes.

Global Insight analyst Andrew Neff predicted the Belarussian government would probably step up its ideological work to avoid any social unrest, and start painting itself as a victim of Russian oppression. "Throughout the negotiations with Gazprom, the state officials and the media put the blame for the upcoming economic difficulties squarely on the Russian side," said Neff. "Just as the Belarusian government turned its back on Western pressure to democratize, it will now face away from Russia, closing down the country altogether."

The First Post is running a recent column by Edward Luttwak, a senior fellow of the Center for Strategic and International Studies. The e-zine is also running a cover story on the extradition of Russians living in London.

"Once again, whoever sits in the Kremlin is not subject to the law and, instead, controls its application."

Old Russia returns – with a new Tsar Litvinenko’s murder is the latest evidence of Putin’s dictatorship, says Edward Luttwak

The accusation that the former KGB/FSB secret policeman Alexander Litvinenko was poisoned by his former colleagues to stop his denunciations of President Putin is all too plausible.

But there is really no need to speculate about the murder of Litvinenko - only one of several recent victims - to form an opinion of Vladimir Putin's regime. The fact is that we are witnessing a return to Old Russia.

When the neat and Western-looking young law graduate from St Petersburg first became president in 1999, it seemed certain that he would strive to westernise Russia. His favourite subject was Russia's urgent need for more legality in all things, with fair and independent courts, honest and professional police forces, even competent lawyers. Putin also seemed to favour foreign investment and the continued liberalisation of the Russian economy. Not much remains of these hopes.

When Mikhail Khodorkovsky, then Russia's richest man, started to campaign for the presidency in 2003, he was arrested and charged with tax evasion. In the ensuing trial, the judges rejected almost every defence motion, and accepted almost every prosecution motion, and their 662-page verdict in May 2005 repeated the prosecution's accusations almost word for word.

Even as Khodorkovsky's giant oil company, Yukos, was taken away from him 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 this, and soon. Russian authorities have now started to accuse Western oil companies that are investing some $37 billion in Sakhalin of ruining the environment.

That could be true, even likely, except that the concerted Soviet-style propaganda campaign now underway to take away their property is based on showing again and again TV footage of dead salmon - which die every two years in a regular spawning cycle. That accusation could be true too, but that production consortia also include Russian companies - and it is only the Western partner that is accused.

At the border crossings on the river Narva, between Estonia and Russia, there is an even more obvious indication of the way things are going. Because of a dispute with Poland, Khodorkovsky's oil company, Yukos, was taken away from him by court actions of dubious legality.

Russia is retaliating against all members of the EU by drastically slowing down customs procedures. Hundreds of trucks must wait for days on end to cross the border, some coming from as far away as southern Spain.

It is now very cold in Narva, there are no facilities for the drivers to eat or wash, and they must keep engines running to keep warm. Elsewhere, some temporary arrangement would soon be found to avoid this unnecessary hardship, but the Russian officials at the border are entirely unmoved, as are their superiors, who indeed find it curious that anyone should ask them to care for the wellbeing of anonymous truck drivers.

The FT website just published the full text of an interview with German Chancellor Angela Merkel. Here are some extracts:

Russia’s attitude towards non-governmental organisations gives ground for concern, says Merkel

How should Europe’s policy towards Russia develop, given that we are not even capable of starting negotiations as planned on a new partnership agreement?

The existing partnership agreement runs out in the autumn. I am very optimistic that we will solve the problem of Polish meat exports to Russia. Then we can start the negotiations, although I am not saying they will be very easy.

How dangerous is Europe’s reliance on Russian energy imports?

We had a very frank discussion with President Putin at the EU summit in Lahti. We need reliable energy supplies from Russia and Russia needs us as reliable consumers. I think it’s perfectly legitimate for Russia to seek greater access to western European markets. Having said that, we must have reciprocity. If obstacles are being erected to protect Russian companies from European investors, nobody should resent it if the Europeans take reciprocal action.

Do you understand the concerns many people have about democracy, freedom of the press and the situation of human rights organisations in Russia?

We have seen some incidents that we ought to be concerned about. This is not necessarily a criticism of the government. I have told the Russian president many times that contrary opinions are a normal part of society. One just has to live with it. Not everything the press writes about German politicians is flattering. Yet in the end, it is much preferable to have a genuinely free press. Likewise, Russia’s attitude towards non-governmental organisations gives ground for concern. The reports we are receiving tell us that the NGO legislation, while not problematic in itself, creates in its application a lot of red tape and insecurity for NGOs. We always mention such observations (to the Russians) and so does the foreign minister.

And yet did you not criticise the human rights section of the foreign ministry’s strategy paper as being too soft?

I did not. The paper’s theme was about rapprochement through integration. That thinking is correct. Co-operation projects, for instance in the energy sector, create partnerships. That’s why we call our relationship with Russia a strategic partnership. As far as this strategic partnership is concerned, there are no differences of opinion within the German government.

New Year's seems to be the preferred time for Gazprom to squeeze its customers - right as the temperature drops to sub-zero levels, and demand soars for natural gas to heat homes and businesses. It was around this same time of year that Russia put the squeeze on the Ukraine, and cutoff supplies to Europe in order to force higher prices and destabilize a pro-Western government.

Winter in Minsk is no time to argue about gas

This year, it is Belarus' turn, and even more important than the doubling of prices and the bullying of a poor country, was the acquisition of Beltransgaz, Belarus’ state-owned gas transmission company. As Derek Brower has written on this blog, on the subject of prices, Gazprom has every right to complain - there is no reason that the company should be subsidizing gas to Belarus at a fraction of the price Western Europe pays.

But Chapter II of the Gas Wars is not about prices. The problem is a tactical one - there are rule-based ways of negotiating new prices and supply agreements, and there are less scrupulous tactics which involve breaking deals and unfairly using the leverage to forcefully acquire infrastructure assets. Gazprom, as Brower wrote, seems to be addicted to conflict.

Today, the International Herald Tribune weighed in on the issue:

A year ago, when the democratic revolutions in Georgia and Ukraine were seen as serious threats to the Kremlin's influence, Putin was eager to prop up Lukashenko. But once Lukashenko successfully stole the March presidential election, the new gas bill arrived in Minsk. It included half ownership for the Kremlin of Beltransgaz, the state pipeline operator that not only fuels Belarus but also supplies a fifth of Europe's gas.

Russia's European customers could increase their leverage — and possibly improve the Kremlin's behavior — if they negotiated jointly with Gazprom, rather than scurrying to cut separate deals. Western companies and governments also need to warn Moscow that its leverage has limits. Russia still needs the expertise and capital of foreign companies to developing its natural resources. No one wants to do business with a bully.

From the Associated Press:

"If they are drowning in petrodollars and other currency income and have decided ... to place us in conditions worse even than Germany and other European countries, then let's ask this rich Russia to pay us for our services," said an agitated, pale-looking Lukashenko, shouting at times in televised remarks during a government meeting. ...

Lukashenko said he had ordered the government "to send Russia a proposal on payment for everything they get here for free _ from military facilities and transit." ...

Lukashenko, who gave in to long-standing Russian pressure to sell a half share in his country's gas pipeline system as part of the gas price agreement signed in the final minutes of 2006, said that he had fulfilled Russia's demands and now wants Russia to fulfill his.

He said he had issued Sidorsky "a direct order to sign an unfavorable agreement on gas" because, he claimed, Russian Prime Minister Mikhail Fradkov had promised that reaching a gas deal would bring a resolution to disputes on the oil customs duty and what Belarus says is blockage of its sugar exports. ...

The outspoken Lukashenko said it would bring the oil price to levels that would put "millions of people in Belarus" out of work _ an apparent reference to refineries that are now operating on reserves and other industrial enterprises that could be affected in the nation of 10 million.

This week the Russian Air Force accepted delivery of two new
state-of-the-art Sukhoi Su-34 fighter jets, the first of an order of 200.

Russia will not export the Su-34 until its own Air Force is modernized

According to Flight International:

The multi-role fighter-bombers will initially be based in Lipetsk at the air force's combat training centre, where Su-34 tactics and weapons delivery techniques will be developed.

Together with six more Su-34s due to be delivered in 2007 and 10 in 2008, the aircraft will join Russia's front-line bomber force and be declared operational in 2010. The Russian air force plans to operate 57 aircraft by 2015 and eventually a total of 200, says commander-in-chief Gen Vladimir Mikhailov.

As many people have noted, the Russians arms industry of is of extraordinary importance to the economy. Here Robert T. McLean of the Washington-based Center for Security Policy shares some of his views on Russian defense issues in a 2006 article in The American Spectator:

The Russian economy remains largely dependent on weapons sales. When the Soviet Union collapsed, Russia's vital defense industry faced an enormous crisis. Not only would domestic spending be decreased, but exports to friendly regimes would no longer be necessary in many cases. As a result, even after enormous downsizing in the Russian defense industry -- an estimated 2.5 to 6.1 million lost their jobs between 1991 and 1995 -- by 1996, the sector was working at a capacity of only about 10 percent of its potential. Thus, to maintain the country's military industrial complex the Kremlin has taken on the role of the world's weapons supplier. From Algeria and Venezuela to Syria and Iran, Moscow displays few reservations to arming any regime that can help fuel its defense industry. ...

Equally disturbing have been the further reports of additional Iranian weapons purchases from Russia. According to the Indian national daily the Hindu, "Russian sources said talks were under way to sell Iran long range air-defence systems codenamed S-300PMU1, radar stations, and T-90S tanks." This, however, may turn out to be one area where the Russians decide to use their leverage for a constructive manner. Agence France Presse reports that Moscow has used the potential sale of the S-300 long-range air defense missile system as a means to convince Tehran to suspend the enrichment of uranium. This has largely been ineffective as Iran appears determined to continue its uranium enrichment process. ...

While arms sales are an essential element in the Russian economy, does this indicate that strategic calculations are absent from Moscow's decisions? The evidence does not indicate that this is so. In February 2005 Israel backed out of an arms deal with Georgia due to Russian concerns that the weapons would fall into the hands of terrorists on their way to Chechnya. Similar apprehension has eluded Moscow with respect to state purchasers that are not considered to be unfriendly. To the strong rejection of the United States and Israel, Russia agreed to sell Syria the SA-18 short-range anti-aircraft system. ...

Russia is using the export of arms to its benefit both domestically and internationally. Unfortunately, this revitalized influence from Moscow has produced few benefits for the rest of the world. Many of the world's rogue regimes must be pleased with this development, but international security is being severely undermined. Russia now finds itself at a crossroads where it will continue to drift east towards China and towards Cold War strategic competition with the United States, or it will continue to democratize and become a responsible world actor engaged in genuine cooperation with the West.

Time Magazine has done a short piece on the Gas Wars between Russia and Belarus.

Excerpts:

Just half an hour into 2007, the mood among Andrei Sannikov's guests is somber. They crowd around the television in his apartment in the Belarusan capital, Minsk, to watch a news bulletin that interrupts the usual festive programming. "We have signed a new natural gas supply contract on unfavorable terms," announces Belarusan Prime Minister Sergei Sidorsky. Sannikov, a former member of the government and now an opposition activist in the country memorably described by U.S. Secretary of State Condoleezza Rice as "the last true dictatorship" in Europe, interprets the statement for his guests. "Russia has given itself a New Year's present by making its grab of the Belarusan economy official," he says. "What the U.S.S.R. sought to do with tanks, Russia is now achieving with pipelines." ...

As the state television returned to scenes of seasonal revelry, Sannikov's guests swapped predictions of how the situation would play out. Most anticipated that Lukashenko will cut subsidies that have kept Belarus' decaying industries and Soviet-style collective farms afloat. Vladimir Khalip, a Belarusan writer and documentary filmmaker, didn't think this would be enough to save the regime. "Now, its collapse is inevitable, come May or June," he said. Such forecasts have proved wrong in the past, but on one point there was consensus: there wasn't much that was happy about this New Year in Belarus.

Media is reporting that Turkey has been cut off without much warning from natural gas supplies from Iran, the country's second largest supplier after Russia.

According to BOTAS, Turkey's state-run pipeline operator, the country imports 20-22 million cubic meters of natural gas from Iran per day.

Turkey is a critical transit country for European energy security

Iranian Oil Minister Kazem Vaziri Hamaneh cited increased domestic shortages as the reason for the cut off, and said that once the new Parsian Refinery was online (which will receive 30.5 million cubic meters of gas per day from Homa and Shanol fields), gas exports to Turkey could resume in as soon as 10 days.

In the meantime, Russia has already stepped up its exports to temporarily seize this market share. Sergei Kupriyanov of Gazprom has told Interfax that "For several days Gazprom has been delivering gas on a greater scale to Turkey - 20 million cubic meters a day in addition to the regular 63 million cubic meters."

Turkey is a critical transit country to supply natural gas to high demand markets in Europe and beyond, and there are urgent calls for both the US and the EU to develop stronger Black Sea energy strategies. Key projects involving Turkey such as the Nabucco gas pipeline are seen as the primary alternatives to avoid dependence on Russian exports and raise competition.

However as Turkey receives continued insults from the EU during the enlargement negotiations and cultivates an ever-worsening image of the United States, the likelihood of a closer relationship with Moscow increases, argues Richard Weitz of the Hudson Institute:

In contrast to Turkey's worsening relations with Europe and America, ties between Ankara and Moscow have noticeably strengthened in recent years. Bilateral commerce and investment have soared due to Russia's role as Turkey's major energy supplier, the millions of Russian tourists who visit Turkey, and the extensive involvement of Turkish contractors in several sectors of the Russian economy, especially construction. With an annual volume of $15 billion, Russia has become Turkey's second-largest trading partner, ranking behind only the EU.

Russia currently supplies well over half of Turkey's natural gas and one fifth of its oil. Since February 2003, the two countries have been using a direct $3 billion "Blue Stream" dual pipeline, which runs under the Black Sea, to deliver oil. In November 2005, Russian President Vladimir Putin announced that Russia and Turkey would explore extending Blue Stream to Greece, Italy, Israel, and possibly other countries. The Russian energy company Gazprom has begun exploring with Turkish officials and firms the possibility of constructing large underground gas storage sites in Turkey and a liquefied natural gas export terminal at the port of Ceyhan, which already receives oil deliveries by pipeline from Iraq.

While frictions have arisen between Turkey and Russia over which country should assume the lead role in supplying Central Asian gas to European importers, both countries have overlapping interests in expanding this market. For instance, the creation of a "South European Gas Ring" would enable Russia to deliver gas to Europe without having to traverse Ukrainian territory, reducing the chances of a repeat of last January's EU-Russia energy crisis. It would also benefit Turkey by providing millions of dollars in transit fees, reducing tanker traffic through the congested Bosphorus Straits, and helping to transform the country from a conduit to an energy hub for the entire eastern Mediterranean.

Interesting article at TheTrumpet.com:

Russian Energy: Redrawing the World’s Geopolitical Map Friday, January 5, 2007 Like it or not, there is a new global power to reckon with: Russia is once again flexing its muscles with seeming impunity. Let the world beware.

The mighty Russian bear is back, and energized as never before. Under President Vladimir Putin’s stewardship, Russia may now be more powerful than at any time it its history, including its peak during the Cold War. However, the West is only beginning to wake up to this new reality. World events will no longer be directed without Russia’s explicit approval. ...

Putin’s plan, according to analyst Jim Willie, editor of the Hat Trick Letter, is for “Russian companies to be made majority partners on any project on its soil, no exceptions.”

Consequently, Russia is confiscating (or what amounts to confiscating) billions of dollars’ worth of foreign-built infrastructure and placing it under control of state-owned corporations. ...

Using similar tactics, it looks like Gazprom is also set to gain control of British Petroleum’s Kovykta gas field, which is the largest in Siberia. French energy company Total is now facing mysterious “back tax” bills. Exxon Mobil’s Sakhalin-1 project is rumored to be the next Kremlin target. ...

U.S. scholar Marshal Goldman says that “Russia is more powerful now than it ever was during the czarist era or the Soviet era. In the Soviet era there was mutually assured destruction. They had nuclear weapons. We had nuclear weapons. We didn’t use them, because we were worried they would and vice versa. Here you don’t have that kind of restraint” (MosNews.com, Dec. 8, 2006).

As energy expert and author Micheal Klare says, “A new era, where energy has replaced nuclear weapons as the medium of superpower rivalry,” has already arrived. “Vladimir Putin believes that. … And he is moving to accumulate as much energy power as he can” (Associated Press, op. cit.).

Read the complete article here.

From the Kansas City Star:

Bullying of Belarus could affect Europe - Russia’s natural gas machinations are worrisome - The Kansas City Star

The recent natural-gas supply deal between Belarus and the Russian gas monopoly, Gazprom, should be seen as a clear warning for Europe. Russia, an important supplier of European gas, is becoming increasingly imperious.

Last year, the Russians cut off gas deliveries to Ukraine and demanded a price increase, even though contract provisions obligated Gazprom to maintain pricing until 2009.

In the negotiations with Belarus there was no cutoff, but the threat was implicit. Belarus must now pay more than double, with prices rising in the later years of the five-year contract.

Gazprom says the move is only an attempt to impose market pricing and end the natural gas subsidies that had been granted to former Soviet republics.

But in supplying countries such as Belarus, Ukraine or Georgia, Gazprom has little or no competition. It is a behemoth monopoly virtually run by the Kremlin, so the notion of a market price for the gas it pumps to Belarus and other countries makes no sense.

Another aspect of the Belarus deal is also troubling: Gazprom gained control of the monopoly that distributes gas throughout Belarus. Gazprom is also trying to gain control of pipelines within the EU — and after its bullying of Belarus, the Europeans ought to take notice.

Twenty percent of Europe’s gas flows through Belarus, and some also flows through Ukraine. The worrisome long-term question for Europe is how to avoid having a significant chunk of its energy supplies taken hostage by the Kremlin in some future foreign-policy dispute.

Will BP's Kovykta project become the next Sakhalin-style seizure?

From Oliver Morgan in the Sunday Observer:

Kremlin Inc ready to take on the West

For Kremlinologists and other followers of Russian affairs, 1 January should perhaps have been Groundhog Day, not New Year's Day. Then, as 12 months before, the mighty Russian bear was growling at a former Soviet neighbour, threatening it not with tanks but with higher gas prices. As with Ukraine in 2006, Belarus was threatened this year with a cut-off if it did not agree to pay more than twice what it had been paying Gazprom, the Russian monopoly, for its gas, as well as allowing that company - in reality an arm of the Kremlin - a 50 per cent stake in its national pipeline network, Beltransgaz. It agreed. …

Analysts agree there remain two obvious targets for the Kremlin - Sakhalin-1 and the TNK-BP joint venture - and think Putin will want control of these by the end of the year. He stands down in the middle of 2008.

There was skirmishing last year over Sakhalin-1, which sits on 2.3 billion barrels of oil and 17.1 trillion cubic feet of gas. The IOC consortium, led by Exxon (with 30 per cent) and including ONGC (20 per cent) and Japanese investment company Sodeco (30 per cent) was accused of licence violations by the natural resources ministry. But this year more significant developments are likely.

Butter says: 'Exxon needs a gas export solution. Gazprom has a monopoly position in gas exports. I would imagine they would be interested in an equity stake.'

That stake would not have to be 51 per cent to secure Russian control, as two subsidiaries of Rosneft already hold a total of 20 per cent. As for TNK-BP, Butter says: 'It is a 50:50 joint venture. The Russian partners in that are Alfa Access Renova, who are old-fashioned oligarchs, not under government control. There has been speculation that Gazprom would be very interested in controlling this stake.'

Here, Gazprom, as the export monopoly, has leverage too. Chief among TNK-BP's assets is the giant Kovykta gas field, which has export potential to China. BP has already said Gazprom could take majority control over the field, but wants assets or cash in recompense. Experts say this is proving a sticking point, and BP may find itself subject to pressure similar to that suffered by Shell last year. The ultimate aim would be for Gazprom to replace Alfa Access Renova, and take a controlling stake in the venture.

Read the complete article here.

The EU has more to worry about

By Tom Nicholls, journalist

The energy dispute between Belarus and Moscow has intensified amid reports that Minsk has blocked flows of Russian oil to Europe.

The European Commission has confirmed an interruption of oil supplies to Poland and Germany through the Druzhba pipeline and is seeking an assessment from both countries of how they will be affected.

Belarus' Lukashenka gets tough

EU energy commissioner Andris Pielbags said the cuts pose “no immediate risk” to energy supplies to the EU, but is seeking an “urgent and detailed explanation” from Belarus and Russia.

Although the EU has oil stocks equivalent to 90 days’ of consumption, a spokesman said that if the problem is not solved “within hours” alternative import plans will be considered.

The Druzhba pipeline is a key part of European oil supply and any interruption would exacerbate fears in Europe about the extent to which the continent is reliant on Russia and other former Soviet Union states for energy supplies. Around 30% of the oil imported in to the EU originates in Russia and half of that crosses Belarus. One EU official pointed out the irony of the pipeline’s name: Druzhba means Friendship.

Those fears are already riding high: the stoppage comes just days after the resolution of a dispute over gas prices between Russia and Belarus that could have resulted in a shortfall in gas supplies to Europe if Gazprom had carried out its threat to stop supplies to Belarus. And a year ago, Europe’s gas supplies were briefly affected because of a dispute over gas pricing between Russia and Ukraine.

According to Russian news reports, Transneft head Semyon Vainshtok has accused Belarus of removing Russian oil destined for Europe from the pipeline since the weekend. Belarus has diverted 79,000 tonnes of oil so far, Vainshtok has been quoted as saying.

The Belarusian foreign ministry has denied blocking the transit of Russian oil and has said Belarus is not responsible for a decrease of the pipeline’s pressure.

The two governments have been at loggerheads twice in recent days. First was the gas dispute. Then, on 1 January, the Russian government introduced an export duty of $181 per tonne of crude oil delivered to Belarus – supplies on which there previously had been no duty.

Two days after that, Belarus hit back by placing a customs tax of $45 per tonne on Russian crude oil in transit to the West through Belarus pipelines.

The 2,500-mile-long pipeline has the capacity to ship over 1.2 million barrels a day to eastern and central Europe and generally works at or close to its full capacity.

The Jamestown Foundation website is hosting an interesting video of the debate event "Putin, Petroleum, Power and Patronage," which took place on December 7, 2006, in Washington DC.

Here is just a small excerpt of the speech by Dr. Marshall Goldman of Harvard - the complete videos can be viewed here.

In the upcoming edition of the Financial Times, Robin Shepherd of the German Marshall Fund of the United States argues that Europe has done "next to nothing" to mount a coherent response to Russian energy imperialism.

Strong response to Putin’s Russia overdue By Robin Shepherd

As Russia and Belarus sought to blame each other on Monday over the suspension of oil supplies through the northern leg of the Druzhba oil pipeline to Poland and Germany, Europe might well have paused to take stock of its own share of responsibility for the latest threat to its energy security.

For, as charge and counter-charge flies between Moscow and Minsk over who is really to blame for the current debacle, the fact is that Europe has done next to nothing in recent years to produce a coherent response to Vladimir Putin’s increasingly authoritarian regime in Russia and far too little to tame Alexander Lukashenko’s brutal dictatorship in Belarus.

The immediate precursor to this deeply worrying state of affairs was Russia’s recent decision to more than double gas prices to Belarus and slap full export duties on Russian crude. Minsk promptly slapped its own duties on Russian oil crossing its territory. The first signs that things were getting really nasty, however, came when Belarus subpoenaed the head of Transneft, Russia’s oil pipeline company, on Saturday for allegedly illegal oil transfers. Transneft’s response was to accuse Belarus of stealing thousands of tonnes of oil from its pipelines.
It would be an understatement to say that Russia miscalculated over this affair, which marks yet another searing indictment of the Kremlin’s handling of former Soviet republics. It is personally humiliating for Mr Putin, who is undoubtedly apoplectic that this spat undid in one night all the hard work that Russia has done in the past year to reassure the west that the halting of gas supplies from Ukraine at the beginning of 2006 was an exception that would never be repeated.

But to argue that the Kremlin initiated the crisis just because it raised gas prices would be unfair. Why, after all, should ordinary Russians pay for other peoples’ energy consumption? If we are going to criticise the Kremlin, we must be clear about where its guilt lies.
The central point is that Mr Putin’s Russia has nurtured the Lukashenko regime for years as a Soviet-style ally that could be relied on to reject the west. When the rest of Europe was slamming the farcical elections held in Belarus last March as blatantly fraudulent, the Kremlin stood alone in upholding them. When the riot police went hell for leather against peaceful demonstrators protesting against those elections, the western world denounced Mr Lukashenko, and Mr Putin supported him.

Having promoted a dictatorship that survives by violence and deceit, Russia cannot be surprised that that same regime fails to respect the rules of fair play. But the extent of the Kremlin’s miscalculation is even greater than that because it really should have known what it was getting into over the last couple of weeks. It has been obvious for years that the Lukashenko regime has been able to survive only by buying off significant sections of the population with state subsidies largely financed through cheap Russian gas supplies. Given the nature and fragility of the regime, it beggars belief that Russia did not realise that raising gas prices would force Mr Lukashenko against the wall.

What happens now is not easy to predict. Mr Lukashenko has shown that, if put under pressure, he is both willing and able to create havoc. Russia, it seems, is daft enough to respond in kind. Europe now finds itself in the absurd situation that its energy security can be compromised by the two most unappealing regimes on the continent. Of course, there are no short-term or easy solutions. But it must surely be time to consider a completely new approach to both countries.

As far as Belarus is concerned, it should now be obvious that there will be no long-term solution to this problem as long as Mr Lukashenko remains in control. He is not only a dictator, he is also a maverick. Russia must have learnt from current events that Mr Lukashenko poses a threat to its interests. There is now an opportunity for Russia and Europe to join forces and do all in their power to bring his regime to an end.

The bigger problem, though, is Russia itself. Europe knows that it must diversify gas and oil supplies and is working out ways to do that. But it must also, finally, recognise that appeasing Mr Putin’s Kremlin as it went from one authoritarian milestone to another has been a mistake. The time for a strong, concerted response from Europe has surely now come. If not now, when?

The writer is a senior transatlantic fellow of the German Marshall Fund of the United States

Today news reports hit the wires reporting a temporary and as of yet unexplained shut down of oil exports from Russia to Europe via the Druzhba pipeline, which passes through Belarus.

Apart from accusations of siphoning, there has been little information about who shut down the flow, or how and when the problem will be resolved. Russian Deputy Trade and Economic Development Andrei Sharonov has told the media that he blames the shut down on a disruption caused by Minsk.

The Druzhba Pipeline has the capacity to deliver 1.2 million barrels of crude a day to Poland, Germany, Ukraine, Hungary, Slovakia and the Czech Republic.

Typical to previous supply disruptions from Russia, the dearth of information is causing some waves in Europe. The European Union has already demanded an "urgent and detailed" explanation from the two countries, and various officials are demonstrating a frayed patience Russia's New Year's tradition of energy shenanigins. German Prime Minister Angela Merkel gave the following statement on German television, as reported by Reuters:

"This has not caused any acute threats to our energy supply. But there have been transit problems again and again over the past few years. We need legal protection, we need contract security."

According to Forbes, the Polish Deputy Minister of Economy Piotr Naimski, gave the following comment to TVN24 Television:

"This shows us once again that arguments among various countries of the former Soviet Union, between suppliers and transit countries, mean that these deliveries are unreliable from our perspective."

Currently most analysts are emphasizing that they believe the Druzhba problem will be solved quickly, and politicians are working their press corps hard to stave off any panic about the impact this cut-off will have. But once again there are too many premature apologies and excuses on behalf of Europe defending Russia. The fact is that we don't know enough about what is going on right now, and just like the Ukrainian gas war of 2005/2006, there is a fundamental unwillingness to provide the transparency necessary for EU energy security. This should not be tolerated any longer.

From the Independent:

Oil market gets the jitters after Russians close Belarus pipeline By Michael Harrison, Business Editor

...

The EU Energy Commissioner Andris Piebags said there was no immediate risk to Europe's energy supplies. Nevertheless, Russia's action will intensify pressure on the European Commission to take steps to bolster the security of Europe's energy supply when it unveils its EU energy review tomorrow.

The review, carried out by the EU Competition Commissioner Neelie Kroes, has principally been about opening up Europe's energy market by tackling the monopolies that continue to exist in many member states. However, Brussels is facing calls for the remit of the review to be widened to take account of Russia's actions.

Robert Amsterdam, defence lawyer for Mikhail Khodorkovsky, the jailed Russian oligarch and former head of oil giant Yukos, said: "The dispute between Belarus and Russia should act as a wake-up call to the EU Commission. It cannot allow Russia to retain its stranglehold over Europe's energy supplies without any transparent agreement to legal principles. The European Commission must use its Strategic Energy Review to address concern over EU energy security. This will be the most important policy statement on energy in the Commission's history."

Mr Amsterdam added that the relationship between the EU and Russia had become "seriously unbalanced" in Moscow's favour and said the Commission needed to negotiate a restructuring of the state-owned Russian energy giant Gazprom and market entry into Russia by European energy companies.

The EU energy review is expected to point to evidence of collusion and market failure in a number of member states and hasten efforts to break up vertically integrated monopolies in countries such as Germany.

From Financial Times Deutschland, via Der Spiegel:

The Kremlin has implemented a package of measures that is likely to push the Belarusian economy to the brink of collapse. The country's scarcely reformed industry is highly dependent on the drip of what had to date been cheap Russian energy supplies.

The EU, which has scaled down its contacts with Belarus to the bare minimum, may be pleased; a dictator who brutally suppresses opposition members and journalists in his country is having his oxygen supply turned off.

But the Russian move again shows how uncompromisingly hard the Kremlin is in enforcing its economic interests. Riding the wave of high world market prices for oil and gas, the Russian leadership has developed frightening arrogance.

For the EU, which still regards Russia as a strategic partner, the warning signs are unmistakeable.

From the IHT:

Iran actually is short of oil By Roger Stern

Iran has ensnared itself in a petroleum crisis that could drive its oil exports to zero by 2015. While Iran has the third- largest oil reserves in the world, its exports may be shrinking by 10 to 12 percent per year. How can this be happening?

Heavy industry infrastructure must be maintained to remain productive. This is especially so for oil, because each oil well's output declines slightly every year. If new wells are not drilled to offset natural decline, production will fall.

This is what is happening in Iran, which has failed to reinvest in new production. Why?

For the mullahs, the short-run political return on investment in oil production is zero. They are reluctant to wait the 4 to 6 years it takes for a drilling investment to yield revenue. So rather than reinvest to refresh production, the Islamic Republic starves its petroleum sector, diverting oil profits to a vast, inefficient welfare state.

Employment in the loss-making state-supported firms of this welfare state is essential to the regime's political survival.

Another threat to exports is the growth in domestic demand. Iranian oil demand is not just growing, it's exploding, driven by a subsidized gasoline price of about 9 cents a liter. This has created a 6 percent growth in demand, the highest in the world.

Read the complete article here.

Published in today's International Herald Tribune:

Get tough with Gazprom

LONDON: European energy security

By Robert R. Amsterdam

The European Commission's Strategic Energy Review, which will be issued on Wednesday, is likely to be the most important statement on energy in the EC's history. To succeed, one of its top priorities must be equal terms of business between the European Union and Russia.

As shown once again this week, when Russia halted delivery of oil to Europe via Belarus, the current situation is dangerously unbalanced.

The Commission must facilitate further integration of Russia's state-owned Gazprom into the EU market through market liberalization and downstream integration. In parallel, it must seek the eventual restructuring of Gazprom, and access to Russian markets for European companies.

Gazprom has evolved into the dominant market maker in gas for Europe. But its actions have made a mockery of EU efforts toward greater collaboration with Russia.

Gazprom deploys three strategies: cooptation — cultivating partnerships with certain countries, political leaders and corporations as levers of its interests; pre-emption — using upstream power and Russian diplomacy to manipulate situations downstream and to scoop up assets, and disaggregation — splitting the EU through bilateral deals.

Gazprom's cooptation of Europe has been achieved mainly through Germany. Partnerships with German energy companies and banks have helped persuade Berlin to collaborate in favor of Gazprom and Russian aims.

Meanwhile, extensive lobbying directly and by proxy is used to persuade European regulators to allow long-term supply contracts in the EU despite their deadening effect on competition.

Pre-emption by Gazprom has been accomplished through a sweep of acquisitions at any economic or political cost. Gazprom has flooded the market in Turkey, withheld gas from Ukraine and oil from Belarus, and offered preferential market access to willing partners like Italy.

Elsewhere, Gazprom engages in pre-emption — like the Caucasus, where the Kremlin has done everything possible to prevent Iran from establishing the infrastructure to allow it to compete as a supplier of gas to Europe. To stop Iran's gas Russia effectively bought the entire energy sector of Armenia.

Gazprom's opacity and market dominance are reinforced by activities coordinated with the Kremlin to impact markets like Spain and Italy by seeking gas deals with rival suppliers, like Algeria. In exchange Russia has offered enticing gifts, such as vast concessions on arms and preferential debt terms.

In other cases, the Kremlin acts punitively, as it did when it cut off oil to Lithuania over its sale of a refinery to a Polish company.

The prime example of disaggregation is the Nord Stream pipeline, which appeals to Germany's interests while angering Warsaw and the three Baltic countries. The undersea pipeline, which connects Russia directly with Germany, serves the political objectives of the Kremlin, undermines the energy security of Germany's eastern neighbors and threatens environmental havoc in the Baltic Sea.

The Commission's Strategic Energy Review must deal with the asymmetry of the EU-Russia energy relationship, which allows Gazprom to use the EU's deficient liberalization policies against European interests.

As long as Gazprom remains opaque, Europe will never know whether its key supplier is spending enough to develop reserves crucial to Europe's future. Indeed, one result of the Kremlin's political battle to win control of Russia's energy sector has been a dramatic reduction in the rate of growth of domestic oil and gas production. That is a problem for Europe.

Brussels must demand transparency, symmetry and the rule of law from Moscow, with the ultimate goal of a revolutionary integration of European and Russian energy markets.

The access Gazprom seeks in Europe is the Commission's trump card. Europe should let Gazprom know that this access is conditional on a reciprocal openness of Russia's energy sector.

The result could be a welcome place in the European energy market for a Russia that is trusted and respected by its international partners.

Robert R. Amsterdam is a founding partner of the law firm Amsterdam & Peroff. He is international defense counsel for Mikhail Khodorkovsky.

From the Independent:

Michael Harrison's Outlook: 'Beware the Russian bear' is the motto Europe must adopt as it reviews its energy future

Today sees the publication of the European Commission's review of energy - a subject which has climbed remorselessly up the political agenda in recent years to the point where it has now assumed the same kind of importance to world well-being and security as international terrorism or global warming.

The focus of Brussels' deliberations, however, is likely to be inward-looking, concentrating on the steps the European Union needs to take to reshape its own markets and, in particular, to unbundle those national monopolies on the Continent which have served to stymie competition and the free flow of energy.

If that is the case, it will be a lost opportunity because the biggest threat to the energy security of the EU is external and it can be summed up in one word - Russia. That the launch of the review by the EU's Competition Commissioner, Neelie Kroes, should take place against the backdrop of another piece of economic imperialism on the part of Moscow - the closure of its gas pipeline to Europe through Belarus - merely serves to underscore the point. ...

Robert Amsterdam, the Kremlin critic and defence counsel to the jailed oligarch Mikhail Khodorkovsky, has some trenchant views on the danger the EU runs if this unequal relationship with its near neighbour is not addressed. He catalogues how the state-owned Russian gas monopoly Gazprom, which harbours ambitions of swallowing up our own Centrica, uses its market power to divide and rule, cultivating certain countries such as Germany along with their political leaders, banks and utility companies and penalising others by withholding supplies - as it did with Lithuania as punishment for selling an oil refinery to Poland.

The EU’s energy policy is still unconvincing

By Derek Brower and Tom Nicholls, in Brussels

The European Commission said today that it wants to create a single voice for European energy policy. But there was little in its new Energy Review to suggest that will happen soon.

This is what we've heard from the Russians today

The report was full of fine sentiments – such as how the EU can lead a “post-industrial revolution” to a low-carbon economy. But it was short on specifics, especially on how the EU would lessen its increasing dependence on energy imports.

The Commission said it wants to get serious about climate change, calling for 30% reductions in greenhouse gas emissions from developing countries by 2020. And to show its commitment to the cause, Commission president José Manuel Barroso said the EU would cut emissions by 20% by 2020, rising to 30% if other countries join in. That’s laudable, however 20% would only be a fraction higher than cuts already proposed for the next 13 years.

On the subject of liberalisation, many had hoped that Neelie Kroes, the Commissioner for Competition, would announce bold moves to stamp out market abuses in the EU’s horribly fragmented and uncompetitive energy markets, still often dominated by vertically integrated virtual monopolies. The Commission’s main recommendation for boosting competition is unbundling – breaking up vertically integrated companies. But it also offered another option for states that don’t like the sound of unbundling: allowing vertically integrated companies to retain ownership of network assets and receive a regulated return on them, but not to operate them. Kroes’ recommendations were greeted with some confusion, with many asking why the Commission had decided to give companies like RWE and E.On – considered to be two of the companies in the Commission’s sights – the option not to unbundle.

Achieving climate-change targets, according to Andris Piebalgs, the EU’s energy commissioner, will depend on setting up a proper internal energy market, achieving improvements in energy efficiency of 20% by 2020 and increasing the use of low-carbon energy sources such as renewables. To that end, the EU has proposed to increase renewable energy in the EU’s overall mix from less than 7% today to 20% by 2020. Again, this is laudable – and ambitious.

However, Commission officials ducked the question of whether more nuclear plants should be built – an important one over the next couple of decades, not least because many of the nuclear plants in operation today, supplying nearly a third of the continent’s power, will eventually need to be replaced with some form of generation. Even the most optimistic projections for renewables would not meet that gap.

Meanwhile, where energy security was concerned, the Commission called for new LNG terminals, especially in countries that are heavily dependent on one supplier. But there was no detail on how the construction of terminals can be encouraged.

Speaking about the show-down between Russia and Belarus earlier this week that had forced Poland and Germany to tap their strategic reserves, Barroso condemned Russia’s behaviour as “unacceptable”. “We have an addiction to energy,” he said. “And like any addiction, it is even worse when you depend on someone else.”

The Energy Review, though, predicts that the addiction will get worse. By 2030, gas imports will account for 84% of Europe’s demand. And some 93% of the EU’s oil will come from foreign suppliers.

How long will Lukashenko play foil to Vladimir Putin?

The Associated Press is reporting that the oil spat between Belarus and Russia may be coming to a close:

Russia, Belarus 'Settle Oil Row'

MINSK, Belarus (AP) -- January 10, 2007 - Russia and Belarus have reached a compromise on their dispute that has halted oil flows along a key pipeline to Europe after telephone talks between the two countries' presidents, the Belarusian presidency said.

"In the course of the conversation, a compromise was found which enables us to resolve the current deadlock, including concerning the transit of Russian oil to European countries through the territory of the Republic of Belarus," the presidency's press service told The Associated Press.

The press service added that Presidents Vladimir Putin of Russia and Alexander Lukashenko of Belarus had ordered their prime ministers to work out within two days a package of measures to resolve the dispute and submit them for approval by the two leaders on Friday.

The Kremlin could not immediately be contacted for comment.

On Monday, Russia stopped pumping oil to Europe via the Druzhba, or Friendship, pipeline that crosses Belarus, accusing its neighbor of siphoning off oil.

By Tuesday, the stoppage had affected supplies to Ukraine, Germany, Poland, Hungary, the Czech Republic and Slovakia.

The dispute centers over Russia's decision to impose a hefty duty on oil exports to Belarus, with Moscow complaining that the previous duty-free regime has been costing the Russian budget up to $4 billion (¬3.1 billion) a year.

Minsk, whose isolated regime is tied to Moscow through a loose union treaty and relies on cheap Russian energy and duty-free trade with Russia, hit back by slapping duties on Russian oil pumped across Belarus to Europe.

(due to a spamming issue, I had to republish this entry, which originally appeared on November 10).

We're pleased to announce that www.robertamsterdam.com will be featuring an exclusive series of articles from one of Russia's most well known investigative journalists, environmentalists, and civil society actors, Grigory Pasko.

Grigory Pasko is a former naval officer and journalist who worked for the Russian Navy’s newspaper Boyevaya Vakhta. Following a series of investigative reports on Russian ships illegally dumping nuclear waste into the ocean, Pasko was arrested in 1997 for the possession of state secrets with the intent to supply them abroad. During his imprisonment he wrote prolifically, and gained the overwhelming support of international human rights groups, who denounced the Russian government’s attempts to violate his right to free speech. In 2002, Pasko was awarded the Reporters Without Borders Fondation de France Prize. In January of 2003, Pasko was released from prison following an extremely rare civil court decision overturning a verdict from a military court. Since his release, Pasko has campaigned tirelessly for human rights, environment, and press freedom in Russia, and has continued producing excellent investigative journalism.

It is a great honor for this website to feature a series of exclusive, original articles by Mr. Pasko on the situation of Russian prison camps, and other urgent issues relating to human rights. Mr. Pasko can be reached at the here via email.

Today the Wall Street Journal is reporting that the German government has succeeded in building a consortium of companies to temporarily hold one third of DaimlerChrysler's stake in the European defense giant EADS. The stake, which will be valued at $1.9 billion, will be purchased indirectly through derivatives by a group including investment banks such as Morgan Stanley, Credit Suisse, Goldman Sachs Group, Deutsche Bank, Commerzbank, and various federal German banks.

Problems with the A380 have opened the door to a Russian move on EADS

Ever since last year when EADS announced production problems with the Airbus A380 superjumbo, stakeholders have been under extraordinary pressure to maintain a delicate multinational balance of influence in a business area of significant strategic importance. When it was made public that EADS would be losing about 5 billion euros worth of future profits, the pressure became too much for Dr. Z (CEO Dieter Zetsche) of DaimlerChrysler. Here's what he told the Journal:

"We would have liked to do our job, come up with a result and then inform the public," Mr. Zetsche said. "As this is a very political sphere, it's probably naive to think that's possible."

The extremely strict corporate governance rules have a long and at times bitterly political history in the consortium, which has always sought to balance out French and German influence. This latest deal will perpetuate that tradition, which some say holds it back from becoming a market-driven, trans-European corporation that would be more representative of the new, enlarged community of nations instead of the old Franco-German axis of influence.

EADS' financial woes has brought in a number of potential suitors - not always from welcome locations either. In September, when the Russian government-owned VneshTorgBank purchased a $1 billion 5% stake in EADS, Europe reacted with surprising hostility and paranoia. While the market is the market, it seems that even the ancien regime in German politics bristled when Vladimir Putin indicated that Russia would like to make some serious changes to the company:

Putin: We do not view EADS as an ideal corporation. If we take part in this work, we will need to discuss with our partners how the corporation should be organised and on what principles it should function. It should be a market organisation and not an organisation where the state decides everything in advance and years ahead, thereby undermining its market status and effectiveness. We therefore do not have any desire to enter this corporation at any cost.

However, there were some reports that French President Jacques Chirac viewed the Russian role in European defense as a necessary move to compete with U.S. defense firms:

The push for closer defense and aeronautic ties isn't one-way traffic. Chirac has long hoped to draw Moscow deeper into the EU’s defense arm, believing that Russia's military might is necessary for Europe to match the U.S. as a global superpower. France and Germany also forged closer relations with Moscow in 2003 when opposing the Iraq war.

Would Russian influence in EADS open new markets, or invite sanctions?

It seems much too premature to say whether Russia's interest in gaining more influence in EADS matches its hunger to acquire energy assets and distribution monopoly, but there are legitimate concerns regarding its quest for an executive role on the board when its progress toward improving rule of law, deepening democracy, and respecting human rights are so disputed. Colonel Christopher Langton, head of the Defence Analysis Department at the International Institute of Strategic Studies (IISS) told ISN Security Watch the following:

The whole question must be put in the broader context of Russo-European strategic relations, which entail not only EADS and defense, but also energy security and supplies," he said.

"Mr [Russian President Vladimir] Putin knows that Europeans are particularly sensitive to energy matters after last year's Ukraine gas crisis, and thus a grand bargain between Moscow and its Western European counterparts would be welcomed by Paris and Berlin.”

While it certainly has been demonstrated that managed economy in Europe produces a number of dreadful inefficiencies (this intervention by Merkel is more an exception than the norm), and EADS' long-standing status as a sacred symbol of the Paris-Berlin balance of power is outdated, one has to wonder whether stronger Russian participation would bring more problems than competitive advantages, given Rosoboronexport's sanctions issues with the United States for selling arms to Iran and Syria.

From Judy Dempsey's article in the IHT, titled "Gazprom's bold moves lay bare EU's disarray":

"Each EU country has its own bilateral relationship and special deals with Russia over energy," said Pal Dunay, an energy expert at the Stockholm International Peace Research Institute. "We don't have to rebuff Russia's moves into the EU's energy sector. What we need is more harmonization among the EU countries and reciprocity when it comes to foreign companies wanting to have access to Russian pipelines. None of this is happening." ...

Energy experts, however, say that as EU energy companies are being told to break the links between production and distribution, Gazprom is adopting the opposite strategy in Europe while in Russia continuing to prevent foreign companies from using its pipelines for shipping natural gas to Europe.

Because the energy playing field between the EU and Russia is so uneven, said Agata Loskot-Strachota, an energy expert on Russia at the Center for Eastern Studies in Warsaw, the Russian gas industry could gain a stronger position in the markets of individual EU member states and reduce competition.

"In some member states, the gas market could become dominated by supplies from Russia, competition would be restrained, and freedom of access to these markets would shrink," Loskot- Strachota said in a new report on the Russian natural gas sector.

Gazprom, she added, could also gain more influence over the terms and conditions under which Russian gas is sold in Europe.

Kenneth Roth of Human Rights Watch pens a column for the next edition of the FT:

Europe must pull its weight on human rights

By Kenneth Roth

If ever the European Union were needed to promote human rights around the world, now is the time. The Bush administration’s use of torture and detention without trial has decimated its credibility. With China professing at best indifference to governments’ domestic rights practices and Russia coddling tyrants, the leadership mantle is there to be seized.

Yet the sad truth is that the EU is punching well below its weight. As a collection of democracies founded on respect for the rule of law and the rights of the individual, the EU should be a natural human rights leader. It has performed impressively in extending these values to its new members and occasionally elsewhere, but when acting beyond its borders, the EU is often disappointingly weak.

Much of the problem lies in the difficulty of achieving a common position among 27 members who hold the right to veto a proposed policy. Whatever sense that makes for internal policies on, say, tax or trade, it is a disaster for projecting EU influence abroad. It takes only one government with deeply felt parochial interests to block an effective EU position.

EU policy on Uzbekistan illustrates the problem. After the Uzbek government massacred hundreds of demonstrators in the city of Andijan in May 2005, the EU imposed sanctions. Today, many EU members favour continuing those sanctions until Uzbekistan permits an independent investigation or undertakes significant structural reforms. Germany, however, would settle for an empty human rights “dialogue” and is threatening to impose that tokenism on the rest of the Union.

This tilt towards the lowest common denominator reflects a preference for unanimity over effectiveness. Because the EU never acts beyond the wishes of its most reluctant member, it ends up doing little or nothing in places such as China, Russia, Darfur or even the US. There must be a better way.

One option would be to allow a supermajority, rather than unanimity, to achieve a common foreign policy – one of the aims of the apparently stillborn constitution. But that would require EU governments to give up their prized veto – a step that some are unwilling to take in spite of the unanswered pleas for help from repressed people worldwide.

Even accepting the unanimity rule, improvements are possible. The EU demands consensus at an absurdly petty level. At the United Nations Human Rights Council, for example, rather than approve a broad strategy and trust their representatives to pursue it wisely, EU members insist on signing off on each proposed resolution, word by word. This micromanagement makes the quick diplomatic give-and-take needed to build majorities impossible, partly explaining why abusive governments are running circles around the Union.

The EU could also treat its common position as a floor rather than a ceiling. It is appropriate to insist that no government do less than the common position on human rights issues, but why should no government do more? Too often EU governments use the lack of a strong common position to justify the lack of a strong national one. When human lives are at stake, that prioritisation of the collective over the effective is callous.

Even when a common position is reached, the EU’s insistence on working almost exclusively through its “presidency” often undermines its clout. It is difficult to imagine a less effective way to maintain continuity or build expertise than the EU’s rotating blur of six-month leaders, even when bolstered by the incoming president and other EU officials to form a leadership troika. The refusal to assign long-term responsibility on certain issues to the governments best placed to address them is a recipe for dysfunction.

In some cases, such as negotiations with Iran over its nuclear programme, the EU has appointed a permanent leadership team, but not for human rights. The Union’s clout would be greatly enhanced if, rather than dispatching a team of fresh faces every six months, the same governments kept showing up at a trouble spot year after year, representing a continuity of concern and a determination to follow through.

These procedural failings cannot fully explain the EU’s leadership failure. Part of the problem is a simple lack of political will. Promoting human rights can be costly and difficult, so many governments settle for lip service. But with US leadership in short supply, the people of the world are paying the price for the EU’s weak performance. It is time to do better.

The writer is executive director of Human Rights Watch

According to late reports, Gazprom and Chevron have disclosed an agreement on a joint venture called Severnaya Taiga Neftegaz, which will seek to develop western Siberian oil fields. Evidently the venture has existed since last November.

Gazprom currently controls 30% of the venture, but a spokesperson for Gazprom said that the stake would raise to 50%.

Western Siberia, located between Ural Mountains and the Yenisey River is the richest petroleum province in Russia with about 600 oil and gas fields.

One can't help but wonder if the Siberia joint venture played into the Shtokman bait and switch game - Chevron being one of the energy multinationals teased with a possible stake.

Today in Voice of America:

Attorney Accuses Russia of Using Energy as a Political Weapon

By Greg Flakus
Houston
12 January 2007

A Canadian attorney who represented the former chief executive officer of the Russian oil company YUKOS, Mikhail Khodorkovsky, says his client was the victim of a plot by Moscow to increase its political influence worldwide using energy resources and infrastructure. VOA's Greg Flakus has more from Houston.

Speaking to the Houston World Affairs Council, Dean Peroff of the Toronto-based Amsterdam and Peroff law firm called his former client, Mikhail Khodorkovsky, a Russian patriot who was punished for trying to stand in the way of Russian President Vladimir Putin's political agenda. Peroff accused the Putin government of using the country's energy resources and control of infrastructure, like pipelines, to dominate neighbors like Ukraine, Georgia and Belarus.

Peroff said the entry of Russia's state-owned Gazprom into the US market should be viewed with caution.

"The entry of Gazprom into the US market is part of a larger Kremlin master plan," he said. "It is part of a plan to centralize Russian state power in the Kremlin, to monopolize global energy markets and to protect the Kremlin's power and project abroad, as far as possible from Russia's borders.

Gazprom officials announced last month that the company seeks to gain ten percent of the US natural gas market by 2010, with an eye towards achieving 20 percent of the market in the years beyond. Russia is the world's largest gas producer.

But Dean Peroff says the benefits of obtaining gas from Russia could be offset by problems if the United States does not hold Moscow to account for business practices that violate western principles of free markets and rule of law. Peroff cites Russia's recent cutting of gas deliveries to Europe via Belarus as an example of the Kremlin's use of energy as a political weapon.

US business representatives continue to view Russia with interest and the second largest US oil company, Chevron, has signed a deal with Gazprom to develop western Siberian oil fields. Peroff says he does not advocate a ban on such agreements, but he says US policymakers should pay close attention to Russian behavior.

"I would never advocate disengagement, but engagement means calling to account, it means holding Russia to the standards that it has accepted under international law," he said.

Peroff says that Russia's entry into the G-8 and its pending entry into the World Trade Organization require compliance with legal and free-market principles and that western nations should hold Moscow to its commitments.

Russian officials defend their nation's actions as efforts to uphold the law. They say Mikhail Khodorkovsky was targeted for corrupt activity. He is now serving a nine-year prison sentence for tax evasion and fraud. Russia has also defended its cutoffs of gas to neighbors as part of its effort to end below-market-price sales of energy to nations that once benefited from such arrangements when they were part of the Soviet Union.

The European Voice has published my letter to the editor:

Turning a Blind Eye to Putin’s Energy Gulag

By Robert Amsterdam

I fully support the comments made by Kevin Roth, the director of Human Rights Watch, quoted in ‘EU punches well below its weight’ (14-20 December 2006), about the EU’s lack of leadership when dealing with Russia.

The EU is sleep-walking into energy reliance on Russia while largely failing to press the regime on its appalling human rights record and the erosion of democracy and the rule of law. Russia’s energy disaggregation has targeted the EU, leading for example, to French President Jacques Chirac arguing that human rights should be separated from energy.

Some European leaders, such as German Chancellor Angela Merkel, European Commission President José Manuel Barroso as well as the leadership of the European Parliament, have raised with the Kremlin their concerns about human rights abuses, exemplified by the plight of its political prisoner Mikhail Khodorkovsky.

Now is the time for other EU leaders to follow suit, to forget the self-serving interests of their own member states and actively to advocate that Russia return to the path of democracy and individual rights and freedoms. My client has spent his fourth Christmas away from his family, languishing in a Siberian gulag.

As European leaders reflect on their new year’s resolutions they might just consider that 2007 should be the year they put principles such as the integrity of the EU and universal values first.

Robert Amsterdam
Legal representative of Mikhail Khodorkvsky
London

A PDF scan of the print edition with image can be downloaded here.

Nobody is immune from prison in Russia
By Grigory Pasko, Journalist

It seems like every television channel in Russia was showing performances by Russian pop diva Alla Pugacheva during their recent holiday programming. She is well known for her many talents and has been involved in many – as it is now fashionable to say – “projects”. But there is at least one project in which she has not had success.

Alla Pugacheva, a friend of Russia's prisoners?

It is known that a year ago, the so-called Public Chamber began its existence in Russia. Thought up, they say, by president Putin himself, the Public Chamber has probably been noteworthy only for the fact that several of its members have been involved in several regional scandals., in particular interference in the standoff between the Yuzhnoye Butovo district of the city of Moscow with the Moscow authorities.

At the same time, it is also known that Alla Pugacheva too is a member of the Public Chamber. The broad public has not been informed of her participation in any noteworthy actions of this chamber. There was the time, just before the first session of the chamber, when the singer told reporters that she would like to participate in the work of the commission on social development, deal with problems related to women, children, the family, and demographics. Last year, the problems of these categories of citizens were more of an urgent hot topic than ever before. However, we did not notice actions by the chamber and by Pugacheva personally to solve them

In addition to this, the singer noted at that time that she was worried about the plight of prisoners in Russian jails. In so doing – as the Newsru.com website reported – she added with a smile that when she speaks of prisoners, she does not mean only former YUKOS head Mikhail Khodorkovsky. “I consider that this is a good person, a guy with a good head on his shoulders. But this does not mean that I think about him from morning till night. Although, of course, I do pity him on a purely human level”.

There is a long-standing tradition of pitying prisoners in Russia. However, if in tsarist times there existed boards of trustees and societies for assistance to prisoners, nowadays the government is doing nothing substantive for this category of people beyond asserting that yes, they are in a difficult situation. For many years already, the government has been allocating a bit more than 20 rubles (about 75 US cents) a day for the upkeep of one prisoner.

I don’t know who Alla Pugacheva helped or how in the business of protecting the rights of prisoners. But it is known that a Foundation for Assistance to Prisoners with its own Board of Trustees did appear last year, in 2006. By the way, the foundation itself was the idea of Mikhail Khodorkovsky. And its Board of Trustees was headed by Mikhail Borisovich Khodorkovsky’s mother Marina Filippovna Khodorkovskaya. As of yet, I personally do not know of Alla Borisovna Pugacheva’s participation in any such foundations or boards.

In this context, the attitude of other Russians to the prisoner problem probably deserves mention. As an example, it is known that one of the first public visits by president Putin happened to be a visit to the famous “Kresty” prison in St. Petersburg. At that time, he too expressed concern for the plight of arrestees, but it would seem he completely forgot about them later.

In today’s “democracy a la Putin”, even people with power and money can’t afford not to think about prisons. At any rate, it has become clear that any government official or wealthy person may find himself sitting on the defendant’s bench. This bench has even become something of a tool for the change or rotation of power in the regions.

Even very rich people understand that their situation and well-being in Putin’s Russia are nothing more than a phantom. This understanding came, naturally, after Khodorkovsky was sentenced. But it has not disappeared with time, it has not evaporated. Indeed, it seems to have merely solidified.

Recently, Chukotka governor Roman Abramovich, famous for his close ties to president Putin and enormous wealth (around 11 billion dollars) gave an interview to a correspondent of the British weekly The Observer. In it, Abramovich said: “There is a Russian proverb – No one is immune from prison or conscription”.

We are often told that stability has appeared in Russia under Putin. At the same time, sceptics will note that a cemetery offers plenty of stability as well. Realists like Abramovich draw on folk wisdom. Apparently they have grounds to do so.

We are proud to offer the attached recording of Dean Peroff, founding partner of A&P with Bob Amsterdam, delivering a speech on the Khodorkovsky case at the Houston World Affairs Council on Thursday, Jan. 11.

Listen here. It's a large file, and the very beginning is silent.

Following the publication of my article "Get Tough with Gazprom" in the International Herald Tribune, one reader sent the attached letter to the editor:

Russia's hold on Europe

Robert Amsterdam's article ("Get tough with Gazprom," Views, Jan. 10) fails to give adequate attention to the fact that the EU Commission needs to get tough with member states themselves.

As long as EU member states continue to advance their own energy nationalism, Europe is fair game for Gazprom.

Gazprom's divide-and-conquer strategy works because EU member states let it work.

The Commission needs to address the national energy egoism and form a united policy. The Commission's Strategic Energy Review is a good step in that direction. Whether member states will follow remains to be seen.

Roderick Kefferpütz, Brussels

I couldn't agree with the reader more, and I have said in the past that the disaggregation among EU member states organized by Russia is a key component of their strategic success.

[Editor's note: RA is pleased to bring you an exclusive feature from Sanobar Shermatova, a well-respected Russian journalist, originally from Uzbekistan. She holds degrees from the Russian Language and Literature Institute in Tashkent and the Moscow State University Department of Journalism. As a specialist on political processes in Central Asia and the Caucasus, she has worked extensively for the weekly newspaper Moscow News and as an observer for the magazine Bolshaya politika.]

An Analysis of Russian-Iranian Relations

By Sanobar Shermatova

Iran is largely "terra incognita" for Russia

For Russia, Iran is simultaneously a partner, a competitor, and a stabilizing factor in Eurasia. In the hotel for foreigners located not far from the famous Evin prison (first it held enemies of the Shah, and after the 1979 revolution opponents of the ayatollahs), you can meet a multitude of tourists from Japan, but arrivals from Russia are a rarity. After the fall of the iron curtain, Russians have become familiar with all the world’s tourism hot spots; in particularly high demand, especially for the New Year holidays, are tours to Arab countries and Southeast Asia. Iran is an exception, despite the fact that trips here are less expensive than to that favourite Russian destination, Turkey.

“We’re waiting for tourists from your country”, I was told by a Foreign Ministry official. “We have things to see, and the bazaar, as you can tell, is very inexpensive”. But even if the Iranian authorities conduct an active campaign to attract tourists, it is still most unlikely that the flow of Russians to this country will be very large. The answer to the riddle of why this country is unpopular in Russian eyes is simple – prohibition, a dry law that impacts foreigners as well. For a Russian, a vacation without booze is no vacation. Another restriction that deters female tourists is the need to comply with the Muslim custom of wearing head scarves and concealing the figure under baggy clothing.

Iran, linked to Russia by economic and political ties, largely remains terra incognita – an unknown country – for Russian citizens. But politicians are another matter.

The first argument in favour of cooperation is the Russian nucular energy market. If you want to know just how important Russian-Iranian energy cooperation is, you need go no further than to see how Moscow has consistently and decisively spoken out against imposing sanctions on this country over the past decade. The Iran question is one of the key issues in Russian-American relations, and Moscow was not prepared to retreat from its positions on Iran despite Washington’s imposition of sanctions on a number of Russian institutes that were suspected of close cooperation with the Iranian nucular industry.

We are talking first and foremost about the Bushehr Nucular Power Plant, which Russia has been building since 1995. This contract was signed in the days of Boris Yeltsin, when Russia’s nucular scientists and engineers had lost their prominence in the world, and the industry itself, which had been rapidly developing in Soviet times, began to stagnate. This is why the agreements on Bushehr were so important for Russia – they allowed it to keep a place in this market.

The second most important argument is the sale of Russian arms to this country. Agreements on deliveries of “Top-M1” missile defence complexes to Iran give rise to disputes (the USA and Israel are against them). Moscow pulled out all its diplomatic stops to defend its positions on Bushehr and arms sales. he UN Security Council’s Resolution 1737 of 23 December has a special clause that states in no uncertain terms that all contracts that were already signed as of the moment the Resolution was adopted shall remain in force; they all can and may be implemented. At a meeting of members of the government with the president, Foreign Minister Sergey Lavrov reported in detail to Putin about this success of Russian diplomacy.

The success lies in the fact that the diplomats had attained three main objectives: they prevented a violation of the nucular arms non-proliferation regime, they preserved conditions for negotiations with Iran on the Iranian nucular programme, and they did not allow legitimate ties with Iran in various fields to be jeopardized.

Such a combination of objectives demonstrates that Russian-Iranian relations are much broader than just simple partnership in the sphere of nucular energy and arms sales. In actuality, Iran is a prominent player in Central Asia and the South Caucasus, where Russia has a concentration of vitally important interests. The situation in these regions depends on Teheran’s position – and this is the third argument – after Bushehr and the arms trade – in favour of close relations.

With what are Moscow’s interests associated then? Naturally, security occupies first place on this list. And this is why it would not be to Russia’s benefit – nor to the benefit of the Western countries – if Teheran, which displays great ambitions, were to one day possess nucular weapons. This factor would immediately put Iran in a dominant position in Central Asia and the South Caucasus. And a stronger Iran would lead, among other things, to an increase in its competition with Russia for Asian energy resources. Projects for the transport of Turkmeni and Azerbaijani gas (supported in some instances by the EU) were blocked by American sanctions.
These restrictions benefit Russia, the monopoly transporter of energy resources from Central Asia. The competitor must be weak, but the war that is expected all the time since Bush named Iran to the “axis of evil” does not fit into Moscow’s interests at all. Furthermore, a military campaign against Iran would impact the stability of two regions on which Russia’s well-being depends – Central Asia and the South Caucasus. In the first of these regions, countries with autocratic regimes and weak economies neighbour on warring Afghanistan. In the event of war, the fragile balance could collapse. And the same goes for the South Caucasus, where Armenia and Azerbaijan have never signed a peace treaty after the war for Karabakh, a disputed territory that has declared itself an independent republic. Iran, which shares a border with Armenia, has in practice broken the blockade of this country organized by Azerbaijan and Turkey because of the annexation of Karabakh. For this reason, Azerbaijan, which also borders Iran, more likely considers Teheran an adversary in the Karabakh dispute. And yet Azerbaijan ended up in the ranks of the opponents of imposing sanctions on Iran, having decided that any destabilization around a neighbouring country will impact its own security first of all. And for Russia, which supports the unrecognized republics of Karabakh, Abkhazia, and South Ossetia, it is important to maintain the status quo.

Yet another argument in favour of Russian-Iranian relations is the Caspian Sea, which unites oil- and gas-rich Russia, Iran, Kazakhstan, Turkmenistan, and Azerbaijan. Today, they call the Caspian a geopolitical bandbox in which the interests of Russia and the USA have collided, and which the EU is now stepping into as well. Iran’s position is one of the factors on which depends how this sea will be divided up, this sea from the bottom of which comes oil and gas. Iranian diplomats have for more than ten years already not consented to the proposals on how divide up the sea that have been advanced by Moscow, laying claim to significant offshore territory.

So, for Russia, Iran is a partner, and a competitor for the transportation of Central Asian energy resources, and an important factor for maintaining security in the Eurasian region. This already quite contradictory combination is complicated further for Russian politicians by the circumstance that Iran is an international pariah. Moscow can not ignore the position of the USA. It was largely for this reason that Teheran was rejected when Iranian president Ahmadi Nejad announced a readiness to join the SCO (Shanghai Cooperation Organisation, created in 1992, and uniting Russia, China, and four Central Asian countries – Kazakhstan, Kirgizia, Tajikistan, and Uzbekistan). Russia and China (as well as Kazakhstan, which is building its own particular relations with Washington) are trying to avoid direct confrontation with the USA. Iranian membership in the SCO would mean that its members will take some of the responsibility for Iran’s foreign policy upon themselves – but this in no way fits into the plans of the two countries that dominate the organisation – Russia and China. But these two countries, which carry significant weight in the SCO, are going to try to do everything to ensure a military attack on Iran does not happen. In the first place, because this would signify a strengthening of the position of the USA in Eurasia – and this is not in the interests of either Beijing or Moscow.

Ayer el abogado de Mijail Jodorkovsky, Robert Amsterdam , escribió una columna en el periódico español La Vanguardia sobre Rusia y sus retraimientos de la democracia y el Estado de derecho. Se puede descargar la columna aquí.

Robert Amsterdam penned the attached article in the Spanish newspaper La Vanguardia. The English translation can be downloaded here.

Rusia en la pendiente

Por Robert R. Amsterdam

Según Lilia Shevtsova, del Centro Carnegie de Moscú, “el modelo en el que Rusia imita la democracia y Occidente responde promoviendo una asociación se ha extinguido”. Hasta ahora los líderes politicos y empresariales europeos han persistido en su descoordinada política de caos, de todos contra todos,
en Rusia, silenciando sus críticas al creciente autoritarismo del Kremlin, mientras al mismo tiempo se pelean para acceder a los suministros energéticos rusos. Mientras tanto, el mundo es testigo de los dramáticos acontecimientos en Rusia, desde la ejecución por motivaciones políticas de Anna Politkovskaya, pasando por la redada y deportación xenófoba de ciudadanos georgianos o el plante a las firmas occidentales en el desarrollo del proyecto petrolífero y gasístico de Sajalin, hasta la extraña muerte de Alexander Litvinenko.

En los últimos años, los países europeos han ignorado o minimizado constantemente los drásticos retraimientos rusos respecto a los compromisos con una economía de mercado competitiva, con la democracia y el Estado de derecho. Quizás sin darse cuenta, la política europea del business as usual con Rusia le ha hecho cómplice en el afianzamiento de los personajes corruptos que han consolidado su poder en el Kremlin.

Las respuestas calladas de Occidente a la reincidencia rusa han representado una escandalosa rendición frente a las fuerzas siniestras que operan dentro de la cúpula dirigente rusa y una señal evidente de que el autoritarismo beligerante será tolerado por Europa a cambio de un trato preferencial en las relaciones energéticas. Se trata de una señal peligrosa que lanzar a un régimen que ejerce el poder con una recurrente indiferencia tanto a las leyes rusas como al derecho internacional.

Europa debe resaltar sus valores esenciales y establecerlos como punto de referencia en el desarrollo de las relaciones con la cúpula dirigente rusa, que ha suprimido elecciones regionales, ha amordazado a la prensa libre, ha ejercido el control sobre los tribunales, ha encarcelado o ha expulsado a sus oponentes y ha expropiado propiedad privada por valor de millardos de dólares, incluyendo propiedades de inversores extranjeros.

Tales acontecimientos deberían haber sido considerados como advertencias acerca de la verdadera naturaleza de aquellos que han alcanzado el poder en Rusia. Hasta ahora, demasiados líderes europeos, en lugar de rechazarlo, han elegido rebajar la gravedad de lo que está ocurriendo en la actualidad. Rusia es un importante socio comercial y, por lo tanto, según su argumentación, un Kremlin fuerte asegura unas relaciones comerciales estables.

Éste es un argumento a corto plazo e imperfecto. Indudablemente resulta importante asegurar unas condiciones de mercado estables para las compañías europeas activas en la economía rusa. Asimismo, es también importante garantizar en el futuro el suministro energético ruso. Sin embargo, hacer esto con una mezcla de oportunismo y cobardía no es a largo plazo el medio más adecuado y, de hecho, ya ha empezado a fracasar.

Tómese como ejemplo el anuncio, a pesar de los compromisos en dirección contraria, del monopolio estatal gasístico ruso Gazprom, que ha tomado la audaz decision de dejar fuera a grandes empresas energéticas extranjeras, que previamente habían sido preseleccionadas como socios potenciales, del desarrollo del yacimiento gasístico de Shtokman, proyecto cuyo valor asciende a varios millardos de dólares. La maniobra de Gazprom, sin ninguna lógica económica, ha significado otro ejemplo de la intención del Kremlin de politizar la energía. Los acontecimientos de Shtokman son una prueba evidente del inaceptable alto riesgo que supone asumir que al tartar con el Estado ruso el antojo u objetivo político prevalecerá sobre las razones económicas.

Comprometerse con Rusia es crucial por todos los beneficios que de una sólida asociación se derivan tanto para el Este como para el Oeste. Sin embargo, este compromise debe insertarse dentro un marco constructivo basado en el verdadero respeto a los principios fundamentales de la economía de mercado, del Estado de derecho y de los procesos democráticos, que informan la construcción europea.

El lugar de Rusia en el marco de una asociación con Occidente, en un mercado compartido y en un mismo espacio de justicia y derechos humanos, exige la atención del mundo occidental siempre que y dondequiera que los principios fundamentales estén amenazados. Los flagrantes abusos del actual régimen en Moscú sugieren que los que detentan el poder consideran impune su conducta. Esto es lo que la política tradicional con el mundo exterior les ha enseñado.

La época del oportunismo egoísta e interesado ha pasado. Debe construirse una nueva relación con Rusia basada en sólidos fundamentos para asegurar el crecimiento, la prosperidad y la seguridad en el futuro tanto para Rusia como para el resto de Europa. Si no, Europa se podría enfrentar pronto a problemas incluso de mayor gravedad, con un regimen post-Putin rico y orgulloso menos comprometido incluso en prolongar algún tipo de apariencia de democracia o de economía de mercado.

The European Bank for Reconstruction and Development has announced it has decided not to invest in the $20 billion Sakhalin-2 oil and gas project, following the harassment debacle that gave Gazprom majority control. While numerous environmental groups are praising the decision, it seems that the decision was based on the attack on the market - not the threats to the grey whale.

From Reuters via Moscow Times:

Gazprom's purchase of a controlling stake in Sakhalin-2 at a knockdown price amounts to renationalization of the offshore fields and this is at odds with the EBRD's role of helping the former Soviet bloc move toward a market economy, analysts said.

State-backed Japan Bank for International Cooperation and Britain's Export Credits Guarantee Department said Friday that they were still considering whether to extend financing to Sakhalin-2.

A number of banks, including ABN-Amro and Royal Bank of Scotland, are also considering loans, said James Leaton, an oil and gas policy officer at environmental group WWF.

After years of badgering the EBRD, the nongovernmental organizations will now target their campaigning on these other lending institutions.

Some analysts say Russian control of Sakhalin-2 will make it harder for NGOs to exert influence over the project.

Stelzer: "EU free-traders who believe in the efficiency-enhancing effects of the free flow of capital see their theoretical belief foundering on the rock of their energy dependence."

From The Sunday Times:

Hugging Russian bear may lead to a mauling for EU

Irwin Stelzer
American Account

ADAM SMITH never met Vladimir Putin, but, as with so many other things, he anticipated his appearance. Nobody can accuse the great Scot of protectionist proclivities, but he did warn that there are times when free trade takes second place to national defence. He proposed laying “some burden” on foreign commerce “when some particular sort of industry is necessary for the defence of the country ... (since) defence is of much more importance than opulence”. ...

One might say that while relations between Putin and other expatriate Russians have been poisoned, those between the Evraz owner and Putin have not. Which suggests that when Russia decides to have Oregon Steel fall behind in deliveries of armour plate to the American military, Oregon’s management might decide, perhaps over dishes of sushi, that profit maximisation is not the only consideration.

But this is trivial compared with the dilemma faced by Britain and the EU. Putin regards his nation’s oil and gas reserves as a political weapon. When challenged, he has cut off gas supplies to Ukraine and Georgia, and stopped the flow of oil through the pipeline crossing Belarus, forcing refineries in Poland, Germany, Slovakia, Hungary and the Czech Republic to dip into reserves to keep operating.

Only after Belarus’s president agreed to eliminate all transit charges and, more important, cede control of Belarus’s pipeline, would Putin allow the president of Russia’s monopoly pipeline, Transneft, to open negotiations over future prices and fees. The German chancellor, Angela Merkel, called the supply cut-off “unacceptable”, which will not worry Putin unless Europe unites to solve its dependence problem — not a likely prospect.

This follows on the heels of Putin’s sudden discovery that Shell’s operations in the Sakhalin gasfield were breaking environmental regulations. Given the choice of abandoning their investment entirely, or selling to state-owned Gazprom, Shell and its Japanese partners chose the lesser of the evils. ...

So America, Britain, Germany and other countries with histories of supporting free trade now have to make the choice with which Adam Smith confronted policymakers more than 230 years ago — defence or opulence; preventing hostile nations from gaining control over key resources, or adding a bit to national wealth by attracting more inbound investment.

One Gazprom spokesman defends any such acquisition as extending consumer choice. The dealmakers, eager to make 2007 bonuses a repeat of 2006, will throw their weight behind approval. But they won’t be able to cite Adam Smith in support of opulence over defence. Which will be a comfort to Gordon Brown when the time comes to choose.

Read the complete column here.

[Editor's note: this is the first in a series of background articles addressing the most frequently asked questions about Mikhail Khodorkovsky.]

Summary of Motives Behind the Campaign Against Mikhail Khodorkovsky

This summary outlines how interdependent strategic motives led to the imprisonment of Mikhail Khodorkovsky and the confiscation of Yukos’ prime assets. Khodorkovsky was increasingly considered a source of political opposition to the regime, and Yukos’ success was an unwelcome source of competition for state-owned energy companies. Ultimately, the elimination of Khodorkovsky as a political opponent and as corporate head of Yukos, and the eventual confiscation of Yukos itself, were politically engineered, and had little to do with law.

There were thus two broad motives behind the campaign against Khodorkovsky: the elimination of Khodorkovsky as a political opponent, and the elimination of Yukos as a competitor to state-owned energy companies.

The campaign against Khodorkovsky was initiated and led by the “siloviki”, ex-intelligence and ex-military strongmen who in recent years have come to dominate the Kremlin from within. The siloviki also control Russian state-owned energy companies.

―

I. Elimination of Khodorkovsky as a Political Opponent

Khodorkovsky was seen as an enemy for three main reasons:

1. Khodorkovsky was increasingly involved in politics and public policy advocacy

- though merely exercising his civil rights, Khodorkovsky’s activities violated the administration’s unwritten edict that successful businesspersons stay out of politics
- Khodorkovsky was outspoken on the need to end corruption and to create a more robust civil society
- in a televised meeting with President Putin in early 2003, Khodorkovsky stated that corruption was spreading in Russia and that the administration “must be willing to show its readiness to get rid of some odious figures” in the regime, to prove it was serious about combating corruption
- Khodorkovsky announced in mid-2003 that he would personally provide funds to the Yabloko opposition party and the Union of Right Forces (SPS) opposition party; both parties support the free market, democracy and the rule of law

2. Khodorkovsky led initiatives to promote civil society, democracy, the rule of law, education and economic development in Russian society, including small business development

- Khodorkovsky created the non-profit “Open Russia” Foundation, with an annual budget of approximately $15 million in the first years of activity, and operating under high standards of transparency; funds were disbursed for philanthropic and competitive grant programmes in educational, cultural and social spheres, and for small business development
- programmes promoted democracy, civil society, and market economics
- Khodorkovsky’s foundation was one of few domestically-financed organizations that provided funding to Russian human rights organizations
- Khodorkovsky also created the “New Civilisation” youth movement, dedicated to civic education; the “Federation of Internet Education”, an organization that established a mass Internet literacy programme in cooperation with the Russian Ministry of Education; and other projects training regional journalists and young political leaders

II. Elimination of Yukos as a Competitor to State-Owned Energy Companies

Khodorkovsky’s actions marked him as an outspoken leader who was pro-Western and challenged the non-transparent means by which government and business are conducted in the Russian energy sector:

1. Yukos championed Western standards of corporate governance

- Khodorkovsky had embarked on an ambitious programme to transform Yukos’ corporate culture, with establishment of a Corporate Governance Charter and the most modern corporate governance and transparency practices of any major company in Russia
- adoption of Western accounting standards and Western-style disclosure practices
- hiring of Western management
- creation of an independent board of directors with a corporate governance subcommittee
- corporate growth through mergers and acquisitions and organic internal growth
- corporate transparency of Yukos starkly contrasted with the opacity of the state-owned energy companies
- when Yukos’ corporate transparency programme was fully implemented, Khodorkovsky began to advocate that other Russian corporations, including state-owned enterprises, should adopt similar transparency and corporate governance reforms; Khodorkovsky was challenging an established order that was highly lucrative for those involved

2. Yukos sought Western investment

- Yukos was not as closely-held as other private-sector oil companies in Russia, and had significant foreign holders; as part of the transparency drive its ownership was to be diversified even further
- Khodorkovsky was open to Western investment in Yukos, including increased foreign ownership; in 2003 Yukos began to discuss publicly the possibility of a significant foreign investment by a Western oil major; Yukos thus threatened to bring foreign ownership to the heart of Russia’s strategic oil industry
- halting Yukos’ plans would ensure that the state regain almost complete control over the oil and gas industries; this control not only would enable the state, rather than private industry, to reap the financial benefits of world energy demand, but also would allow the state to withhold or to bestow energy supplies to other countries, thereby enhancing its global power through “fuel diplomacy”

3. Yukos competed successfully with state-owned energy companies

The state-owned and state-controlled energy companies had interests that were often in direct competition with the interests of Yukos. Leaders of these companies concurrently hold positions of political power in the Kremlin. Yukos was an unwelcome competitor.

- Transneft and Yukos were in conflict over the construction of a pipeline to China or Japan; the companies were also at odds over a plan to bring Western Siberian oil to a port near Murmansk for shipment to European and North American markets via economically efficient super tankers
- the poorly-managed Rosneft was a minor player without any hope of competing successfully with Yukos
- Yukos owned gas reserves in addition to oil reserves and already produced gas in certain markets; Khodorkovsky had stated publicly that Yukos could produce gas more cost-effectively than Gazprom, and Yukos explored building a pipeline to the Arctic Ocean where its gas could be liquefied at a terminal and exported to Europe, bypassing Gazprom’s pipelines and placing Yukos in competition with Gazprom in the sale of gas to Europe and beyond
- Khodorkovsky stated publicly that with its falling production and rising costs, the privatization of Gazprom was necessary and inevitable

The Treatment of Mikhail B. Khodorkovsky at the Krasnokamensk Prison Camp

The politically-motivated persecution of Mikhail Khodorkovsky has continued after his trial. Mr. Khodorkovsky is incarcerated in a remote Siberian prison, in contravention of Russian law. He has been repeatedly denied rights afforded to him as a prisoner under Russian and international law. A pattern has emerged of constant fault-finding by prison authorities, in order to reprimand Mr. Khodorkovsky as many times as possible, thereby justifying additional restrictions of his rights and undermining the likelihood of an early release.

The following is a summary of the treatment of Mr. Khodorkovsky since he was incarcerated in Siberia in October 2005.

Remote Incarceration

Article 73 of the Russian Criminal Penitentiary Code stipulates that except under extraordinary circumstances, prisoners serve their terms of deprivation of liberty on the territory of subjects of the Russian Federation where they reside or were convicted. In violation of the norms and practices of Russian law, Mr. Khodorkovsky was sent to the remote Krasnokamensk prison camp YG 14/10 in the Chita Region of Siberia, thousands of kilometers from his home and family in Moscow. Mr. Khodorkovsky was resident of Moscow, his trial was held in Moscow, and therefore Russian law would normally have required that he be incarcerated in or near Moscow.

Risk of Radioactive Poisoning and Unsanitary Prison Conditions

The Krasnokamensk prison is situated near a uranium mine that has contaminated the area with radioactive waste. Concentrations of radioactive elements exceed appropriate safety levels, and spills from storage centers enter ground waters and migrate towards potable water reservoirs. A report produced by the Human Rights Monitoring in Russia project declared Krasnokamensk an area of environmental catastrophe. Life expectancy in Krasnokamensk is 42 years, and there is disproportionately high prevalence of tumor-related diseases in the area.

The Krasnokamensk prison itself is unsanitary. Inmates suffer from tuberculosis, and two inmates died in 2005, one of dysentery due to leakage of sewage into the prison water supply, and the other of gangrene.

Obstruction of Lawyers – November 2005

Prison administrators imposed procedures infringing upon the rights of the lawyers and the client, impeding a court appeal that was under preparation.

Members of a four-person team of lawyers were permitted to see the client strictly one at a time, despite the fact that there is no law prohibiting visits to the client by the defense team as a whole. In light of the time restrictions imposed on access to his lawyers, Mr. Khodorkovsky was unable to benefit from the efficiencies of group discussion.

The visit of one of the lawyers was abruptly ended with no reason given. Due to this and other practical impediments that were imposed during their three-day stay in Krasnokamensk, the total time the lawyers spent with Mr. Khodorkovsky was five hours, rather than the twelve hours permitted by law.

Prison officials repeatedly tried to examine the defense team’s confidential materials, including lawyers’ records on their client’s case. The personal papers and documents of one lawyer were seized when he left the prison grounds. Lawyers were subjected to body searches, including searches of items of underwear, without the presence of witnesses.

Prison officials scrutinized the lawyers’ private notes made by them during their talks with Mr. Khodorkovsky. According to the prison administration, officials had the right to look through the notes “for the purpose of preventing terrorist attacks”. Following the thorough examination and attempts to decode the notes made by one lawyer, a prison administrator requested that the lawyers undertake in writing that they would commit “to speak and write only in Russian” with their client.

The lawyers were threatened that non-compliance with any of the demands of the prison administration would result in a cutoff in communications with the client for “objective” reasons.

Later in November 2005, two lawyers who traveled from Moscow to the prison, to discuss preparations for Mr. Khodorkovsky’s appeal to the European Court of Human Rights, had access to their client obstructed without legally justifiable grounds.

Despite his legal right to telephone calls, Mr. Khodorkovsky does not have access to a telephone and therefore communications with his family and lawyers can only occur in person.

First Reprimand – December 2005

While working in a camp workshop, Khodorkovsky left his work place to find the equipment serviceman to inform him of the breakdown of a machine. Immediately afterwards he was reprimanded “for the unauthorized escape from his work place.”

According to lawyer Yuri Schmidt, the reprimand was absolutely unreasonable: Khodorkovsky strictly followed the instructions above his work desk. Moreover, he did not “leave” his work place as the whole workshop is considered the work place and Khodorkovsky did not go beyond its premises.

Cancellation of Family Visit – January 2006

The prison authorities cancelled a visit by Mr. Khodorkovsky’s spouse on the grounds that the visitors’ area was under renovation.

Obstruction of Lawyers – January 2006

Mr. Khodorkovsky was deprived of the ability to work on documents during his meetings with his lawyers. Communications must take place through glass and bars. The lawyers must put sheets of paper up to a glass window for Mr. Khodorkovsky to read. The lights on Mr. Khodorkovsky’s side of the glass window are switched off, making it difficult or impossible for him to read the text of the documents.

Second Reprimand – January 2006

Mr. Khodorkovsky was transferred to solitary confinement for five days for being in possession of unauthorized printed material – in this case, a publication of the prison regulations. Prison officials seized from Mr. Khodorkovsky two decrees issued by the Russian Federation Ministry of Justice and approved bylaws of the decrees concerning convicts’ rights in penal colonies. Mr. Khodorkovsky had received the seized documents through the mail and they were handed over to him, on receipt of his signature, by a prison official responsible for transmitting mail.

The right of convicts to information about their rights is explicitly provided for under Russian law.

Third Reprimand – March 2006

Mr. Khodorkovsky was transferred to solitary confinement for the second time, for seven days, for “eating outside the designated premises.” More specifically, Mr. Khodorkovsky was punished for drinking tea in an unauthorized location.

A spokesman for Mr. Khodorkovsky explained that since meetings with lawyers were permitted only after eight-hour shifts at the production unit, Mr. Khodorkovsky had to forego dinner if he wished to meet with his lawyers, and this is what motivated him to drink the tea in question.

Knife Attack – April 2006

While sleeping, Mr. Khodorkovsky was slashed across the face by a fellow inmate using a cobbler’s knife. The aggressor was in possession of a knife and razor blade in contravention of prison regulations. Prison authorities subsequently placed Mr. Khodorkovsky in solitary confinement, stating that “In order to put an end to all speculation on convict Khodorkovsky, including about his life being in danger, we have decided to put him in solitary confinement. He will be safe there.” When interrogated by the prison administration, the aggressor stated: “I wanted to cut his eye out, but my hand slipped.”

Fourth Reprimand – June 2006

Mr. Khodorkovsky was transferred to solitary confinement for the third time, for ten days, for breach of a prison regulation prohibiting inmates from “selling, buying, presenting, accepting, or seizing personal food products, objects, or substances.” Mr. Khodorkovsky was placed in the cell the day after his spouse’s visit to the penal colony ended. He was punished for not reporting to the prison authorities an inventory of two lemons his spouse gave to him when she visited. The punishment contradicted the right of prisoners under Russian law to use and dispose of personal items, “such as foodstuffs”, at their own discretion.

Political Prisoners in Today's Russia
By Grigory Pasko, journalist

Physicist Valentin Danilov

Krasnoyarsk State Technical University staff member Valentin Danilov was arrested on 16 February 2001. According to story of the investigators of the regional administration of the FSB, having signed a contract with a Chinese precision engineering export-import corporation to develop a technology for use in outer space, the scientist transferred information which was a state secret to the customer. Valentin Danilov was charged with state treason under Article 275 of the Criminal Code of the RF.

On 29 December 2003, a jury found Danilov not guilty on all counts.

However, on 9 June 2004, the Supreme Court repealed physicist Valentin Danilov’s not guilty verdict. The case was sent back to the same court as before for a new hearing.

On 24 December 2004, the Krasnoyarsk Kray Court found physicist Valentin Danilov guilty of state treason and sentenced him to 14 years of deprivation of liberty with the sentence to be served in a strict regime colony.

In May 2005, the Supreme Court left the Krasnoyarsk court’s verdict in force, reducing the term of punishment from 14 to 13 years of deprivation of liberty. Lawyers filed an application with the European Court in Strasbourg.

At the present time, the convicted physicist is in a penal colony in Uyarsky Rayon of Krasnoyarsk Kray.

Typical story

The story of the “spy” Danilov is very similar to the story of other faux-spies of recent years: Shchurov, Kaibyshev, Babkin, Sutyagin… He worked with foreign partners, received a salary from them, was charged with disclosure of a state secret. In a normal country that has rule of law, there is nothing unusual – let alone criminal – in such collaboration. In the Russia of Putin’s time, however, all of this is maniacally transformed into espionage. Had foreign partners? Foreign secret service agents! Was paid a salary? Sold his own Motherland! Worked in science? Might have known something that can be labelled secret!

Danilov was accused of developing a technical assignment for a bench, and later passing on to a staff member of the Lanzhou Institute of Physics of the China Academy of Space Technology information about the presence at the Krasnoyarsk University of an «Aquagen» pulse electron accelerator, which is a bench simulator of certain factors of a nuclear explosion and is used for testing satellites for the effects of exposure to ultra-hard x-rays. The work, without a doubt, is promising and of value for the Chinese space program. The state prosecution asserts that the Chinese rocket-and-space corporation is working in the interests of the People’s Liberation Army of China.

Even if you know only a little bit about Chinese history, you can still assert with total confidence that everything in the country, without exception – same as in the Soviet Union, by the way (and now in the Russia of the Putin era) – was and is being done in the interests of the army and the navy. That is, for the ability of the country to defend itself.

In all such cases, there is a minimum of two key factors: who is examining the materials and how, and who is monitoring the contacts of Russian scientists with foreigners and how. A close look reveals all. Both the examining and the monitoring right on up until the case was formally opened were conducted by people either close to the FSB or directly by FSB staff. The fact is that Russian institutions of higher learning all have the so-called First Department – the department of those who work for the FSB and keep watch on the scholars, instructors, and students. It is the First Department that sanctions contacts with foreigner, and all the more so the signing of any agreements with them. To put it another way, if it turns out that a secret service was standing behind the foreign party, then it is the FSB, as represented by the First Department, that should bear the responsibility for this. This is the logic of things. But in reality they always find the guy on the outside to take the fall. In this case, Danilov turned out to be the one.

I am convinced that the FSB knows full well that no special services stood behind Danilov and his contacts. They simply needed yet another case of treason to their – the KGB’s – motherland. And so they pulled out their cookie cutter and put together yet another little case, foul-smelling, clearly unconvincing, but all pre-coordinated with the procuracy and the courts.

Russian human rights advocates consider Danilov a political prisoner. The authoritative human rights organization Amnesty International didn’t at first, but eventually it too declared Danilov a political prisoner. It should be noted here that there exist several points of view about who can be regarded as a political prisoner. Here is the reasoning of human rights activist Alexander Podrabinek about this: “According to one of the points of view, extremely popular today, anyone who is subjected to state repressions for activities aimed at changing the political system ought to be considered a political prisoner. Then, both those who criticized the political system in print and those who attempted to change it with methods of terror can be included among political prisoners. Following the precise meaning of the word ‘political prisoner’ (someone put in prison for politics), this definition can be acknowledged as correct”.

In Podrabinek’s opinion, it is difficult to form an impartial opinion about the “spy” cases. The investigative materials are classified as “secret” and are inaccessible to the broad public; the trials take place behind closed doors; the lawyers of the defendants are not talkative and cite that they have signed non-disclosure statements. The procurators illiterately and emotionally accuse the defendants of treachery, while the defendants themselves no less emotionally attest themselves to be victims of political persecutions.

I can not agree with Alexander Podrabinek that it is difficult to form an impartial opinion about the “spy” trials. All you need is desire and a yen for legal knowledge. The flagrant lawlessness in these trials is visible even with an eye unarmed with jurisprudence. Just like I can’t agree with his assertion that the defendants themselves attest themselves to be victims of political persecutions. I am acquainted with many of those who were subjected to persecutions on the part of the FSB, and can’t remember a single instance where one of them would have proclaimed himself a political prisoner.

…Danilov is doing his time. Neither human rights rallies, nor protests, nor demands for a review of the case have helped. The power has learned to ignore not only the law, but public opinion as well. It is not yet possible to learn how it will react to a decision of the Strasbourg court with respect to such case: this court has not yet adopted a single decision with respect to the Russian “spy” trials.

Nobody forced him to say it

by Grigory Pasko, journalist

Speaking recently at a session of the Council to Assist the Development of Institutions of Civil Society and Human Rights, president of Russia Vladimir Putin said that neither the people nor the president have much confidence in Russia’s correctional system. The members of the council, among whom are many human rights advocates well known in the country, reminded the president that a draft of a law on public oversight of the correctional system has been languishing in the State Duma for three years already. Putin summarized: “The more rigorous the oversight over the prison system will be, the better”. Here is Putin’s quote, word for word: “And it is not by chance that we have such empathy in society towards those who are found in places of deprivation of liberty. This is associated not only with our having a huge quantity of people who were found in prisons and are still found there even now, but is associated also with the understanding in society that far from all people are found justly in these places of deprivation of liberty. This is where the problem is, and this problem has been sitting in our consciousness since all the way back in the year ’37. And the more rigorous the oversight over the prison system will be, the better. I promise, we will definitely return to this.”

Certain Russian mass media rushed to praise the president for such words. And there was even a flash survey of listeners conducted on the «Echo Moskvy» radio station on the topic of: why would Putin have gone and said something like this all of a sudden?

Personally, I recalled the first meeting with Putin in November 1999, then still chairman of the government of Russia. It took place in the Russian PEN-club. Writers were asking some hard-hitting questions of the recent director of the FSB. And Putin answered them quickly, without shirking or hesitating. He answered well and indeed exactly what the people wanted to hear him say, people who had in their day gone through the camps and the prisons, the Glavlit censors and the non-publication of their works. EVEN THEN Putin was already trained to say the right words. It’s just that his deeds bore witness to the fact that these words didn’t mean squat, neither to Putin’s subordinates nor to Putin himself.

Same thing with the correctional system in Russia. This system became monstrously secretive and closed precisely under Putin. One would think: if you’re such a progressive democratic president, while the jailers don’t want or can not march in step with the modern world, then get rid of the old head of the Federal Service for the Execution of Punishments (FSIN) and install a new one, someone more in tune with the times.

Nothing of the sort! Even when the current director of FSIN, Yuri Kalinin, turned 60 in October of the year just past – and age when government officials should retire on a pension – Kalinin remained in place. By the way, it was precisely under Kalinin that the system became closed. It is precisely under him that the tortures, the mutinies, and the multitude of violations of prisoners’ rights did not cease in the penal colonies of the country. We need look no further than the facts of systematic violation of correctional legislation with respect to Mikhail Khodorkovsky, Platon Lebedev, Svetlana Bakhmina… I’m not talking here about the court decisions with respect to them. I’m talking about how FSIN has violated and continues to violate the law with respect to these persons.

And all of a sudden, among the timid talk in certain mass media about the unlawful convoying of Khodorkovsky and Lebedev from the penal colonies where they were found to Chita, president Putin starts talking about how there’s no oversight of the prison system in the country, and about how not everybody is found in this system justly… You would think – what could be simpler?: why don’t you do something at least to improve this system at least, not to mention the judicial system even! You’re the president, after all! You’ve got an entire vertical of power!

Alas! It is not for this reason that Putin utters the right words – to then act right as well after saying them. It seems that Western leaders have begun to understand this: Angela Merkel, just before a meeting with Putin, couldn’t even bring herself to call him a democratic leader: “I have not said something like this yet, and I will not say it now”, declared Merkel, responding to a question about whether she could define Putin as a “died-in-the-wool democrat”.

…It is noteworthy that the overwhelming majority of “Echo Moskvy” listeners assessed the president’s words in precisely this way: just that much hot air, a smokescreen, the latest PR campaign.

So where, you may ask, do the Russian president’s stratospheric approval rating figures come from? Probably from there: from the times of desire to find favour in the eyes of the “father-tsar” through flattery and lies. And also from that time that Putin himself knows so well. He said it himself: “This is where the problem is, and this problem has been sitting in our consciousness since all the way back in the year ’37.”

Here is a ten minute excerpt of a Dutch-produced documentary film titled "In Memoriam: Alexander Litvinenko."

From Alexander Arkhangelsky on Russia Profile:

What's the point here? The point is that the oil and gas spat that blew up between Russia and Belarus on the eve of 2007 could have produced some entirely unexpected psychological consequences. Comrade Alexander Lukashenko answered Gazprom's cheerful arrogance with buffoonery – buffoonery that was, moreover, aimed not at Gazprom, but at a certain someone higher up. A duty on oil transit, issues of Russian property in Belarus, payment for the land the pipes run across… The hard-headed Lukashenko resorts to this only when he feels a threat to himself personally, and not only to the economy entrusted to him. So the deal done just before New Year's had something that bypassed the radars of financial analysts – its own political subcurrent. And the Belarusian leader's position of power suddenly appeared unbelievably shaky; so shaky, in fact, that he had nothing to lose.

If Gazprom – and the person above Gazprom – had genuinely gotten angry and/or decided that they no longer needed Lukashenko, then he would not have survived. He would have fallen without even the slightest chance of playing out his hand. The question of ORT cameraman Dmitry Zavadsky, beaten up by Belarusian police, could suddenly have surfaced, or the shadow of Goncharov, the vanished member of the central elections commission. The issue of removing political opponents would have been on the negotiating table as a trump card. The topics of the journalist Georgy Gongadze and poisoned Prime Minister Viktor Yushchenko were used thus as trump cards during the dramatic 2004 elections in Ukraine. Moreover, they were used simultaneously by two opposing sides – the European Union thereby convinced Leonid Kuchma to give in, while Russia tried to inspire him – there's nowhere to retreat, Moscow's behind you. And it is unimportant who actually poisoned or disappeared whom; it is of no importance that the chekist Andrei Lugovoi – now suspected in the polonium poisoning of Alexander Litvinenko – headed the ORT security service when Zavadsky disappeared. Only one thing is important: We've had enough, so clear off.

Yesterday Charles Wolf of the RAND Corporation penned on a column on the economic transition currently occuring in Russia (hat tip Economist's View).

Russia's status as a "market economy" may have been accorded for political reasons, says Charles Wolf

In fact, a heated debate is currently under way within Russia concerning the direction of its economic transition, which reflects the sharply different emphasis that the opposing sides place on "good news" pointing toward market-oriented change or "bad news" pointing in the opposite direction. The debate also highlights disagreement about the reliability of official data.

Since 1991, Russia's real GDP growth rate has been more than twice the unweighted average of the other G-8 members (Japan, Germany, France, Canada, Italy, the United Kingdom, and the US). During Putin's tenure since 2000, Russia's annual GDP growth has been 6 percent, compared to 2 percent for the rest of the G-8, its foreign debt has been reduced from 50 percent of GDP to less than 30 percent, and its $3.3 billion debt to the International Monetary Fund was repaid ahead of schedule in 2005. Of the $40 billion owed to its creditors in the Paris Club, Russia has paid $15 billion ahead of schedule, and its foreign-exchange reserves have more than tripled, to more than $250 billion.

Optimists also cite evidence that the number of privately owned enterprises more than doubled in the past decade, to nearly 80 percent of all enterprises, while the share of state-owned enterprises shrank from 14 percent to less than 4 percent. Likewise, employment in private enterprises grew by 41 percent while declining by 15 percent in state enterprises. Indeed, optimists contend that official data on private-sector growth may actually understate the pace and magnitude of Russia's move toward private ownership, given efforts by private businesses to avoid tax liabilities by not registering or by under-reporting transactions. ...

Furthermore, the pessimists dispute the picture of private-sector growth represented by official data. The level of state ownership, production, and employment in the Russian economy is at least as high now as it was in 2003, when Mikhail Khodorkovsky, the chief executive of the oil company Yukos, was arrested and the state seized Yukos' assets, along with those of several other privately owned companies.

Moreover, a key question about the "good news" is how much of it should properly be attributed to the windfall of higher oil and natural-gas prices (hence, to factors not under Russia's control), rather than to improved economic policies and reform.

Recent empirical work at the RAND Corporation, a nonprofit American research organization, highlights Russia's heavy dependence on fossil fuels. Increased oil and natural-gas prices explain between one third and two fifths of the economy's growth over the period from 1993 to 2005. Oil and gas production accounted for between 16 percent and 20 percent of Russia's GDP and between 44 percent and 55 percent of its total export revenues since 2004. The buildup of Russian foreign-exchange reserves is a further illustration of this dependence.

Read the complete article here.

[UPDATE] Both the Financial Times and the Moscow Times have weighed in on the story broken by Kommersant. The FT writes "Both Gazprom and the Kremlin have struggled to get across their message that price rises for former Soviet republics are part of a commercial move away from longstanding subsidies and towards market prices, rather than being politically motivated." The Moscow Times reports that Gazprom has hired Phillip Dewhurst, formerly of British Nuclear Fuels. MT reports: "I think the way to do that is just to tell people that Gazprom has a very good record of working with the U.K.," he said. "For example, Gazprom has supplied gas to the U.K. for 25 years and it's been a very reliable and secure supplier. That's the message we have to spell out."

Today Kommersant is reporting that Gazprom is preparing an $11 million public relations budget to overhaul their image following the significant damage and loss of trust caused by the gas wars. Although it would seem that we are talking about something that cannot be bought, brace yourselves for some serious spin in 2007. (thanks to reader Alex for the lead).

Kommersant:

Gazprom to Launch Major PR Campaign

Since a series of “gas wars” with CIS countries undermined Western consumers' confidence in Gazprom, the Russian monopoly has been concerned with improving its image abroad. Kommersant has learned that OOO Gazprom Export is negotiating with a consortium of PR firms headed by the PBN Company on a three-year contract for a series of campaigns in the United States and European Union. Gazprom is prepared to pay $11 million in 2007 for those services. According to information obtained by Kommersant, the Gazprom campaign will be part of a larger campaign by Russian authorities to improve their image in the West. ...

The main task of PBN and its colleagues in the U.S. and UK will be to develop a program to improve Gazprom's image abroad, mainly in the U.S. and EU. A source says that Gazprom Export wants to concentrate on its positioning as a commercial structure. “In the West, Gazprom is closely associated with the name of Russian President Vladimir Putin and his political circle,” the source explained. “The company wants to position itself differently.”

Gazprom needs a PR campaign now more than ever before. The oil and gas conflict with Belarus has damaged the reputation of Gazprom more than Transneft. Russia's problems as a dependable energy supplier affect gas market, which is not very competitive, and not the competitive oil market. German Chancellor Angela Merkel spoke last week about a “loss of confidence” in Gazprom.

Interesting, non-scientific poll on Russia-InfoCentre asking readers which statement about Russia is closest to reality - 1) Russia has all chances to regain the superpower status, 2) Without oil and weapons Russia is a third world country, 3) Russia is a reliable political partner, and 4) You never know what to expect from Russia.

Interesting results: 42% say you never know what to expect, and only 3% said Russia is a reliable partner.

Today in the Moscow Times, Alexander Zhelenin examines whether averages wages in Russia will rise along with the energy boom. Also the American Enterprise Institute has just posted a speech by demographer Nicholas Eberstadt which addresses the current health crisis in Russia (see below).

Moscow Times:

Economic Development and Trade Minister German Gref recently said that in the near future Russia should expect "a breakthrough in the economic sphere, with an accompanying rise in consumption and personal incomes."

In July, Gref released data related to this same theme. At a meeting between Putin and members of the government, Gref announced that the average income had reached 11,000 rubles, or about $420 per month. Given past figures this might have sounded like good news. But the number is a bit misleading, as the astronomical earnings of a small number of people at the top of the pile and regional differences distort the picture. It makes about as much sense as calculating the average temperature for the patients at a particular hospital. ...

According to calculations by the Russian Academy of Labor and Social Relations, the average subsistence-level income in the country is 14,000 rubles, or about $525, per person. This demonstrates that the government's official subsistence income of about 2,600 rubles per month is indecently low. The Finance Ministry doesn't even refer to it anymore.

Leaving averages aside and looking at different groups, we discover that, according to official data, about 65 percent of the population live on less than 8,000 rubles per month, and 50 percent earn less than 6,000 rubles.

So Gref's talk of a "breakthrough" in salaries should be good news. But is it really going to happen? Not according to some economists.

"Russian incomes cannot grow faster than they are at present," said Andrei Kolganov, a professor of economics at Moscow State University. "There is no solid foundation to current economic growth."

Kolganov said that, given the economy's dependency on world energy prices and the unlikelihood that these prices will grow at the pace seen over the last four years, rapid income growth is unlikely.

The State Duma election in 2007 and the vote to choose a new president next year will likely have an effect. Vladimir Gutnik, head of the Center for European Research at the Institute of World Economics and International Relations, said the elections will drive incomes higher.

"We can expect significant increases in wages for state employees, pensions and government aid," he said. "It is clear that these increases will outpace the rate of inflation, even if the economy does not grow at the rate forecasted."

This can be accomplished even if growth slows by using funds accumulated in reserves and the stabilization fund to cover the difference.

So, while expectations of a boom in incomes and consumption from continued economic growth might not be reasonable, an infusion of cash could still make them realistic. Pouring this money into people's pockets, even if only ahead of elections, isn't the worst outcome we could hope for, especially as the reserves have been built up from years of economic growth.

As long as this strategy doesn't put too much upward pressure on prices, it will provide some hope for the economic road ahead.

From AEI:

Russia

And that is not the worst of the story. Throughout the world, health and wealth are tightly interwoven. There is a robust correspondence--both internationally, and in any given country over time--between health improvement and improvement in economic potential. Of course, this is not a one-way street, but rather a complex and robust inter-relationship. Therefore, the troubling trends in life expectancy and mortality for women and men in Russia speak to the magnitude of the economic risk that the country is now facing.

Russia today is living proof that it is possible for an industrial society during peace time to suffer a health reversal over four decades. Life expectancy for both women and men happen to be lower in Russia today than four decades ago. And to make the story even sadder, the retrogression in health, that is, the increase in mortality, is most intensely concentrated in the working age population. For example, when comparing the death rate ratio for 1965 versus 2005 for women between 20 and 65 (that is, the death rate in 2005 divided by the death rate in 1965 for the same working age groups), we sees an upsurge in death rates that reach or exceed 50 percent for many cohorts. Think of it: over a forty year period, mortality rates in Russia for women between their late 20s and their late 50s have typically risen by about 50 percent! And the situation is even worse for men: for Russian men in their 40s, in fact, death rates doubled over those same decades.

Russia health disaster looks even more striking when we compare current survival schedules for working age men with those from counterparts from affluent European societies. Look at the contrasts in survival chances for Russian men and Swiss men as of 2001. On more or less current schedules, a man from Switzerland has about five chances out of six of surviving from age 20 to age 65. In Russia, on current survival schedules, a man age 20 has less than even odds of making it to 65. This is not just a humanitarian tragedy: but it has very real economic implications for Russia as well. By foreshortening life expectancy in such a dramatic manner, Russia’s health crisis also forces a dramatic shift in the calculus of causes and benefits for investing in human capital, for investing in higher education, in training, and skills. Human capital deepening has been a critical aspect of the overall process of modern economic growth--but the pervasive surge in working-age mortality that Russia is suffering through does not augur well for human capital investment. To the contrary: it is easy to appreciate the devastating impact that Russia’s new mortality patterns could have on calculations about training and productivity enhancement.

Today Yulia Tymoshenko writes an energy-focused column on Germany, Europe, and Russia.

"Encouraging economic and political reform are important objectives, but they can never serve as a substitute for a serious effort to contain Russia’s deep-seated expansionism."

With high prices for crude oil and natural gas bloating its coffers, Russia is once again aggressively confronting the small and still relatively weak states that fled the eroding Soviet empire 15 years ago. Given the residual economic and institutional ties born of the Soviet era, Russia’s external influence in this region remains enormous. But Russia is also now extending its grasp of energy markets beyond those of its immediate neighbors. ...

Europe can help by insisting that Russia participate in the European Energy Charter, which calls for Gazprom to grant its production competitors access to Russian pipelines, and for all disputes to be settled by international arbitration. European competition policy, which successfully brought giant companies like Microsoft into line to promote competition, could help to turn Gazprom into a normal competitor, too.

Europe’s leaders should engage in frank discussions about where European and Russian interests converge or differ, and these discussions should include regional neighbors that are both producer and transit nations, like my own country, Ukraine. Moscow will understand a policy based on mutual respect for each other’s interests better than simple appeals to goodwill and friendship.

Russia should be welcome in institutions and agreements that foster cooperation, with reciprocal rights and responsibilities. Russian reform will be impeded, not nurtured, by turning a blind eye to political and economic aggression. The hard-fought independence of the former Soviet republics must not be tacitly traded away in acquiescence to Russia’s desire for regional hegemony.

Russia’s leaders are entitled to the world’s understanding as they struggle to overcome generations of Soviet misrule. But they are not entitled to the sphere of influence that Russian tsars and commissars coveted for 300 years. If Russia is to be a serious partner for Europe, it must be ready to accept the obligations of stability along with the benefits. If Europe is to ensure its prosperity and energy security, it must demand nothing less.

Today from the leftist author Michael Klare on TomDispatch.com, an essay focusing on the militarization of global energy politics. While Klare's positioning of these issues is aggressively anti-government and paranoid, his section on Russia is fairly accurate.

The Rising Energy Superpower

At the end of the Cold War, it appeared as if Russia was a forlorn, wasted ex-superpower, impoverished in spirit, treasure, and influence. For years, it was treated with disdain by American officials. Its leaders were forced to swallow humiliating agreements like the expansion of NATO to Moscow's former satellites in Eastern Europe and the abrogation of the Anti-Ballistic Missile Treaty. To many in Washington, it must have seemed as if Russia was little more than a relic of history, a has-been never again slated to play a significant role in world affairs.

Today, Moscow, not Washington, seems to be enjoying the last laugh. With control over Eurasia's largest reserves of natural gas and coal as well as enormous supplies of petroleum and uranium, Russia is the new top dog -- an energy superpower rather than a military one, but a superpower nonetheless.

First, a look at the big picture. Russia is the absolute king of natural gas producers. According to BP (the former British Petroleum), it alone possesses 1.7 quadrillion cubic feet of proven gas reserves, or 27% of the total world supply. This is even more significant than it might appear because Europe and the former USSR rely on natural gas for a larger share of their total energy -- 34% -- than any other region of the world. (In North America, where oil is the dominant fuel, natural gas accounts for only 25% of the total.) Because Russia is by far the leading supplier of Eurasia's gas, it enjoys a position of supply dominance unmatched by any energy provider -- except Saudi Arabia in the petroleum field. Even in that realm, Russia is the planet's second leading producer, falling just 1.4 million barrels short of Saudi Arabia's 11.0 million barrels per day at the start of 2006. Russia also possesses the world's second largest reserves of coal (after the United States) and is a major consumer of nuclear energy, with 31 operational reactors.

Soon after assuming power as president in 1999, Vladimir Putin set out to convert this superabundance of energy -- the economic equivalent of a nuclear arsenal -- into the sort of political clout that would restore Russia's great-power status. By controlling the flow of energy to other parts of Eurasia from Russia and former Soviet republics like Kazakhstan and Turkmenistan (whose energy is exported through Russian pipelines), he reasoned, he could exercise the sort of political influence enjoyed by Soviet officials during the heyday of the Cold War. To accomplish this, however, he would have to reverse the wide-ranging privatization of the oil and gas industry that occurred in the early 1990s after the breakup of the USSR and bring vital elements of Russia's privately-owned energy industry back under state control. Since there was no legitimate way to do this under Russia's post-Communist legal system, Putin and his associates turned to illegitimate and authoritarian methods to de-privatize these valuable assets. Here, we see another emerging face of Energo-fascism.

Remarkably, Putin himself had long before spelled out the rationale for concentrating control over Russia's energy resources in the state's hands. In a 1999 summary of his Ph.D. dissertation on "Mineral Raw Materials in the Strategy for Development of the Russian Economy," he asserted that the Russian state must oversee the utilization of the country's mineral raw materials -- including oil fields in private hands -- for the good of the Russian people. "The state has the right to regulate the process of the acquisition and the use of natural resources, and particularly mineral resources, independent of on whose property they are located," he wrote. "In this regard, the state acts in the interests of society as a whole." No better justification for Energo-fascism can be imagined.

The most famous expression of this outlook has been the so-called Khodorkovsky Affair. In 2003, Mikhail Khodorkovsky, the CEO of Yukos, then Russia's top oil producer, was arrested on fraud and tax-evasion charges. He had run afoul of Putin by pursuing all sorts of energy deals independent of the state, including possible joint ventures with Exxon Mobil, and by supporting anti-Putin political forces inside Russia -- either of which would have alone been sufficient to earn him the Kremlin's wrath.

However, it is now apparent that Putin's ultimate goal in engineering the arrest was to seize control of Yuganskneftegaz, Yukos' prime asset, accounting for about 11% of Russia's oil output. With Khodorkovsky and his top associates in prison awaiting trial, the government auctioned Yuganskneftegaz to a secretive shell company, which then resold it to state-owned Rosneft at a below-market price. In one fell swoop, Putin had managed to dismember Yukos and turn Rosneft into the country's leading oil producer.

The Russian president has also sought to extend state control over the distribution and export of oil and gas by blocking any effort by private firms to build pipelines that would compete with those owned and operated by Gazprom, the state-owned natural gas monopoly, and Transneft, the state oil-pipeline monopoly. The United States and other consuming nations have long pushed for the construction of privatized oil and gas pipelines in Russia to increase the outflow of energy to Europe and other foreign markets as well as to dilute the power of Gazprom and Transneft. The Kremlin has, however, systematically foreclosed all such efforts.

If the concentration of ownership of energy assets in the state's hands through legally dubious means is one dimension of emerging Energo-fascism in Russia, a second is the utilization of this power to intimidate have-not states on Russia's periphery. The most notable expression of this to date was the cutoff of natural gas supplies to Ukraine on January 1, 2006. Ostensibly, Gazprom stopped the flow in a dispute over the pricing of Russian gas, but most observers believe that the action was also intended as a rebuke to Ukraine's Western-leaning president, Victor A. Yushchenko. Remember, this was in the dead of winter, and natural gas is the main source of heat in Ukraine, as in much of Eastern Europe and the former USSR. Gazprom resumed the flow after a last-minute pricing compromise and following vociferous complaints from Western European customers who were suffering their own losses (as the Ukrainians diverted Europe-bound gas for their own use). This was the moment when it became clear to all that Moscow was fully prepared to open and close the energy spigot as a tool of foreign policy.

Since then, Moscow has employed this tactic on several occasions to intimidate other neighboring states in what it terms its "near abroad" (as the U.S. used to speak of Latin America as its "backyard"). On July 29, 2006, claiming a leak, Transneft halted oil shipments to the Mazeikiu refinery in Lithuania after its owners announced its sale to a Polish firm, not a Russian one. Observers of the move speculate that Russians officials intended to force a Russian takeover of the refinery.

In November, Gazprom threatened to more than double the price of natural gas to its former Georgian SSR from $110 to $230 per 1,000 cubic meters. The alternative offered was a cessation of deliveries. Again, political pressure was believed to be at least part of the motive as Georgia's pro-Western government has defied Moscow on a wide range of issues. In December, Gazprom pulled the same sort of trick on Belarus, demanding a major readjustment of prices from a close (and impoverished) ally that had recently been showing mild signs of independence.

This, then, is another face of Energo-fascism in Russia: the use of its energy as an instrument of political influence and coercion over weak have-not states on its borders. "It is not that energy is the new atomic weapon," Cliff Kupchan of the Eurasia Group consultancy told the Financial Times, "but Russia knows that petro-power, aggressively and cleverly applied, can yield diplomatic influence."

Today the Associated Press is reporting that Gazprom has partially suspended cooperation with the Polish pipeline company Polskie Gornictwo Naftowe & Gazownictwo (PGNiG), which manages a major segment of the Yamal pipeline transporting Russian gas to Western Europe.

According to the reports, the Polish are claiming that Gazprom suspended cooperation after their "unfounded" requests for lower transit fees were rejected. But according to a company press release, it appears that PGNiG and Gazprom are really fighting over the control of their joint venture EuRoPol:

On request of Mr A. Medvedev, a representative of Gazprom, the Supervisory Board has changed its modus operandi. Accordingly, technical issues will be discussed by correspondence. Moreover, decisions in this regard will be taken in the same manner. At the same time, in accordance with the declaration of the Russian party, it will be ready to resume normal work of the Supervisory Board only once the other shareholders have accepted increased influence of Gazprom on the decision-making in the Company. In effect, the attitude of the Russian representatives in the Supervisory Board of EuRoPol Gaz SA leads to a deadlock in the mutual relations between the shareholders and paralysing the work of the Supervisory Board.

The Polish pipeline operator has not elaborated on what the real impact of this impasse would be, and Gazprom has yet to comment. It seems unusual that Gazprom would assume that PGNiG should resign itself to a secondary, non-executive role when both companies own 48% of the joint venture - but then again the Kremlin has a track record of misunderstanding the basic rules of corporate governance. What is certain is that the Yamal dispute, like the Belarus oil cut off, will not help Russia's attempts to build a reputation as a reliable partner - even if they are spending $11 million on this new image.

Poland's rocky relations with Russia are not restricted to the energy sphere - and the Yamal disagreement may be partially shaped by a larger trade dispute involving a Russian ban on Polish meat imports (the two countries have even accused each other of forging documents).

Political Prisoners in Today's Russia: Igor Sutyagin
By Grigory Pasko, journalist

On 27 October 1999, in the city of Obninsk, the FSB Administration for Kaluga Oblast detained Igor Vyacheslavovich SUTYAGIN, a staff member of the Russian Academy of Sciences Institute for the U.S. and Canadian Studies.
Several days later, he was formally charged under Article 275 of the Criminal Code of the RF (State treason), while he himself was transferred first to the Kaluga investigative isolator, and on 27 June 2002 to the Lefortovo SIZO (city of Moscow).

Only on 7 April 2004 did the Moscow City Court (judge Marina Komarova) adopt a decision about Igor Sutyagin’s guilt: he was sentenced to deprivation of liberty for a term of 15 years with the sentence to be served in a strict regime colony. The legal groundlessness of the Sutyagin case can be seen from the ruling of the Kaluga Oblast Court (chair – A. Gusev) of 27 December 2001. The ruling states, in part: “Having studied the case materials, the court comes to the conviction that the case charging I.V. Sutyagin is subject to being sent for the carrying out of supplementary investigation in connection with substantial violation of criminal procedural law permitted by the organ of preliminary investigation, which has led to a constricting of the right of the accused to a defence guaranteed by the law”.

In a country with the rule of law, the case would have been dismissed. In the Russia of the times of putin the “independent” court decided only to send the case for supplementary investigation, although it had all grounds to acquit Sutyagin in connection with a lack of evidence.

Sutyagin was charged with various counts: of gathering and storing “analytical information to the detriment of Russia” on the assignment of an unestablished intelligence service; of gathering information on digital government communications media; of a whole slew of topics associated with space, the deployment of military units, the structure of the military budget, the T-95 tank, the C-400 anti-aircraft missile complex, KA-50 helicopters, Su-27 airplanes, a new rocket-launched torpedo, etc., etc., etc. …

The raving lunacy of these charges became clear even in to the first court – the Kaluga Oblast Court. This is why the FSB, which was conducting the case, transferred it to the Moscow City Court, closer to the central apparat of the FSB and in the tender care of “its” court and “its” judges.

In the opinion of independent jurists, the Sutyagin case has a multitude of features that allow it to be asserted that the criminal prosecution of the scientist was fabricated, while Sutyagin himself has been unlawfully convicted. First, the scientist did not have access to work with secret documents. Second, the jury was formed twice. Third, one of the members of the jury was a KGB officer. Fourth, many of the counts in the charges literally fell apart in court. (On 31 August 2000, the criminal case was dismissed in the part charging Igor Sutyagin with transferring secret information to an American colleague; the criminal case was also dismissed in the part charging him with gathering and transferring information to foreign intelligence on individual topics, and so forth)

A unique feature of the case is that the FSB has imputed to a citizen that in his analytical works, he had come to certain conclusions on the basis of openly published materials. The experts of the FSB declared these conclusions to comprise a state secret. In such a manner, an attempt was undertaken by the FSB for the first time to declare informational-analytical work based on open sources to be criminal. In the opinion of human rights advocate Ernst Cherny, the right of a scholar to engage in the analysis of information freely accessible to the public has effectively been put in doubt.

At the beginning of September 2004, after the verdict entered into force, Igor Sutyagin was transferred to strict-regime penal colony YaCh 91/5 in the city of Sarapul in Udmurtia, and thence to a penal colony in Arkhangelsk.

Sutyagin’s application to the Strasbourg court has yet – like all the other applications of the so-called “spies” from Russia – has yet to be considered.

It seems that Russia’s procuracy has decided to start the New Year off with a bang, a flurry of hyperactivity to demonstrate its loyalty to “tsar and country” in the matter of destroying whatever is still left of YUKOS. Nearly every day sees a torrent of news flashes from the frontlines in the battle with the remnants of the oil company and personally with its former managers. And the news keeps getting more and more ridiculous.

The first news: Antonio Valdes-Garcia, one of the “figurants” in the “YUKOS case”, has escaped from an apartment where he was being kept under guard. He was promptly placed on a wanted list. And it was hinted that certain accomplices of Khodorkovsky’s may have had something to do with his escape. Any sane and sensible person understands that it’s practically impossible to escape from an apartment that’s under guard just like that, simply by lulling the guards into lowering their vigilance. Surely it was the law-enforcement workers themselves who set up the escape, in order to find at least some grounds for the latest accusation against “Khodorkovsky’s confederates” who supposedly remain at large and in hiding from the punishment they so richly deserve.

The second news also concerns “confederates”. Indeed, here we even hear the name of a confederate – Nevzlin.

And so, four citizens of Israel who have unexpectedly found themselves in the role of hostages in a Moscow jail and whom Russia refuses to send back to Israel to serve out the remainder of their sentences were recently informed that instead of Israel, the plan is now to transfer them to a prison located 12 hours by car from Moscow. It is noteworthy that after the four Israelis were convicted, the article of the charges under which they had ended up in jail was struck out of the Criminal Code of the RF.

The families of the convicts have every reason to believe that their relatives have become the victims of Putin’s vengeance, provoked by Israel’s refusal to extradite the oligarch Leonid Nevzlin – yet another sworn enemy of Vladimir Putin.

Alexei Golubovich / Photo from www.newsru.com

Here’s some more news: The first interrogations have begun of former YUKOS Director for Strategic Planning and Corporate Finances Alexey Golubovich. It is known that Golubovich, who returned to Russia, is “voluntarily and actively” cooperating with the investigation in the YUKOS case. (I personally have my doubts about just how voluntary the actions of the returnee can be: most likely what took place was ordinary blackmail – you give us dirt and we’ll give you freedom. We might even let you live.)

We also know the reaction of Platon Lebedev’s lawyer Vladimir Krasnov to Golubovich’s “voluntary” testimony: “In his public appearance, Mr. Golubovich, in part, declared that there was no way Khodorkovsky could not have known what Leonid Nevzlin was ‘up to’. It would seem that his testimony to the investigation will be in that same tone.”

What is most interesting – and I’m sure the lawyers in the YUKOS case understand this – is that even such a low quality of testimony and evidence (or rather, the total absence of either, to be more precise) will be just fine for the court in the next trial of the oil company executives.

Need we mention that the returnee Golubovich, as the newspapers are writing, has promised to declare for the record to the investigation that a threat to his life is emanating from YUKOS shareholder Leonid Nevzlin?

Time to sum up. The new burst of activity by the procuracy in the “YUKOS case” is aimed not only at Khodorkovsky – who, legally speaking, has the right to count on early release on parole as early as next year – but also at Nevzlin. As we know, the procuracy also connected the poisoning of former FSB officer Litvinenko in London to Nevzlin.

The procuracy’s moves may not be very sophisticated, but they’re good enough for Russian-style justice.

From today's Washington Times, by editor at large Arnaud de Borchgrave:

Back to the future?

It's no longer politically incorrect to be skeptical about Vladimir Putin's Russia. In fact, said a leading European expert on Russia, speaking privately in Washington, "Russia is a far different political construct than the one we Europeans thought we were dealing with for the past five years."

The authority's other conclusions: Parts of Russia are still stuck in mid-19th century while other parts of the economy are already globalized. Nothing indicates Russia's new nomenklatura wishes to emulate the political democracies of the rest of Europe. After the Cold War, it was a "huge mistake" to assume otherwise. Besides, no democracy is possible without a vibrant middle class, and Russia is yet to develop one, let alone a satisfied strata in the middle between extreme wealth and extreme poverty. ...

Russia's new ruling elite does not see the world the way Westerners do. For key leaders, it's the world of the 1920s -- a traditional game of power politics. They don't share the same fears about looming threats, such as the environment. But they are aghast in saying other major powers threaten the unity of Russia by trying to co-opt former Soviet republics into NATO.

What's happening to the U.S. in Iraq is welcome news in the Kremlin. Russian leaders are not interested in helping to solve or even ease problems that concern the Bush administration. President Bush once gazed into Mr. Putin's eyes, inspected his soul, and concluded he could trust him. A second, deeper look is now in order.

References to the European Union's relationship with Russia are also misleading because there is no coherent EU Russian policy. Finland during its recent six-month presidency of EU before Germany took over this month tried but failed to get EU in lockstep on Russia. Besides, EU doesn't have much clout, bogged down as it usually is with yawn-provoking minutiae.

For anything to happen in the EU, two of the three big ones (Britain, Germany and France) have to get their act together. And that, too, is mission impossible under current conditions. Germany's Chancellor Angela Merkel is a conservative who lived under the brutal tyranny of East German communism. She worries about Russia a great deal. But she has to share power with Social Democrats in a coalition government. And they advocate a softer policy toward Russia. Besides, Germany is tremendously dependent on Russia's oil and gas deliveries.

In early January, with no prior notice, Moscow suddenly stopped pumping almost 2 million barrels of oil a day to Germany and Poland through Belarus in a price dispute with the former Soviet republic. Mrs. Merkel forcefully condemned Mr. Putin's decision as "unacceptable," but she was powerless to retaliate, as was the EU. ...

So via-a-vis Russia, EU is dead in the water. Meanwhile, Russia's power is constantly growing via-a-vis EU -- and America, too. Less than two years after blocking such a sale, Russia is now ready to approve export of the Iskander-E (SS-26 Stone in NATO nomenclature) medium-range rocket to Syria. It has a range of 280 kilometers and multiple warheads. This is a not-so-friendly warning to both EU and the U.S. that Russia is back in the Middle Eastern game of nations -- opposed to Western interests.

Thus, Russia is drifting away from Western values, which it never espoused in the first place. There is still a lack of laws to guarantee Western investments. And even if new laws are enacted, they will be unenforceable because of widespread corruption in law enforcement and the judiciary.

From the FT:

Selling Saintliness

The market for haloes is expanding fast. Gazprom’s talks with public relations companies about a three-year campaign to burnish its image is the latest evidence of the growing number of organisations and individuals in search of saintliness. London is uniquely placed to benefit from the quest for respectability. But the City needs to take care that success does not come at the expense of its own reputation.
...
Above all, reputation must reflect reality. A company of bullies and braggarts cannot sensibly be portrayed as everyone’s best friend. An organisation or individual seeking to escape a shady past can do so convincingly only if they have genuinely made the break. Advisers who encourage clients to believe that bad behaviour can be airbrushed out of the picture are risking not only the clients’ reputations but also their own.

Complete editorial here, coverage of $11 million Gazprom PR budget here.

Today La Russophobe has posted a translation of an article from Novaya Gazeta examining how the state apparatus uses violence for political ends. It is an impressive investigative piece, including interviews with many sources inside the military and security services.

In a joint press release this week, Dresdner Kleinwort and Gazprombank announced the proposed launch of a joint venture to invest in carbon emissions trading, taking advantage of Kyoto Protocol credits by fixing leaky Russian gas pipelines to earn credits, which can be traded to other countries.

According to Reuters:

"There is huge potential in Russia for realising opportunities under the Kyoto Protocol," Gazprombank Deputy Chief Executive Alexei Obozintsev said in the statement.

Europe's carbon dioxide trading scheme allows companies to earn credits by investing in projects to reduce industrial emissions of CO2, the main greenhouse gas blamed for global warming, in line with Europe's goals under the Kyoto Protocol. ...

A spokesman for Dresdner Bank in Frankfurt said several projects were already being prepared by the 50/50 joint venture.

"The focus would be in Russia and eastern Europe, using the Kyoto Protocol's Joint Implementation (JI) directive," he said.

But he declined to confirm a 15 billion euro ($19.46 billion) value which a report in the Financial Times had put on the venture, assuming that it could generate 1 billion tonnes worth of reduction credits.

Is Warnig too close to Russia for Germany's own good?

As many regular readers of this blog already know, Dresdner Kleinwort has a very long history assisting Russia in its rise toward energy imperialism. The bank's director Matthias Warnig, a former Stasi officer in East Germany, worked closely with Vladimir Putin during his KGB days, and currently holds an executive position along with former Chancellor Gerhard Schroeder on the $4.7 billion North European Gas Pipeline project. The most infamous conduct of Dresdner in Russia was of course the drastic under-valuation of Yukos' main production arm, Yuganskneftegaz, citing a price between $10.4 and $21.1 billion (the Russian government later acquired the company indirectly through a rigged auction for $9.3 billion). Dresdner Kleinwort was also the critical advisor for Gazprom on its $13 billion purchase of Sibneft - a move which has been seen as the definitive tipping point following the Yukos theft toward a monopolistic petro-state. Last summer, Dresdner was one of the bookrunners for the Rosneft floatation - an operation akin to laundering the stolen assets of Yukos - which prompted me and other concerned entities to denounce their "complicity in state-sanctioned theft." And of course, just last year there were plans (now abandoned) for Dresdner to acquire one-third of Gazprombank's equity for $800 million.

A very compelling letter to the editor in today's Financial Times:

Four reasons why PR cannot come to Gazprom's aid

By DR Martin Smith

Sir, Gazprom does indeed have severe image problems ("Gazprom in PR drive to improve its image", January 17). But there are at least four reasons why, in current conditions, these problems cannot be fixed by any public relations company. The real issues are substantive, not presentational.

First, Gazprom is not a commercial business in western terms. Key decisions, such as the appointment of the chief executive and the pricing of major international supply contracts, are taken by the president of the Russian Federation.

Second, Gazprom itself, through its subsidiary Gazprom Media, owns considerable media assets, including NTV. As a company it is accustomed both to spinning a government line and to treating journalists with some disdain. This is not good PR.

Third, like that of Transneft, Russia's national oil pipeline company, Gazprom's business culture is monopolistic to the core. The company is not accustomed to operating in competitive markets. Accordingly the company's corporate communications tend towards command and control, not persuasion and argument. This does not work in the west.

Fourth, though considerably improved since the days of former CEO Rem Viakhirev, Gazprom is still both non-transparent and inefficient on a heroic scale. The biggest private investor in Russia, Hermitage Capital Management, whose chief executive, William Browder, is currently prevented from entering the country, has frequently confronted the company on these issues and other governance failures.

Gazprom started out as the Russian ministry of gas in the 1990s. It is still a critical lever of the Russian state. By definition, therefore, it cannot develop a reputation as an independent business.

Martin Smith,
Managing Director,
West Bridge Consulting,
London SW1Y 5HP

Today Kommersant is reporting on an event held this week in Germany titled “Strategic Partnership Germany-Russia: Looking Back on Russia’s G8 Presidency and Looking Forward to Germany’s,” featuring the participation of Gerhard Schroeder and Igor Shuvalov.

The Kremlin's No. 1 Flak

Having personally attended this event, I can tell you that no one in that room had any doubt they were subject to one of the greatest doses of newspeak since the glory days of Brezhnev. To hear the former chancellor tell it, the only thing Russia does wrong when it extorts its neighbors and hustles investors is not give Germany's energy suppliers sufficient notice. If before there were any doubt about the Kremlin's black PR campaigns being exported to Europe, just take a look at Schroeder greedily feasting from the Gazprom money trough.

On behalf of the Russians, Mr. Shuvalov came to this conference with arguments bordering on the absurd. By blaming the polonium incident and the murder of Anna Politkovskaya on the enemies of Vladimir Putin, the conference attendees were treated to an immaculate performance of bare-faced cynicism not seen since the theatrics of the Russian Federation’s predecessor.

This coverage in Kommersant underscores not only the lack of democratic values in today's Russia, but also the willing acceptance of “the big lie” by German energy companies. Thanks to Gerhard Schroeder’s new start-up company, “Rent-a-Chancellor,” the wool is being pulled over Europe’s eyes. I have no doubt that Mr. Schroeder’s new company will soon list on the London Stock Exchange - but I wouldn't recommend a long-term investment.

From Kommersant:

Schroeder Helps Putin and Gazprom to Improve the Image

Berlin hosted a high-profile Russian-German meeting on Wednesday, discussing Germany’s turn in presiding at the G8. Former German Chancellor Gerhard Schroeder and Russian presidential aide Igor Shuvalov topped the bill at the meeting. The two insisted that Gazprom is the most reliable energy supplier for Europe and Vladimir Putin is the most democratic ruler in Russia in its centuries-old history.
...
“Russia is the most reliable and best energy supplier for Europe no matter what.” Igor Shuvalov, the Russian presidential aide on economy, echoed. “Russia has never halted supplies deliberately, it never has,” he said. “We will keep meeting our obligations in full.”

The two speakers were anxious to dispel fears over curtailing democracy in Russia. “President Putin is developing Russia in the democratic direction,” Mr. Schroeder said. “It is simply foolish to look at the young Russian democracy as many people in the West do.”
...
Speaking about last year’s high-profile murders of Anna Politkovskaya and Alexander Litvinenko, the presidential aide said that the two killings had been planned by Vladimir Putin’s enemies. “Polonium and Politkovskaya – these things are linked,” he said. “There are strong groupings out there which are constantly attacking the policy of the president.”

Read complete article here.

[**Vertyhai (вертухай) – a superintendent in a GULAG zone, a jailer, a convoy guard, an overseer.]

Be afraid of vertyhais* bearing nothing

By Grigory Pasko, journalist

The very next day after president Vladimir Putin spoke at a session of the Council to Assist the Development of Institutions of Civil Society and Human Rights, where he talked about the lack of openness in the penal system and about the need for oversight of this system by society, I acquired the magazine “Crime and Punishment”, issue no. 1 of 2007. This magazine calls itself a “public policy and scientific methodology corrections” publication, and is published monthly by the Federal Service for the Execution of Punishments (FSIN) in a print run of over 20 thousand copies.

Russia's penal system requires a closer look

In the first issue of 2007, I discovered a rebuttal written by Yuri Alexandrov, a journalist with the FSIN unified editorial staff. It had the rather pretentious title “Beware of Greeks bearing gifts”. It turned out that the rebuttal was dedicated to the inauguration of a new foundation – “In Defence of Prisoners’ Rights”. Making derogatory and caustic characterizations of the members of the management board and board of trustees of the foundation right within his narration of the facts, the author insists that the money of the foundation will go to lawyers, various not-sinless experts, and the foundation members themselves. The human rights community also gets lambasted for having dared to criticize the penal system. In actuality, in the opinion of Alexandrov, the Russian GULAG has become much better, which was even noted by Ilina Taneva, head of the Prisons and Probation Unit of the Council of Europe’s Directorate of Legal Affairs. Apparently she actually did say that: the Russian penal system has something to be proud of.

At the end of his opus, the author calls on readers of the magazine (and the publication is addressed first and foremost to FSIN employees) to beware of Greeks, even if they’re human rights advocates.

Alexandrov had compassion for only one person – Mikhail Khodorkovsky’s mother, a member of the foundation’s board of trustees. “Now her”, laments the author, “you can understand. Whether her son committed a crime or no – for her it makes no difference, for her he’s still her son. And, naturally, she will defend him”.

There you have an illustration to the words of the president of Russia about how, and I quote, “far from all people are found justly in places of deprivation of liberty. This is where the problem is, and this problem has been sitting in our consciousness since all the way back in the year ’37.”

One thing is clear here: someone is shamelessly lying – either a certain Alexandrov when he asserts that everything’s fine with the penal system, or president Putin when he says that not all people in places of deprivation of liberty are there justly.

It so happened that I, a member of the board of the trustees of the above-mentioned foundation, wasn’t present at the foundation’s inauguration ceremony. However, this did not stop comrade Alexandrov from writing in his lampoon that I was there and had even given a presentation: “They all spoke long, often incomprehensibly, but very expressively”. Since I wasn’t there, I decided to reply to Alexandrov briefly, intelligibly, and without excessive words. First, the members of the board of trustees do not receive money for their work. The members of the management board of the foundation too, to the best of my knowledge. Second, I know for sure that far from all of the members of the Council of Europe share the previously named Ms. Taneva’s point of view about the Russian GULAG (This assumes, of course, that she actually did say what the author of the rebuttal has ascribed to her in the corrections magazine. I, for example, seriously doubt it and if I have the chance I will certainly ask her about this in person). Third, the creation of foundations to help prisoners (and there are already quite a few of them throughout the country in Russia) has been taking place precisely because the Russian GULAG remains the same GULAG it has always been. Just like those who are now trying to represent themselves as journalists remain the same old vertyhais they have always been. And yes, I’m talking specifically about comrade Alexandrov – former head of one of the Russian penal colonies.

And so, in response to Alexandrov’s assertion that the creation of the foundation is a public relations stunt by the human rights activists, we can add another assertion: that the rebuttal of a former FSINist is his own personal public relations stunt and an attempt to score points for himself within the system he is an organic part of. Maybe someone will notice and give him a handsome little medal for his efforts. I’ll be sure to send him my congratulations.

A final thought: I think that if it weren’t for the indirect connection with Khodorkovsky (the idea of creating the foundation to help prisoners was his), there wouldn’t have even been any rebuttals from anyone at FSIN. But as it happens, the command has been given to crack down on the ex-head of YUKOS from every direction. And so the vertyhais crack down.

Today we're carrying some exclusive translations of important articles that came out this month in the French daily Le Monde. Here Masha Lipman of the Carnegie Center of Moscow debates Putin's power as an arbitrator (original article accessible here: "Poutine est l'arbitre du système, pas son otage").

‘Putin is the arbitrator not the hostage to the system’ By Macha Lipman, analyst at the Carnegie Foundation, Moscow Center. In Le Monde, January 5, 2007.

How does the Russian government work ? As a group, a network?

It is a system of connections with internal tension. Most of those who are part of it, come from the Secret services. Others, at a lower level - Ministers, high-ranking civil servants - may be technocrats. What matters is that all the important decisions are made at the Kremlin, mainly constituted by people of the FSB or the City Hall of St Petersburg. They share huge economic interests. Among them, there is a battle of business ambitions. Almost all of them have both a high position in the establishment and in big companies: in energy, exports or aeronautics.

What characterizes Russian elites, today, is that they have a grip on both political power and economic property.

To have a powerful economic position is nothing if it is not linked to political power.

Does Vladimir Putin run the system or the opposite? Vladimir Putin is the only source of power. Not only because he is President, but because he is recognised as the sole arbitrator of conflicts. His power is unique.

In the Khodorkovsky case (former CEO of the oil company Yukos, sentenced to eight years’ imprisonment for tax fraud), in just ten minutes, Putin got rid of the public prosecutor Vladimir Oustinov, who supported the oligarch, when this decision should have been taken by higher authorities. Nobody dared to question it.

He is the decision-maker in conflicts of interests. For instance, the public agencies in charge of resources, taxes, environment, justice, etc, are used by the Kremlin to put pressure on the owners of the companies they are interested in and to ensure their loyalty.

In this respect, even if Putin is the result of a closed system, he acts as the puppet master of its members.

He is not their hostage, even if in some major conflicts, he may allow himself to be convinced by such or such group to guarantee the general stability of the system. Can the departure of the President, in 2008, change the deal?

The main question is not about “who is going to be President” but “who will inherit the arbitration power” and will he be accepted by the members of the system ? Perhaps Putin will want to keep this power for himself. He confirms that he will leave, but he has said several times that he will “keep a title”. Today, he is very popular in the country. What position will remain his ? Some see in him the Russian Deng Xiao-ping. But in Russia, this is not institutionally possible.

What is at stake in the succession ? The sharing of the financial “cake”, write some Russians commentators. The major question is how to ensure the stability of a vertical power, where there is only one decision-maker who can actually share the economic wealth.

Today, even if groups fight each other over ownership, there is enough for all to benefit from the system. No doubt, they would like Vladimir Putin to keep his power of arbitration. When the whole system depends on one person alone, if differing tensions become too strong, it might collapse.

Today, Russia is in an enviable position: its energy power, America’s inertia, and the weakness of Europe but this can change. The price of oil can fall again; conflicts on property can become more serious.

Above all, the regime has postponed all the big reforms: on retirement, communal property, health, education. Nothing has been done to adapt the system to the real needs of the Russians. The cumulative effect of all this, can be a destabilisation factor of the regime.

Another exclusive translation - In this Le Monde article, which came out earlier this month, we are told of how certain elements from the former KGB maneuvered their way into power and into almost every corner of society. It is an incisive piece of journalism, showing how the structures of the state's security apparatus has moved into spaces normally reserved for civilians. The original article can be read here.

Vladimir Putin’s Russia - The ‘Bodies’ rule By Marie Jégo, Moscow Published January 4th, 2007, Le Monde

Since his election in 2000, the Russian President has constantly reinforced the influence of the Special Forces to which he belonged. Their representatives have gone into politics, administration and business. Together they form a closed vertical system, says the analyst Macha Lipman.

Discredited 15 years ago, when the Soviet Union imploded, the ‘silovikis’, ‘men in uniforms’ who were formerly in the secret services of the political police or in the army, have massively come back in Vladimir Putin’s Russia. Partially dismantled in 1992, during the ‘transition’ period, the KGB (the state security committee, special services of the Soviet period) has remained the most untouched institution of the late USSR.

Today, members of the FSB (Federal Services of Security) following the head of the Kremlin - Putin was head of the FSB between 97-98 - have invaded, in 15 years, politics, the administration and more recently the business world.

Since its creation in 1917, this political police, - called either Vetcheka, GPU, NKVD, MGB, KGB – has conducted investigations, condemned, deported, manipulated and used disinformation and murder as well. Nine decades later, its successor, the FSB, is present everywhere in today’s Russia. Moreover, “it is really part of the democratic bodies of power” explained Vladimir Putin in 2003.

The Russian President, proud of his past as KGB Lieutenant-Colonel during the Cold War, has tried his best, since his election in 2000, to enhance the prestige of the Security Services: ordering a plaque in memory of Yuri Andropov, ex-director of the KGB who became, late in life, head of the USSR and also encouraging the commemoration of the Vetcheka, the historical ancestor of the political police.

From now on, each year on December 20th, Russia celebrates the “Tchekist day”, the anniversary of the creation of the institution. On that occasion, the President has recalled the important role of “the workers of the security bodies” whose mission is “to protect the citizens, especially the young ones, from those who try to infect them with the virus of violence, intolerance and xenophobia”. And they must also keep a very close watch on those foreign spies who steal secrets “in sectors in which the country has significant competitive advantages”.

The FSB is watching. In five years, this service has initiated legal actions against twenty Russian scientists: Igor Soutiaguine, sentenced to 15 years and Valentin Danilov sentenced to 14 years, who were both accused of passing on information described as ‘strategic’ to ‘foreign powers’.

A few weeks before this declaration at the new headquarters of the GRU (Military Intelligence), a 350 millions dollars building in the suburbs of Moscow, Vladimir Putin came to cheer up the troops, inviting the military to undertake decisive actions to cut the foreign support channels to terrorists and get rid of them. Saying so, the Russian head of State, holding a gun, then trained himself to target-shooting with a few men.

In 2006, the FSB has revived the tradition, that was given up in 1989, to give awards to artists who described the most objectively the activities of the groups. Yevgueni Mironov, the actor who starred in the movie “August 1944” was among the happy few to receive this award, on December 2Oth. He plays a Smerch officer (Smerch is an anagram for smiert schpionam which means: down with the spies), the military counter-espionage unit created by Stalin between 1943 and 1946, which was responsible for the disappearance of the Swedish diplomat Raoul Wallenberg (who helped save many Hungarian Jews during WWII and was reported missing when the soviet troops marched in Budapest in 1945).

From now on, on TV, in novels, the popular hero is an agent. The FSB is not only influencing the culture, but it is also invading many other domains of society dealing with taxes on alcohol for example.

On a broader level, FSB men are everywhere on each political level: among the presidential administration, in the government and in the regional / local governments as well. In most of the regions, the governors come from the army: Army General Boris Gromov in Moscow, Police General Vladimir Koulakov in Voronej, FSB General Viktor Maslov in Smolensk, Army General Gueorgui Chpak in Riazan, and the list is not finished…

Most of the time, these officers/civil-servants remain members of the active reserve. As such, they still receive their pay. “The only difference between them and regular civil-servants is that they have an extra duty: writing reports every month for the FSB. They are the eyes of the master”, explains sociologist Olva Krychtanovskaïa in her book “Anatomy of the Russian elite”, published in 2004.

According to her, more than three quarters of the members of the elite have all worked for some time in either KGB, FSB or GRU. Russia, following its tradition of “garrison-state”, is now more like a “militarcracy”.

Above all, those men take more and more part in the business world: they belong to the boards of directors of major companies, introduced “on the Kremlin’s recommendation”, according to the sociologist.

At Gazprom, the Russian gas monopoly and also used by the Kremlin as an instrument in international politics, 17 ex FSB-KGB members are part of the decision-making authorities. On November 15th, Valeri Golubev, close to the President and like him, coming from the “bodies” was nominated Vice-President of Gazprom. His predecessor, Alexandre Riazanov, had the same pedigree. “Coming from KGB or knowing the President when he worked at St Petersburg city hall are two criteria that count”, confirms Alexeï Moukhine, who wrote several books on the ruling Russian elite.

At the Duma (Lower Chamber of the Parliament), the FSB participates in the creation of certain laws like the one in progress which aims to block access to foreign companies to “strategic sectors” of the economy or the law reducing the activities of NGO’s. From a confidential source, Bill Browder, a British banker could not enter the Russian territory because of the FSB’s veto. The founder of the Hermitage Investment Fund (that invested more than 4 million dollars in Russia) has not been able to come to Moscow since then.

Last, the FSB issues access permissions to restricted areas such as border zones, or strategic regions or with rich mineral resources. In 2003, the FSB took control of the border guard service. Since July 10th, it can take action “outside the territory of the Russian Federation” on a simple decision from the President. The law does not specify to what extent he will have to cooperate with the SRV – external intelligence services or the military (GRU), the only ones who are allowed to take action abroad, so far. Along with its other roles, the FSB has been put in charge of the “security of information and telecommunications in vital sectors”. Among which: the television.

However, on the European Council’s recommendation, the ministry of justice has taken back the control on remand custody premises. In fact, the “bodies” have never been so powerful. During the Soviet era, the KGB has never been so directly represented in the centers of decision. Members of the FSB have appeared on the public scene with the advent of Vladimir Putin. But they came back into favour before his access to the presidency in 2000.

From 1997, when Boris Yeltsin’s close advisers were looking for a successor, they turned to the “services” among which they selected four Prime Ministers: Sergueï Kirienko, Evgueni Primakov, Sergueï Stepachine, Vladimir Putin. The public opinion agreed with the idea. Tired of the damaging effects of the “capitalist theft” set up by the despised democrats, the public opinion favoured the “men in uniforms”. Three monetary reforms and a disastrous bank crisis, during the summer in 1998, finally convinced the public opinion to call back the tchekists who are considered as the most honest and devoted people serving of the State. It is in that context that Vladimir Putin, the first of them all, was identified as the logical choice.

Many see in him the presumed heir of Iouri Andropov (1914-1984), ex director of the KGB who became 1st Secretary of the Communist Party in 1982 and who died before he could restore order and discipline in a drifting Soviet Union.

Is there a procuracy in Russia?

By Grigory Pasko, journalist

On January 12, Russia traditionally celebrates the Day of the Procuracy Worker. This year was no exception. Which is curious, given that a procuracy – in the sense that the Tsar Peter the Great had in mind when he founded it – does not actually exist in Russia. What does exist is a semi-criminal organization carrying out the orders of the authorities, often incompetently.

A certain Junius once said: “An injustice caused to one person is often useful for all of society”. (Montesquieu put it a bit differently: “An injustice allowed with respect to one person is a threat to everyone”.)

Let us return from ancient times to today. Only a deeply interested party, if it is not blind, could fail to notice the “artistry” being concocted today by the Russian procuracy. At the same time, every inhabitant of the country understands that the procuracy would not be acting this way all on its own: without a doubt there was a command from above. All the more so given that the courts are clearly on the side of the procuracy. Nobody’s even talking about justice and fairness here. Injustice is the universal norm. And everybody knows that you can either fight injustice – or “play ball” with it.

Defence lawyers fight. That’s their job. The courts play ball. And this has nothing to do with their job. It’s just that that’s the kind of courts we’ve got. But a judge has only one judge – time. So for some it is time to fight, for others time to wait. Although if the waiters joined forces with the fighters, there would be a lot more benefit and, correspondingly, a lot less injustice.

You may laugh, but one of the definitions of the Latin word procure [from which “procurator” derives—Trans.] is “I express concern”. Indeed, one could even speak of the ingratitude of those whom the procuracy is so fanatically pursuing today: it is merely “expressing concern” about them, and – can you imagine it? – they’re ungrateful! Furthermore, the procuracy is actually duty-bound to be “concerned”. The law that regulates the activities of this organ enjoins it to oversee compliance with the law. This function of the procuracy hasn’t chanced since the times of Peter the Great. Today, the procuracy has the right to oversee whomever it wants, whenever it wants. But it seems there’s nobody overseeing the procuracy itself, however. The reason for such a gap in the law lies in the Constitution of Russia, pursuant to Chapter 7 of which the procuracy is part of the… judiciary branch of power. And although only Article 129, which is at the very end of this Chapter, actually concerns the procuracy, the procurators themselves seem to have no hesitation in applying the provisions of all the previous Articles to themselves as well – the ones that speak of the independence, irremovability from office, and immunity of judges. It’s gotten to the point where the procurators have begun to see themselves as being the same as thing as judges. And the judges, in their turn, haven’t stopped performing the functions of procurators – as the clear preponderance of guilty verdicts handed down by them attests.

The opinion that the procuracy should only be an organ of prosecutorial power, within the system of the Ministry of Justice (as is the case with comparable institutions in the US [the prosecutorial “US Attorneys”—Trans.], for example, or in France, Austria, Japan, Poland, or the Netherlands) is not new. Here, Dmitry Kozak, while he was an official on the president’s staff, merely voiced an idea that has been floating around for a long time. But there is also another opinion: that the American, for example, doctrine of justice does not correspond to the traditions of Russian judicial procedure. And we all know that Russia’s traditions are always special and unique… If we still can’t decide whether we’re Asia or Europe, then why should anyone be surprised by the confusion over whether the Anglo-Saxon or Romano-German legal system is preferable? And while everyone else is getting lost in the thickets of legal arguments and the refinement of judicial reform, the procuracy continues to act, disregarding the law.

Food for thought: In the investigative isolators and correctional colonies, you can encounter former military officers, lawyers, policemen, and even FSB agents in the capacity of accuseds and convicts. But never procurators or judges. Are they so sinless? Would that it were so! The facts bear witness to only one actually functioning principle of Russian “justice” with respect to procurators and judges – one hand washes the other (or, as we say in Russian, “a raven won’t peck out the eye of another raven”). Judges are constantly covering up for the lawlessness of procurators. Procurators, in return, do not notice the arbitrary abuse of discretion of judges. What a lovely couple they make! So lovely that procurators even have a room for themselves in courthouses. Defence lawyers have one of those little chairs with an attachable mini-desk on the side, and in recent times – a chair in an interrogation room. The next thing you know, they’ll be reduced to working on a plank bed in a holding cell.

One could go on and on, with plenty of concrete examples, arguing about the failure of the current procuracy to carry out the functions it has been charged with. (And that’s without even getting into the dubiousness of some of these functions). And a huge army of human rights organizations has been doing nothing but this for decades. Personally speaking, the reason this army (according to certain data – around 350 thousand organizations!) exists in Russia in the first place is that we don’t have a normal procuracy. If the procuracy really does “provide for the unity of lawfulness on the entire territory of the country”, as the law enjoins it to, then we have no need for all those noisy human rights activists!

But there is no procuracy in Russia. There is a semi-criminal organization, one that carries out the orders of the authorities with great carelessness. So great, in fact, that sometimes you can’t help but think: either they’re too lazy to maintain even the appearance of lawfulness in their actions (for example, during gang-style raids of businessmen’s or defence lawyers’ offices, or the ham-fisted prosecution of Khodorkovsky), or they really don’t have a clue about jurisprudence (in which case, why does the procuracy system have one in-house scientific research institute, two educational institutes [procurator colleges—Trans.], and three advanced career development training institutes?).

The excuse made by the president of Russia long ago about how he can’t interfere in the activities of the procuracy and the courts has become a mantra. The poor dear, we recall, sometimes wasn’t even able to get through to the procurator-general on the telephone. Okay, so don’t call, and don’t interfere: I think one proposal to appoint a parliamentary investigation into the activities of the procuracy and whether or not these activities are in compliance with Russian laws would be sufficient. And besides, the president also has the right to give instructions to the procurator-general. Maybe he’s not giving the right instructions? Or maybe not to someone willing to listen to them? Or maybe it’s all our fault for not having elected the right person president.

A story is running in today's Wall Street Journal citing numerous money managers who are extending compliments and accolades to President Vladimir Putin for his stewardship of the economy. While the performance of the RTS index has been indisputably robust, there remains much debate over the extent to which oil prices should be credited for this bullish trend, or the economic policies of the government.

Source: www.wsj.com

A few excerpts:

When Mr. Putin took office in January 2000, the country's publicly traded stocks were valued at $74 billion. Their value now exceeds $1 trillion. Russia's benchmark RTS index rose 71% in 2006, the fourth year under Mr. Putin that the market has returned more than 50%. [Vladimir Putin]

"He's done a helluva of a job," says Mark Mobius, an emerging-market guru and managing director of Templeton Asset Management Ltd. "The country has made tremendous strides in the time we've been there, and you've got to give Putin credit for that."

Many money managers are betting the rally will continue this year -- even with lofty valuations, falling oil prices and rising political uncertainty in the run-up to Russian presidential elections in March 2008, when Mr. Putin is obliged by term limits to stand down.

To be sure, some investors agree with Western criticism of Russia's spotty human-rights record and of Mr. Putin's moves to undermine the independence of Russia's courts and parliament. They concede that in the long run democratic institutions are crucial for healthy market economies. But for the time being, concern about the state of Russian democracy isn't driving share prices.

Events that shape the West's political stance toward Russia, like the unsolved murder in London last November of Alexander Litvinenko -- the former KGB agent who on his deathbed accused Mr. Putin of having him poisoned -- barely register on most investors' radar screens.
...
Even among investors, however, Mr. Putin has his detractors. Some were outraged by the Kremlin's politically motivated campaign against billionaire Mikhail Khodorkovsky and his company OAO Yukos, the blue-chip oil giant that was Russia's most popular stock among Western investors until the Kremlin partially renationalized it in 2004. Mr. Khodorkovsky ended up in prison on fraud and tax-evasion charges.

Others shrink from his aggressive brand of state capitalism. Many took exception, for example, to the way Royal Dutch Shell PLC was forced to sell control of the huge Sakhalin energy project to the government-run natural-gas monopoly OAO Gazprom last month after Russian regulators suddenly discovered a raft of environmental violations. Shell acknowledged some lapses but said it had been working to fix them.

Western investors also frequently cite widespread corruption and a lack of transparency as major obstacles to doing business in Russia. Last year the country shared 121st place in watchdog group Transparency International's annual corruption perceptions index with Third World countries like Rwanda, Benin and Honduras. Some businessmen complain that corruption has got worse under Mr. Putin.

"In general, Putin's been a good leader, though former Yukos shareholders and current Shell executives may beg to differ," says Samuel Oubadia, co-manager of the ING Russia fund, which has $940 million in assets under management and was up 67.5% last year, the best 2006 return among U.S.-based emerging-market funds.

Though the Yukos case cost investors around $45 billion in lost value, the Kremlin followed up with investor-friendly moves that did much to restore market confidence: the removal of restrictions on foreign ownership of shares in Gazprom, and the sale of stock in the state oil company OAO Rosneft last summer.
...
Part of the problem is that Mr. Putin has made little headway diversifying Russia's economy and lessening its dependence on energy exports. "In the past, investors were able to give Russia the benefit of the doubt because its assets were so cheap," says Mr. Weafer, the Alfa Bank economist. "Now they need to know where the long-term growth is going to come from."

Politics is another potential danger. Though there is little doubt that Mr. Putin's preferred candidate -- he hasn't said who that is -- will win the 2008 elections, uncertainty about the succession could still spook the market, some analysts warn.

But betting against Mr. Putin has been a losing proposition for investors in the past. "I've said at the start of every year there's no way we can get more than 30% out of Russia," says Alexander Schwarzkopf of Altima Partners, which has $2.5 billion in assets under management, a quarter of it in Russia. "Every time I'm proved wrong."

German Chancellor Angela Merkel comments on Russian energy relations in the Wall Street Journal. Complete transcript available here.

The Wall Street Journal: The interruption of oil supplies has spread much uncertainty in Western Europe about Russia's reliability. What means of influence do you have to prevent such things happening in future?

Chancellor Merkel: The message I gave to the [Russian] President is a very continuous one. Russia is a strategic partner of Europe. We are dependent on each other, and we want reliable relations.

Such reliable relations must take place without irritations wherever possible. Irritations like those that have occurred should not be repeated.

That's why we will make every effort to anchor the security of energy supplies for the European Union in our Partnership and Cooperation Agreement with Russia, which we will hopefully be able to start negotiating soon. Regulating it by treaty in this way offers an opportunity to build trust.

That's also necessary because Russia hasn't ratified the Energy Charter [signed by the EU and Russia in 1991 to regulate energy cooperation], which is a repeated source of uncertainty.

WSJ: Many people say that in your policy towards Russia, you may have changed the tone compared with your predecessor [Gerhard Schröder], but the substance remains the same. Do you see it that way too?

MERKEL: I have difficulty with the question, insofar as we have foreign policy challenges today that my predecessor didn't face. The topic of energy has taken on a much greater significance. We have higher oil prices, we have to renegotiate the cooperation agreement [with Russia], and Germany now holds the EU chair. So there are entirely new tasks on the table, and I am approaching them now in my own way: openly and honestly, but in the awareness that Russia and Europe are dependent on each other.

WSJ: Have the energy-supply disruptions of the past year persuaded you that it's also in Germany's interest for other EU countries to have gas supplies that don't arrive via Russia?

MERKEL: We have to achieve two things. We must build a distribution network within the EU so that we can also help each other in an emergency. And we must pay attention to the need to diversify our energy markets, which concerns both the energy sources and also the suppliers.

Still, the fact remains that we won't be able to manage without Russian gas and oil in Europe, and we don't want to either. It's important to remember that, apart from these irritations, Russia has been a stable energy supplier in Europe over many decades, also during the Cold War.

WSJ: Was Russia the main reason why tougher sanctions against Iran [over its nuclear program] couldn't be agreed [at the UN]?

MERKEL: It's known that Russia and China have greater difficulty calling for very hard sanctions, but I would view the issue the other way round: It was a success that we achieved such a resolution in the Security Council, despite very different approaches between the EU, America, Russia and China. I also have the impression that Iran understood this signal very clearly.

For me, a unanimous stance among the Security Council members is also a value in itself. And that's why I firmly believe it's worth having these negotiations again and again, even though they sometimes take a long time, even though on our own we would proceed more strictly.

This weekend Bloomberg reported on a new energy agreement between Russia and Algeria, reviving fears among Europeans that further coordination among the continent's two largest natural gas suppliers could eventually lead to cartel-like production quotas and price manipulation. Despite assurances to the contrary from representatives close to the deal, it seems that many in the EU are keeping a very close eye on how this cooperation agreement works out. We recently reported on the feasibility of a Russia-led gas cartel here and here.

This announcement was followed just 24 hours later by the news that Russian government may reserve the rights to all newly discovered offshore oil and gas deposits for Rosneft and Gazprom.

A difficult Monday for Andris Piebalgs

From Bloomberg:

Russia and Algeria Sign Energy Cooperation Agreement (Update2)

By Ahmed Rouaba and Maher Chmaytelli

Jan. 21 (Bloomberg) -- Russia and Algeria, Europe's two biggest suppliers of natural gas, signed an energy cooperation agreement that the European Union has pledged to monitor because of concerns it may develop into a cartel-like alliance.

Russia, the world's largest gas producer, supplies a quarter of Europe's gas and Algeria almost 10 percent. The cooperation between the two countries will be ``at all levels, from exploration to marketing,'' Algerian Energy Minister Chakib Khelil told Bloomberg after the signing ceremony with his Russian counterpart Viktor Khristenko in the Algerian capital Algiers.

The 12-nation Organization of Petroleum Exporting Countries, of which Algeria is already a member, controls two-fifths of global oil supplies and sets production quotas in a bid to control prices. A similar alliance in natural gas would increase concern among consumers about higher prices.

"Russia and Algeria both know they can squeeze the Europeans with any suggestion of creating an OPEC for gas,'' Jon Marks, managing director of U.K-based political and commercial risk consultant Cross-border Information Ltd., said today. "I get the sense that some major oil companies are quietly panicking about this,'' since they buy the gas from Algeria and Russia.
...
"A Gazprom-Sonatrach alliance would make a lot of political sense, as both Russian President Vladimir Putin and Algerian President Abdelaziz Bouteflika are asserting state control over oil wealth,'' Marks said by telephone from Hastings, England.

Last year, Algeria backtracked on plans to allow foreign companies to produce oil independently of Sonatrach. Bouteflika introduced an amendment that made it compulsory for the Algerian group to have at least 51 percent of any petroleum discovery.

"There is concrete progress'' on a plan by Russia's OAO Rosneft and OAO Stroitransgaz to develop a natural-gas field they discovered in the North African nation a year ago, Khelil said today. The field, in the Illizi basin of eastern Algeria, will cost as much as $4 billion to develop, he said.

Political Prisoners in Today's Russia - Zara Murtazaliyeva
By Grigory Pasko

It looks like the only thing Zara is guilty of is that she is a Chechen and that in its day, open season on Chechens was declared in Russia, unofficially, of course.

In 2003, after her father’s death, Zara Murtazaliyeva, a student in her third year at the Pyatigorsk Linguistic University, was forced to leave full-time studies and switch to the extension learning department in order to find a job to help her mother support the family. The twenty-year-old girl came to Moscow. She started working at an insurance company, and became friends with two Moscow girls. Soon officers of the Main Administration of Internal Affairs of Moscow took Zara into development [a KGB term meaning she was put under total surveillance—Trans.]. For more than two months, the law-enforcement organs kept the girls under continual surveillance, video cameras recorded their every word and movement. Zara was watched constantly.

On 4 March 2004, twenty-year old third-year student of the Linguistic University of the city of Pyatigorsk, native of Naursky Rayon of the Chechen Republic Zara Murtazaliyeva was detained. The girl was delivered to the “Prospekt Vernadskogo” Branch of Internal Affairs, where explosives were planted on her, and a criminal case was initiated against her herself under Article 222, part 1 of the Criminal Code of the RF for unlawful acquisition, storage, and conveyance of explosive substances. However, the prosecution did not limit itself to this, and Zara was inculpated in the preparation of a terrorist act and in recruuiting her roommates Anna Kulikova and Daria Voronova for terrorist activities.

On 17 January 2005, a court sentenced Zara Murtazaliyeva to 9 years of deprivation of liberty with the sentence to be served in a general regime penal colony. Zara was found guilty under 3 Articles: Article 205, part 1 note of the CC RF (recruitment for terrorist activities), Article 205, part 1 of the CC RF (preparation of a terrorist act), and Article 222 of the CC RF (storage of explosive substances).

The defence considers that the prosecution did not provide any evidence of the guilt of the defendant, and the assertions of the procurator represent a personal opinion.
The court issued a guilty verdict, not having taken into consideration a single one of the defence arguments about the circumstances exculpating the defendant and the multitude of procedural violations during the time of the preliminary investigation.

Russian human rights advocates have appealed numerous times with calls to take note of the fabrication of the criminal case against the Chechen girl. A multitude of appeals have indicated: “We are convinced that Zara Murtazaliyeva has been convicted unlawfully and for political motives”. However, the authorities of the country have ignored all declarations and demands for a review of the criminal case.

A causational appeal was heard by the Supreme Court of the RF, which likewise ignored the obvious absurdity of the charges and, leaving all the charges in force, reduced the term of confinement to 8.5 years.

Since 12 April, Zara Murtazaliyeva is serving a sentence in women’s penal colony ZhKh-385/13 in the settlement of Partsa at the Potma station of Zubovo-Polyansky Rayon.

Vladimir Socor has a piece running today on the next target of the Kremlin: TNK-BP.

On January 21 in Sochi, Russian President Vladimir Putin assured a skeptical Angela Merkel -- visiting in a triple capacity as German Chancellor, holder of the European Union presidency, and incoming G-8 chair -- about Russia’s purported reliability as an energy partner to the West. The relevant actions, however, unfolded not in Sochi, but rather in Siberia and in Algiers, continuing Moscow’s three-pronged offensive against Western energy interests. The three tracks are: forced takeovers of Western investment projects in Russia, aggressive inroads into the West’s traditional supply sources in third countries, and acquisition of infrastructure within the West itself.

The forced-takeover pattern, inaugurated in the case of Yukos and continued in a somewhat different form with Royal Dutch Shell last month, is set to continue at an accelerated rate.

On January 19, Nature Inspectorate Deputy Chief Oleg Mitvol warned the BP-TNK joint venture that it faces environmental and legal investigations possibly as early as March at its giant Kovytka gas project. Russian government agencies had warned BP-TNK already in September that it might face billions of dollars worth of fines or license revocation for alleged environmental violations at Kovytka, even as the project reached the initial production stage. Mitvol’s latest warning, moreover, cites financial inspectors’ claims that the project is lagging behind the 9 billion cubic meters annual production target, thereby also falling short in its purported obligations to Russia’s state budget.

Putin had personally blessed this BP-TNK project in 2003 -- a move that these and other investors in Russia deemed as amounting to a political guarantee. In recent months, however, Gazprom has openly indicated its intention to take over a majority stake in this project with the Kremlin’s help. Mitvol is the same official whom the Kremlin had unleashed against Shell in the final months of 2006, forcing the Shell-led consortium in December to hand over a 50% stake in its Sakhalin-2 project to Gazprom.

Read complete article here.

[this article was compiled and written by the editor of this website]

When we talk about the notable trend of Russia "reasserting state control of the economy," generally the debate goes straight to the energy sector and never comes back. Meanwhile there have been more quiet developments in other sectors of the economy such as metals and the arms trade, the latter of which has significant geopolitical ramifications - not entirely unrelated to the diplomatic relations shaped by energy agreements.

The TOR-M1 mobile surface-to-air missile system, to Iran from Russia with love

Last Thursday, a major announcement was made by the Russian government to make the state-owned defense giant, Rosboronexport (Rosboroneksport, ROE), the sole weapons exporter - a monopoly by decree. Many privately run, successful defense firms in Russia such as the MiG Russian Aircraft Corporation and KBP will be forced to hand over $624 million of export sales to the government. The news, which was largely ignored by Western media (perhaps due to the tap dancing show put on by Gerhard Schroeder last week), is cause for concern for several reasons:

1. Like Gazprom, Rosoboronexport's corporate structure is almost indistinguishable from that of the Kremlin.
2. Similar quasi-legal tactics, including (literally) hostile takeovers and allegedly bogus investigations, have been used to pressure private competition and consolidate state control over defense businesses and other heavy manufacturing.
3. Thanks to innovative deal making, defense transactions are helping Russia cement closer relations with several leading energy exporters and strategic manufacturing centers - often raising diplomatic tensions with Western Europe and the United States.

Kremlin Inc. in the Arms Trade

It is possible that less attention is paid to Russia's arms industry because of the disproportionate income from exports of oil, gas, timber, and metals, yet between 2002 and 2005 arms exports increased by 15 fold, and with sales of $5.3 billion in 2006, Rosoboronexport just completed a "banner year." Identified by President Vladimir Putin many years ago as a critical source of revenue for the state, the administration initiated a series of moves to bring these businesses under tighter state control.

The most important move in achieving executive influence in Rosboronexport was the installation in 2004 of CEO Sergei Chemezov. Chemezov has a long, personal history with Vladimir Putin, dating back to their KGB days in Dresden. There are even credible rumors that Chemezov could be considered as a dark horse presidential candidate. A recent Le Monde article listed Chemezov, along with Dmitri Medvedev of Gazprom and Igor Sechin of Rosneft, as one of Putin's top-ten closest allies, and a Wall Street Journal article titled "Kremlin Capitalism: Russian Car Maker Comes Under Sway Of Old Pal of Putin" (published May 19, 2006) goes a bit further in describing the relationship:

Until recently, Rosoboronexport was barely known, an operation with a few hundred employees headquartered on a quiet Moscow boulevard. It was, and remains, one of Russia's most opaque companies: Its business activities are largely a state secret. With Mr. Chemezov at the helm, however its profile began to grow.

According to Mr. Chemezov, he and Mr. Putin met when both were KGB intelligence officers in Dresden, East Germany -- a claim the Kremlin won't comment on but one published in a government-controlled magazine. Mr. Chemezov says the two lived in the same apartment block and their families socialized. They kept in touch after their return to Russia. In 1996, when Mr. Putin got a job as a mid-level Kremlin bureaucrat, he made Mr. Chemezov his deputy.
...
After Mr. Putin became Russian president the following year (2000), he took control of the trade. He formed Rosoboronexport as a state monopoly to squeeze out freelance arms salesmen and root out graft, staffing it with old comrades. Mr. Chemezov became its deputy head and then, in 2004, its chief.
...
As Mr. Chemezov's influence expands, the line separating his different roles -- civil servant and entrepreneur -- is increasingly blurred. "You know, we're not really the state, we're businessmen," he says of Rosoboronexport. "Call it state commerce."

Chemezov's proximity to the Kremlin gives the company an overtly political dimension to its decision-making process - which is a negative development for both market competition and Russia's foreign relations.

Chemezov signs one of many deals with India

Yukos-ification of Defense, Automotive, and Metals Companies

Since the appointment of Chemezov, Rosoboronexport has exhibited very aggressive tactics in regards to competiting exporters and other industry acquisitions, with full Kremlin support.

For example, Sergei Tsivilev, the first deputy director general of the privately held Russian Aircraft Corporation MiG, has earned the wrath of the Russian procuracy, accused of mass fraud for allegedly attempting to sell counterfeit aircraft parts to Poland (although Polish representatives have come to his defense and stated clearly that they have no complaint against Tsivilev). MiG representatives say that the probe is a baseless, politically motivated gambit to prevent him from inheriting Alexei Fedorov's position as CEO. Kommersant quotes lawyer Tatyana Protsenko saying the following: "This criminal case has no judicial future, it was initiated illegally, and the charges were brought to Tsivilev illegally as well, because the prosecution story does not disclose what is the precise fault of my client." Ruslan Pukhov of the Center for Analysis of Strategies and Technologies says that many groups in the Russian defense sector are aiming to limit the expansion of Alexei Fedorov's group.

Another case of Yukos-like tactics has been Rosoboronexport's ham-handed takeover of the AvtoVAZ, the manufacturer of the Lada. In December of 2005, Mr. Chemetov, whose company had no experience in cars, was accompanied by 300 heavily armed men to forcefully seize control AvtoVAZ, in what some have called a "creeping nationalization." In order to force out the old management and install Kremlin loyalists, the government had to assist Rosboronexport with force. The Wall Street Journal reported the following on the takeover:

"To impose order . . . the state had to bring in 300 policemen from outside," says Mr. Chemezov. "Over the next few months, we had to replace virtually the entire police force, both in Togliatti and in the factory itself." Soon, three of Avtovaz's senior accountants found themselves facing charges of theft and tax evasion. The charges were dropped a few weeks later.

Perhaps the clearest indication that Russian state had regained control of the automotive sector via arms proceeds was the proposed plan to manufacture the Lada "Kalashnikov" - a jeep to be sold to the military. The renewed state influence in the company began to cast serious doubts on a $340 million joint venture General Motors signed AvtoVAZ in 2001. Last summer, GM announced plans to construct its own assembly plant in Russia after their new Russian partners decided they wanted to be paid more for the parts they supplied to the Americans - and unilaterally decided to shut down production for 10 days.

A similar "creeping nationalization" has occured with the takeover of 66% VSMPO-Avisma, the company resposible for manufacturing almost one-third of the country's titanium. According to the blog ZheZhe, government pressure may have been applied to get two major shareholders to sell their stakes in the firm at reduced prices - apparently days before the negotiations VSMPO-Avisma was hit with a huge tax bill with penalties of 2.45 billion rubles. (last summer the titanium firm signed an major joint venture with American aerospace giant Boeing).

In light of the government conduct in each of these three cases, it is clear that Rosoboronexport has quietly become a central instrument of the Russian government's attack on the private sector. These examples of baseless lawsuits, unilateral contract violations, and inflated tax bills bear the trademark of a singular line of thinking - the same tactics used against Yukos and other companies. From a business perspective, these creeping nationalizations and bogus investigations from the procuracy augur very poorly for investor's perceptions of risk, and also do much to damage Russia's weak rule of law.

After taking over AvtoVAZ, Russia's arms leaders debuted a new jeep called "The Kalashnikov."

Weapons, Energy, and Foreign Relations

Another disturbing trend of Russia's new arms monopoly is where these weapons are going. While both China and India are Rosoboronexport's top customers (making up two-thirds of sales), the company has also recently closed deals with a number more controversial states, including several critical energy exporters. Just this week, it was announced that Russia has completed delivery of 29 TOR-M1 short-range missiles to Iran, and is in advanced talks with Syria for a deal on Strelets missiles (apparently the negotiations have been "difficult" as the Syrians would like the missile system to be equipped with Igla rockets). In the past we have covered the major arms deals Russia has carried out with Venezuela, and they also count Algeria as a significant customer (and natural gas partner).

After news broke last year that Russia would consider trading oil and gas rights in exchange for arms, speculation opened up as to what extent Gazprom's licenses in the Orinoco basin and Russian energy agreements with Algeria were due to favorable weapons deals.

Russia has been able to use its arms deals to help cement stronger relations with nations that share its "vision of a multi-polar world" - and consolidate cooperation in energy and other geopolitical issues. For example, a report by the Congressional Research Service for the US Congress found that by 2005, Russia had beat out the United States to become the leading arms supplier to developing nations:

Russian leaders have made important efforts, in recent years, to provide more flexible and creative financing and payment options for prospective arms clients. It has also agreed to engage in counter-trade, offsets, debt-swapping, and, in key cases, to make significant licensed production agreements in order to sell its weapons. The willingness to license production has been a central element in several cases involving Russia’s principal arms clients, China and India. Russia’s efforts to expand its arms customer base have been met with mixed results. In the early 1990s, Russia developed a supply relationship with Iran, providing that country with Mig-29 fighter aircraft, Su-24 fighter-bombers, T-72 Main Battle Tanks, and Kilo-class attack submarines. Although new Russian sales to Iran were suspended for a period from 1995-2000 in accordance with an agreement with the United States, Russia now asserts its option to sell arms to Iran should it choose to do so.

The fact that Russia participates in the arms trade is not in itself a point of controversy. Just like any other nation, they have a legitimate right to pursue their interests in this field. However, the problem comes with some fundamental corporate governance issues. When a company lacks transparency to such an extent, and when the executives hold such integral relationships with the highest levels of government, many of the organization's decisions will seek to fulfill political, not business objectives. This is extraordinarily damaging in terms of efficiency, discouraging to the business sector, and capable of causing enormous friction in diplomatic relations (for example, it has been discovered that Russian weapons were used by Hezbollah against Israel in last year's conflict). The illegal tactics used by the Russian government to position the state-owned defense firm into a monopoly status erode rule of law, and underscore the current administration's disregard for rules, agreements, contracts, and corporate rights.

Yulia Latynina has a column in the Moscow Times examining the Putin-Merkel relationship.

Latynina: "The Kremlin operates according to simple principles. Make a friend of someone and you can do as you please; your friend will always back you up. If someone does not give you his support, it is not because of what you did, but because that person is not your friend."

Some excerpts:

Putin usually invites only friends to his private residence, as in the case of former German Chancellor Helmut Kohl and U.S. President George W. Bush. Merkel is clearly not Putin's friend. Moreover, however fair Merkel's criticisms of Putin in the past have been, they were criticisms nonetheless. Following such criticism, it is considered bad form to invite the offender to your personal residence, because this diminishes the country's prestige.

It takes a special kind of person to take such a shot and continue a constructive dialogue.

The new German leader has always been more severe than her predecessor, Gerhard Schroder. Her biggest rebuke came in October, when Putin offered Germany an agreement on access to output from the western Siberian Shtokman gas field. The offer, which was only made after Gazprom broke off negotiations with U.S. and European oil majors and announced that it would develop the field alone, sounded too good to refuse.

But Merkel did refuse. She turned it down, saying the EU would stick together and follow a common energy policy. Merkel then responded to pressure on the companies developing the Sakhalin-2 project -- Shell, Mitsui and Mitsubishi -- to sell a share in the project to Gazprom, by saying, "If Russia creates obstacles to European investment, it shouldn't object to reciprocal measures."

Following Merkel's response to the Shtokman offer, her comments about the Sakhalin-2 controversy and her strong comments about the Russia-Belarus standoff, we end up with the two leaders in talks in Sochi.

There is only one explanation I can provide for this: Putin is used to working out policy – both foreign and domestic – on the basis of personal relationships, by winning his partner's trust. In the language of his former profession, he managed to recruit his friends: former Italian Prime Minister Silvio Berlusconi, French President Jacques Chirac and Schroder.

Read the complete article here.

The Spanish business paper Expansion recently broke a story revealing that Royal Dutch Shell and Repsol are close to signing a service contract deal with the Iranian government to work on phases 13 and 14 of the South Pars gas field. The $4.3 billion deal will involve the construction of a major liquefied natural gas plant, which could have the capacity to export 16.2 tons of LNG a year.

Next to Qatar's North Field, Iran's South Pars reserve is one of the largest, most sought-after natural gas fields in the world

From the FT:

Shell and Repsol would each own 25 per cent of the project, called Persian LNG, with the National Iranian Oil Company holding the remainder and retaining ownership of the reserves. The document suggested the gas could be sold in Asian countries including China and Japan.

Iran has been interested in attracting foreign investment into its gas and oil industries to boost production. However, doing business there is overshadowed by the threat of further economic sanctions. International companies also report deep difficulties in dealing with bureaucracy.

Shell's interest in Iran is testimony to the challenges it and other international oil companies face in finding new sources of oil and gas.

US legislation introduced in 1996 and renewed last year imposes sanctions on non-US companies investing in Iran's oil industry.
...
"Given Iran's flouting of UN resolutions over the development of its nuclear programme and US concerns about Iranian interference in Iraq, it seems to me that the US administration will be much more sensitive about this sort of investment," said Jeffrey Schott of the Peterson Institute for International Economics in Washington.

According to the guys at the Oil Drum, the export of Iranian gas from South Pars is not quite a sure thing due to high domestic consumption of the new supplies. They quote the following from a Stuart Lewis IHS report:

"Iran needs some 1 bcm/d of gas for its own domestic use, which means there is no surplus gas for export gas in the next twenty years" - Kamal Daneshyar, Chair of Energy Commission of Majlis (07/05) and "Gas export is one of the objectives to be pursued within the frame of ‘Iran’s 20-year prospect plan’" - Roknoddin Javadi, MD of National Iranian Gas Export Company (07/05)".

Political Prisoners in Today's Russia: Svetlana Bakhmina

By Grigory Pasko, journalist

Svetlana Bakhmina worked at YUKOS in the post of deputy head of the legal department. The nature of her position was such that it was quite impossible for her in any way to influence those decisions that were adopted by the upper management of the company. Nevertheless, in December 2004, Svetlana was arrested and placed in women’s investigative isolator No. 6 of the City of Moscow. Prior to this, she had been interrogated during the course of six hours. The interrogation ended when the interrogatee suffered a heart seizure.

Why was Bakhmina locked up? It isn’t difficult to guess that this was done after she had refused to give false testimony with respect to her managers. A second reason was to force her immediate superior – Dmitry Gololobov – to voluntarily return from abroad and appear before the procuracy.

Later, Svetlana was charged under Article 160 of the Criminal Code of the RF (acquisition or misappropriation of the property of others [i.e. embezzlement—Trans.]). From the moment of the arrest, the Procuracy-General of the RF declared numerous times about the impossibility of changing the remand measure of restraint from confinement under guard to a written pledge not to leave town, despite the fact that Svetlana Bakhmina is the mother of two young children and does not present a menace to society.

In the opinion of human rights advocates, the procuracy is using the arrest of a woman who isn’t guilty of anything as an instrument to exert pressure on the already convicted YUKOS chiefs, Mikhail Khodorkovsky and Platon Lebedev, as well as with the objective of blackmail with respect to those members of the company who are found abroad. That is, Bakhmina is a hostage of sorts for the procuracy.

Consideration of the case with respect to Bakhmina commenced on 17 October 2005 in the Simonovsky District Court of Moscow. The verdict was read on 19 April 2006: Bakhmina was sentenced by the Simonovsky Court to seven years of deprivation of liberty for the theft of monetary funds from YUKOS-owned OAO “Tomskneft-VNK” in a sum of 8 billion rubles and for the non-payment of taxes. Later, the Moscow City Court, where the “YUKOS-Moscow” lawyer’s defence applied with a cassational appeal, reduced the punishment for Bakhmina from seven to six and a half years. The court struck out the tax evasion charge against Bakhmina due to the expiration of the statute of limitations, leaving only Article 160 of the Criminal Code of the RF (“acquisition or misappropriation, that is theft of the property of others”).

The Procuracy-General of the RF charged Bakhmina with having committed theft by way of the acquisition in the years 1998-1999 of the property of OAO “Tomskneft” with the use of her official position within the makeup of an organized group in a large amount for an overall sum in excess of 8 billion rubles.

Bakhmina herself has never – either during the course of the investigation or in trial – admitted her guilt with respect to a single count of the charges, and asked the court to rule for an acquittal. She brought the court’s attention to the fact that she could not have committed the actions imputed to her, inasmuch as in the year 1998, she had occupied a low-ranking position at YUKOS and could not independently adopt decisions with respect to “Tomskneft”.

In December 2006, the Moscow City Court denied the appeal of Svetlana Bakhmina’s defence lawyers against the decision of the Simonovsky Court of Moscow, which had refused to defer the execution of the punishment of the deputy head of the “YUKOS-M” legal department. The defence lawyers had asked for the punishment to be deferred by 9 years – until the attainment of the age of 14 by Bakhmina’s younger son.

The ruling of the Simonovsky Court indicated that the children aged 5 and 9 are found in the custody of the father and two grandmothers. The defence, on the other hand, had insisted that the grandmothers can not carry out the duties of guardians, because one is an invalid of the 2nd group, and the other is forced to work.

In his turn, procurator Nikolai Vlasov declared that a deferment of 9 years in the execution of the sentence is one of the forms of amnesty that can not be applied to Bakhmina.

Bakhmina’s younger child is now five years old, the older – nine. In accordance with the law, a female convict, if she has young children, may ask for a deferment in the execution of the sentence until the attainment of 14 years by her youngest child.

Russian human rights advocates consider Svetlana Bakhmina a political prisoner of contemporary Russia.

Call me a skeptic, but this one sounds like a PR stunt by the book publisher.

Today in the FT:

Russian exile cancels London visit after FBI security advice

By Jimmy Burns

A Russian exile who co-authored a book with Alexander Litvinenko, the murdered former KGB agent, has cancelled a visit to London after being advised by the Federal Bureau of Investigation his safety might be at risk, his publishers said -yesterday.

Yuri Felshtinsky, an academic who lives in the US, was expected to attend the launch of the new edition of the book in London on Friday with a press conference and interviews.

But Gibson Square Books, his UK publishers, said they had postponed the event indefinitely after receiving an e-mail from the author confirming the FBI advice.

Martin Rynja, the publisher, said: "When the book was first written, everyone thought Litvinenko's claims were ludicrous. Now people want to know what he stood for, which is why we are publishing it. It does seem now that if you are opposed to the KGB or its successors you are in trouble."
...
Mr Felshtinsky's visit was cancelled 24 hours after the widow of Mr Litvinenko appeared on a BBC Panorama programme and said no opponent of Mr Putin's regime was safe. The claim was denied by the president's spokesman.

There's also coverage by Kommersant

From the Associated Press:

But local industry is flagging and economists argue that the time to act to modernize the economy is now -- while Russia has the luxury to spend its oil bonanza on incentives and tax breaks aimed at spurring decrepit industries and boosting small businesses. Wait too long, they say, and the chance will be missed because the government's money men will be trying to protect savings as oil prices fall.

Ironically, part of the reason industry is being held back is due directly to Russia's huge energy earnings. The flow of energy revenue into Russia has seen the ruble appreciate by some 10 percent against the dollar over the past two years, sending up companies' ruble-denominated costs.

"This means new companies that can make new products and diversify the economy are appearing at a much slower rate. They can't compete with imports," said Yevgeny Gavrilenkov, chief economist with the Troika Dialog investment bank.

If prices for oil and gas remain high, the prospect of dwindling reserves as a force to diversify the economy is unlikely to bother Kremlin policy makers for some time to come. Some economists argue there has been a structural shift to higher prices and that oil at under US$30 per barrel is a thing of the past.

EU Energy Commissioner Andris Piebalgs issued comments in regards to the latest Russia-Algeria energy agreements.

Andris Piebalgs: "We want to have a fair price. This is not only about commercial interests. It is about transparency, too." (IHT)

Excerpts:

EU official says Russia is seeking gas cartel

Energy chief worried about a Gazprom linkup with Algeria

The top European Union energy official warned Wednesday that Russia was trying to build a gas cartel in Europe by linking up with Algeria.

The official, Andris Piebalgs, the EU energy commissioner, said in Berlin that if Russia and Algeria agreed to cooperate in the production and distribution of gas to Europe, "they could create a kind of cartel."

Russia provides 25 percent of European gas supplies and Algeria 10 percent. Norway and other European producers provide the rest.

Piebalgs said such a concentration of resources could hinder competition when the commission is trying to break up some of the biggest European energy companies by separating production, transmission and distribution to give consumers greater choice.

"Our worries are the development of the contacts between Russia and Algeria," said Piebalgs, who since taking charge of the European energy sector in 2004 has called for liberalization of the market and wider diversification to avoid reliance on a single supplier.
...
Energy analysts said attempts by Russia to create what could be a gas cartel similar to OPEC should be met with maximum resistance by EU members.

"This would be extremely dangerous for Europe," said Claudia Kemfert, an energy expert at the German Institute for Economic Research. "Europe must quickly react by diversifying its energy resources. Apart from making more use of renewable energy, the Europeans should focus more on buying liquefied natural gas from other countries, particularly Qatar."

Read the complete article here.

Today the Wall Street Journal is running a comment on the latest energy hustle in Russia against France's Total.

Sergei Stepashin is refreshingly honest about about Total's "environmental" violations

A Total Mess January 25, 2007

Surprise, surprise: The Kremlin has accused another foreign oil major of "environmental" violations that just might lead to the renegotiation of a billion-dollar contract signed under the previous regime in Moscow. One day, Western investors may realize that the incredible returns in Russia may be too good to be true.

This time, France's Total stands accused of ecological harm at the Kharyaga oil field, a project in the Arctic in which it owns a 50% stake. (Norway's Norsk Hydro owns 40% of the venture, with the rest belonging to a smaller Russian firm.)

Unlike when Royal Dutch Shell saw its Sakhalin-2 deal scuppered in December, Moscow didn't bother with an actual environmental agency to make the accusations. Instead, word came Monday from Sergei Stepashin, head of the federal Audit Chamber. According to Russian news reports, Mr. Stepashin wasted little time in identifying the Kremlin's real beef with Total: that the company's missed deadlines and production shortages have "cut into [government] revenues." Throw in that Kharyaga is the rare energy project left in Russia not controlled by a Russian company, and Total was obviously a sitting duck.

And thus has yet another bird come home to roost. Remember that foreign firms and investors showed comparatively little concern about the shortcomings in Russian rule of law back when only oligarchs like Yukos founder Mikhail Khodorkovsky were seeing their wealth confiscated. Russia's foreign investors were never the ideal lobbyists for private-property protections and other democratic and free-market institutions, given they way they'd profited from the country's Wild East economy. Now they know a little better how Mr. Khodorkovsky felt.

Click here for more information on Kharyaga.

This week on MSNBC (our emphasis):

Russia: We Don't Need the West Anymore

Did the Russian government muscle Shell out of Sakhalin?

By Vitaliy Katsenelson, CFA

[Royal Dutch Shell's $7.5 billion sale to Gazprom may have been coerced by the Russian government. Vitaliy Katsenelson looks at the Sakhalin-2 sale and examines the long-term implications if Russia disregards Western investment.]

I can't say I was surprised to see that Royal Dutch Shell (NYSE: RDS.A) will be "selling" 50% plus one share of the Sakhalin-2 project to Gazprom for $7.5 billion. Several months ago, the Russian government wanted to take Royal Dutch Shell to court because it was ruining the environment. I suppose when the Russian government referred to the environment, it meant the economic environment, not Mother Nature. The "environmental" issue was very simple: Product sharing agreements (PSA) signed by the Russian government with Shell were not considered advantageous to Russia -- at least not anymore.
...
I'll be blunt: The Russian government manipulated its environmental/legal levers to muscle an ownership stake in the project out of Shell, possibly at a significant discount. I understand that it's so much easier to be sympathetic to the poor children and elders that this oil money is supposed to go to, than to a multibillion dollar, impersonal, foreign (Dutch to be exact) oil company.

It sounds like a Robin Hood act, taking money from the rich and giving it to the poor. It's certainly not the first time this has happened in Russia. In 1917, on Nov. 7 (still a widely celebrated holiday in Russia), under the leadership of Mr. Lenin, the masses took from the rich and gave to ... themselves. We all know how that story ended. You cannot have government thievery be a part of the free market system and expect the market to function normally.

Read the complete article here.

This week's New Yorker is running a long article by Michael Specter titled "Kremlin, Inc.: Why are Vladimir Putin's Opponents Dying?"

Read all 14 pages here.

Some excerpts:

Despite the fact that Politkovskaya was articulate, attractive, and accomplished, she was barred from appearing on television, which is the only way the vast majority of Russians get news. To the degree that a living woman could be airbrushed out of post-Soviet history, she had been. "People call the newspaper and send letters with one and the same question: 'Why are you writing about this? Why are you trying to scare us?'" she wrote. "'Why do we need to know this?'" She provided an answer as much for herself as for any reader: "I'm sure this has to be done, for one simple reason: as contemporaries of this war, we will be held responsible for it. The classic Soviet excuse of not being there and not taking part in anything personally won't work. So I want you to know the truth. Then you'll be free of cynicism." (New Yorker, Jan. 29, 2007, pp. 52)

The 1996 election "put a poison seed into the soil," Andrei Norkin, a former anchor for NTV, told me. Norkin now works for the satellite network RTV1, which is owned by Gusinsky. "And, even if we did not see why, the authorities understood at once: mass media could very easily be manipulated to achieve any goal. Whether the Kremlin needed to raise the rating of a President or bring down an opponent or conduct an operation to destroy a business, or a man, the media could do the job. Once the Kremlin understood that it could use journalists as instruments of its will, and saw that journalists would go along, everything that happened in the Putin era was, sadly, quite logical." (New Yorker, Jan. 29, 2007, pp. 56)

In the corporatist, semi-authoritarian structure that Putin has created - the Kremlin refers to it as "sovereign democracy" - what is good for Gazprom is good for Russia, and no Russian television station would have dared to present the Ukrainian side of the story. (in reference to the New Year's gas cut off). (New Yorker, Jan. 29, 2007, pp. 56-57)

No company, foreign or domestic, can prevail in an argument with the Kremlin. That became clear on October 25, 2003, when armed and masked F.S.B. agents stormed a private jet and arrested Mikhail Khodorkovsky as he was about to depart from the Novosibirsk Airport, in Siberia. Khodorkovsky was Russia’s richest and, after Putin himself, easily its most influential man. He ran Yukos, the largest – and, by most assessments, the managed – oil company in the country. Khodorkovsky had failed to honor an unspoken pact with the Kremlin: stay out of politics and stay rich. Instead, he had begun to speak out, act independently, and support Putin’s opponents. He even started showing up in foreign capitals – often acting more like a head of state than like an oil magnate. Khodorkovsky was charged with fraud and tax evasion, and was then convicted in a trial that few observers, in or out of Russia, believed was fair. He was sentenced to nine years in prison and is serving them at Prison Camp IZ-75/1, in Chita – one of Siberia’s most remote and inhospitable regions. The Kremlin then set out to destroy his company, suing Yukos for billions of dollars in what it said were unpaid taxes. Yukos’s assets are being distributed among the President’s allies, the biggest beneficiaries being the two companies that are sometimes referred to as the only meaningful political “parties” left in Russia: Gazprom and Rosneft, the state-run oil concern. (In December, the Kremlin began to assemble yet another case against Khodorkovsky, this time involving money laundering.) (New Yorker, Jan. 29, 2007, pp. 58-59)

News this month that Prime Minister Andrus Ansip and the Estonian Parliament had passed legislation clearing the way for the removal of the Bronze Soldier monument (originally Monument to Liberators of Tallinn) has ignited a considerable historical debate, and roiled Russia-Estonia Relations. (this week Russia threatened sanctions if the statue is moved).

The Bronze Soldier, which has stood on Tõnismägi Hill in Tallinn since 1947, is seen by the Russians (and some supporters in Estonia) as a monument to their fallen troops in WWII battles against Nazi Germany, celebrating the liberation of the Baltic states. However, it is viewed by the majority of Estonians as a gruesome reminder of the Soviet occupation and empire. At the center of this complex and bitter debate are some fundamental questions about the politics of identity of the former Soviet satellite states and Russia itself. Unfortunately, the West is still nursing a pretty extreme ideological hangover from the Cold War, which results in a tacit and sometimes overt request that Russia "regret" its history. At the other end of the spectrum, there is a fervent nationalism driven by a powerful and unspoken nostalgia for empire. Both versions involve some historical revisionism, and one can only hope that with time, Russians can be proud to be Russians without attaching that identity to past and current authoritarian regimes.

From today's New York Times:

Until then the Bronze Soldier was a largely uncontroversial place of mourning, saved from the dismantling of all other Soviet monuments in 1991. The main monument to Lenin came down four days after the start of the failed coup against the last Soviet leader, Mikhail S. Gorbachev.

The clash gave impetus to the wishes of those who viewed the Bronze Soldier not as a war memorial but as a symbol of Soviet occupation. “We don’t want to be weighed down by the past,” Mr. Ilves said. “We want to think about where we are going, what we are doing, but all of that sort of comes back when you have, basically, a very provocative demonstration glorifying the Soviet Union and Soviet power.”

He added, “When you see red flags and hammers and sickles, people get upset.”

Russia has said disinterring the remains believed to rest beneath the monument would violate the Geneva Conventions on the treatment of war dead. Mr. Lang said the evidence was not clear. Anyone buried there, he said, would have died elsewhere and could be lawfully removed to another place. He added that a trolley bus stop made the site inappropriate. No one is talking about removing it, though.

Kadri Liik, director of the International Center for Defense Studies here, said Russia’s reaction fit a pattern of quarreling with its neighbors over history, which she said was personally important to President Vladimir V. Putin as he sought to rebuild a national identity based on a Soviet foundation that, at least in the case of World War II, was unassailable.

“They feel so offended by anyone who challenges their view of history,” she said, referring to Russians’ refusal to recognize Soviet rule in Estonia as an occupation. “They should be discussing the other side of the coin.”

From Reuters:

Estonians have a mixed view of that history: invaded by both Nazi German and Soviet forces in the war, they had men on both sides of the conflict. The Soviet era also saw the deportation of tens of thousands of Estonians to Siberian labor camps.

Some are resentful that such a memorial exists in the center of Tallinn: last year, nationalists protested at the monument and vandals painted the statue with stripes in white and blue, two of the colors of the Estonian tricolor flag.

But feelings about the statue in Estonia cut little ice in Moscow, where the Russian foreign ministry recently summoned Estonia's ambassador to express its anger.

The ministry called the Estonian plan a "blasphemous idea and a blatant mocking of the memories" of Red Army soldiers.

From Interfax:

"Russia's threats cannot influence decisions by a democratic sovereign state. It is absolutely obvious that the Estonian people will decide for themselves how to arrange their affairs in their republic," [Prime Minister Andrus] Ansip said in an interview with Interfax. ... "What respect are we talking about while a lot of people stamp on the grave, hold rallies, drink vodka or wait for a trolleybus there - this goes against the Estonian people's idea of peace for the dead and the place of their eternal rest," he said. ... "The symbols of both occupation regimes are banned in Estonia if they are used for fuelling hatred and if this is done in violation of public peace," Ansip said. "Nobody bans using such symbols" for educational, artistic, commercial, or journalistic purposes or in order to reflect historical or contemporary events," he said.

However, "both the swastika and the hammer and sickle are symbols of occupation regimes in Estonia," he said.

Per the news earlier this week of Russia's state arms trader Rosboronexport completing delivery of a set of TOR-M1 defense missiles to Iran, State Department spokesman Sean McCormack said that the United States may consider imposing sanctions as a response.

State Dept. Spokesperson McCormack believes the Iranians were surprised by Russia's endorsement of the UN resolution

Here is the English-language coverage from Russia:

Pravda: USA may impose sanctions against Russia for selling 29 Tor-M1 complexes to Iran

MOSNEWS: Russia Should Be Sanctioned for Selling Arms to Iran — U.S. Official

Kommersant: U.S. May Impose Sanctions on Russia for Tor-M1 Deliveries

However, looking at what McCormack actually said doesn't quite live up to the headlines. Here is the transcript from the press briefing yesterday:

QUESTION: You noticed that the Russians delivered advanced air defense missile systems to Iran?

MR. MCCORMACK: Yeah, saw that and we've -- you know, we've made our views clear on that. We raised with the Russians whether or not it was really the right moment, given the circumstances, to go through with that sale to Iran. We've raised the issue with them. They decided to go through with the sale. There are certainly laws and regulations that have to -- that would trigger a review of that sale and whether or not there are any actions that we are required to take in reaction to that. But at this point, I couldn't tell you, I couldn't give you an assessment of what the findings of that -- those reviews might be.

QUESTION: Whose laws are you talking about?

MR. MCCORMACK: What's that?

QUESTION: U.S. laws?

MR. MCCORMACK: Yes, yeah, our --

QUESTION: What kind of review?

MR. MCCORMACK: Reviews in -- I can't tell you the specific laws, George. I can get you a citation. But it has to do with trading in military equipment with Iran.

QUESTION: Isn't this -- can I just finish? Isn't this another indication, though, that the diplomatic process, particularly with Russia, if you -- if it goes to the UN again, if there's another resolution, doesn't this require some review? Because it's clear that Russia continues this kind of relationship. And again, I'm going to quote Bolton. He says, "The Russians did an outstanding job from the Iranian point of view of weakening resolutions, so Iran at this point would proceed."

MR. MCCORMACK: They also voted for the resolution at the end of the day and that's going to have a real effect on the Iranians' ability to develop their nuclear weapons program and also develop their missile technology programs. It's not a perfect resolution. I will grant you that right up front. But it does have a very real effect and at the end of the day, the Russians did vote for it and I think that surprised the Iranians. I think that they might have been counting on some cover from other countries in the international system and they didn't get it. They didn't get it because of their behavior. And I think that that was a real shock to the system for them.

The PORTOS Organization

By Grigory Pasko, journalist

In 2002, the Moscow Oblast Court sentenced two activists from the “Poeticized Association for the Elaboration of a Theory of Social Happiness” (PORTOS) to deprivation of liberty for a term of from one year suspended to 2 years actual. According to the verdict, Vladimir Belanenko and Alexey Merkulov were found guilty of participating in an unlawful armed formation and of participating in the activities of an association infringing on the rights of citizens.

In the summer of that same year, Irina Derguzova and Tatiana Lomakina, two young women who were “Portos” activists, were sentenced to lengthy terms of deprivation of liberty – 6 and 8 years. They were found guilty of creating an unlawful armed formation, depriving minors of liberty and tormenting them, as well as of creating a public association the activities of which are linked with violence.

The court established that the activities of the “PORTOS” association were associated with aggressiveness and violence. As follows from the case materials, the organization “PORTOS” began to function on the territory of a former depot of the “Salyut” plant in the beginning of 2000 in the village of Mashkovo of Lyubertsy Rayon of the Moscow Environs, where the theory of “creating an ideal society on a self-contained territory” was being brought to life. The non-traditional methods of raising a new generation included the mandatory writing of poems and the keeping of a daily planning journal that had the name “external conscience”.

In February 2002, the Moscow Oblast Court likewise sent two of the heads of the “PORTOS” organization, Yuri Davydov and Yevgeni Privalov, for forced medical treatment, holding them to be mentally incompetent. The court found Davydov guilty under all of the Articles of the Criminal Code of the RF under which he had been inculpated. Among their number – “creating and leading an unlawful armed formation”, “organizing an association infringing on the person and rights of citizens”, as well as “tormenting minors”. Privalov was imputed to have participated in an unlawful armed formation. In connection with the fact that during the course of the preliminary investigation, the accuseds were found mentally incompetent based on the results of a forensic medical expert examination, the court released Davydov and Privalov from criminal liability.

Let me note right from the start that I don’t know the beginning of this case very well, because I myself was behind bars at that time. However, several years later, I did have a chance to meet with those members of “PORTOS” who had remained at liberty. I recall how amazed I was when the young people told me how the property of the organization had disappeared without a trace after the arrests of the “PORTOS”-ites and a search carried out by the police – over a dozen trucks, passenger cards, a decent-sized library, computers, video gear. Naturally, I already knew about the moral principles – or, more precisely, the lack thereof – of Russian policemen, but be so blatant about it…

The theory of happiness
The founder of the PORTOS organization, Yuri Davydov, first started to elaborate a “theory of happiness” back in the 1990s. Being an admirer of Pythagoras, he introduced Leninst ideas into the former’s teaching, complementing them with military-“patriotic” rhetoric and propaganda of a healthy lifestyle. Finding like-minded people in Saransk and the Ukraine, Yuri Davydov founded an organization the number of members of which steadily grew. The PORTOS organization was registered in the ministry of justice as a public association. Its branches existed in seven cities of Russia and Ukraine.

In recent years, the members of PORTOS also began to engage in business activities, founding several experimental farms in Russia and the Ukraine, engaging in agriculture. The activists of this organization participated in the gathering of signatures during the time of Mikhail Gorbachev’s presidential campaign, and they served in city citizens’ volunteer patrols (druzhiny). Several years ago, Moscow vice-mayor Valery Shantsev (currently governor of Nizhny Novgorod Oblast) awarded the PORTOSites as the best druzhiny of the capital. A Foundation for Assistance to Pensioners and Veterans was founded alongside the organization. Members of PORTOS distributed groceries at reduced prices or for free to them.
Today, four of the organization’s activists (Yuri Davydov, Yevgeni Privalov, Tatiana Lomakina, and Irina Derguzova) are behind bars. They spent more than a year under investigation [imprisoned on remand in an isolator—Trans.]. After the conducting of a forensic medical expert examination, their case was artificially divided in two. Davydov and Privalov were found to be mentally incompetent. In the opinion of defence lawyer Dmitry Arganovsky, this was done only so that Davydov and Privalov could not get a trial before a jury. Perhaps the investigation feared that the PORTOS leaders would be able to convince the jurors in the absurdity of the charges against them?

And indeed, it is hard to imagine that two mentally incompetent persons, supposedly suffering from schizophrenia (and Privalov had done all the bookkeeping in PORTOS), headed an economically successful organization during the course of several years.

The defence lawyers bring attention to the fact that certain evidence given by witnesses at the investigation appears to have been written using carbon paper. And the evidence of the minors does not seem to be very authentic. Thus for example, one of the adolescents testified at the investigation that censorship existed in PORTOS and that he could not write a letter home, to the Ukraine. But when the defence lawyers asked the boy what exactly censorship is, he replied: “That’s when you use swear words”.

Derguzova and Lomakina are charged with creating an armed formation and the creation of an organization infringing on the person and rights of citizens. Certain Portosites carried gas weapons, bought under license, because they were often subjected to attacks by racketeers and robbers. But carrying gas weapons is not a violation of the law. It is known from the materials of the criminal case that the organization was visited at various times by officers of the Moscow-Environs OVD [police—Trans.]. Criminal investigation detectives would also visit. Judging from the reports drawn up by the policemen, none of inhabitants of the auto-town ever complained about the use of force with respect to them.

Who was PORTOS bothering?
There are theories that the Portosites had stepped on someone’s toes when they began to engage in business activities; that they were among the few participants in the Russian Congress of Esperantists who had signed a resolution against the war in Chechnya. No question, the FSB was interested in them as well, as it is in all informals.

It seems to me that the hand of the power can be seen in the massacre of the Portosites. The power fears everything that doesn’t fit neatly into its notion of what sorts of things young people should be engaged in in a totalitarian country. And all the more so because the members of the organization are people who know how to think independently, and enjoy doing it.
“We considered ourselves to be contenders for the status of real people, and were convinced that we still hadn’t done enough for the country”, said Lomakina at the trial. “We set ourselves the goal of understanding why society lives so poorly and how to correct this…”

The elaborators of the “theory of the happiness of the whole people” didn’t hide the fact that they intended to develop their activities and gradually get to the federal level, drawing representatives of the youth into their ranks. Perhaps someone got scared of competitors in the field of youth politics? We did get to hear that the organization now being persecuted occupied the niche of the pro-Putin organization “Moving together”.

In the opinion of human rights advocate Sergey Grigoriants, the special services need accountability in the conditions of their unrestrained expansion in Russia; they need to show that they’re earning their bread. The investigator in the “PORTOS” case became the deputy procurator of one of the rayons. The practice of turning the fates of people into a sacrifice to one’s own odious and petty interests is truly abominable…”

Perhaps for the first time during the entire period of Putin’s rule, his subordinates have held people criminally liable for, among other things, their poems. What kind of poems were these Portosites writing? Here’s one of them:

Люди, вставайте. Страна обезумела, Стал не способен к ученью народ. Родина ждет полководца разумного, Кто нас к победам труда поведет. Ждут нас великие в жизни открытия. Ну-ка, вставай, поднимайся с колен. Тысячу раз побеждали и выстоим В этом бою среди тюремских стен. Нелюди лживые, воры и пьяницы Кто им позволил страну продавать? Ну-ка, вставай, а иначе ведь скатимся. Ясно, что делать, и кто виноват.

People, arise. The country has lost its mind,
The people have become incapable of being taught.
The motherland awaits a sensible commander,
Who will lead us to victories of labour.
Great discoveries in life await us.
Come on, arise, get up off your knees.
We have vanquished a thousand times and we will persevere
In this battle in the midst of prison walls.
Deceitful subhumans, thieves and drunkards
Who allowed them to sell the country?
Come on, arise, for otherwise we’ll fall off.
It is clear what must be done, and who is to blame.

If we consider that in the opinion of the Portosites, Putin wasn’t at all trying to become a “commander”, then yet another reason for such a strongly negative attitude on the part of the power towards informal people becomes clear.

Breaking news from the Associated Press:

Russia silent on Georgian uranium sting AP

MOSCOW - Russia responded with silence Thursday after Georgia revealed a foiled effort by a Russian man to sell weapons-grade uranium, an episode that appeared to cast doubt on the nation's ability to halt the black market trade in nuclear materials.

The origin of 3.5 ounces of highly enriched uranium seized early last year in the former Soviet republic remains unclear, and some experts accused Georgia of trying to embarrass Russia at a time of strained relations between Moscow and Washington.

The Russian government said nothing publicly about the inquiry. An unidentified official at the nuclear agency Rosatom, quoted by the Interfax news agency, denied Georgian accusations that Russia was not cooperating with an investigation of the case.

U.S. and Georgian officials told The Associated Press that Georgian authorities, aided by the CIA, set up a sting operation that led to the arrest last year of a Russian citizen who tried to sell a small amount of uranium enriched to about 90 percent U-235, suitable for use in an atomic bomb.
...
Anton Khlopkov, deputy director of Moscow's PIR Center, which specializes in nonproliferation issues, noted that the quantity seized was reported to be small - a fraction of what was needed to make a nuclear weapon. He also said it was not certain if it came from Russia.

"Why was this information released now? It looks like an attempt, by Georgia or the United States, to build up an image of Russia as a nuclear market," Khlopkov said. "Georgia wants to get political capital out of this."

Complete article here.

From Kommersant:

Khodorkovsky Wants Clear Charges

YUKOS former chief executive Mikhail Khodorkovsky won’t cooperate with investigators until they bring “clear and concrete charges” against him. Mr. Khodorkovsky sent this appeal to the head of the investigation team on Thursday.

Yury Shmidt, Mikhail Khodorkovsky’s attorney, told Kommersant he had handed his client’s appeal addressed to Salavat Karimov, head of the investigation team, to authorities in the city of Chita on Thursday. The application says that investigators sent Mr. Khodorkovsky documents which are not clearly connected with the new case. “The right to know what you are accused of is an essential guarantee of the constitutional right to be defended,” the letter runs. Mikhail Khodorkovsky says he does not know what he is being accused of under new charges and, therefore, cannot exercise his right to be defended in court.

What is more, the oil tycoon’s defense challenges his incarceration and investigation actions in Chita, eastern Siberia. The lawyers argue that investigation ought to be held in the place where the crime was committed. Yury Shmidt said his team had filed an appeal against Mr. Khodorkovsky’s incarceration in Chita. They learnt on Thursday, though, that the Basmanny Court had not received their appeal. They lawyer was suspicious of this “loss” and referred to a similar incident that happened to them at another Moscow court. Yury Shmidt mentioned political motives behind this situation.

Mikhail Khodorkovsky said in his letter he would not cooperate with the investigation team presents “clear and concrete charges” and sends him to a jail in Moscow. The Russian Prosecutor General’s Office said Thursday they had no comment on the Khodorkovsky case.

Today this AP article is running in two German newspapers - Der Standard and Neue Züricher Zeitung (our translation):

Lawyer assumes new trial in spring or summer – “these accusations are freely invented”

Frankfurt/Main (AP) The lawyer of the imprisoned Kremlin critic Michail Khodorkowskij rejected new accusations against his client by the Russian authorities. Robert Amsterdam told AP this Thursday in Frankfurt am Main that “these accusations are freely invented”. There could have been no fraud, since finance transfers were registered in the checking of accounts.

Amsterdam argued that there is no ground for a renewed charge. The authorities consciously propagate false statements and instrumentalise the law. “It is an absurd theatre”, emphasised the Canadian lawyer. Furthermore, he argued that the courts are no real courts. According to Amsterdam, there will be a new trial in spring or in the summer. “Khodorkowski will be found guilty, even before he will be indicted.” The government wants to put him into jail for a long time.

Last week, the Russian General Prosecutor announced that the oil billionaire Khodorkowski will newly be accused of money-laundering and fraud. Other former managers of Yukos will equally be accused. Khodorkowskij, the formerly richest man in Russia, was sentenced in May 2005 for tax fraud and deception. Critics see the trial as attempt of the Kremlin to silence Khodorkowskij, as he had political ambitions.

Amsterdam criticised the West harshly. According to Amsterdam, the Western countries stay silent, even when Khodorkowskij was attacked during his imprisonment in a “concentration camp”. According to Amsterdam, Germany is worried about its energy security. Therefore, the West closes its eyes to the re-erection of the Gulag-system, as in former Soviet times.

The way in which a country treats its citizens, is a warrant for how it behaves in the international arena, emphasised Amsterdam. He warned not to demand an accelerated construction of the Baltic Sea Pipeline to Germany, with regards to the energy dispute between the Putin administration and Belarus. “We would only award his misbehaviour”, the lawyer argued.

Amsterdam stated that the new German government under Angela Merkel discusses the human rights violations more open, but the main course did not change. Merkel should not allow Putin to play off the European neighbours against each other. The victims of the close relationship between Russia and Germany are the German gas consumers, since long term contracts prevent competition on the gas market, said Amsterdam. Another contribution to this problem are contracts between Russia and Algeria or the Iran.