June 2007 Archives

Over the next week the blog will be on semi-hiatus, as my editor is traveling, my client work is exceptionally busy, and I'll be spending some more time with my kids. I still plan to get something new up each day - but it probably won't be the same steady rhythm of posts you have come to know and love. By Monday, July 9, we will be in full swing again, bigger and better than ever.

Cheers,
Bob A.

Ever since the announcement of the South Stream pipeline of Gazprom and ENI, speculations have been swirling about Europe regarding the feasibility of the competing Nabucco pipeline proposal. At the center of these concerns is the Austrian energy firm OMV, who along with Botas of Turkey, Mol of Hungary, Transgaz of Romania and Bulgargaz of Bulgaria, had been working on this pipeline to bypass Russia.

With characteristic humor, Gazprom has stated that the South Stream is no threat to Nabucco - but given that Gazprom had also said that it had no interest in taking Kovykta from BP, such declarations should be taken with a grain of salt. So far the market certainly isn't buying it, and OMV saw its shares dip a point and half on the Frankfurt market.

In a move that could be viewed as a reaction to the South Stream offensive, OMV launched a hostile bid on MOL, doubling its stake to 18.6% and causing the stock value to rise by 25%. Similarly, OMV has shown that it is well aware of the political interest in Nabucco, and has been using it to fight back efforts from competition authorities to unbundle supply and distribution of energy. CEO Wolfgang Ruttenstorfer told the FT that "If you look at a programme like Nabucco, who would undertake all this effort if they could not sell the gas that they transport? The effort is really huge, and I am not sure whether it would be implemented if you separated the ownership of the pipeline from the supply business."

As may be expected, OMV's sudden courtship has been unrequited in Hungary, met with protectionism and even anti-monopoly concerns. PM Ferenc Gyurcsany said "I do not consider it friendly when a state-owned foreign company, without giving notice, starts acquiring stakes with the intention of gaining (obtaining) control over the Hungarian company." The Hungarian opposition party, Fidesz has even said that Russia is behind this move. Indeed, just yesterday an Austrian magazine reported that Gazprom was seeking to buy out a large chunk of OMV, although this has been denied. Another strange detail is that a former Gazprom executive, Medget Rakhimkulov, seems to have made off with $175 million by selling his stake in MOL with suspicious timing.

But there is little illusion that OMV is actually trying to help Europe diversify its energy sources - Russia had long ago made Austria a textbook case of energy preemption, and the series of bilateral agreements the Russians have set up there illustrate exactly how to divide and conquer a common EU energy policy. A useful article in the Asia Times summarizes it: Last September, Gazprom signed an agreement with Austria to supply 80% of their gas, followed shortly by the commission of a massive gas storage facility near Salzburg, and Austria became the first European country ever to allow Russia direct access to the downstream distribution business. A little over a month ago, they signed another memorandum of understanding with Gazprom, a deal which Derek Brower says "effectively pits Mol and OMV against each other in a battle to see which company will develop Gazprom’s Central European gas hub most quickly."

In conclusion, the outlook for Nabucco's feasibility, and therefore the current outlook to diversify supply away from Russia, looks increasingly grim. There is a principal problem of lacking political will: too many of these countries are fearful of how Moscow would respond, and simply stand to lose more than they would gain from playing hardball with Gazprom, at least in the short term. For example, a spokesman for Botas said "Europe needs gas. ... You have to remember that Turkey depends on Gazprom. ... We have to have good relations with Gazprom."

Such a statement, which must have been extremely painful for Turkey to make as they are the prime losers from South Stream, neatly sums up what most of these countries are going through. When Gazprom expresses to you that any support of a non-Russian energy project would be viewed with disappointment or even hostility, it is understood that it is a parallel message from the Kremlin, and thus the consequences become unbearable. And it is here where the Ukraine cut-off functions as useful leverage – everyone seems to believe that Russia would be willing to do it again if so provoked.

It would inappropriate to argue that OMV is just another ambassador for Russian interests in Europe, but it is clear where the Austrians place their loyalty.

Another day, another fraudulent set of criminal charges - this time aimed at shutting down an NGO which trains journalists.

Manana Aslamazyan

AP: Russian NGO Paralyzed, Head Flees

Investigators pounced on a minor infraction committed by Manana Aslamazyan, director of the Educated Media Foundation, using it to shutter the respected media training and development organization and frighten other NGOs and journalists, the lawyers said.

The prosecution of Aslamazyan and pressure on the foundation, which receives funding from the U.S. government, follows repeated claims by President Vladimir Putin and other officials that foreign governments use NGOs to weaken Russia and undermine its leadership.

The Moscow-based group's troubles began in January after Aslamazyan, returning from a trip abroad, brought cash worth more than $10,000 into Russia without declaring it at customs, as required by law.

She has been charged with smuggling, and authorities are considering prosecuting the fund's leadership on money-laundering charges, according to one of her lawyers, Viktor Parshutkin.
...
Parshutkin said he believes the Kremlin is behind Aslamazyan's prosecution.

"This entire affair is motivated exclusively by politics. Through criminal investigation they have organized the public whipping to make other NGOs that receive money from foreign governments stand at attention and frighten them," he said.

He suggested the foundation, which trained and developed Russian provincial media, was targeted "to send a signal to journalists before the elections that they are all under the czar's eye _ that if somebody tries to do something independent, they will be dealt with."
...
In an open letter last week thanking her supporters, Aslamazyan said she had accepted an offer to work as a consultant for an international organization with offices in the United States, Asia, Africa and Europe. Parshutkin said he and another lawyer had advised her to leave the country and that she is living in Paris.

In the letter, Aslamazyan said she would live abroad, continue to pay taxes in Russia and "wait until a court finally figures out why my personal mistake, for which I am ready to accept a fair and appropriate penalty, became the excuse for suspending the work of a large organization that brought a lot of benefit to the country."

Two aspirin, please.

From the Economist:

GOOD news for the Kremlin: no longer must it work so hard to justify the destruction of Yukos, a bankrupt oil firm, or defend the predatory instincts of Gazprom, its gas giant. It is finding surprising support from large foreign companies. ...

Cutting deals with whimsical governments is par for the course for oil companies. But the withdrawal of an audit, let alone a decade's worth of them, is a rarity. Like anybody connected with Yukos, PWC had been under enormous pressure.

The Kremlin found PWC's failure to unearth any flaws in Yukos's accounts irksome. The authorities raided its offices and accused it of tax evasion and of collusion with the former management of Yukos to conceal profits. It risked the loss of its licence and began to lose lucrative contracts.

“This case challenges the basic role of the auditor, which represents a key element in the development of a normal, functioning economy,” Mike Kubena, the firm's managing partner in central and eastern Europe, argued only six months ago. Now he stoutly maintains that PWC revised its opinion not because of the threats, but in the light of new information—although he will not say what that information is, only that it came from Russian prosecutors, who hailed PWC's decision. The change will strengthen the case against Mikhail Khodorkovsky, an ostracised oligarch and former boss of Yukos, who may now stay in prison well beyond his present eight-year sentence.

This week, amid the much more dramatic news of PricewaterhouseCoopers in Russia, I have attended two different energy conferences in Madrid and Brussels to give speeches and had the opportunity to exchange ideas with some very interesting people, including some self-described peak oil experts.

I will spare my blog readers from the tedium of going over the minutia of all these sessions, but I think it may be valuable to outline a few of the comments from the proceedings as it relates to Russia, especially as these concerns have been mirrored in numerous recent media reports.

The peak oil evangelists are no strangers to controversy, and, as I found in Madrid and Brussels, they range from erudite, credible and well reasoned energy analysts to the other end of the spectrum – conspiracy types who proclaim the end of the world as we know it. Given that it is so often argued that a crash in Russia’s oil wealth could totally change the political direction of the country, I was interested to see what I could learn from my colleagues.

The famous quotation from Sheikh Zaki Yamani, the former Saudi oil minister, continues to hold true: “The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.” The present stage of fossil fuel addiction in our society is a challenge of unprecedented proportion, and will to some extent be determined by a complicated combination of geopolitical forces. For example, we have already felt the sting of resource nationalism, which is pressing down production while attempting to exploit higher prices for the rent seekers in government. Just today, Fatih Birol of the International Energy Agency told Reuters that “In general, one can say that resource nationalism could well have negative implications in the countries where you don't have major domestic capital formation."

But at the same time, these same resource nationalists are facing the glass ceiling of climate change in the future – a phenomenon that with almost divine cruelty is going to impact emerging markets more than the developed world.

This situation leads to a painful dialectic. The very autocrats that are engaged in the serial expropriation of assets are going to require enormous amounts of capital in their unstable infrastructures, while at the same time continuing to make investment a less and less attractive proposition. The second aspect of this dialectic is the necessity for emerging markets to embrace the very alternative energy that will make their endowment in fossil fuels self-limiting. Putin and Chavez may be quixotically battling windmills in their minds, but they are most terrified of the real ones.

In addition, the increased state control over natural resources is inspiring men like Putin and Chavez to reject and denounce the open nature of the global economic structure and seek to build a “new architecture” that cherishes rent seeking and opacity, and at least tolerates corruption and autocracy.

This goal is a direct challenge to Europe, and we must take heart in the fact that the new Reform Treaty agreed on last weekend actually involves language as the following: “In its relations with the wider world, the Union shall uphold and promote its values and interests and contribute to the protection of its citizens … as well as to the strict observance and the development of international law.”

One can therefore argue that this new Reform Treaty emboldens the outward expression of the core values enshrined within the European Charter of Rights – values which form the basis for the most important antidote for the geopolitical virus of peak oil.

It is imperative that energy importing nations begin demanding that suppliers play by the rules, and engage in fair and equitable structured relationships in the energy trade – instead of legitimising the “new financial architecture” of lawlessness and autocracy, as we have seen BP do in Russia. Values and principles in foreign policy is one of the only ways to ride out these closing chapters of the Oil Age with reduced turbulence rather than the chaos and conflict toward which we are heading right now.

Terry Eagleton in the London Review of Books has a very interesting critique of a new book on the writings of the revolutionary Russian philosopher Mikhail Bakhtin, who suffered greatly under the repression of the Stalinist state, and was exiled to "internal exile" in Kazakhstan. Bakhtin's veiled criticisms Russian autocracy continue to resonate today.

From LRB:

That this once obscure Soviet philologist is now a star of the postmodern West is less surprising than it might seem. For there is hardly a hot postmodern topic that Bakhtin did not anticipate. Discourse, hybridity, otherness, sexuality, subversion, deviance, heterogeneity, popular culture, the body, the decentred self, the materiality of the sign, historicism, everyday life: this precocious post-structuralist, as Graham Pechey calls him, prefigured so much of our own times that it is surprising not to find allusions in his work to Posh and Becks. Since little of this culture is the direct result of his influence, one might claim that had Bakhtin not existed, there would have been no need to invent him.

Why this curious parallelism between the age of Stalinist terror and the era of the iPod? The answer is fairly obvious. Just as Bakhtin’s work is among other things a coded critique of Soviet autocracy, so postmodernism springs in large part from the rout of modern Marxism. In the work of Baudrillard, Lyotard and others, it began as an alternative creed for disenchanted leftists. Its obsession with discourse makes sense in an age short on political action. Instead of setting fire to campuses, American students now cleanse their speech of incorrectness. If Marxism had been shamefully coy about sexuality, postmodernism makes a fetish of it. The warm, desiring, palpable body is a living rebuke to all those bloodless abstractions about the Asiatic mode of production. Instead of grand narratives that lead to the gulag, we have a plurality of mini-narratives. Since doctrinal absolutes dismember bodies, relativism is the order of the day. If castrating homosexuals is part of your culture, it would be ethnocentric of me to object. Revolution is no longer on the agenda, but sporadic subversions may stand in for it. Class politics yields to identity politics. The system cannot be overthrown, but at least it can be deconstructed. And since there is no political hope in the heartlands of capitalism, where the proletariat has upped sticks without leaving a forwarding address, the postmodern gaze turns mesmerically to the Other, whatever passport (woman, gay, ethnic minority) it happens to be travelling on.

Today Venezuelan President Hugo Chavez is in Russia to close some major energy and arms deals - however it seems that Putin wants to keep the visit quiet to avoid needlessly antagonizing Washington before the Kennebunkport visit (maybe the Kremlin figures that Bush has been humbled enough).

It is difficult to think of two world leaders who are as closely aligned as Chavez and Putin. Sometimes it begs the question, who is using who?

From Reuters:

Speaking through an interpreter at the opening of a Latin American cultural centre in Moscow, Chavez said Russia and Venezuela were on the same side.

"We, like you, are fighting for a fair world based on respect for all peoples. American imperialism is destroying peoples, undermining their traditional cultural values," he said.

"I want to recall Lenin's work, 'What to do' in which he described imperialism as the last stage of capitalism. The world is returning to this idea."

Chavez said that at his last meeting with his ally, Cuban leader Fidel Castro, the two men had raised a toast to Putin for a speech in Munich in February when he attacked Washington for trying to impose its will on the rest of the world.

Two Bürgermeisters – Two Views

By Grigory Pasko, journalist

The Oberbürgermeister [mayor] of Greifswald, Dr. Arthur König, met me and my translator at precisely the appointed time. “German punctuality”, I joyfully exclaimed. True, exactly half an hour later I was no longer so happy about it – at precisely the appointed time, the good doctor politely excused himself and said that he must be off to his next meeting. Even though it was clear that our conversation was still far from over.

From the very start of our talk, Dr. König expressed a firm confidence that the builders of the gas pipeline would not cause harm to the environment. And he repeated three times that he is in favor of the pipeline, not against it. I dutifully wrote down his opinion three times in my notebook.

He spoke about the pipeline and its impact on life in the city. Dr. König emphasized several times that the pipeline will give a boost to economic development not only in the whole area, but, naturally, in the city itself as well.

Photo of Greifswald Oberbürgermeister Arthur König by Grigory Pasko

This would be a good place for me to say a few words about the city. Greifswald is an old Hanseatic port city located right on the shore of the Baltic Sea, not far from such countries as Denmark, Finland, or Sweden. Not very far away in one direction is the island of Rügen and the magnificent Jamsund National Park with its white chalk cliffs, and the adjacent tiny island of Hiddensee, which is also in a nature preserve zone. In the other direction is the island of Usedom, divided between Germany and Poland, and featuring beaches of fairytale-like beauty. Perhaps the most important point of interest in Greifswald itself is the University, one of the oldest in Europe, founded in 1456.

So naturally there are many college students in the city, including some from Russia. Here’s how one of them described his life there: “Greifswald is a real university town. There is a multitude of libraries and university buildings, bookstores… Despite the predominantly rainy and overcast weather, the friendly and warm-hearted residents have created a hearty and hospitable atmosphere here. It’s a place where you don’t feel like you’re an outsider, but on the contrary, you get the impression that you’re very much a part of it, that you add to it and at the same time get everything it has to give from it.”

There’s one part of town where the former employees of the former Nord nuclear power station live. The station is located 20 kilometers from Greifswald, about 4 kilometers from Lubmin, which we visited in my previous instalment. The city is also home to the Max Planck Institute for Plasma Physics, a cutting-edge research institute.

Photo of the Greifswald town square by Grigory Pasko

In the Middle Ages, Greifswald was a member of the trading alliance known as the Hanseatic League. The typical architecture of those times, known as “Brick Gothic”, can still be seen all over the old part of the city. The historical center practically didn’t suffer at all in the years of the war: they say the commander of the German garrison there had the good sense to surrender to the Soviet troops without putting up a fight. There are even a few graves of fallen Soviet warriors in the town. And nobody is talking about moving them someplace else.

Otherwise, Greifswald is just like any other small old German town: a central square with its medieval Rathaus [town hall], a cathedral, stores, restaurants, hotels…

At the Rathaus is where I met with Bürgermeister Arthur König. It turned out that last year he had visited Khanty-Mansiysk in the oil-rich area of Western Siberia, where he had gone at the invitation of the local governor. However, there isn’t a single Russian town, or an American one for that matter, among Greifswald’s “sister cities” (a popular international amusement). Considering the construction of the gas pipeline, it would be logical to think about the possibility of acquiring a sister city in Russia – how about Babayevo? When I suggested this to the Bürgermeister, he didn’t seem very enthusiastic to me, although he did approve of it. In my opinion, it wouldn’t be bad at all if Russian – for example Babayevan – schoolchildren and residents could come and visit Greifswald and Lubmin – in order to see with their own eyes the place to which their gas is transported, bypassing them, and those people who use this gas.

Dr. König talked about how the impact of the pipeline will be positive for Greifswald; that the designers and builders would successfully resolve the environmental problems, for example the chemical weapons lying on the bottom of the Baltic Sea.

It turned out that the Bürgermeister of the town of Lubmin, Herr Klaus Kühnemann, was of a totally different opinion concerning the pipeline and its role in the life of the region.

Photo of Lubmin's greatest asset, its beach, by Grigory Pasko

In part, he expressed concern that Lubmin might lose its attractiveness to some tourists because three large industrial facilities – a gas compressor station and gas-fired and coal-fired power generating plants – will appear in the region all at once, hundreds of hectares of forest will need to be cut down for the pipeline right-of-way, and the construction of a gas storage facility may have a negative impact on the ecosystem of Greifswald Bay. “Of course”, he said, “at EWN [Energiewerke Nord GmbH, owners of the defunct nuclear power station – Trans.] they no doubt told you that everything will be normal, everything will be taken into account… Maybe, but for now I haven’t seen such precise calculations and conclusions and am not familiar with them.”

Photo of Lubmin Bürgermeister Klaus Kühnemann by Grigory Pasko

Two mayors – and two diametrically opposite views of one and the same problem. It seems to me that both officials are right. The first one is right that demand for gas is increasing in Germany and in all of Europe (according to the estimations of specialists – from 530 billion cubic meters in 2005 to 600-700 billion in 2015). And since the production of gas in the European Union is experiencing a decline, 75% of demand will have to be covered at the expense of import (in 2005, the share of import comprised 57%).

And the second mayor is right that grandiose projects, as a rule, come hand-in-hand with risks of an ecological character.

What didn’t either of the mayors mention? That deliveries of natural gas are an important topic in the energy dialogue between the European Union and the Russian Federation. The EU is regarding the project for the construction of a new gas pipeline as one of the priority energy products that serves Europe’s interests. But do the Eurocrats also understand that it is necessary to stimulate competition on the energy and gas markets, increase the reliability of deliveries, and protect the environment (Articles 154-156 of the Treaty of Amsterdam of 1997)?

And will the North European Gas Pipeline Company take all this into consideration? Only time will tell.

The author would like to thank interpreter Bernhard Clasen for his assistance in preparing this article.

Today there is an interesting op/ed in the Wall Street Journal concerning the attempt by LVMH to buy Les Echos, France's leading business newspaper - a debate mirrored only by the panic in the United States over the possible takeover of Dow Jones by Rupert Murdoch's News Corporation. The WSJ editorial, written by a reporter from Les Echos, fears that the new ownership would pose a threat to the editorial independence of the newspaper and a general lack of credibility of business news in France.

But couldn't agreements for editorial independence be drafted, like with Murdoch and Dow Jones? Vincent de Feligonde writes "Even if legal protections were drafted -- a system that has yet to be implemented at any publication in France -- it would be insufficient. The sheer size of LVMH requires business journalists to write about it almost daily. Since January, the group's name alone has appeared 124 times in the pages of Les Echos; that doesn't include the mention of myriad brands owned by LVMH, such as Dior, Louis Vuitton, Guerlain or Moët."

This problem of media ownership and editorial independence resonates most strongly in Russia, where instead of LVMH, we are dealing with the Kremlin and Gazprom's ownership of the majority of media - the two subjects that reporters have to write about almost daily. We're not only dealing with the tight grip on Channel One, RTR, and NTV - in recent years, Gazprom-Media has bought controlling stakes in an increasing number of business newspapers such as Izvestia, and last year, metals magnate and Putin ally Alisher Usmanov bought Kommersant - Russia's most important business news source.

Given the highly public concerns in the United States and France over the reliability of economic and company news under business ownership, do we really think we are getting an accurate story on Russia's business environment?

Next week a special program will be held on July 3 and 4 titled "Human Rights and Democracy in Russia" as part of the Finnish-Russian Civic Forum 2007 in Helsinki. Grigory Pasko, special correspondent to this blog, will be speaking on a press freedom panel along with editors from Novaya Gazeta and Limonka, and Yuri Schmidt, a member of the Khodorkovsky defense team, will be speaking on rule of law. The Civic Forum also maintains an English blog here - featuring an interview with Garry Kasparov yesterday.

Not the first time the iPod's marketing fame has been deployed for rhetorical purposes.

In an effort to convince Russia to tone down its rhetoric over the missile defense issue (and to stop threatening to retarget nuclear warheads at European cities), yesterday NATO Secretary-General Jaap de Hoop Scheffer appealed to Putin and Lavrov's pop culture sensibilities. From the Moscow Times:

"In this already fairly complicated discussion, it is advisable to lower the volume a bit," [Jaap] de Hoop Scheffer said at a news conference. "Because as it is with your iPod, if you put the volume too high, it will in the long run damage your ears."

He added: "If you do that in international diplomacy, you might in another sense damage your ears."

Dmitry Trenin is now arguing that Putin could arrange for Sergei Ivanov and Dmitri Medvedev to share power - installing one in a weakened presidency, and the other as a stronger prime minister with a docile supporting cabinet.

Points for creativity, but I wonder how this prediction will affect the futures contract market for the next President of Russia on Trade Sports....

Goldman Sachs is touting a new report today proclaiming that BRIC countries (Goldman's nickname for the new powerhouses of Brazil, Russia, India, and China) are now home to more of the top 20 global energy companies by market capitalization than the United States. Predictably, the most notable feature of this shift is the rise of state-owned firms.

AP:

At the end of the first Gulf War in 1991, 55 percent of the 20 largest companies in the energy industry by market capitalization were American, and 45 percent were European, according to the Goldman Sachs Group Inc. study.

But in 2007, 35 percent of the 20 largest energy companies are from BRIC countries, about 35 percent are European, and about 30 percent are American, the study said.
...
Irving, Texas-based Exxon Mobil Corp. is still the No. 1 energy company by market capitalization today, as it was in 1991, Ling said.

But he said it is now followed by the likes of PetroChina Co., a unit of state-owned China National Petroleum Corp.; OAO Gazprom, the Russian state-controlled gas monopoly; Petroleo Brasileiro SA, or Petrobras, Brazil's government-run oil company; Sinopec, also known as China Petroleum & Chemical Co.; Russian oil producers OAO Rosneft and OAO Lukoil; China National Offshore Oil Corp.; and Oil & Natural Gas Corp., India's state-owned oil company.

"So you have major state energy companies that have entered the market capitalization ranks," he said. "I think it's a combination of the U.S. energy industry falling dramatically behind the rest of the world for a number of reasons."

Today I came across news of the latest Russian invasion of London and New York: the arrival of Baltika beer.

The arrival of Russian consumer consumer goods to Western markets is long overdue, and a very positive development for the private sector. Support this trend - within moderation of course.

From a press release: "Baltika Beer Showcased at The Bar Show 2007 in New York City"

As American consumers are becoming more interested in specialty beers, mostly imported from Europe, Baltika sees a unique opportunity to lay claim to the emerging market. “The appeal of Baltika’s line of beers and its most distinguishing property is the combination of strength and light taste,” explains Dmitry Kistev, Baltika’s Director of Exports. “Where a strong Belgian lager is heavy, Baltika’s No. 9, while retaining the same properties, is easier to drink,” adds Kistev.

“US, being the second largest beer market in the world, is strategically important to Baltika,” says Dmitry Kistev. The company plans to reach this market through taste trials, rather than investing in major advertising campaigns. The experience has shown that Baltika’s presence at shows, such as The Bar Show 2007, has created more interest in Baltika’s beers and an opportunity for American consumers to get to know the brand and its unique line of beers.

The FT: "West to get a taste of the great Russian beer"

But Anton Artemiev, its president, was in no doubt about the significance of the licensing deal with Scottish & Newcastle, Britain's biggest brewer.

"The start of licensed production in western Europe of Baltika, one of Russia's most popular brands, is a natural step in the process of integrating Russia into the world economy," he said.

Baltika is owned by Baltic Beverages Holding (BBH), a 50:50 joint venture between S&N and Carlsberg, the Danish brewer.

Interviewed recently in Edinburgh, Mr Artemiev said: "It is the first licence for consumer goods from modern Russia to a western company.

"It is quite normal for it to be the other way around. We just hope there will be some more examples – but we are happy to start."

Today, on Mikhail Khodorkovsky's 44th birthday, I'm proud to announce the launch of a French-language version of this blog, offering translations and unique content about human rights, politics, and the energy business in Russia for French speakers.

http://www.robertamsterdam.com/france

Since our launch last September, we've had a tremendous response to the English and German versions of the blog, and I hope that by offering our content and information on one more platform, we can help inform and contribute to the debate in France - an extremely important country for European relations with Russia following the "auto-pilot policy" of the Chirac era.

There are some indications for optimism that France will be able to summon the political will to reassert its former status as an international defender of human rights, and make the difficult decisions necessary in order to get EU-Russian relations back to into the structure of a constructive engagement based on mutual respect, bound by the rules and norms of international laws and agreements.

An interesting confluence of events this week in European-Russian energy politics is revealing an acceleration toward catharsis. ENI has announced the South Stream pipeline "mega project" with Gazprom, Austria's OMV is making moves for control of the Hungarian firm MOL, and eight EU member nations have delivered a letter urging European Commission to take action on Neelie Kroes's efforts to "unbundle" suppliers from distributors to protect consumers from monopolistic (not to mention political) manipulation.

How many more hits can European unity take? The loyalty to Russian state-owned suppliers shown by many national champions in Germany, Italy, and France is increasingly opposed by other EU member states seeking to deepen energy security - creating an unsettling polarization effect.

According to the FT's report, eight countries led by Denmark (including Spain and the United Kingdom), have written to the EC to reiterate their view that "Independent transmission system operators without ownership interests in production and supply will ensure the best possible incentives for investments in infrastructure." The unbundling measure supported by the competition commissioner could eventually mean that companies like Gazprom would have to sell its transport infrastructure to the EC - something strongly opposed by France and Germany to protect their national champions. However, even OMV is fighting unbundling, arguing that it makes it even harder for firms to commit the huge investments to alternative supply pipeline projects such as the Nabucco (and it is also assumed that its bid for control of MOL has to do with the challenges faced from competing pipeline projects).

Source: ENI

The timing of the EC letter is fortuitous, as the proposal of the South Stream by ENI and Gazprom will give Moscow even greater power over its perceived opponents. As Vladimir Socor of EDM writes: "South Stream significantly increases Russia’s options to play consumer countries and various national energy champions in Europe against each other," and also points out that Gazprom is over-investing in European distribution infrastructure while not putting enough back into production - meaning that in the future Europe can expect Russia turn the taps off and on as rewards and punishment to countries because there simply won't be enough gas and oil to get pumped through all these pipes: "Euphemistically referred to as “flexibility,” surplus pipeline capacities (if built as intended) will enable Russia to switch export directions for large hydrocarbon volumes -- favoring one or another direction, country, or national champion -- according to a system centrally managed from Moscow. The Kremlin seeks to become the political manager of an energy supply system for Europe under conditions of tight or even deficit supplies in the medium term."

As the ink begins drying on the MoU to study the project, the South Stream has already proven itself to be an extraordinarily effective political tool for Russia to further disaggregate Europe. Bulgaria is dying to get in on the new pipe, and seeing as Greece is already a Gazprom franchise with the Burgas-Alexandroupolis oil pipeline, PM Konstantinos Karamanlis didn't hesitate a beat to throw his country's support behind South Stream.

It is arguable that the Kremlin is still enjoying the confident swagger it carried following the St. Petersburg Economic Forum, an event at which Western businessmen of all stripes congratulated the president for his stellar management of Russia, despite the current highway robbery of BP at Kovykta. The chairman of Royal Dutch Shell even stood up to publicly thank Putin for having unburdened him of one of his company's most important investments at Sakhalin-2. Following this display, it seems only natural that the Kremlin felt entitled to mount a baseless sham of a tax probe against William Browder - just as a punishment for having spoken about transparency and shareholder rights, as well as they felt entitled to pressure PricewaterhouseCoopers into rescinding on its audit reports of Yukos in a scarcely believable turn of events attempting to legitimize the persecution of Mikhail Khodorkovsky.

The crisis over energy in Europe and the mounting victims of Russia's lawless resource nationalism share many qualities that policymakers and investors seem yet to grasp. So short are our memories that we have forgotten each incremental step which has led us to this point? The clock is ticking for Europe to save itself, and it is clear that the current path will not remain sustainable in the new geopolitical reality of energy relations with Russia.

Robert Amsterdam was quoted today by Agence France Press and Associated Press in regards to the withdrawal of PricewaterhouseCoopers' reports for Yukos.

AFP:

Khodorkovsky's lawyer, Robert Amsterdam, told AFP that PwC had been "uniquely informed and intimate with the audits they were working with."

The accountancy group, which was an advisor to the oil firm, was "involved in every fibre of the business," Amsterdam said.

He linked the decision by PwC to withdraw its audits to pressure put on the company and claimed the company's license in Russia had been threatened.

"We're writing history anew. There's nothing standard about a situation where an auditor has files seized at gunpoint and then conveniently decides a few months later after its license is threatened to change an audit report," Amsterdam said.

AP:

One of Khodorkovsky's defense lawyers, Robert Amsterdam, accused the Russian government of pressuring PricewaterhouseCoopers to withdraw the reports, so that they will be inadmissible during the new Khodorkovsky trial.

"This demonstrates the complete absence of evidence in the position of the Russian government," Amsterdam said.

In the new issue of Foreign Affairs, Azar Gat has a fascinating argument that the authoritarian capitalism as practiced by Russia may represent an alternative path to modernity - and that the future triumph of global liberal democracy is not inevitable, and may in fact be threatened by this phenomenon. (As though Francis Fukuyama hadn't been proven wrong enough times....).

Excerpt:

The question is made relevant by the recent emergence of nondemocratic giants, above all formerly communist and booming authoritarian capitalist China. Russia, too, is retreating from its postcommunist liberalism and assuming an increasingly authoritarian character as its economic clout grows. Some believe that these countries could ultimately become liberal democracies through a combination of internal development, increasing affluence, and outside influence. Alternatively, they may have enough weight to create a new nondemocratic but economically advanced Second World. They could establish a powerful authoritarian capitalist order that allies political elites, industrialists, and the military; that is nationalist in orientation; and that participates in the global economy on its own terms, as imperial Germany and imperial Japan did.

It is widely contended that economic and social development create pressures for democratization that an authoritarian state structure cannot contain. There is also the view that "closed societies" may be able to excel in mass manufacturing but not in the advanced stages of the information economy. The jury on these issues is still out, because the data set is incomplete. Imperial and Nazi Germany stood at the forefront of the advanced scientific and manufacturing economies of their times, but some would argue that their success no longer applies because the information economy is much more diversified. Nondemocratic Singapore has a highly successful information economy, but Singapore is a city-state, not a big country. It will take a long time before China reaches the stage when the possibility of an authoritarian state with an advanced capitalist economy can be tested. All that can be said at the moment is that there is nothing in the historical record to suggest that a transition to democracy by today's authoritarian capitalist powers is inevitable, whereas there is a great deal to suggest that such powers have far greater economic and military potential than their communist predecessors did.

China and Russia represent a return of economically successful authoritarian capitalist powers, which have been absent since the defeat of Germany and Japan in 1945, but they are much larger than the latter two countries ever were. Although Germany was only a medium-sized country uncomfortably squeezed at the center of Europe, it twice nearly broke out of its confines to become a true world power on account of its economic and military might. In 1941, Japan was still behind the leading great powers in terms of economic development, but its growth rate since 1913 had been the highest in the world. Ultimately, however, both Germany and Japan were too small -- in terms of population, resources, and potential -- to take on the United States. Present-day China, on the other hand, is the largest player in the international system in terms of population and is experiencing spectacular economic growth. By shifting from communism to capitalism, China has switched to a far more efficient brand of authoritarianism. As China rapidly narrows the economic gap with the developed world, the possibility looms that it will become a true authoritarian superpower.
...
So does the greater power potential of authoritarian capitalism mean that the transformation of the former communist great powers may ultimately prove to have been a negative development for global democracy? It is too early to tell. Economically, the liberalization of the former communist countries has given the global economy a tremendous boost, and there may be more in store. But the possibility of a move toward protectionism by them in the future also needs to be taken into account -- and assiduously avoided. It was, after all, the prospect of growing protectionism in the world economy at the turn of the twentieth century and the protectionist bent of the 1930s that helped radicalize the nondemocratic capitalist powers of the time and precipitate both world wars.

On the positive side for the democracies, the collapse of the Soviet Union and its empire stripped Moscow of about half the resources it commanded during the Cold War, with eastern Europe absorbed by a greatly expanded democratic Europe. This is perhaps the most significant change in the global balance of power since the forced postwar democratic reorientation of Germany and Japan under U.S. tutelage. Moreover, China may still eventually democratize, and Russia could reverse its drift away from democracy. If China and Russia do not become democratic, it will be critical that India remain so, both because of its vital role in balancing China and because of the model that it represents for other developing countries.

Two Worlds, Two Houses

Will a pipeline be able to connect them?

By Grigory Pasko, journalist

Editor’s note: Today we begin publication of the second half of a series of articles by journalist Grigory Pasko in which he tells about his trip to the places where the North European Gas Pipeline – now being called Nord Stream – is being built (click here to see the first seven articles in the series). This time, Grigory visited Greifswald and Lubmin in Germany, then traveled by ferry from Travemünde to Helsinki – a route that largely corresponds to that of the future pipeline along the bottom of the Baltic Sea. Grigory arrived in Helsinki a few hours before he was to give a presentation at hearings conducted at the Finnish Parliament on the subject of “The Baltic Sea Gas Pipeline – a challenge to the EU and regional co-operation in the Baltic Sea area”, where he also premiered a rough cut of the first part of a documentary film he is making for us about the pipeline project:

Hearings took place in Helsinki in the middle of June on the ecological component of the construction of the Nord Stream gas pipeline. There were politicians, environmentalists, scholars, and journalists present, and even a representative of the company Nord Stream – deputy technical director Dirk von Ameln. Inasmuch as Dr. von Ameln was in a great hurry, we only had a chance to exchange business cards and to agree that we would meet for an interview some time in the future.

I gave a small talk about my journey along the ENTIRE route of the North European Gas Pipeline, and discovered in passing that there wasn’t a single other person among the participants in the hearing who had traversed the ENTIRE route – the section under the Baltic Sea AND the land portion in Russia. So I had something to tell them. And a few things to tell the readers of this blog.

The official reports about the undersea portion of the North European Gas Pipeline usually indicate two points – the start of the pipeline in Russia’s Vyborg and its end in the German Greifswald. Actually, the start is located 66 kilometers from Vyborg – on the fringes of the village of Bolshoy Bor, in Portovaya Bay. Same thing goes for Greifswald: in actuality, you’ve got to drive over 20 kilometers due east from Greifswald, to the seaside resort town of Lubmin, and then a few kilometers more, until you get to the Nord nuclear power station, which was shut down 15 years ago. It is here, in the industrial zone of a former East German nuclear power plant, that the undersea portion of the Nord Stream pipeline will make landfall.

[Editor’s note: Had Grigory traveled east just another 12 kilometers, he would have come to another location long associated with bringing two nations closer together – in a slightly different way: the former dreaded Luftwaffe test site at Peenemünde, where Nazi engineers headed by Dr. Wernher von Braun developed and tested the world’s first ballistic missile – the V-2 – which brought England within striking distance of German firepower in the times of the Great Patriotic War (1941-1945) and ushered in a new era in human history: that of long-distance warfare from the comfort of a control room.]

My interpreter Bernhard Clasen and I arrived in the morning. The sun was already fiendishly hot. A stupendous beach tempted visitors. The sea was giving off a leaden coldness, but there were nevertheless already people desiring to take a dip in the water, even though it hadn’t yet gotten as warm as it ought to get.

Photo of sign welcoming holidaymakers to the seaside resort of Lubmin by Grigory Pasko

At the very beginning of my German interviews, I met with the local inhabitants. One of them, Frau Heitrun Moritz, welcomed me in her second home – a hotel and restaurant on the shore of Greifswald Bay. She spoke about how she’d spent her entire life here, and that there was no place better or more beautiful anywhere on earth. “And where else on earth have you been?”, I asked. “Nowhere!”, she replied with enthusiasm.

It was difficult not to agree with Frau Moritz – the sea in Lubmin truly is incredibly beautiful. A magnificent beach, a pine forest nearby, the clean sea air… They say the sunsets in these parts are breathtaking. A bit to the east of all this beauty you can see the dark strip of a levee. “That’s the canal that leads to the nuclear plant”, explained Frau Moritz. “And there, just past the levee, is where they’ll lay the pipe.”

Photo of the beach on Greifswald Bay near Lubmin by Grigory Pasko

It turned out that the local inhabitants and representatives of the local power – our conversation had been joined by a member of the Greifswald city council, Herr Gerhard Bartels – are not against the gas pipeline: in addition to gas for all of Germany and Europe, it will bring jobs to an economically depressed region of the Land [German State] of Mecklenburg-Vorpommern [Mecklenburg-Western Pomerania]. Around 7 thousand people found themselves without a job after the nuclear power station was decommissioned. The official unemployment figure in the region is 25%. In the words of Herr Bartels, it’s actually more like 30%. In the opinion of many specialists, the plans for building two power plants – one running on gas and the other on coal – as well as a gas compressor station on the territory of the former nuclear plant will revive the regional economy and bring new life to its development.

Photo of Frau Moritz and Greifswald city councilman Bartels by Grigory Pasko. They’ve got every reason to be worried.

The whole question is how to combine economic expediency and environmental safety in the region. After all, the power plants are going to harm the environment in one way or another. For example, over 300 hectares of forest will need to be chopped down south of Lubmin in connection with the laying of the pipeline. While Lubmin today is widely known as a resort town, is it going to remain popular after the gas- and coal-fired power plants and the compressor station are built?

Frau Moritz is an ardent fighter for ensuring that all environmental norms are observed, and she hopes that German laws will not allow the builders to violate these norms. One can understand her: the guests at her hotel and restaurant come there, among other reasons, because of the pristine environment of the region.

Photo of a typical home in Lubmin by Grigory Pasko

...Gerhard Bartels told me how his 80-year-old mother likes to watch the sunsets on Greifswald Bay. I was reminded of Margarita Alexandrovna, the 70-year-old pensioner from Babayevo, who doesn’t like it one bit that she’s got to heat her home with firewood, but has no choice because there’s no gas line running to her house, even though two of her sons work for a Gazprom subsidiary.

And I also recalled that the inhabitants of Russian towns didn’t talk much about the environment, unlike the residents of Greifswald and Lubmin. Probably because the Germans don’t have to think about roads: they think about the forest – about how to save it from encroachment by the “gas civilization”.

“Frau Moritz”, I asked. “What’s your greatest wish?”

“That all people would make peace with one another and learn how to respect the interests of others. And also it pains me that your people live in poverty. While we here think that we’ve got the right to this gas…”

Photo of a typical home in Babayevo by Grigory Pasko

Frau Moritz also expressed her amazement that there are more millionaires living in Moscow than anywhere else (by concentration on a small territory). While the Germans are constantly collecting humanitarian aid for the Russians.

Judging by what I had seen in Babayevo, the German aid doesn’t always reach those who need it. And by the way, there are people who are poorer than the Babayevans: they may not have Russian gas, but at least they’ve got the hope that it will come to their homes. The way it once came to the Germans in central Germany. And the way it will come to the Germans again in the vicinity of Greifswald. Perhaps – and most likely – it will once again come to the Germans sooner than it comes to the Russians.

Medvedev closed the Gazprom-ENI deal, but Sergei Lavrov continues to get the spotlight. Here he speaks at the 15th Summit of Black Sea Economic Cooperation Organisation (BSEC) in Istanbul June 25, 2007. REUTERS/Fatih Saribas (TURKEY)

In its never ending quest for access to Russia's energy resources, the Italian firm ENI has announced the signing of a MoU with Gazprom to build a nearly 600-mile natural gas pipeline under the Black Sea, which is expected to transport 30 billion cubic meters, or 1.05 trillion cubic feet, of natural gas annually and will cost upwards of 10 billion euros. The pipeline, which will be called South Stream, will make Europe even more reliant on Russian energy supplies, and allow Gazprom a great degree of direct access to European consumers - challenging the "unbundling" concerns of EU competition authorities who want to keep supply and distribution companies separated.

In response to these concerns over market failure and monopoly control of European energy by a foreign government, Gazprom has been characteristically confident and cheeky: "If principles of communism have come to the EU, someone should let us know," Deputy Chief Executive Alexander Medvedev said.

Similar to its counterpart deal with German firms E.ON and BASF to bring gas to Europe while circumventing politically inconvenient transit countries (the NordStream), ENI and the Italian government have been instrumental in assisting Gazprom's plan to put an end to Turkey's control over critical energy transit routes to Europe. Let's not forget that at the behest of the Kremlin, ENI became one of the first foreign companies to own assets stolen from Yukos - obtained in an auction process so fraught with irregularity that any sensible company wouldn't touch the properties with a ten-foot pole. These seemingly inadvisable actions are made possible but Gazprom's irresistible promises to turn Italy (or Germany, or Hungary, or Austria, or Bulgaria) into a gas supply hub, promising to build storage facilities that would give each country regional clout.

Obviously, not everybody can be a transit hub, and it's high time that Europeans began paying attention what Gazprom is promising to so many different partners and begin negotiating jointly.

From the WSJ

William Browder, formerly one of the most well known evangelists for investing in Russia, is fighting back against the Kremlin's allegations of tax evasion.

In his first comments since the Russian investigation became public this month, Mr Browder insisted in an FT interview that the case was groundless. It involved a company with which Hermitage Capital, Mr Browder's investment firm, had only an advisory relationship. "This so-called tax allegation is completely fabricated and has nothing to do with any real taxes or violations," Mr Browder said.

Mr Browder, whose firm manages Russia's largest foreign portfolio investment fund, has been denied entry since November 2005 under a legal article allowing foreigners to be barred "in the interest of ensuring the security of the state".

Many Moscow investors share Mr Browder's suspicions that the ban was somehow triggered by his campaigns for better Russian corporate governance. Targets have included the Russian energy companies Gazprom and Surgutneftegaz, and Sberbank, the biggest state-controlled bank.

Mr Browder's treatment is particularly piquant since he has promoted investment opportunities in Russia.
...
Mr Browder said Russia's federal tax service had never raised questions about Kameya's tax returns or payments, and it was not clear why the interior ministry had launched its probe. "We believe that the only target of this whole thing is to discredit Hermitage and me in order to keep my visa from being reinstated," he said.

Over the weekend, accounting firm PricewaterhouseCoopers (PwC) finally folded under Kremlin pressure and withdrew its Yukos tax reports. Prosecutors have threatened to revoke PwC's license in Russia.

Some quotes:

Former Yukos managers Steve Theede, CEO from July 2004, and Bruce Misamore, chief financial officer from April 2001, said in a statement yesterday that during their tenure, the information provided to PwC was complete and correct. "It is inconceivable that there is any 'new information' that PWC did not have already or had access to because they had full access to everything available to the management of the company," they said. A spokeswoman said the former managers, whose tenure ended with Yukos's bankruptcy declaration in 2006, have written to PwC's CEO in the U.S. seeking an explanation.

And from the FT (front page story):

"I don't think anyone is going to believe this is anything other than bowing to pressure from the Kremlin," said Tim Osborne, managing director of GML, the main shareholder of Yukos. "I'm astonished to see such a complete lack of backbone in an organisation like that."

The move will strengthen the Kremlin's case against Mikhail Khodorkovsky, the jailed Yukos founder, who faced additional charges from prosecutors this year that he embezzled more than $32bn in company revenues and laundered the proceeds.

The case, which critics say is aimed at keeping the Kremlin opponent behind bars beyond 2008, was contradicted by the numbers disclosed in the company's GAAP accounts.

The withdrawal will also weaken the hand of Yukos and its main shareholder, GML, in seeking restitution in international courts for the dismantling of Yukos.

PwC said in a statement yesterday that its decision to pull the audits was "influenced by the fact that some former shareholders and management of Yukos are continuing to encourage others to rely on PwC's audit reports".

Below is an extract from Anna Politkovskaya's "A Russian Diary: A Journalist's Final Account of Life, Corruption, and Death in Putin's Russia", a stunning, must-read book was just recently released in the United States. Over the coming weeks, I'll be doing some more blogging and discussion on this book.

From Part II, Russia's Great Political Depression, April-December 2004 (pp. 153-155):

July 27

Igor Sechin, the éminence grise of the Kremlin, a deputy head of Putin’s administration, has been appointed chairman of the board of directors of the state oil company Rosneft. Sechin personally oversaw the dismemberment and destruction of Yukos and the arrest of Khodorkovsky. His appointment to head Rosneft, which claims the choicest parts of Yukos, proves the Kremlin destroyed Yukos for its own benefit. Its ideology requires the formation of s “state economy,” supposedly run on behalf of the people. In reality, it is a bureaucratic economy whose principal oligarch is the government official. The higher the official, the bigger the oligarch.

This ideal of state oligarchy appeals to Putin and to an exclusive coterie around him. The underlying concept is that Russia’s major revenues come from the export of raw materials, so the state should control natural resources, and “L’état, c’est moi.” They suppose they are the cleverest people in the country, know best what is good for the rest of us, and accordingly what those revenues should be used for. In order to service the supermonopolies of Rosneft and Gazprom, monster financial conglomerates like Vneshtorgbank are being enlarged and are conquering new territories with the aid of the presidential administration.

These supermonopolies are generally controlled by former secret policemen who are now oligarchs. Putin trusts only these Chekist oligarchs, believing that, because of their common origin in the intelligence services, they understand what is in the best interests of the people. Everything must go through their hands. Putin’s immediate circle and, seemingly, Putin himself believe that whoever controls the natural resources markets has a monopoly of political power. While they are in business, they are in power.

There is some truth in this. Many Latin American military juntas remained in power by ensuring that the institutions of repression and the government – which was part of those institutions – controlled all major business. The detail overlooked by the Putin regime is that such juntas were invariably overthrown by other juntas, and often quite soon.

There is no place in our junta for the youth wing of Yabloko or the young National Bolsheviks. In Moscow “Youth Yabloko” have mounted a demonstration lasting several seconds outside the FSB building in Lubyanka Square. The young people are increasingly independent of the “old” democrats.

The demonstration was not officially sanctioned. The young people threw ball bearings with red paint at the memorial plaque on the building depicting Yur Andropov (the new cult of Andropov, as someone who planned to reform the Soviet system without destroying it, is being meticulously fostered by Putin’s administration) and wore uniform black T-shirts with a portrait of Putin crossed out and with the slogan “Down with Big Brother!” They carried placards reading “Down with the police autocracy!” They chanted, “Demolish the Lubyanka and smash the regime!” and “Down with the power of the Chekists!”

The demonstration was rapidly broken up; there are always plenty of militia around in Lubyanka Square. Nine activists were taken away to the FSB before being moved to the Meschansky militia station. At about 8:00 in the evening, eight of them were released. Two are in the hospital: Irina Vorobiova, twenty-one, and Alexey Kozhin, nineteen. They were taken away in an ambulance summoned to FSB reception. The chairman of the youth wing of Yabloko, Ilya Yashin, stated that Kozhin had been beaten up during interrogation by FSB Sr. Lt. Dmitry Streltsov. The activists said that when they began to disperse after the demonstration, they were trapped in the side streets by people in civilian clothes who assaulted them. A number of journalists from NTV, Echo TV, and Nezavisimaya Gazeta were also detained, and the militiamen threatening to confiscate their cameras. The journalists were released only after everything they had filmed had been taken from them.

The Economist also sees the logical progression from Yukos to Shell to BP:

The creation of TNK-BP, which had seemed to signal a new dawn for foreign investment in Russia’s oil industry, in fact marked its zenith. Mr Putin first turned on Yukos, a private oil company with many foreign shareholders that was led by Mikhail Khodorkovsky, an uppity tycoon. Mr Khodorkovsky had been in talks with Exxon Mobil and Chevron about a possible sale of a stake. The authorities bankrupted the firm with swingeing tax bills, while Mr Khodorkovsky found himself jailed for fraud. Next, the government turned its sights on Shell, which was developing several oil and gas fields off Sakhalin Island in Russia’s far east. After officials stepped up complaints about environmental breaches, Shell and its partners got the message and sold Gazprom a majority stake in the project.

For some time now, this blog has been closely following several overlapping story threads related to corruption in the Turkmen-Ukraine gas trade, Gazprom and others' participation in the shadowy trading firm RosUkrEnergo, the Austrian bank Raiffeisen Zentralbank's (RZB) possible ties to money laundering and the murder of Andrei Kozlov in Russia, and, in case this weren't all too much, a little bit about the family power struggle in Kazakhstan (although Registan and Bonnie Boyd are the go to sources on that one).

Today there is breaking news that Dmytro Firtash, a Ukrainian gas tycoon who owns 45% of RosUkrEnergo (Gazprom controls the other half, and Raiffeisen formerly served as the trustee to guard Firtash's stake), is about to go through a pretty nasty divorce.

Once again it seems that all roads lead to Vienna - the preferred banking capital for the unsavoury deals of the East. Over the past year, Firtash has been working to consolidate all his assets, including RosUkrEnergo as well as the Hungarian gas company EMFESZ under one conglomerate called Grupo DF (GDF) to prepare for a couple of IPOs. However, the divorce might blow the roof off the deal, and could potential bring some dirty laundry out to air.

The FT reports:

But a family feud could challenge Mr Firtash’s bold plans.

In a Financial Times interview, Maria Firtash said she would seek a 50 per cent interest in the businesses, or equal compensation, through litigation. She claims to have played a major role in setting up the businesses.

Ms Firtash, who is 51, was in her mid-30s when she met Mr Firtash in the early 1990s and nearly a decade older than Mr Firtash. She said they initially worked together in what was largely her business. Later she promoted Mr Firtash to commercial director of her business and married him in 1996, she said.

“Later I gave him legal rights over many of these businesses. I had licences and traded in gas. We traded in foot products, traded in many things. This was our joint work,” she said.

The mother of two has challenged a divorce settlement that she signed almost two years ago. The package is said to be valued at tens of millions of dollars.

She claims not to have received full compensation and argues that the settlement was not legally sound to begin with.

The former couple have clashed in Ukrainian courts. On May 11, Kiev’s Pechersky district court ruled the divorce settlement agreement non-binding. Mr Firtash is expected to appeal. Ms Firtash pledged to fight to the highest jurisdiction to gain control over half of the assets.

“I will file lawsuits in all countries,” she said.

BP has lost Kovykta, as expected, but come out of a deal with Gazprom better than it might have.

By Tom Nicholls

ANGLO-Russian oil major TNK-BP has sold the Kovykta gasfield to Gazprom, losing its long fight to hang onto the asset. Gazprom will pay $700-800 million for TNK-BP’s 63% stake in Rusia Petroleum, which holds the Kovykta licence. That will also include Rusia's 50% in the East Siberian Gas Company, which is constructing gas pipelines near the field.

As such, TNK-BP will receive something approaching a market price for its asset. Given that it had been facing the loss of the Kovykta licence for a contractual infringement and risked receiving nothing, this looks a reasonable outcome.

BP's Tony Hawyard looks chuffed

Several other bonuses were rolled into the sale agreement. BP, TNK-BP and Gazprom have signed a memorandum of understanding to set up a strategic alliance to “invest jointly in major long-term energy projects or swap assets around the world”. Initially, they will look for projects worth “at least” $3 billion, but BP chief executive Tony Hayward says the potential for further growth is “very significant”. In addition, once that agreement is in place, TNK-BP will be entitled to buy back a 25% plus one share stake in Kovykta at “an independently verified price”.

The agreement – if Russia sticks to its side of the bargain – will probably open opportunities to BP inside Russia, as a partner of Gazprom, that would otherwise have been closed. Gazprom, meanwhile, may be able to accelerate its drive to buy downstream assets, mainly gas-supply infrastructure, outside Russia.

The Kremlin has long been determined to regain control of the 2 trillion cubic metre field. And Rusia’s failure to fill a contractual obligation to supply a large amount of gas to local markets gave it the leverage it needed to muscle TNK-BP out of the project.

In reality, supplying the Irkutsk region with the stipulated 9 billion cubic metres a year would have been impossible – it could have accommodated around one-quarter of that only. But if BP once assumed that clause could be renegotiated, it misjudged the political mood in Russia, where a field the size of Kovykta cannot remain under state control. In the end, the clause proved a convenient device for renationalisation.

TNK-BP’s Kovykta experience follows Shell’s lost battle to retain its production-sharing agreement on Sakhalin Island. Rumour is that the authorities will now turn their sights on the Sakhalin-1 project, operated by ExxonMobil. On past form, it doesn’t seem unlikely.

If the Kremlin's fleecing of BP at Kovykta were a film, you'd probably get up to leave about halfway through having recognized the hackneyed, boring plot borrowed from previous films, such as the Yukos affair and the great train robbery of Royal Dutch Shell at Sakhalin-2. The plot twists and cliffhangers simply fail to surprise us these days: Gazprom has repeatedly claimed it has no interest in Kovykta, and that the threat to strip TNK-BP's license has nothing to do with its interests!!! Is that true? Of course not. Will Tony Hayward fight for shareholders' interests, or be made to publically thank Putin just like Jeroen van der Veer of Shell? It's a no brainer that Hayward will not be afforded a chance to save face - he's already advocating for Russia's interests with a Schroeder-esque zeal.

An aerial view shows the production station of the Kovykta gas field in the Irkutsk region in eastern Siberia (Reuters)

And so the news today that BP has folded under regulatory pressure, and will pass majority control of the Kovykta project to Gazprom comes as no surprise to observers. But the truth is that BP has been dragged even closer into the Kremlin's embrace than could be imagined. With the surrender of this gas field, responsible for a staggering amount of BP's worldwide production plans for the future, the British company has also signed a memorandum of understanding with Gazprom for asset swaps across the the globe. To boot, the public statements from both sides following this sordid transaction could only generously be classified as "pure bollocks." (see bold below)

When I have more time later on, I will continue with an analysis of how this agreement illustrates the Kremlin's "sticky power." Stay tuned...

From the FT:

BP and Gazprom reach deal over Kovykta

By Ed Crooks in London and Catherine Belton in Moscow

Gazprom is to buy TNK-BP’s controlling stake in the vast Kovykta gas field in Siberia, a deal that cements state-controlled Gazprom’s control over the Russian gas sector and resolves a long-running stand-off with BP’s Russia venture.

BP and TNK-BP have also signed a memorandum of understanding on creating a strategic alliance with Gazprom for investing in long term strategic projects or asset swaps across the globe, BP said in a statement on Friday.

BP and Gazprom plan a wider international joint venture as part of the deal.

TNK-BP is to cede its 62.89 per cent holding in Kovykta to Gazprom, but has been given the option to buy a stake of 25 per cent plus one share in Rusia-Petroleum, the licence holder of the Kovykta field, at a market price, BP said. The option is to be activated once agreement is reached on international projects.

Gazprom is paying TNK-BP between $700m and $900m for the Kovykta stake and a half-share of a local company that is building gas infrastructure in eastern Siberia. The exact sum will be set in the next 90 days.

The pressure placed on BP over Kovykta is the latest move in Russia’s strategy of exerting more control over its natural resources, and using its leverage to help Gazprom.

However, BP sought on Friday to put a positive gloss on the news. ”This historic agreement lays the ground for powerful co-operation between BP, TNK-BP and Gazprom,” said Tony Hayward, BP chief executive. ”We will be initially looking for projects of at least $3 billion, but the potential for future growth could be very significant.”
...
Talking about the field recently, Vladimir Putin, Russia’s president, indicated BP could retain a role in the Kovykta project:

He said the dispute over Kovykta was ”not about BP, not about the foreign partner, but about all the shareholders that took the obligations to develop this field, and unfortunately didn’t meet the licence terms”.

From the AP:

Moscow bar refuses to disbar well-known defense lawyer

The Moscow bar association has refused to disbar a well-known defense lawyer known for representing jailed billionaire Mikhail Khodorkovsky and Russian opposition figures, an official said Thursday.
...
Olga Martsinyuk, a secretary for the Moscow Board of Attorneys, confirmed the board had decided Thursday not disbar Moskalenko, but gave no further details. The decision comes nearly two weeks after a board committee also recommended against disbarment.
...
"I think that by trying to control my lawyers, the prosecutors are not defending but violating my rights," he said in a June 8 letter.

U.S. lawmakers and members of Russia's Duma during a meeting at the Capitol in Washington, Thursday, June 21, 2007. Pictured from left to right: Tom Lantos, Nancy Pelosi, Konstantin I. Kosachev, Leonid E. Slutskiy, Natalia A. Narochnitskaya, Alexander A. Kozlovskiy, Vasily F. Kuznetsov, and Alexey E. Likhachev (AP Photo/Charles Dharapak)

Just a few days before US lawmakers are due to hold a two-hour joint session with members of Russia's Duma today, the House passed the attached resolution calling on Russia to take active measures on unsolved murders of journalists.

110th CONGRESS

1st Session

H. CON. RES. 151

CONCURRENT RESOLUTION

Whereas Paul Klebnikov, the editor of the Russian version of Forbes Magazine, who was investigating suspect business dealings and corruption cases in Russia, was shot to death in Moscow on July 9, 2004;

Whereas Mr. Klebnikov's murder remains unsolved;

Whereas Anna Politkovskaya, an acclaimed Russian journalist and human rights activist who wrote numerous articles critical of Russia's prosecution of the war in Chechnya, of human rights abuses by the Russian government and of Russian President Vladimir Putin was shot to death in Moscow on October 7, 2006;

Whereas Ms. Politkovskaya's murder remains unsolved;

Whereas Ivan Safronov, a military affairs reporter for the Russian newspaper `Kommersant' who wrote articles criticizing the failure of Russian military programs and who was planning to report on potential Russian arms sales to Middle Eastern countries, including to state sponsors of terrorism Iran and Syria, died in mysterious circumstances, falling five stories from a window in the stairwell of his apartment building in Moscow on March 2, 2007;

Whereas, Russian prosecutors subsequently suggested that Mr. Safronov may have committed suicide, although he left no suicide note and the circumstances surrounding his death raised unanswered questions;

Whereas the cause of Mr. Safronov's death remains undetermined;

Whereas, according to Reporters Without Borders, twenty-one reporters have been murdered in Russia since March 2000 and many of those murders remain unsolved;

Whereas, according to Reporters Without Borders, Russia was one of the six most dangerous countries for journalists to work in during 2006;

Whereas a number of those reporters who were murdered had reported on alleged corruption, malfeasance and other controversies at the federal, provincial and local levels of government in Russia;

Whereas a number of those murdered had reported on alleged human rights abuses by the Russian Government;

Whereas a number of those murdered had reported on the Russian government's conduct of the war in Chechnya, which has involved numerous allegations of gross human rights violations and corruption;

Whereas, if journalists are killed or silenced through undue pressure with impunity, a vibrant and participatory civil society sector cannot emerge and democratic developments are stalled; and

Whereas, according to the President of the International News Safety Institute, `murder has become the easiest, cheapest and most effective way of silencing troublesome reporting, and the more the killers get away with it the more the spiral of death is forced upwards': Now, therefore, be it

Resolved by the House of Representatives (the Senate concurring), That Congress--

(1) recalls the essential role that transparency and the free flow of information play in creating and preserving democratic institutions and civil society in any country;

(2) recognizes the vital contribution made by independent journalists in Russia in bringing transparency and a free flow of information to readers after decades of Communist censorship and repression;

(3) notes the disturbing trend of murders of independent journalists in Russia over the last decade;

(4) encourages the President of the United States to formally offer Russian President Vladimir Putin and other officials of the Russian Government United States Government law enforcement investigative assistance to help identify and bring to justice those responsible for the many unsolved murders of journalists in Russia during the past decade; and

(5) urges President Putin to seek out competent, outside law enforcement assistance in the investigation of the unsolved murders of numerous independent journalists in Russia.

Passed the House of Representatives June 18, 2007.

Fools and Roads, Part III

By Grigory Pasko, journalist

Having visited various cities of Russia, I can’t avoid noticing the roads. My most recent trip, to northern Russia to report on the construction of the land portion of the North European Gas Pipeline, was no exception. Not only the roads of Vologda and Babayevo left their impression on me, so too did the comments of those people who in one way or another are responsible for the condition of these roads.

On 10 June, Vologda turned 860 years old. I got to observe the preparations for the celebrations when I passed through the city on my pipeline journey.

Two circumstances immediately caught my eye. First, there are almost no sidewalks in the city. Instead, there are pits and sloughs. Even at the bus stops, there are yawning water-filled potholes, and the people stand and wait off to the side of the stop itself so as not to get soaked when the bus drives through the giant puddle when arriving at the stop. And second, the preparation for the celebration was clearly felt in one place – on Kremlin Square (near the St. Sophia and Resurrection cathedrals, the Vologda Kremlin). Why just there? Because the Patriarch of All the Russias had promised to come and attend the city’s celebration.

It is an unspoken but firm rule in all the Russias that holes in the roads are patched up only for the arrival of the big bosses. Of course, the holes should be patched not in the roads, but for starters, in the heads.

Where’s the sidewalk? Photo of a typical Vologda scene by Grigory Pasko.

On the day of my arrival, the local newspapers were writing about how it was planned to spend a record sum – 250 million rubles – in the year 2007 for improvement of the roads and streets of Vologda (I immediately remembered Samara, where 3 bln. 840 million rubles was allocated for these same purposes, but the roads still weren’t done). And in Vologda too, the local power had already hastened to note: it is difficult to spend such a quantity of funds, because “mechanisms, specialists and materials” are needed (they forgot to mention that you also need integrity, brains, and a conscience). It was particularly noted that problems of provision with asphalt are found under procuratorial oversight («Vologodskiye novosti», 23 May 2007) (Goodness gracious! What DOESN’T the Russian procuracy get involved in?)

Photo of Kremlin Square being repaired on the eve of the Patriarch’s arrival by Grigory Pasko.

It is noteworthy that this same issue of the newspaper reports about an increase in the discharge of pollutants into the atmosphere by 60 tons just this year alone. Indicated among the number of principal polluters are, you guessed it – asphalt-concrete plants.

Nearly all the local newspapers quoted generously from an appearance at a press conference by the deputy head of the city, Valentin Gorobtsov. He, in part, told that it was planned to spend 470 million rubles in 2007 alone for provision of urban amenities in all of Vologda (once again I recalled Samara).

Gorobtsov also uttered a wonderful phrase that shed light on the essence of such a purely Russian phenomenon as “permanent road repairs”. He said: “On the road leading to the park, we are going to do a good hole repair. And just past the cemetery, we will restore an asphalt path for pedestrians.”

Do you understand? In Russia, they don’t repair roads, they repair HOLES. And pedestrian paths – where else, if not only by the cemetery?

On a related note, in the town of Babayevo of Vologda Oblast the roads are just as bad as in Samara Oblast, where I was recently in the days of the work there of the Russia – EU summit. The head of the town of Babayevo told a correspondent of the local newspaper «Nasha zhizn» [“Our life”] the following. It turns out that 200 thousand rubles have been allocated from the budget for “hole repair”, 700 thousand – for full asphalt paving of streets. But the head of the Rayon had complained to me that the gasmen aren’t participating in any way with their money in the construction and repair of roads.

What other good things has the power done for Vologda? The representative of the power went down the list: they will put up 300 additional garbage urns [Translator’s note: Instead of trash cans or baskets, Russian cities boast tiny pseudo-classical urn-shaped trash containers cast from concrete or metal. Because they are so small, they get filled instantly, and there is always a pile of trash on the ground around them. However, they are too heavy to lift, and some are permanently mounted on swivels, so when the time comes to pick up the trash, the driver of the garbage truck sits in the cab smoking while an elderly lady steps out, tips the urn over and empties its compacted contents onto the sidewalk, then uses a short broom made of bundled twigs to sweep the mess into a small dustpan and throw it piece by piece into the back of the truck. See image below.], they will continue beautification with the planting of flowers, all of the city cemeteries have already been brought “into compliance”, they have “accomplished the bronze-plating of monuments”, they have organized the delivery of war veterans to holiday events, they have erected a stage for the orchestra…

A typical Russian urn rubbish bin

All of this from the point of view of expenditures costs mere kopeks. I made it a point to find out the expenditure side of the Vologda budget in 2006. It turned out that 193 million rubles were spent on so-called “whole-country questions” (that is, “bronze-plating of monuments” and erecting stages for orchestras). For comparison: 148 million rubles were spent on the whole housing and public utilities infrastructure of the city, and 47 million on culture.

Once upon a time, a native son of these places, the Russian poet and writer Varlam Shalamov, who spent just a hair less than two decades in the Stalinist camps of the GULAG, wrote about Vologda: “Sometimes it’s too dusty, vulgar, and carnal; other times it’s too exile-like. And too lacy.” Lacy – he’s referring to the famous Vologdan lace craft. I saw examples of it in the stores of Vologda – beautiful and very expensive. Nowadays another kind of “lace” is in fashion: the promises of the power of a good life for people. Good roads barely make it to the very bottom of the list of what constitutes a “good life”. Only life keeps moving ahead, while roads are something Russia has never had, and still doesn’t have.

(Also see Part I and Part II of this series)

I wish I could say that DSG's prudent estimation of political risk in Russia were indicative of a wider trend, one in which businesses began to recognize the true extent of the threat of state corporatism and began investing elsewhere, thereby motivating rule of law reforms - but the truth is we are still pretty far from a tipping point. However I'll bet that the upcoming non-democratic transfer of power has many people thinking twice as to whether or not Putin's successor can keep such a steady hand over competing powers.

From the FT:

DSG, Britain's biggest electrical retailer, yesterday said it was abandoning a planned acquisition in Russia, blaming "corporate, economic and political risks".

The decision not to acquire Eldorado, the country's leading electrical retailer, comes as the British government intensifies warnings to businesses about the risks of investing in Russia and just days after Tony Blair warned Vladimir Putin that the West was becoming "worried and fearful" about what was happening in his country.

"Political risks can change," said John Clare, DSG chief executive. "An assessment of the political risks today, I have to tell you, might be rather different than two years ago."

The board decided not to proceed after almost two years of due diligence on the group, which has more than 600 stores and operates across eight time zones.
...
One person who has met Mr [Igor] Yakovlev described him as "pretty ruthless" in business. "He is a very hard negotiator, very protective in terms of information. If DSG had taken 10 per cent they would have been treated as a minority shareholder and nothing more."

The Financial Times revealed this month that the British government was intensifying warnings to businesses about the risks of investing in Russia. The harder line follows Moscow's moves to take control of energy assets from foreign companies.

Sergei Lavrov gets cozy with ally President Mahmoud Ahmadinejad of Iran during an official meeting in Tehran June 20, 2007 (Reuters)

Yet again, more hostile words from the Russian leadership aimed at escalating tensions with the United States. After all the placating at the G8, and efforts by friends in Europe to smooth out these rough patches, and even a week long bonanza of brownnosing from the world's business leaders - this is what you get. Moscow evidently finds confrontation advantageous to its interests.

From TASS:

MOSCOW, June 21 (Itar-Tass) -- The current state of Russian-US relations is alarming, Russian Foreign Minister Sergei Lavrov told an audience at the Carnegie Endowment Center in Moscow on Thursday.

“There has developed alarm in the world in connection with the current situation,” Lavrov said, adding there was a gap in the foreign policy aspirations of Moscow and Washington.

“Russia will by no means yield to any attempts at ideologization, let alone those coming from outside,” the Russian foreign minister said.

There's an interesting analysis running on Stratfor which points out that although it would be economically wise to cut gas supply agreements with China, Gazprom made this call with politics in mind. Apparently, Dmitri Medvedev's sinking fortunes in the "competition" for the presidential appointment vis-a-vis Sergei Ivanov has driven him to make some risky moves with Gazprom, but China is well aware of its influential weight as a consumer, and embarrassed him by refusing to pay above Russia's domestic gas prices.

I wouldn't worry about any of Medvedev's so-called "temper tantrums" - the worst thing for a presidential candidate in Russia is to be the frontrunner. Putin will likely step in soon and tee up a few easy points for Medvedev to score in order to maintain balance, and, most importantly, uncertainty.

Stratfor:

Medvedev knew he needed a big success to arrest his slide and figured that getting the Chinese to sign on to a high-dollar natural gas deal was the trick. But when he and the Chinese sat down to negotiate specific pricing, the Chinese refused to commit to paying more than Russia's (subsidized) domestic prices of about $100 per 1,000 cubic meters. (The Chinese much prefer to deal with Rosneft since Rosneft has a reputation for treating customers and partners as equals, as opposed to Gazprom's more autocratic attitude.) For Gazprom, this was simply a nonstarter: Gazprom charges nearly three times that for its natural gas exports to Europe, and that is through infrastructure that already exists.

In the aftermath of this meeting, Medvedev was mad at China for making him look the fool, and mad at Rosneft for outmaneuvering him (again). So, in essence, he threw a temper tantrum, and the announcement that a deal with China is bad for Russia was the result. For someone who wishes to be president, that was certainly a miscalculation.

Despite the creative (at best) economics of the Russia-China natural gas pipeline plans, those plans are a critical facet of the Moscow-Beijing and Moscow-Brussels bilateral relationships. The Kremlin supports the ideology of a multipolar world to contain the United States, and what better way to symbolize that system than to build up the idea of a grand Russian-Chinese economic partnership? That partnership also can be used as a threat to encourage European cooperation -- the subtext being that a Europe unfriendly to Russia could be a Europe without Russian energy. Medvedev's little outburst exposed the core fallacy of Russian foreign policy: that Russia has economic options.

Putin is not pleased.

But Putin does not have any magic bullet for the situation. Putin personally trained Medvedev for nearly 20 years, ever since the two first met in the St. Petersburg mayoral office before the end of the Cold War, so the president cannot simply drop Medvedev like a hot beet. That would be tantamount to admitting that the all-knowing, all-powerful Putin was not only wrong, but also that he had been wrong for years.

There is one additional complication. Russian media and culture are very adept at building up cults of personality, and both have been fixated on Medvedev for months. Consequently, even as Medvedev's political potential is crashing and burning, his public image has shot up to rock star -- many would say sex symbol -- magnitude. Putin might not be able to pull the plug even if he wants to.

The safest course, then, is to whittle away at Medvedev's responsibilities, both in Gazprom and the government, while slowly turning down the wattage on his press exposure in the hopes of darkening his image and edging him out of the public mind.

But remember, it is not that Medvedev is incompetent; it is that Putin feels he is both too emotional and too popular to be president. Medvedev likely still has a place in not just Putin's government but also in the next administration. But if he displeases the Kremlin again, he could well consider committing suicide with a sniper rifle from across the street.

Early notice: drop everything, go out, buy, and carefully read the following two important books:

Savage Century: Back to Barbarism by Therese Delpech

And of course, A Russian Diary: A Journalist's Final Account of Life, Corruption, and Death in Putin's Russia by Anna Politkovskaya, Scott Simon, and Arch Tait

Over the next few weeks, I'm planning on heavily discussing, citing, and debating these texts, which I think are the two most important books on Russia available this summer. I hope you can join in.

Garry Kasparov is visiting my hometown of Toronto this week, and has given a speech at the Empire Club arguing Kurt Goedel's "incompleteness theorem" for Russia - arguing that Russia cannot solve some of its problems internally without outside help. I believe it is safe to say that both Garry and I share a certain level of disappointment with Western governments and businesses for their lacking will to confront Russia.

Garry Kasparov in Toronto, Canada (AP)

Other quotes:

"Things are getting worse now ... (Russian President Vladimir) Putin has learned that if he does things in small steps, the West will say little and do nothing," Kasparov said. "We ask that the leaders of the free world stop providing Putin with democratic legitimacy."

Toronto Star:

And, he insists with the unshakable confidence for which he's famous, "two weeks of unrestricted television and this regime will go bust. It can only continue with suppression of the media. But things are changing, and when people understand what is going on, by the end of the year we will be living in a different reality."

CTV:

Kasparov expressed dismay that Western leaders have not taken Putin to task for the worsening situation in Russia.

"Canada, the U.S. and Europe are doing a lot of business with China, but nobody is rushing to call Chinese leaders democrats," he said.

Canadian Press/CBC:

"I do not know the name of the exact person who murdered Anna Politkovskaya but I know their address."

Say what you will about Poland's activist foreign policy, but you'd have to admit that they have become one of the EU's most active young members. However, the exposed emotion of the Kaczynski brothers' comments is unnerving to many in the Union - especially their willingness to spend enormous political capital to block the new EU treaty on voting rights which would give much more weight to large population countries like Germany. As punishment for their outspoken opposition, EC Commissioner Jose Manuel Barroso has threatened Poland to step into line or risk losing "solidarity" - which is EU code for drastically cutting back vital subsidies.

There are a lot interesting comments being exchanged over this comlicated issue that I have yet to digest, but one paragraph from a WSJ editorial resonates:

Some (usually Germans) claim that the Kaczynski brothers are motivated by a visceral dislike of Germany and a desire to spoil Ms. Merkel's EU presidency. Well, the Poles may be emotional, but that doesn't mean they are irrational. Nor that they have forgotten that Ms. Merkel's predecessor, who pushed through a big gas pipeline that circumvents Polish territory, now works for Vladimir Putin. With former Chancellor Gerhard Schröder advising a company majority-owned by Kremlin-controlled Gazprom, Polish concerns about German voting power don't sound so unreasonable.

A reasonable question to ask is if Poland would be still be raising such hackles over the EU treaty had Germany not cemented such unsavoury energy relations with Russia. Here we have a critical moment which illustrates the core problems of EU unity and its disaggregation - and concerns about Russia are right in the middle of it.

More to come later on....

A prominent human rights lawyer fears that Russia's Prosecutor General Yuri Chaika will intervene to force her disbarment

Tomorrow a disciplinary review board of the Moscow Bar Association will meet to decide whether or not to disbar human rights lawyer Karinna Moskalenko on the absurd grounds of failing to provide an proper defense for Mikhail Khodorkovsky. Now more than ever, she needs our unwavering support, and all those who argue that justice and regular procedure are still possible in Russia's courts should also passionately oppose this process, irregardless of their opinion of Moskalenko's clients.

From the Times:

Mrs Moskalenko told The Times: “Our complaints are always made against Russia but we are not against Russia. We are against the wrong actions of the Russian authorities. We are for Russia and Russia’s people and for improving its legal system.”

Her efforts brought an award from the International Helsinki Federation for Human Rights last year. She was elected to the International Commission of Jurists (ICJ), based in Switzerland, in 2003.

“The case against her has no basis in terms of her conduct as a lawyer,” Roisin Pillay, the ICJ’s spokeswoman said. “She is being victimised for representing people that the Government is opposed to, and that’s a concern for the rule of law in Russia.”
...
She is under no illusion about the real motivation for the attack after the failure so far of a two-year investigation by Russia’s tax police to force the closure of her law centre.

Mrs Moskalenko is relying on the independence of her legal peers, who form a majority on the disciplinary panel, to save her career tomorrow. But she fears that the Prosecutor-General will appeal to the courts, where it will be easier to secure a decision against her.

Portovaya Bay – a piece of nature still unspoiled

By Grigory Pasko, journalist

The starting point for the undersea portion of the North European Gas Pipeline will become a coastal compressor station, which will be built in Portovaya Bay (next to the city of Vyborg of Leningrad Oblast). Along the bed of the Baltic Sea, the right-of-way will be laid to the point of Greifswald on the German coast with a possible branch line to Sweden. Then the pipeline will pass through the territory of Germany and The Netherlands to the point of Bacton in Great Britain.

This is the intention of the builders of the pipeline. You and I, dear readers, have already been in Gryazovets, where the North European Gas Pipeline has its source, in Babayevo, and have driven past St. Petersburg and Vyborg. Now our route takes us to – Portovaya Bay.

…When my driver and I turned onto the highway leading in the direction of Finland, the sign by the side of the road warned us that we had just entered a border zone. Unlike many, if not most, Russian roads, the roads leading to Finland are distinguished by good quality. Local drivers say it was the Finns who forced the Russian authorities to make the roads like this.

However, after the village of Kondratievo, our route lay along a dirt road. Then a forest track, to the village of Bolshoi Bor. Here I asked my driver to stop. The local inhabitants were reluctant to answered all my questions, not just those that had to do with the gas pipeline: apparently, the influence of the border strip was showing itself. Even one of those who mustered up the courage to give an interview stipulated: don’t mention my job. Why?, I asked. This is a secret, was the answer.

What can I say? Even as far back as the end of the 1700s, the empress Catherine II [the Great] said: “In Russia, everything is a secret, but nothing is secret.”

The person was called Leonid. He looked to be over fifty. He says that he dreams before retirement to get a job at the compressor station that will be built in these parts. Of course, he doesn’t like it that trees are being chopped down in this locale, right next to his house, but he hopes that the ecology will not be greatly disturbed. But in general, he said, the gas pipeline is a good thing. And also, he is confident that the gasmen will certainly connect gas up to rural houses.

I didn’t really want to distress the person, but I had no choice, so I told him about how the inhabitants of Babayevo, who have literally been living on top of gas pipelines for 20 years already, don’t get to see this gas in their homes.

Leonid’s expression darkened.

Photo of an inhabitant of the village of Bolshoi Bor who dreams of getting a job at the future compressor station by Grigory Pasko.

After this, we drove in the direction of Portovaya Bay.

And so, about 5-6 kilometers past the village of Bolshoy Bor, we’re finally here. Leningrad Oblast. Vyborg Rayon. The Gulf of Finland. Portovaya Bay. The beauty around is indescribable. Birds singing all around us. Virgin forest. Pristine waters.

All this will be gone in a few months. Of course the builders will observe ecological norms. But the birds and trees will be gone. And the water will no longer be crystal-clear. There’s no way to avoid this. It’s the flip side of any construction project and just about any advance of modern civilization.

It has already been reported in the press that construction is planned in these places of access and technical roads, infrastructure, houses for the workers of the contractor organizations and the specialists who will be servicing the gas pipeline during placement on stream. According to the information of the directorate of construction of the North European Gas Pipeline, the fulfillment of all works is being carried out in precise conformity with the schedule. Modern technologies are being used, which provide for a high quality of laying of the pipeline, including under the Volkhov and Neva rivers. The course of the construction of the North European Gas Pipeline is found on strict control on the part of state supervisory organs and ecological organization.

My experience shows that in Russia, the words “strict” and “state” go together only in the event of the handing down of prison sentences to innocent people. They are rarely applicable to the environment.

Photo of Portovaya Bay by Grigory Pasko. The gas pipeline will come right through here.

The main thing ought to be noted: a conclusive environmental impact assessment of the entire Nord Stream gas pipeline does not exist. If construction – the laying of pipe – is taking place in the vicinity of Babayevo, then in the vicinity of Gryazovets construction has not even begun yet, while in the vicinity of Viborg, engineering-geological surveying and preparation of the right-of-way are being carried out. This is a very large complex of work, which includes measures with respect to ecology and a procedure for assessing the impact on the environment. It must be gone through on two levels – the national and the trans-national, when an expert evaluation of the project will be conducted for its compliance with the Espoo Convention (the Convention on Environmental Impact Assessment in a Transboundary Context, signed in the Finnish city of Espoo in the year 1991).

The actual laying of the pipeline along the bed of the Baltic Sea will begin in 2008. The overall length of the undersea right-of-way of the gas pipeline will comprise around 1200 kilometers; the maximum depth of the water in the places where the pipe will pass is 210 meters. It is known that modern pipe-laying vessels will be employed for the work. There are only four such vessels in the world, that could be employed during construction of the Nord Stream gas pipeline. They belong to Dutch, Italian, Norwegian, and Russian companies.

Representatives of the builders of the pipeline are assuring the public that access for Russian and foreign journalists to construction sites will be open even during the time of conducing assembly work at sea. It is very difficult to believe this, especially after I didn’t even get permission to talk with people servicing compressor stations.

But let’s wait and see. Russian territory is one thing, but the Baltic Sea – which, thank goodness, doesn’t belong to Russia alone – is something else.

Photo of your correspondent enjoying the beauty of Portovaya Bay while he still can by Igor Romankov.

If all goes well, my next series of reports for the blog will be from Germany – from that territory to which the gas pipe is going to come – the city of Greifswald.

Until then, auf Wiedersehen!

Watching the wrath of the Kremlin unfold against the harmless hedge fund manager William Browder is regrettably a familiar sight to me.

Congratulations, You’ve been Yukos-ed! William Browder, the most unlikely martyr of Russian state corporatism

When someone in government holds a personal or political vendetta against you in today’s Russia, they are not usually satisfied with just the first swipe at you – it is a complete and holistic process. The adversary is pursued ruthlessly and broadly, with little regard for the law or procedure (just ask Svetlana Bakhmina about her experience with political persecution under the Putin regime).

So how did Browder, who as head of Hermitage Capital Management has always been one of Russia and Vladimir Putin’s most enthusiastic supporters, find himself the target of a new criminal investigation which appears to have all the trappings of a political invention? Last year when he was suddenly denied entry to the country (despite being the country’s largest foreign investor), most people assumed he was just being taught a lesson for having spoken out about corporate governance reform and criticizing the opacity and unwieldy management of Gazprom. But in the meantime, two visa requests have been denied, and it seems that Browder’s audacity to talk about minority shareholders rights in Russia far outweighs the value of his pro-Russia boosterism and Kremlin cheerleading.

But never say the Kremlin doesn’t have a sense of humor when they invent false charges. Just like when they opened disbarment proceedings against Karinna Moskalenko for "failing to provide a proper defense" for our client Mikhail Khodorkovsky, they have really sought to embarrass Browder with savage irony: accusing him of a tax evasion scheme. "This is a serious sum of money and it would destroy the business reputation of anyone in the west," the Russian investigators said.

Just think – only a few months ago, Browder gave an interview to Ethical Corporation praising the Putin regime specifically for “creating a predictable and rational economic climate by making companies pay taxes.” Ouch! I’m sorry to be the one to let you know, Mr. Browder, but you’ve been Yukos-ed.

Looking back upon my 2005 midnight visit from plainclothes FSB officers, I never would have thought that a similar treatment would await Browder (I suspect he never saw it coming either). Although as a shareholder activist, Browder has always admirably called for greater transparency and improved corporate governance, measures with which I agree wholeheartedly, it was always accompanied by a reprehensible blanket permission given to the Putin administration to break the rules. It seems to be a common misperception among Western businessmen that if you praise the Kremlin and the Russian political leadership with flattering compliments and defend them from critics that it will make you safe from their persecution and protect you from lawlessness. Hopefully Browder's persecution will finally get the point across before too many more people end up eating their words - and sacrificing their credibility.

Naturally there are a lot of theories circulating surrounding the Hermitage investigation. Some say that they are just looking to justify the repeated visa denials. Others are speculating that Browder, as an American-born UK citizen, is just one more victim of the Litvinenko extradition drama. I think that given the preposterous nature of the probe, we are dealing with just another heavy handed message from the Federation to the world of business: “YOU CAN NO LONGER TELL US TO PLAY BY YOUR RULES.”

The Kremlin is now seeking to make an example out of Browder, and teach a tough lesson to anybody who thinks they can come into Russia and talk about instituting Western corporate governance, democracy, human rights, rule of law, or any other inconvenience. Browder has long been a crusader for minority shareholder rights, especially in Gazprom, but this is Russia - the Land of the Iron Law of 51%. This guiding principle of Russian state corporatism eliminates any need for practically any disclosure or reporting (thus multiplying the opportunities for graft and personal enrichment). When Putin recently called for a new architecture of international financial relations – it was just a euphemism to announce that the world will now have to tolerate the perils of the controlled economy as directed by state corporatism. With his attack on the market, he lives up to his claim as a “flawless” autocrat – securing a new dictatorship of law, a dictatorship of society, and now a dictatorship of economy.

The second motivation for the Kremlin to pull the Yukos technique on Hermitage is to scare other foreign investors into line, and remind anyone who may have become complacent that there are no rules, no laws, and just one authority to pay homage to. This has been incredibly effective, and many businessmen from around the world are willingly tarnishing their ethical records and years of hard work with the slightest obsequious praise for Russia, no matter what actions it undertakes domestically and internationally. Mr. Jeroen van der Veer of Royal Dutch Shell was of course the saddest example, who publicly thanked Mr. Putin for robbing the majority stake from his company – a move which has been ridiculed by observers the world over. I wish to remind all those bullish on Russia to take a look at the supportive public statements made by Browder over the years. The message is clear: even the most ardent supporters of the regime can fall by the wayside tomorrow. Such are politics in a den of thieves.

From left: Moldova's Prime Minister Vasile Tarlev, Ukrainian President Viktor Yushchenko, Georgia's President Mikhael Saakashvili, Azerbaijan President Ilkham Aliyev during the summit of GUAM (Georgia, Ukraine, Azerbaijan, Moldova) in Baku, Azerbaijan, Tuesday, June, 19, 2007. (AP Photo/Mykola Lazarenko, Pool)

Interesting meeting of a new alliance of former Soviet states reported on in the IHT:

Leaders of four ex-Soviet nations on Tuesday discussed ways to counterbalance Russia's wide influence in the Caspian and Black Sea basins at a summit of their regional grouping.

The summit is the first for the organization called GUAM-Organization for Democracy and Economic Development since its four member countries — Georgia, Ukraine, Azerbaijan and Moldova — agreed last year to deepen ties and cooperation.

The summit's host, Azerbaijan President Ilham Aliev, and other leaders spoke in support of extending the Odessa-Brody crude oil pipeline through Ukraine to bring Caspian Sea oil to a refinery in Plock, Poland, and on to the Baltic Sea port of Gdansk.

"Our countries are offering their political support to this project," Aliev said.

The pipeline would provide another outlet for European-bound, Caspian Sea oil to bypass Russia. Ukraine built the 667-kilometer (413-mile) pipeline in 2001, but it has remained largely idle because of bickering about whether to accept oil from Russia or to pump oil from Caspian Sea countries northward to Poland and on to the rest of Europe.

My regular readers are well familiar with the Russian state's methodology to extort energy assets under thin legal and regulatory precedents. After the dismemberment of Yukos, the beating on Royal Dutch Shell, and what looks like a ritual humiliation of BP at Kovykta, one would think that we would now be able to see the early warning signs.

When I saw today's news that Gazprom had requested that the government step in and block ExxonMobil's gas supply agreement with China from Sakhalin-1 (a request that the state rapidly complied with), I thought it might be possible that this is a beginning of a campaign to give a state-owned firm a larger stake in the project.

All the typical elements of hypocrisy were present. For example, Prime Minister Mikhail Fradkov said that "Sakhalin gas is meant for Russian consumers - without this gas there will be no regional balance." However, it seems clear that when the foreign companies signed up to participate in the joint venture (ExxonMobil, SODECO of Japan, ONGC of India, and Rosneft with 20%), they clearly hadn't been told that the gas would have to stay local. And in the same breath that Fradkov complains about a possible gas shortage because Gazprom hasn't reinvested a dime in production, the state announces ambitious plans for investment in export routes to China. Perhaps what Fradkov meant to say is that Sakhalin-1 will not be allowed to sell gas to China until Rosneft gets a bigger stake - which we will force you to sell at an extremely discounted price.

Stratfor has speculated (see below) that Rex Tillerson at ExxonMobil wouldn't put up with this kind of monkey business, so it is likely that SODECO will be the group to have to give up the most ground to the state extortion.

Say what you will about ExxonMobil, but few dispute that it is an inordinately well-run corporation with an excellent planning team. Consequently, ExxonMobil sports healthy reserves and has not been forced to make risky decisions in order to keep its share value strong.

This means the Russian government is extraordinarily unlikely to be able to replicate what happened at Sakhalin-2 in Sakhalin-1. Should the Russians follow their Sakhalin-2 playbook, ExxonMobil will simply walk away -- precisely what the company did a few months ago when it closed shop in Venezuela after President Hugo Chavez's government attempted to rework contract terms (in essence, what Gazprom did at Sakhalin-2). That would mean Sakhalin-1's end. Like Shell at Sakhalin-2, ExxonMobil at Sakhalin-1 is the only partner in the consortium with the technological and managerial expertise to keep the project going.

It will be interesting to see if these companies will choose to fight back just one time.

Former New York Times and Wall Street Journal reporter Steve LeVine has an interesting video up to pitch his upcoming book "The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea." The book won't be available until next October, so this is just a tease. Given the tremendous interest in a trans-Caspian pipeline to serve as a counterweight to Russian energy imperialism, Central Asia is clearly an area that West should be paying a lot of attention to.

It seems that Tony Hayward, the new chief executive of British Petroleum, does not respect your intelligence.

What, me worry?

He was quoted by several news stories circulating today regarding BP's "upbeat" attitude in Russia despite the regulatory attack on their enormous investment at Kovykta, and how they plan to ride this problem out and stay for the long term.

He says "Russia, like anywhere, has its risks. You only have to look at BP's experience in the US over the last two years to understand that doing business anywhere in the world can be challenging from time to time. Russia is no different," and describes Kovykta as "one of those bumps in the road, which we all have to navigate occasionally."

How gullible does Hayward think his audience is? We are talking about the future of British Petroleum being held hostage by siloviki thugs inside the Kremlin - and Hayward wants to pretend like TNK-BP, which is responsible for a whopping 25% of the company's annual production, is no big deal? This threat is just a "bump in the road?"

Is there any doubt that BP is playing Moscow Rules, and saying what they have to say to please the Kremlin rather than what they believe?

Today the Financial Times is running a rather laudatory executive interview with Fulvio Conti, who heads up the Italian energy group Enel. The majority of the interview is dedicated to a discussion of what is considered to be Enel's greatest coup - beating out the E.ON bid for the Spanish company Endesa, providing them with diverse electricity assets stretching from Spain to Portugal to Latin America.

In the interview, Conti reveals that the compromise deal was possible via a private, face to face agreement with the embattled E.ON Chief Wulf Bernotat, who was happy to accept a diverse collection of assets in Spain, Italy, and France after having had a number of setbacks and other failed acquisitions. While the Endesa affair was certainly one of the most dramatic chapters in the current saga of European energy competition, now the national champions look like they are willing to do anything to establish themselves on the next battleground: Russia.

Little do these companies know that it is Russia that will establish its interests through them. Conti, who some will recall outrageously obeyed the Kremlin's boycott of not attending his own speaking engagement at the London Economic Forum, helped Enel become one of the first foreign firms to own stolen Yukos assets. E.ON, on its behalf, has shown that it's hunger for natural gas to pump into its combine cycle electricity generation plants across Europe knows no bounds. The company has aggressively pursued pipeline deals with Gazprom including the NordStream, and has even followed the Kremlin's orders to speak out in defense of Russia's interests at the cost of European energy security. Enel just recently outbid E.ON yet again for a 25% stake in OGC-5, a Russian electricity generator.

In his FT interview, Conti boasted of the Endesa deal's "transformative" impact on the company, and the importance of spreading regulatory risk. Well, it seems that Enel is going to need that diversification for how much they are sinking into Russia. This competition between Enel and E.ON in Russia to acquire as much as possible as soon as possible raises many concerns. First, it is evident that they are willing to tolerate higher levels of risk as long as they are able to beat their competitor to access a market. Second, it is exceptionally clear from the fawning public statements and gestures made not only by E.ON and Enel executives, but also Wintershall, Royal Dutch Shell, BP and others, that a big part of the deal of doing energy business with Russia is proximity to power - you must go home and sing the praises of the Tsar.

Whatever They Demand of Us, We Do

By Grigory Pasko, journalist

A compressor station (KC in Russian) can be regarded as something like the brain of a gas pipeline. Here are found the most important services: line-operation, gas compressor, electricity supply, dispatcher, communications… It is not enough to merely lay a pipe under the ground – you need to keep a watch on the flow of the gas, the pressure inside the pipe, react to off-normal situations.

Photo of Compressor Station KC-2 in Babayevo by Grigory Pasko

The Babayevo KC isn’t the largest in the system of trunk gas pipelines of Russia. But it is typical. In recent times, the Babayevo KC is mentioned, in the main, in connection with the fact that the first joint of the North European Gas Pipeline was welded right here in the year 2005. However, one thing that caught my eye was a decision of session No. 2 of some kind of «Section of the power generation complex» on the topic “Problems of the creation of a system of trunk gas pipelines Yamal-West on the territory of the Komi ASSR” from the year 1985.

What was being spoken of in it was that the construction of gas pipelines and infrastructure along the trunks would allow population to be attracted into the regions and anchored there for operational and repair servicing of gas pipelines, transport communications, the construction and power generation base. And to do all this, it is said in the decision, is possible only “upon the creation of conditions for the formation of an all-sidedly developed Soviet person in accordance with the decisions of the XXVI congress of the CPSU and the April (1985) Plenum of the CC CPSU.”

I doubt that the youth of Babayevo, or even many of the workers at the KC, remember what a “developed Soviet person” and a “Plenum of the CC CPSU” are.

I got to hear about what KC-2 is today, how it works, how the construction of the Nord Stream gas pipeline is going from engineer Eduard Sudarinin, head of the service Vladimir Dudka, and head of the welding-and-assembly trust Sergey Belyayev.

Photo of Compressor Station KC-2 in Babayevo by Grigory Pasko

Engineer Eduard Sudarinin:

“KC-2 is a unit of the Sheksininsky line production administration of trunk gas pipelines. Pumping gas – that’s its principal task. From here the gas goes to the west – in the direction of Pikalevo, Tikhvin, Volkhov, and later to St. Petersburg and Leningrad Oblast. And it’s from right here that we will pump gas through the North European Gas Pipeline, too.

“Around 200 people work at Ks-2. Now there are two shops in operation; there will be two more built. The youth isn’t coming to work, the situation with cadres is strained. Our salaries aren’t the highest, the railwaymen’s is bigger, so that’s where they go.

“Indeed, not even every gasman has natural gas in his home. Many buy it liquefied in tanks at 275 rubles. This is a big minus, of course. Like the Russian saying goes: a boot-maker without boots.

Photo of Eduard Sudarinin by Grigory Pasko

“You say you’ve heard that gasmen live well? What does “well” mean? Here, for example, construction of residential houses for gasmen isn’t being conducted for 10 years. Many are built themselves, some rent apartments, some live with parents. It’s expensive to rent.

“Russian gas is going to Europe – that means, people should be living better. That’s the ideal. But in actuality – it’s not like that.

“The ecological component of the branches, in my opinion, is in order. «Gazprom» has an ecological program. Capital repairs are being conducted. Sheeting, garbage, plank roads – they clean everything up after themselves. Before, it was like a Mongol horde had just passed along the right-of-way…

“I have a higher education, since June 2001. I’m former military. Served on the Baltic Fleet up to senior lieutenant, in an electromechanical combat unit – BCh-5. Yes, I’ve heard about the chemical munitions in the Sea. That they’re there since the times of the war. I think that their danger – that’s big myths. The Swedes, the Balts are worried. But there’s going to be surveying, after all. So everything’s reliable, I think.”

Line-operation service head Vladimir Dudka:

“I think that pulling a branch of the gas pipeline along the bed of the Baltic Sea – that’s advantageous for Russia. Of course, the question is more political. But it’s justified technologically, too. Modern gas pipelines are designed for 50 and more years of operation. New technologies for welding, control, insulation allow considering gas pipelines reliable.

Photo of Vladimir Dudka by Grigory Pasko

“What kind of problems? Salary isn’t high. 20 thousand, like they told you in Gryazovets – that’s an exception to the rules. A line-walker has a salary of 4200 rubles. Plus bonuses and supplements – total 7 thousand rubles a month. You won’t get very far on that kind of money.

“You say in Germany people live well? It’s good wherever we’re not. And us… What about us? We work. Whatever they demand of us, we do.”

Head of OAO «Welding-and-Assembly Trust» Sergey Belyayev:

“Our trust – is the oldest organization in Russia for the construction of gas pipelines: this year it will be 60 years old. The trust stood at the sources of the construction of the pipeline transport of the USSR. A mobile company, over 800 persons highly skilled workers in this sector alone. We build pipelines of any designation and diameter. Photo of Sergey Belyayev by Grigory Pasko

Of course, on the territory of construction we hire local residents. We took 40 people, soon kicked out 10 – for drunkenness and absenteeism. We have 150 units of equipment. The pipes – of the Vyksninsky metallurgical combine, and the steel – Cherepovetsian, are designed for 40-50 years of operation. American CRC-EVANS automatic welding is applied for welding. The welding of a single joint is done during the course of one hour. The working pressure in the pipe will be 100 atmospheres. The pipes are heavy, one and a half times heavier than regular ones.

“The people, in the main, are highly skilled. Our earnings, I consider, aren’t bad. We fulfill the construction plan. We even had to accelerate the tempos at several sectors. Shipments of the necessary materials are being implemented without delays.”

Netzwerk Recherche, a German journalists' association, has awarded Putin the "Closed Oyster Prize" for his remarkable unwillingness to openly respond to media questions and his record on freedom of speech. It's no surprise that he didn't show up for the award ceremony in Hamburg....

German Reporters Chide Putin

The Moscow Times

German journalists have awarded President Vladimir Putin with their Closed Oyster prize for "continued obstruction of the free press in Russia."

"Putin is a flawless opponent of press freedom and relentlessly suppresses uncomfortable truths," said Thomas Leif of Netzwerk Recherche, the German journalists association that confers the annual prize to highlight impediments to the work of investigative reporters.

Heribert Prantl, one of Germany's most prominent political journalists, said in a laudation published Monday that Putin viewed himself the "caretaker of Russia's frailty" and would not allow this task to be complicated by a critical press or an independent justice system.

"Freedom of information in Russia means being free to love Putin. ... Freedom of the press means being free to write what Putin likes," wrote Prantl, a journalist with Sueddeutsche Zeitung.

Putin skipped the award ceremony in Hamburg over the weekend, and organizers said that the Kremlin never replied to their written invitation.

Kremlin spokesman Dmitry Peskov said the Kremlin appreciated criticism based on reality but as of late a lot of criticism has been simply for the sake of criticism, Kommersant reported.

"Closed like an oyster" is a German expression for somebody who is unwilling to talk about something. Among former prizewinners is Germany's discount chain Aldi, notorious for not responding to press inquiries.

From the Moscow Times:

Khodorkovsky to Be Sent to Moscow

The Moscow Times

Moscow City Court upheld on Monday a decision to transfer Yukos founder Mikhail Khodorkovsky from an east Siberian prison to Moscow amid an investigation into new theft and money laundering charges.

The court rejected an appeal by prosecutors, who sought to keep Khodorkovsky in the Chita region during the new investigation, court spokeswoman Anna Usachyova said, RIA-Novosti reported.

Khodorkovsky is serving an eight-year sentence after being convicted on fraud and tax evasion charges in 2005.

Khodorkovsky and his former Yukos colleague Platon Lebedev insisted on the trial taking place in Moscow because the crimes they are charged with took place in Moscow, said Lebedev's lawyer Yelena Liptser. Khodorkovsky has previously dismissed the money laundering charges brought against him as a "shameful farce" aimed at keeping him in prison until after the 2008 presidential election. He has predicted that judges would find him guilty after a short trial.

Fred Hiatt of the Washington Post asks a reasonable question: if Putin is so popular, and if Russia's power has been restored, then why does the Kremlin exhibit so many insecurities? Unfortunately, in the end, he is denied his answer...

Yet Putin and his minions do not radiate anything like self-confidence. At home, anyone with an independent perspective is treated as an enemy. Abroad, slights are suspected in every encounter, and every interaction is a competition that Russia must win. ...

The government long ago succeeded in destroying the country's strongest private energy company. Its onetime owner is in a Siberian prison, its assets have been seized by the state at fire-sale prices. Yet the Kremlin still seeks to disbar the 53-year-old lawyer, Karina Moskalenko, who represented the owner -- "on the remarkable grounds," as The Post's Peter Finn reported earlier this month, "that she has failed to adequately represent" that victim of state repression.

And while standards of living rise and foreign investment flows in, Russia's economic bullying of little neighbors only intensifies. Trade barriers against Moldova and Georgia have been joined by the closing of an oil pipeline to Lithuania, after that sovereign nation refused to sell Russia a refinery, and the blocking of commerce across a highway bridge to Estonia, after that sovereign nation relocated a Soviet-era memorial.
...
Putin and his aides rarely lose an opportunity to affirm that the president will leave office. But why should it even be a question, given that Russia's constitution bars a leader from serving more than two consecutive terms?

One answer lies in the erosion of the rule of law under Putin this decade. No one knows better than he that the tax police, prosecutors and every other arm of government can be wielded one way against the favored and another against those who have become inconvenient, so can Putin himself sanguinely give up power? The chief executive of a law-abiding company in a law-respecting country can retire peaceably to enjoy his pension, but you don't hear of many Mafia dons who step down and move to Florida.

Near the end of his presentation last week, I asked Shuvalov about this apparent contradiction: If Putin is so popular, and Russia so content, why does the Kremlin feel it must script the nightly news so tightly on national TV? Why the striking lack of confidence?

Putin's adviser said he could not reply on the record. His CSIS host encouraged him to reply off the record, so I cannot tell you what he said. But if his response would have, if reported, caused him difficulties back home, then the Kremlin feels even less secure than we suspect.

40% Satisfaction, Babayevo Style

By Grigory Pasko, journalist

The little town of Babayevo, which recently celebrated its 100th birthday, is nestled on the shore of a small river, the Kolp. Everything is small in this town – the houses, the monuments, even (or so it seemed to me) the people.

There is something big here too. But it’s not visible – three huge line gas pipelines, buried at a depth of one meter. In fact, Babayevo is famous for its railway junction – through which long trains pass carrying the people’s wealth (timber, coal, oil) to the west of Russia and beyond its borders – and its gas pipelines. Compressor station -2 in Babayevo is a structural unit of the Sheksninsky line production administration of trunk gas pipelines.

Babayevo is also famous because the welding of the first joint of the Russian land portion of the North European Gas Pipeline took place here in December 2005. Taking part in this grandiose, in the words of eyewitnesses, undertaking were prime-minister of Russia Mikhail Fradkov, minister of economics of Germany Michael Glos, chairman of the management board of OAO «Gazprom» Alexey Miller, chairman of the management board of «BASF AG» Jürgen Hambrecht, and chairman of the management board of «E.ON AG» Wulf Bernotat.

Photo of inscription on a memorial stele by Grigory Pasko. It reads “First weld. December of the year 2005. North European Gas Pipeline. Greifswald-Vyborg-Gryazovets. e.on, Gazprom, BASF”

It is known that for work on the sea portion of the NEGP project, the North European Gas Pipeline Company joint venture, registered in the canton of Zug (Switzerland), was created on 30 November 2005. In the capital of the JV, 51% belongs to «Gazprom», while 24.5% each belongs to «BASF AG» and «E.ON AG».

At the first weld ceremony, Miller spoke truthfully: “This project is calculated for the long-term perspective and is aimed at satisfaction of the growing needs of a united Europe for Russian gas”. That is, right from the very start, there was never mention about providing Russian residents with gas.

Of course, far from all the inhabitants of Babayevo heard Miller’s words. Which is why, when talking with me, they kept asking me when they, too, would at last be able to consume natural gas at a low price, instead of propane in tanks at a high price – 275 rubles per 50 liter tank (21 kilograms of liquefied gas).

When Babayevo was having its 100th anniversary celebrations, the then head of the Rayon, Anatoly Svatkovsky, summed things up: enterprises of the housing-and-public-utilities complex are funded at only 30% of the required amount. The debts of the Rayon for electric power comprise 2.5 mln rubles, for heat energy – 9 mln rubles. “However”, said he, “into the future we look with optimism.”

I met with the current head of the Rayon, Oleg Tishin. It turned out that he is looking at the present without optimism, let alone the future.

Thus, in part, Oleg Tishin told the following:

“Yet another gas branch is being built. The people continue to live as they have always lived – no worse, but no better either. Of course, the construction gave some an opportunity to find a job, organizations that fill our budget have appeared. But we had really hoped that the gas pipeline – and we’ve already got three branches of them – would give gas to the homes of all the citizens, and not just 40 percent of them. The town has had gas for more than 20 years already. But in the villages of the Rayon they don’t see it at all, only delivered in tanks.

Photo of Rayon head Oleg Tishin by Grigory Pasko

“The gasmen promised to help build a road to Siuch. They didn’t. Inside the town, the roads are bad – the gasmen have refused to help build them. But they use them for their needs, too, after all.

“The gasmen promised to help with the construction of a household solid waste (HSW) facility. They didn’t. Although this item is even in our joint agreements and in the obligations of the gasmen before the territory. By the way, the findings of the environmental impact study are positive for them.

“There are other claims with respect to the environment. For example, after pressure testing the pipes, where do they dump the water? Most likely into the river. But the nature-protection procuracy has no claims against them. But it does have claims against us – for not having an HSW facility.

Photo of garbage being burned by the side of the road in Babayevo, which can’t afford a town dump, by Grigory Pasko. The sign reads “Esteemed drivers and passengers! Please, do not throw garbage on the road! Respect the labor of road workers!”

“My variant of gasification? You’ve got to allocate money. Otherwise we have a paradox: we’re sitting on three branches, but don’t have any gas ourselves.

“The construction project is big, the finances are big… Why not make provision for putting money into your own populated centers?”

After talking with Rayon head Tishin, I went to one of the districts of the town – it’s called the Ustyuzhensky Tract over here. This district is on the other side of the railway tracks. There is no pedestrian bridge to there, so the inhabitants have to run across the tracks at their own risk and peril. Some, as they say, die under the trains. There isn’t any money for the construction of an overpass, either.

Photo of the Ustyuzhensky Tract by Grigory Pasko

Not only little old ladies live in this district, but also perfectly young people. Many of them work at the Babayevo compressor station KS-2. They, like all the inhabitants of the district, buy their gas in tanks. Galina Nikolayeva has been working at KS-2 for 21 years. And her husband Nikolai works there too. Margarita Kuropatkina is retired. But she’s got two sons working at KS-2. She, like her neighbor Galina, doesn’t have a gas line connected to her home. They’re among the unlucky ones who didn’t get a piece of Babayevo’s 40% gas pie.

Photo of Babayevo residents Margarita and Galina by Grigory Pasko

How many Russians haven’t gotten a piece of the national wealth pie? But it looks like the people have gotten used to this. They don’t complain. Why bother? We’re not living in the Arab Emirates, after all, to be expecting a piece of the national pie…

The FT challenges Gazprom to put its money where its mouth is, and stop playing around with a yet to be revealed Centrica bid, and dramatic statements to the press about "a major acquisition" in the UK gas market.

Gazprom and Vladimir Putin are clearly obsessed with taking control of the switch that turns the UK's lights on and off.

Mr Putin's infatuation was clearly laid out in hisdoctoral thesis in 1997 entitled "The Strategic Planning of Regional Resources Under the Formation of Market Relations" and arguedthat Russia's revival as a world power relied on seizing other people's oil and gas reserves.

Exactly how Gazprom thinks it can secure a stake in the UK gas market in order to supply 20 per cent of households by 2015 without making a big acquisition is baffling.

The only other substantial target is BG Group - a deal that both Shell and BP have tried to do for more than a decade and have failed because of the company's consistently high valuation.

For all its macho posturing, all Gazprom has managed to acquire so far in the UK is Pennine Natural Gas, in Wilmslow, Cheshire, which has about 600 customers. Pennine employs just 12 people in the UK - hardly the path to world domination.

While the Russians have been teasing their British counterparts, the Spanish have managed to snap up Scottish Power and the Malaysians have built a stake in Centrica.

But if Gazprom wants to be taken seriously as a western shareholder-friendly company then it must put its money where its mouth is and launch a takeover bid.

Otherwise, when it finally does admit its interest in a UK energy company and tries to arrange talks, it could find no one is willing to speak anymore.

A analyst from the Cato Institute has a letter published in the FT today in response to John McCain's recent article on Russia.

US needs policy not laundry list to deal with Putin

From Mr Justin Logan.

Sir, John McCain suggests a host of issues on which we must "be firm" with Russia ("Why we must be firm with Moscow", June 13). Nuclear targeting. Kosovo. The Conventional Forces in Europe treaty. The extradition of Andrei Lugovoi to Britain. The mysterious deaths of journalists in Russia. State-owned media. State seizure of assets. Moscow's response to Talinn's treatment of a Soviet war memorial. Russia's handling of energy resources. Russian policy in Ukraine, Georgia, Iran and Sudan.

What Senator McCain fails to describe is an overarching strategy for dealing with Russia. He offers not a policy, but rather a laundry list of demands that is unlikely to be met with anything other than intransigence from Moscow. By failing to prioritise his goals (might we not be willing to be less "firm" on Kosovo in exchange for enhanced Russian co-operation on Iran?), he threatens to undermine them all.

The democratic depredations in Russia are real and troubling, but they would be best dealt with in a framework where Russia feels its geopolitical concerns count for something in Washington. Moscow is increasingly convinced that they do not, and Senator McCain's essay could serve as Exhibit A for this belief.

Finally, for Senator McCain, who has been a full-throated advocate of the Iraq war and of American militarism more generally, to level charges of "Napoleonic delusion" against Vladimir Putin demonstrates either a shocking lack of self-awareness or a deep sense of irony.

Justin Logan
Foreign Policy Analyst
Cato Institute

The biggest problem with managing fraudulent elections and appointing the next president of Russia is that you just can't be sure that individual "elected" will remain under your control. Though they may look calm and confident, the most recent diplomatic swagger and hubris from Moscow serves to conceal what are most certainly moments of great panic and infighting.

From IHT:

Andrew Kuchins, director of the Russian and Eurasian program at the Center for Strategic and International Studies in Washington, agreed that Putin will likely try to step down without relinquishing most, or any, of his power.

"What he's proposing to do is walk out of the Kremlin and remain a very influential guy," Kuchins said. "Most guys don't walk out of the Kremlin, and if they do they don't have any major influence on politics. What's he's proposing to do is entirely novel in Russian history."
...
One way or the other, analysts say, Putin will probably cede formal power at least temporarily. That, Kuchins and others point out, entails considerable risk.

Kuchins noted that when Boris Yeltsin named Putin acting president and his political heir in 1999, many of those around Yeltsin, including the billionaire Boris Berezovsky, "thought Putin would be their puppet."

If that's what Berezovsky believed, it was a grave miscalculation. After his election in 2000, Putin had a falling out with Berezovsky and stripped him of control of a top television channel. The tycoon fled to Britain, but the Kremlin has pressed for his extradition, to face charges related to alleged economic crimes.

The lesson is that transferring power can be risky. "The less risky thing for Putin to do is just stay on," Kuchins said. "The more risky thing is to try to create a new precedent in Russian history."

EU competition commissioner Neelie Kroes(R) meets with Estonian Prime Minister Andrus Ansip during her visit to Tallinn. Russia's Gazprom would have to pull out of a controversial project to lay a pipeline in the Baltic Sea if new rules on energy companies are passed by the European Union, Kroes said.(AFP/Raigo Pajula)

EU Competition Commissioner Neelie Kroes has finally said what we were all waiting to hear:

"Gazprom should sell its stake in the Baltic Sea pipeline and this will happen sooner or later," Kroes said in Estonia, which, with its Baltic neighbours and Poland, was bypassed by the project to build a pipeline on the floor of the Baltic Sea, connecting Russia's gas fields with Germany.

"I hope the EU will adopt new regulations that state that companies producing energy and distributing energy should be strictly separated and have different ownership," Kroes said.

"EU regulations should apply to Gazprom as well as any other company from non-EU countries in the same way as they apply to EU companies," she told a news conference held jointly with Estonian Economic Affairs and Communications Minister, Juhan Parts.

This editorial published today in the Wall Street Journal takes a crack at Putin's call for a "new architecture" of international financial relations. I continue to strongly support Russia's accession to the WTO, even if the early indications are showing that the Kremlin culture is averse to rule-based systems.

The Putin Rules

Kudos to Pascal Lamy for being less than diplomatic in his response to Russian President Vladimir Putin's criticism of the World Trade Organization -- and for suggesting the real reason Moscow is at loggerheads with it.

Last weekend Mr. Putin blasted the WTO, which Mr. Lamy heads, and similar institutions for being "archaic, nondemocratic and unwieldy." The world, he said, would benefit from a new order centered on emerging economies like his own. On Wednesday Mr. Lamy retorted that, during a meeting shortly after this outburst, the Kremlin leader "didn't tell me [the WTO] was so old-fashioned, so archaic and so antidemocratic that Russia would withdraw its accession demand."

Bingo. Russia has been trying since 1993 to join the WTO and Mr. Putin has made membership a priority during his presidency, due to end next year. The Kremlin has often voiced frustration at the pace of negotiations, which include a round of bilateral deals with major trading partners that already belong to the WTO and then a multilateral pact with the group as a whole. Over the years Moscow has accused various members of trying to undermine its accession process.

Yet the biggest sticking point concerns Russia's failure to fulfill promises it made in the deals it has already reached. For instance, the European Union wants Russia to end its practice of charging higher railway fees for foreign trains than for domestic ones and implement an agreement struck last November to phase out charges for foreign airlines flying over Siberia. The U.S. says Moscow still needs to strengthen intellectual-property rights and open its market to American beef as agreed in its bilateral deal.

In other words, the ball is very much in Russia's court here. Mr. Putin has insisted repeatedly that the WTO should not ask Russia to join on "nonstandard conditions." Asking Moscow to make good on its word seems standard enough.

As for Mr. Putin's point about the importance of emerging economies, perhaps he's forgotten that Brazil and India already are WTO members and are key players in the Doha talks on freeing up trade. The WTO counts a growing number of developing countries among its 150 members and provides the best forum for them to level the playing field with the rich world.

Then again, Mr. Putin is used to making his own rules these days, from pushing Europe around on energy to telling Washington how to run its missile-defense program. The WTO's rules apply equally to everyone. Maybe that's what he finds so "archaic."

The Construction Project of the Century: What the NEGP gas pipeline might bump up against

By Grigory Pasko, journalist

…It might bump up against politics and politicians. Then construction will either stop or, more likely, it will continue, but with significant correctives. For example, Russia and Germany may have to abandon the idea of laying the gas pipeline along the bed of the Baltic Sea.

Photo of pipeline construction – so far, on schedule – by Grigory Pasko

Who doesn’t like the routing of the NEGP?

It is known that the countries of the Baltic, Poland and Ukraine have already expressed their dissatisfaction with the project long ago: the pipeline will bypass their territories, and that means the question of transit automatically falls by the wayside. Critics of the pipeline assert that it would make much more sense to build yet another land-based pipeline through Belarus and Poland or to increase the throughput of the already existing system in the Ukraine.

A weak point of the project remains its environmental component. Speaking about the environmental aspects and risks of the pipeline, former Estonian president Arnold Rüütel mentioned the live ammunition and mines of the times of the war still resting at the bottom of the sea.

Former Polish president Aleksander Kwaśniewski likewise called the project to create a gas pipeline along the bed of the Baltic Sea “bad from the point of view of ecology”. In addition to this, in his opinion, such a project is weak from the economic and political points of view. “We fear that the Baltic gas pipeline will become a mine laid under solidarity in the European Union”, declared president Kwaśniewski, expressing in so doing regret that the agreement between Russia and Germany was prepared “over our heads”.

The Baltic countries supported Poland in its dissatisfaction with the NEGP project. The Ministry of Foreign Affairs of Latvia disseminated a declaration by the head of its agency, Artis Pabriks. “All countries of the EU should be involved in such large-scale energy projects, but in fact this project is profoundly Russo-German”, considered the Latvian diplomat.

Prime-minister of this country Kalvītis called the decision of Russia and Germany “ill-considered” and capable of “creating a threat to the region”, as well as declaring that such a project should not be implemented.

In Lithuania, which works more closely with Moscow in the fuel-and-energy sphere, they were more careful in their utterances. “The agreement between Russia and Germany about laying a gas pipeline along the bed of the Baltic Sea reduces the energy security of Lithuania”, considered former economics minister Kęstutis Daukšys.

In other words, the countries of the Baltic have tried to do much to increase the cost of the project even more, having proposed to «Gazprom» that it neutralize the chemical weapons resting on the bottom of the Baltic Sea.

Certain analysts assert that Angela Merkel (chairwoman of the CDU), who replaced Schroeder at the post of chancellor, will not become an opponent of the pipeline at the very least because key posts on the German cabinet of ministers belong to the social-democrats. On top of that, it is precisely the large companies that appear as the main sponsors of the CDU in Germany, and they are greatly interested in the laying of the NEGP.

It is noteworthy that the president of Belarus, Alexander Lukashenka, has appeared as a fierce critic of the NEGP. He considers construction of the pipeline along the bed of the Baltic Sea inexpedient.

“This is the stupidest project in the history of Russia, which can enter into the Guinness Book of World Records. What will be with it is – unknown, after all, the pipe will pass along a pile of munitions on the bed of the Baltic Sea”, declared he. At the same time, Lukashenko noticed that the second phase of the “Yamal-Europe” pipeline is already nearly ready. “They already laid the foundation under the second phase, then they dropped it and went there (to the Baltic)”, said he.

Photo of presidents Lukashenka of Belarus and Putin of Russia courtesy of rossia.ru

Against the background of all this multitude of voices, Russia will no doubt attempt to force the construction of the pipeline – (specialists in Babayevo told me about the contraction of the timetables for construction at certain sectors), along the way serving up examples confirming the necessity of diversifying routes. For now, this is being manifested most clearly in relation to Ukraine; however, in the future Moscow could start a tougher dialogue with Warsaw. For now, this toughness has manifested itself with respect to Polish mat, which for a second year now is not being shipped to Russia because of the supposedly poor quality of its expert evaluation.

Click here to read the transcript and view the video of Robert Amsterdam's interview with Tony Jones on Australia's "Lateline."

TONY JONES: But if this Russian state is, as you argue, essentially hopelessly corrupt, what does that mean for making deals with them as Australia is, and a brand-new agreement on selling uranium to come back to your original point?

ROBERT AMSTERDAM: That we've got to include conditionality. That if you're in a situation where the Russians are intent on obtaining this uranium, you've got the leverage to impose conditionality. And I'm not saying you make the condition the release of Khodorkovsky, I'm saying you make the condition developments in respect of the rule of law and the independence of the judiciary, as well as with the external issues like Iran. I'm saying there's got to be some accountability for where Mr Putin is taking Russia.

TONY JONES: Australia has always had stringent safeguard arrangements with all of its uranium. It flags where it goes and what the end use is. Are you saying that Russia is too corrupt to allow those kind of safeguards to work?

ROBERT AMSTERDAM: Absolutely. I'm saying that you have to only look at what Russia has done in its foreign relations in the last two months between the war on Estonia, the energy dealings with Poland and the Baltics, the incredible activity with Georgia where young Georgian students are pulled out of schools to understand that the destruction of the institutions in Russia has gone so far that this Kremlin cannot be trusted.

This blog has been closely following the unfolding investigation by Austrian prosecutors into the activities of Raiffeisen Zentralbank (RZB) in Russia, which was reported to have received upwards of $60 million from Diskont Bank in an alleged money laundering scheme during its final days last August. This obscure "pocket bank" was being targeted by the crusading central banker Andrei Kozlov right around the same time as his assassination. (This story was blown open by two major investigative pieces in the new Russian magazine The New Times, which are exclusively available in English here and here).

What was unusual about the subsequent investigation into the Kozlov murder, notes Andrew Kramer in a new article on the matter, is that for a high-profile contract hit in a country famously incapable of solving crimes - the Kozlov murder was suspiciously an open and shut case. Russia's procuracy is currently blaming banker Alexei Frenkel for Kozlov's murder - a mid-level financial executive who had nothing to do with Diskont but had had numerous run-ins and problems with Kozlov and a disputed reputation.

The critical questions are pretty clear: Did Kozlov get killed because there was government corruption involved in the Diskont-Raiffeisen money laundering scheme? Was Alexei Frenkel made to be the fall guy for this murder to cover it up? Why aren't Russian investigators responding to Austrian requests for information and cooperation? Kramer reports:

Now, however, the authorities in Austria have cast doubt on the quality of the Russian sleuthing in Kozlov's murder, which they linked to a multimillion-dollar money laundering scheme that made use of a bank in Vienna.

"We stated there could be a link and it should be investigated," Gerald Hersztera, a spokesman for the Austrian Interior Ministry, said in a telephone interview.
...
Two weeks before his murder, Kozlov had been cooperating closely with the Austrian authorities on the money laundering case, a detail the Austrians made public in April in a report posted on that country's Interior Ministry Web site. It said the Austrian police could not rule out "official corruption" in Russia as a motive for murder.

"We didn't get any information about how the investigation is going in Russia," Hersztera said.

There are also other worrying precedents of RZB's activities with Russian and Central Asian partners, including their management of a major stake in RosUkrEnergy, a non-transparent entity that is widely suspected of facilitating corruption in the Turkmen-Ukraine natural gas trade under the stewardship of none other than Gazprom. RZB was also the leading bidder for Nurbank, which was majority owned by Rakhat Aliyev, the son-in-law of the president of Kazakhstan, Nursultan Nazarbayev. Aliyev was recently arrested in Austria accused of using Nurbank in connection with a kidnapping scandal.

Does the Kozlov murder, money laundering from Diskont to RZB, the Turkmen gas corruption, and the complex political drama in Kazakhstan all connect in Vienna? I highly doubt it, but there are lots of questions to be answered that this blog will be following closely.

The Construction Project of the Century: Kilometer Zero: Gryazovets

By Grigory Pasko, journalist

The map you see below was published in a booklet dedicated to the 25th anniversary of the Gryazovets line-and-production administration of trunk gas pipelines. You can clearly see on it that Gryazovets compressor station KC-17 is situated at a junction: the place where the principal gas pipeline from the fields of Novy Urengoy branches off to the northwest. It is therefore understandable why the designers of the NEGP selected Gryazovets in particular in the capacity of the start of construction of a new branch – but this time not just to the West, but to the Baltic Sea and beyond – to Germany.

Gas pipeline route map from advertising brochure

KC-17 – this is four functioning gas pumping shops and a fifth in the stage of construction. The enterprise services 16 gas distribution stations (a 17th is being built) and 1300 kilometers of trunk gas pipelines. More than 600 persons work here. With time, as they say, yet another compressor shop will be put in – to service the North European Gas Pipeline.

For a long time, the Chief Engineer at KC-17, Alexander Konovalov, didn’t want to meet with me. He kept asking if I had permission. “Permission for what?”, I asked him back. “For you to tell me about your life and your work? And just whom exactly am I supposed to get this permission from? From Putin or from Schroeder?”

Aerial view photo of compressor station KC-17 from advertising brochure

Konovalov finally agreed to meet me.

The interview ended up being brief, because Alexander Sergeyevich, as it seemed to me, was ashamed of something the whole time. Perhaps of his own courage: without reporting it to his bosses, he had met with a journalist. But then afterwards the chief engineer even took me to the control room.

Here, in brief, is the monologue of chief engineer Konovalov:

“Well, what can I tell you? After all, construction of the NEGP hasn’t yet begun here. We haven’t even seen the detailed working drawings in full volume yet.
“Everybody knows that kilometer zero of the gas pipeline to German begins here. But they’re running the branch over from the side of Babayevo. From us, the gas will go in the direction of Sheksna, Cherepovets, then – to Babayevo, Tikhvin, Volkhov, Leningrad and to Vyborg. Where’s the gas coming from? For now from the central corridor, from Novy Urengoy, and when the Shtokman field is up and running – it will come from there.

“I’ve seen the pipe. It’s bigger in diameter than those that we operate. And the pressure in it will be higher.

“Of course, questions of the environment worry us. The burning of fuel is taking place, emissions… We are taking the zone of dispersal of the emissions into consideration, so it wouldn’t hit populated centers. The project design prescribes facilities for the incineration and recovery of wastes. All measures are being conducted here in order to reduce emissions, modernization of equipment for scrubbing emissions is being carried out. We are implementing control over pressure, temperature, everything is being tracked by instrumentation… We have an ecological service, there will be our own ecological laboratory. Capital repairs are being carried out. Ecological demands are being observed everywhere. An engineer is required to undergo ecological instruction.

Photo of KC-17 Chief Engineer Alexander Konovalov by Grigory Pasko

“Tell about myself? I was born in Gryazovets, I completed school here, then the technicum. I’m a technician-electrician by specialty. I served two years in the army – in the Ukraine in Lvov Oblast, in Chervonograd, in the missile forces of strategic designation. I started as a laborer at the compressor station, then a shift engineer, dispatcher, head of the gas-compressor service. My wife works here, two sons are also here.

“Yes, it is known that the pipeline to Germany will go along the bed of the Baltic Sea. I think that everything will be normal. The pipe will be less subjected to being damaged there, in contrast with the land portion. Yes, throughout Russia on land there are accidents. Especially near to populated centers, when any drunk excavator operator can break a trunk pipe… But under water – that’s a more reliable option, as it seems to me. There’s good insulation there, more stringent requirements, more rigorous testing. With a high quality of work nothing should happen.

“There are, of course, problems, too. Old gas pipelines require capital repair. We conduct waterproofing, diagnostics…”

After this tale, Alexander Konovalov introduced me to a dispatcher with 30 years of experience – Alexander Salamatov. The dispatcher told me how the trunk pipelines are shut down in the event of unforeseen situations.

As we were saying our goodbyes, I asked Konovalov how much people make at the KC. The chief engineer thought a moment and said: “A specialist of the 6th rank gets 20 thousand rubles”. I asked if he was satisfied with his salary. Konovalov smiled: “That’s in Moscow, in the management of the company, where they can be satisfied… That’s where the top-managers are, but here we’re, well… in a word, laborers.”

In Gryazovets, I saw the homes of the gasmen: they’re better than those of many local inhabitants. A church was being erected not far from the residential houses. They say it was built for «Gazprom’s» money.

Photo of new church in Gryazovets by Grigory Pasko

I didn’t manage to talk with anybody from the local power. It turned out that the head of the administration of Gryazovets Rayon was in Vologda at a meeting, while both of his deputies were on vacation. It was hot in the administration building, and the whole situation inclined one towards sleep and laziness. I walked into the department for the protection of natural resources. The chief turned out not to be in. But there was some kind of petty official. He categorically refused to speak with me not only about the construction of the gas pipeline, but even about the protection of nature as well. “Everything is normal here”, he said, fixing his gaze on his computer screen with such an expression as if though he was seeing it for the first time. Then for some reason he added: “The gasmen do not disturb the ecology”, although I hadn’t asked him about this.

The little town of Gryazovets left the impression of a very Soviet little town of the times of Brezhnev. Construction, it seems, is conducted only by the rich little gasmen. In the only cafeteria in the whole place, they serve absolutely Soviet dishes – both in terms of variety and in terms of quality. During lunch, a funeral commemoration repast was taking place at neighboring tables. It’s best not even to enter the toilet without a gas mask. It’s as if though time has stood still here, frozen in the past. And only the church being built with modern construction materials bears witness that outside it is no longer the period of stagnation of the times of Brezhnev, but the period of return to stagnation of the times of Putin.

Couldn't have said it better myself.

Congresman Tom Lantos as quoted by Deutsche Welle:

The congressman provoked gasps of amusement and surprise in the crowd of several hundred when he then said he would like to call Schröder "a political prostitute, now that he's taking big checks from (Russian President Vladimir) Putin. But the sex workers in my district objected."

Stymied by their continuing diplomatic brouhaha with the UK over mutual extradition requests, the brilliant minds inside the Kremlin have set the dogs loose on just about every British institution and business within reach to ratchet up the pressure. The latest target: English teachers at the British Council.

According to reports published in Kommersant and the Financial Times, representatives from the Foreign Ministry have notified this cultural institution that they will soon be expelled from their facilities in the city of Ekaterinburg, on the preposterous grounds that the British Council enjoys diplomatic immunity from Russian law. The Council, a non-profit organization which promotes the English language through classes, libraries, educational resources, and events, has been harassed numerous times in the past at various locations throughout Russia, and even blamed by some for contributing to the country's brain drain as students leave to study abroad. Many times these English teachers were harassed over mundane regulatory technicalities like fire codes, much in the style of Oleg Mitvol's "environmental" issues with foreign oil companies. Civil society expert Maria Slobodskaya told Kommersant that the interference with the British Council is part of the country-wide campaign against independent NGOs: “The British Council did not move into the premises just yesterday, but the claims arose now, against a background of difficulties in relations between the two countries. As a result, the suspicion arises that the story has more to do with politics than with international law.”

Having personally known many teachers working at different British Council locations across the world during my young expatriate days, I can assure you that this is one of the most harmless organizations out there, unless annoying elitism has suddenly become a crime. It takes a special kind of suspicion and paranoia to believe that the British Council could possibly be harboring malicious intentions, and furthermore, it would seem highly doubtful that harassing this school would produce the outcome the Kremlin is looking for.

Could you ever imagine the British government, in a fit of frustration over the Lugovoi extradition, sending a team of bobbies into the Pushkin House to push people around just to send a message to Moscow?

Click here to listen to an interview by Fran Kelly with Robert Amsterdam on Australia's Radio National. Full transcript can be downloaded here, and below is just one excerpt.

FRAN KELLY: Well, talking of nuclear technology, you're here in Australia, and this week you will meet with the Foreign Minister, Alexander Downer, the Shadow Foreign Minister, Robert McClelland, and other politicians, and you're going to bring up with them the fact that Australia is about to begin, or has already begun selling our uranium to the Russian regime. Is that the key thrust of what you want to talk about though, or do you want to try and bring to the centre stage here in countries like Australia and around the world, of Khodorkovsky's case?

ROBERT AMSTERDAM: Look, to be frank with you, it's much larger than just Khodorkovsky's case, it's a situation where the issue is not so much lobbying about one case, but lobbying about a system, and what we have to end is the impunity of the Putin regime, we've got to have Australia, if they're going to negotiate this treaty, adopt some level of democracy conditionality, so that there can be some pressure towards rule of law, and so that there can be some pressure to remove the gulag, and put the gulag back in history books.

I mean my client's been stabbed, he's been held over a uranium mine in Siberia, it is absolutely outlandish, and he's not alone. And one of the most important things with the mandate he's given me is not to talk about him, but it's to talk about Sujiag(*) and Danilov, Pichugin, and a whole new generation of political prisoners in Russia, that get very little attention in the west, because we are desperate to believe that Russia's on the path to democracy, and we manage to just bury the truth of what's happening.

For some time now I have been promoting the view on this blog and in discussions with journalists that it is wrong to blame Vladimir Putin and his inner circle for Russia's rapid retreat from democracy and rule of law. It is wrong because, given the circumstances, Putin has largely been a rational actor seeking to aggressively promote Russia's interests at home and abroad, and his tactics, although often lawless and authoritarian, are consistently rewarded. The real problem is the near total lack of willingness on behalf of investors, financial institutions, and their representatives in government to discourage Putin's most overtly autocratic measures and encourage policies of greater transparency and social liberties. Sadly, the clear message being sent from the international community is that it's OK to repress your people so long as you maintain a high rate of economic growth and fulfill our insatiable appetite for return on investment (Russia and China are only two examples of many in this respect).

So if we are going to point the finger for the demise of Russian democracy, we must first point at private sector business and banking from Western countries - those who have bought a stake in the Kremlin's unique offer of "joint venture autocracy." Thanks to an unprecedented glut in global liquidity and enormously diversified portfolios (an investor figures he or she can absorb a hit in one or two emerging markets as long as the others hold steady), all critical statements, requests, condemnations, and appeals from politicians and NGO leaders are rendered totally ineffectual and solely rhetorical. Given this troubling inconsistency between rhetoric and action, no wonder Russians think the West is indulging in extravagant hypocrisy. We are.

The events of the past week have provided no shortage of evidence. Right on the heels of the caustic diplomatic exchanges over missile defense, Kosovo, and a spy murder case that played out at the G8 summit, thousands of investors descended upon St. Petersburg for an economic summit and showered Putin with obsequious praise. It was frankly a disgusting display of sycophancy, gullible optimism, and moral bankruptcy.

The experience of booming business in Russia accompanied by eroding liberties has revived an old debate - what will happen if and when dictatorships are able to outperform democracies in economic growth? Why bother advocating for rule of law in such a situation? In fact, this has been the principal underlying rationale behind Vladislav Surkov's doctrine of sovereign democracy - that Russians are yet mature enough to be responsible for the selection of their own leaders, and that perhaps after another decade of economic growth under state corporatism can the Kremlin's grip on political and economic power be loosened. Alvaro Vargas Llosa, who in the past has written some interesting columns on Russia, has a new article out this week precisely addressing this debate, which suggests that "Putinochet" Russia may not be all it is cracked up to be by enthusiastic investors:

A recent article in the online magazine American.com measures economic performance against the degree of political and civil freedom existing in various nations. The conclusion is that in the last 15 years, the economies of nations ruled by despots have grown at an annual rate of 6.8 percent on average—two and a half times faster than politically free countries. Those autocracies that have opened their markets in recent decades but continued to restrict or prevent democracy—China, Russia, Malaysia, and Singapore, for example—have done better than most of the developed or underdeveloped countries that enjoy a considerable measure of political and civil freedom. ....

But this is not the end of the story. Of the 15 richest countries in the world, 13 are liberal democracies. The other two are Hong Kong, a Chinese territory that enjoys far greater civil liberties than mainland China, and Qatar, where the abundance of oil and natural gas, and the tiny population, translate into a large per capita income average. ....

When the environment in which the economy breathes depends on institutions rather than on the commitment of an autocrat or a party, stability and reliability generate the sort of long-term results that we call “development.” That is probably why Chile’s economic performance after Pinochet compares favorably to the years when the general was in power. Not to mention the fact that dictatorships that enjoy economic success are heavily dependent on technology invented in countries where exercising a creative imagination does not land one in jail.
...
From a moral point of view, the relative prosperity that a dictatorship can trigger is a double-edged sword—it brings relief to people who are otherwise oppressed but also serves as an argument for the indefinite postponement of political and civil liberty.

Two things are certain, however. First, history indicates that the combination of political, civil and economic freedom is a better guarantee of ever-increasing prosperity than a capitalist dictatorship. Second, there are sufficient examples—Portugal or the Baltic countries—of underdeveloped countries that have generated stable and reliable environments through political freedom to invalidate the notion that a country should be kept in political and civil infancy until it reaches economic maturity.

Click here to listen to an interview with Robert Amsterdam on Radio New Zealand, where he discusses the background of his work in Russia, and the political basis of the new charges against Mikhail Khodorkovsky.

From Georgy Bovt in the Moscow Times:

It is clear that Putin and Gandhi are kindred souls in at least one aspect: Both see, or saw, themselves as people with a mission. It is abundantly clear that Putin sees himself this way, and the importance of his own personal role is accentuated by his lack of trust in the country's political and economic elites.

This is why Putin is so bent on maintaining personal control over everything -- a desire that has only increased over the years. If someone makes an unauthorized move, he or she will regret the show of independence.

To break up a anti-government protest in Murmansk, it appears the authorities have resorted to dumping copious amounts of fecal matter in public areas as a deterrent. It is difficult to think of a more insulting gesture, however I won't hold my breath (no pun intended).

Stinky fertiliser breaks up anti-Kremlin protest

ST PETERSBURG, Russia (Reuters) - The stench of dung stopped anti-Kremlin protestors rallying in the Russian city of Murmansk on Tuesday, an opposition activist said.

Opponents of President Vladimir Putin had hoped to rally on the porch of the Culture Palace but city authorities closed the building, took away the porch's steps and spread dung around it, said Yelena Vasilyeva, local leader of the United Civil Front opposition movement.

"The stench was so strong you couldn't breathe, so only the most tenacious stayed," she said.

I saw a very interesting post over at the nEUrosis calling upon the European Union to ease visa restrictions for Russians. I wholeheartedly agree with this blogger's opinion - Russians are not second class citizens and there is absolutely no reason for them to be treated as such. This kind of insulting, paternalistic legislation from Europe contributes to the politics of paranoia and suspicion that the current Kremlin administration is so adept at selling.

Laura Citron from nEUrosis:

Many young Russians have never been to Western Europe or any other liberal democracy. (Though Eastern Europe was a popular holiday destination in Soviet times). Don’t be fooled by the Prada-sporting Russians who have taken over Courchevel – they are a tiny minority. The average well-educated, young professional Muscovite cannot get an EU visa. It is any surprise, then, that many are wholly disinterested in democracy? They see the current Russian ‘opposition’ as a collection of loons, troublemakers and power-seekers. ...

Perhaps that is because the vast majority of Russians don’t believe the product we’re selling. Having lived through communism, perestroika and the Putin era, Russians are understandably cautious shoppers when it comes to political systems. If a true democratic movement emerges in Russia, it will most likely be from the new middle class. Yet our visa regime denies these very people a taste of what they could fight for. A unilateral easing of the EU’s visa regime with Russia would do a lot for grassroots democracy in Russia.

An article has just came across the wire from the Financial Times debating not whether Medvedev or Ivanov would get the presidential appointment (not to be confused with a democratic election) - but rather whether the "third-term siloviki" led by Igor Sechin of Rosneft would arrange for a third option and the eventual return of Putin. The idea is that this "technical president" would largely only serve the function of a stopgap, and would withdraw (or be assassinated) after a short period of time and allow Putin to run for office again without changing the constitution (and thus preserving his highly prized constitutional credibility among other G7 members). The FT discusses the latest rumor of Valentina Matviyenko becoming the technical president, but the other theory I often hear discussed is that Mikhail Fradkov is the ideal pawn for sacrifice. They may be mere rumors and conjecture at this point, but they are certainly encouraged by commentary on term limits by both Mironov and Putin.

Will Valentina Matviyenko or Mikhail Fradkov receive the dreaded privilege of the technical president?

FT:

Instead, say analysts, business people and journalists, Mr Putin could come back in 2012, as the constitution allows. Or the next president could stand down early because of “ill health”. Another scenario is that the constitution could be changed early in the next presidency to allow longer presidential terms (an idea already being discussed), triggering elections in which Mr Putin returns. ...

Nezavisimaya Gazeta, an independent newspaper, recently agreed: "The option of a 'technical president' who will take the fire upon himself in 2008 ... is becoming more and more plausible. Later he will quietly step aside, having prepared Vladimir Putin's triumphant return."

Finding a "technical president" may be tricky. Sergei Ivanov and Dmitry Medvedev, the two first deputy prime ministers most often mooted as successors, seem unlikely to fall on their swords.

Enter, perhaps, Valentina Matviyenko, St Petersburg governor and Putin loyalist. She is seen as a "dark horse" candidate rumoured last year to have offered to serve one presidential term then stand aside for Mr Putin. Reports last month of a murky "assassination attempt" on Ms Matviyenko – why anyone should want to kill her is unclear – were seen by some analysts as Kremlin-backed political technologists attempting to create a presidential aura around her.

Yet this could all still be a smokescreen. The Russian businessman says Mr Putin never allows anyone to guess his actions.

"Whenever he has an appointment to make, he calls everyone in and asks for their recommendations. Then he chooses somebody else entirely."

Robert Amsterdam is interviewed here by a Radio National (ABC) program in Australia.

Business optimism high in Russia

Reporter: Mark Colvin

MARK COLVIN: For some with long memories, there have been echoes of the Cold War in Russia's behaviour over the last few weeks.

Vladimir Putin certainly raised those echoes before the G8 summit, with his strident objections to missile defence bases on the soil of two of the old Soviet Union's client States, Poland and the Czech Republic.

And a couple of weeks ago, a former Soviet possession, Estonia, blamed Russia for a massive cyber attack that brought down most of the country's computers and computer networks.

Yet for many in international business, the picture in Russia looks rosy.

Today's Moscow Times reports on foreign investors "brimming with praise" at a forum attended by hundreds of foreign business leaders in St Petersburg.

Robert Amsterdam was the lawyer for Mikhail Khodorkovsky, an oil billionaire and political party backer in 2004 but now languishing in jail for fraud.

Mr Amsterdam is himself exiled from Russia, but continues to argue Khodorkovsky's case around the world, and he's in Sydney at the moment.

I asked him about the reports of business optimism about Vladimir Putin's Russia.

ROBERT AMSTERDAM: We should save that clipping and show that to these gentlemen in a few years. Mr Putin has declared war on the free market, he has stolen YUKOS a company worth $100-billion and imprisoned its founder. He has destroyed freedom of the press. He has presided over the murder of 20 journalists over the last number of number of years. Again, no responsibility on him but in the country that occurred, he is the boss, and in fact Russia is now the third most dangerous country in which to be a journalist

So I think these businessman are in fact playing politics and I think it's a very dangerous game.

MARK COLVIN: But when you look at it from the businessman's point of view, I noticed for instance that Lee Kuan Yew has just spent a week there, and was also praising the country. Is Russia on course to be a kind of Singapore, a place where there's economic strength but no freedom?

ROBERT AMSTERDAM: Well to be frank, the gullage (phonetic) doesn't exist in Singapore. It exists in Russia. The situation in Russia is far more serious because Mr Putin has armed himself as you now with thousands of warheads which last week he threatened to aim at Europe.

So no, I don't think it's comparable, I don't think it's something we can, in any country, can avoid looking at, particularly in Australia.

MARK COLVIN: You represent one of the, what was called the oligarchy, sometimes called cleptocracy. Why should we sympathise with your client, Mikhail Khodorkovsky, when effectively he is accused, and many people believed that he did steal very large amounts of money.

ROBERT AMSTERDAM: Well actually, very few people after the show trial, believe, my answer having seen that trial is, that if there were any charges of theft about Khodorkovsky, they would have actually run a real trial.

MARK COLVIN: But we could make a distinction. A lot of people think that it was a show trial, it wasn't an independent trial, but many people also believe that an independent trial could easily have found him guilty of fraud.

ROBERT AMSTERDAM: I can assure you, not on those charges. And certainly, if you were going to go after the people involved in privatisation, you'd go after all of them. You wouldn't single one guy out because he was the one who was, the first guy to have his company audited, the first man to become Russia's largest taxpayer, the first one to support civil society, the first one to urge democracy and sign the global covenant on human rights, that wouldn't be your primary target.

MARK COLVIN: And that's you're point, that he's in jail while most of the other oligarch's are out.

ROBERT AMSTERDAM: No, my point goes beyond that. He's in jail as the leader of one of the few groups that care about democracy in Russia, and the real oligarchs, the ones the Putin doesn't want you to focus on, are the nine guys around him controlling half a trillion dollars in assets who are actually wearing government hats during the morning and running massive corporations in the afternoon.

MARK COLVIN: So you're saying Khodorkovsky was singled out because of his political influence and his political activities?

ROBERT AMSTERDAM: Absolutely. As well as the fact that the people in the Kremlin wanted to steal his company and let me very clear. Khodorkovsky stole nothing, he bought a company for $300-million and it's never publicised that he absorbed $2-billion in debt, his employees hadn't been paid for a year, taxes hadn't been paid for two years, and he brought the technology that changed the history of Russian oil.

MARK COLVIN: But why do they want to steal his company and now Abramovich's or some of the others?

ROBERT AMSTERDAM: Well they bought Abramovich's company for fair value, even though the Duma said it was Abramovich's company that actually had been the egregious tax evader.

The clear motif was the political and the fact that unlike Abramovich, Khodorkovsky was pushing the free market. He wanted to sell a piece of his company to an American, he wanted to make sure that the pipeline's were liberalised and by the way they still aren't in Russia. He wanted to take away the state's control over the key sectors of the economy.

MARK COLVIN: What are the condition in which your client is being kept?

ROBERT AMSTERDAM: Barbaric, he's been stabbed, he's been kept in and out of solitary, he's been put in a camp of the Gulag era and fried over a uranium mine and now he's being charged with new charges even though he was up for parole in October.

MARK COLVIN: You said he was stabbed. What happened?

ROBERT AMSTERDAM: While he was asleep, another inmate stabbed him in the face. This is the man who is watched by the FSB 24-7 with a camera. This could have never have happened without the complicity of the authority.

MARK COLVIN: What's the state of his health now?

ROBERT AMSTERDAM: Guarded. He's lost a tremendous amount of weight even, even though he's 43 his hair is white. Let me tell you the conditions he's in as well as the conditions he was in just during the trial are shocking.

MARK COLVIN: And you say that there, now that he's coming up for parole, they're going to charge him with new charges. What's likely to be the result of that?

ROBERT AMSTERDAM: He's likely to be sentenced 10 to 15, which will mean a sentence further in a remote Gulag location where if we're not talking about his fate, he will be killed.

MARK COLVIN: Robert Amsterdam, the exiled lawyer for the jailed billionaire Mikhail Khodorkovsky.

Senator John McCain gives us a taste of how the 2008 presidential elections are going to impact the Russia policy debate in the United States. As far back as January, McCain came forward to criticize Russia's use of the energy weapon.

Why we must be firm with Moscow

By John McCain

In perhaps the most direct challenge by any nation to Euro-Atlantic security since the end of the cold war, President Vladimir Putin has threatened to target European capitals with nuclear weapons and veto a United Nations resolution on the status of Kosovo - the culmination of 15 years of effort by the international community to create a lasting foundation for peace in the Balkans. Russia has also threatened to withdraw from the treaties limiting nuclear and conventional force deployments in Europe. Moscow refuses to extradite a Russian agent accused in a British court of assassinating a Kremlin political opponent in London.

During the past four years, many independent Russian journalists have been murdered in mysterious circumstances, including the renowned Anna Politkovskaya. The state now owns nearly all broadcast media in Russia. Political dissent has been silenced. The Russian government has overseen the largest state-directed seizure of private wealth and foreign investment since the 1930s. The government is accused of launching a cyberwar against Estonia and has used energy as a weapon against smaller neighbours. Mr Putin has called for a new international order that would elevate authoritarian states such as Russia, China and Iran at the expense of the western democracies.

Mr Putin recently summed up these dubious accomplishments by describing himself as the world's greatest democrat since Mahatma Gandhi. His blend of cynicism and Napoleonic delusion presents a dangerous challenge to the Euro-Atlantic community. A profoundly authoritarian regime, dominated by an intelligence service hostile to western liberal values and flush with cash from oil and gas, holds power in Moscow. This development calls for a new western approach to a revanchist Russia, grounded in our shared strength as liberal democracies.

Clearly, we in the west must pursue co-operation with Moscow where we can. But too many believe that we can define an agenda of co-operation that is divorced from the nature of the Russian regime and its actions against its own citizens. It is not possible to separate the character of Russian foreign policy from the assault on fundamental freedoms in Russia itself, because they spring from the same source.

Mr Putin's threats to target population centres in Europe with nuclear warheads reflect a startling disregard for human security that characterises the Russian government's approach to its own people. Moscow's meddling in Ukrainian politics and sponsorship of armed secessionists in Georgia and Moldova subverts governments freely elected by their citizens.

The influence of Russia's security services at home is mirrored in Russian foreign policy: American and British authorities confirm that the number of Russian intelligence agents operating in their capitals has reached cold war levels. Russian obstruction of international efforts to resolve the Iranian nuclear crisis and end genocide in Darfur emboldens authoritarian leaders in Tehran and Khartoum to remain defiant, paralleling Russia's own lawless behaviour at home and abroad.

To meet the challenge of Russian revanchism, the world's liberal powers could agree to form a League of Democracies to address challenges such as Iran and Darfur where authoritarian veto-threats prevent effective action to uphold shared liberal values. Western leaders could agree to return the Group of Eight to its roots as the club of leading market democracies, which does not include Russia.

Rather than tolerate Russian nuclear blackmail or cyber-attack, western nations could make clear that Nato solidarity is indivisible and that its doors remain open to all democracies committed to the defence of freedom - regardless of Russian fulminations.

Europe and the US could also pursue German chancellor Angela Merkel's bold suggestion to construct a transatlantic marketplace and invite Russia to join when it meets benchmarks on rule of law and economic freedom. The European Union could develop a shared energy policy to govern Russian oil and gas imports, and provide energy security for import-dependent economies. We must all step up our programmes to support fundamental freedoms and the rule of law in Russia, rather than cutting them back as is proposed in the US. We should expand our scholarship and exchange programmes to build ties with a new generation of Russian leaders.

In a famous essay in 1947, George Kennan wrote that Russia's external behaviour was a product of the Russian political system, but that a firm western response to Soviet aggression would eventually bring about the mellowing of the regime that produced it.

Russia today is not the adversary it was then, partly because it decided to end the cold war and reconcile with the west. It now appears to be going its own way. A firm and unified response by the world's great democracies to aggressive Russian behaviour abroad could mellow the belligerent elements in Moscow's political system, illuminating for Russia's leaders a pathway of democratic co-operation that writes a new chapter of Russian history, rather than reopening an old one.

In a Stratfor analysis piece, George Friedman discusses the symbolic importance of the missile shield trumping the actual security aspect, and argues that Russia may see more geopolitical benefit in provoking a second Kosovo crisis (see excerpts below). Friedman's approach reminds me of the old KGB maxim which Bret Stephens of the WSJ wrote about back in March: first create problems, and then offer to be part of the solution.

The Poles, given their long history, are not a trustful or secure people. They view the Russians as merely recovering from a setback, not permanently vanquished. They also have no love or trust for the Germans. Historically trapped on the hard-to-defend northern European plain, equally afraid of both Russians and Germans, the Poles have always looked to an outside power as a protector. Even the experience of French and British guarantees in World War II has not soured them on this strategy, since it is the only one they've got. And that means the Poles now are relying on American guarantees.

But the Poles also badly need a buffer between them and the Russians. They want independent Baltic states in NATO. They want Ukraine in NATO. If there was any way to swing it, they would want Belarus in NATO. They want the Russians kept as far from them as possible. So long as they feel they have U.S. guarantees, they will do everything they can to create blocks to a return of Russia to the frontiers of the FSU.

The Russian view is that the Poles are being encouraged and emboldened by the United States. The missile defense system in Poland is not important in and of itself. It certainly doesn't affect Russia's ability to launch a nuclear strike. But as a symbol of a Polish-U.S. alliance that transcends NATO, it is absolutely vital. The Poles wanted the missiles in their country to symbolize the link, and the Americans wanted them there for the same reason. As long as that link exists, the Poles feel secure, and as long as the Poles feel secure, they will be a thorn in the side of the Russians. The Russian goal of exerting a sphere of influence in the FSU has a broader component. Russia does not expect to regain influence in most of Central Europe -- Serbia possibly excepted. It does want the Central Europeans to be sufficiently wary of the Russians as to exercise caution. Most of the rest of Central Europe tries hard not to get in Russia's way. The Russians want to solidify this posture and extend it to Poland while they redefine the status of the Baltics.
...
There is also, as in all good Cold War games, a domestic political component. The United States has enjoyed meddling in Russian politics for the past 15 years or so. This gives Putin a chance at payback. At a time when the Bush administration is both politically weak and quite distracted, painting the administration as being inflexible and aggressive, courting another ill-conceived confrontation over a weapon that doesn't work anyway, is a low-risk, high-gain proposition. The New York Times already bit on the bait with an editorial praising Russian flexibility.

The administration's geopolitical problem is obvious. It has too many irons in the fire and a couple of them -- Iraq and Afghanistan -- are white hot. The Russians are deliberately raising the stakes over the Polish system because they see the Bush administration's last two years as a golden opportunity to redefine their sphere of influence. If the United States resists Russia's suggestions, Russia can make inroads in Germany and the rest of Western Europe while causing more domestic political pressure on an administration that already is in the red zone when it comes to political weakness. If Washington compromises, the Russians can use that in Central Europe as evidence of the United States' lack of commitment and of a need for the Central Europeans to rethink their position. It particularly puts the Baltic states in a difficult position. Poland alone (or with the tiny Baltic states) certainly is not a sufficient counterweight to Russia.

Putin's move, therefore, was brilliantly timed and conceived. He took an issue that is controversial in its own right and used it as a geopolitical lever, striking hard at a relationship that is most troubling to Moscow. The Washington-Warsaw relationship represents a serious regional challenge to Russian ambitions. If the Russians can get an American retreat on the anti-missile system in Poland, they can begin the process of unraveling the U.S. position in Central Europe. Since the Western Europeans wouldn't mind in the least, there are possibilities here.

But the possibilities are not the same ones that existed during the Cold War, or even as recently as three years ago. Any region with three dozen states -- read: Europe -- is a dynamic place where governments regularly come and go. By the end of June, the three major European leaders who demonstrated the greatest affinity for Russia during their terms -- German Chancellor Gerhard Schroeder, French President Jacques Chirac and British Prime Minister Tony Blair -- will all be gone. Their replacements, and the replacements of similar governments throughout Europe, are largely Russo-skeptic. But they also are not instinctual European federalists.

This both destroys and creates opportunities for Moscow. The Kremlin is now facing a Europe that is actually more hostile to it than a similar pan-European alignment of the 1980s. Simultaneously, the unraveling of the European project means that, though the overall region is certainly more suspicious, Russia's ability to peel off individual states from the whole, either with sweet talk or intimidation, could actually prove easier.

And nowhere will it be easier than Serbia. The Russians have made it clear that they do not favor an independent Kosovo. Friendly with Serbia, and very unhappy with the way the Kosovo war was handled by the United States, the Russians could well choose to create a second confrontation over the future of Kosovo, testing both the Americans and Western Europeans at the same time. The Russians now have very little to lose and quite a bit to gain from confrontation.

[This is Pasko's second installment in the series. Part I can be read here]

Media Relations, Gazprom Style

By Grigory Pasko, journalist

Because I didn’t have the foggiest notion about what “construction of the Gryazovets-Vyborg gas branch” was or who could tell me about it, it was natural that I should contact the «Gazprom» press service. My letter to them contained one and only one request: to indicate the names of those people who would be able to tell me about the progress of the construction of the pipeline.

Photo of «Gazprom» press department head S. Kupriyanov courtesy of epochtimes.ru

The head of the department for work with Russian mass information media (they’ve even got things divided up by what countries mass information media belong to), Andrey Chernykh, heard me out, and asked that I send a letter by email with a summary of the essence of my trip. He promised to get back to me the next day with a reply.

I sent. He didn’t reply. I phoned the next day and heard from an employee of the press service named Nastya that Chernykh was absent. And that I had to send a paper to the name of the higher-standing management; it would discuss the question and decide whether it was expedient (she actually used this word!) for me to travel to Vologda and beyond along the route of the Gryazovets-Vyborg branch. The girl clarified that there was now nothing but mud in the area of the construction, the equipment was standing still, the roads were closed… And in general, one is supposed to apply to the press secretary of the chairman of the management board – the deputy head of the department for informational policy of OAO «Gazprom», Sergey Kupriyanov. Kupriyanov turned out to be on vacation. His assistant said (and I quote): “The question has to be discussed. Send a letter.”

I said that she already had a letter. Slightly surprised, the girl did manage to find the letter and actually read it. She said that the person I needed to contact was… Chernykh. I replied that I had already spoken with him. Then the girl promised that she would speak with him as well and would call me back. She didn’t, and she didn’t.

I called Chernykh myself once again, and he directed me to the deputy head of the Department – the head of the Administration for the Development of Public Relations, Roman Sakhartov. He turned out not to be at his workplace, after which I once again phoned Chernykh and Chernykh once again promised me that he’d sort everything out with my request.

I guess he did sort everything out, because soon I received a letter with the following content: “You can find all information with respect to construction of the Nord Stream gas pipeline on our website, as well as on the official website of the company Nord Stream.

So, before even setting off on my journey, I already understood one thing: they must have more money than they know what to do with at «Gazprom» if they can afford to maintain an office full of people who, to put it mildly, are bad at carrying out their duties.

In the meantime, I telephoned the journalists of one Vologdan newspaper and asked when and what they had written about the Gryazovets-Vyborg branch: “Yeah, I think we did write something”, recalled the editor of one of the newspapers. “But it was a commissioned piece at the request of «Gazprom» and for their money”.

And so it was that I understood another thing: if I’m writing not at the request of «Gazprom» and not for its money, the trip and the article might not happen at all.

Luckily, I was wrong about this one: the trip did take place. Of course, no thanks to the «Gazprom» press service. Indeed, more likely despite it.

I’m sure many journalists who get the idea to write something about this closed “empire” that is «Gazprom» find themselves in such a situation of being an “unanswered petitioner”. «Gazprom», which owns many media structures in Russia, for example the radio station «Echo Moskvy», in the given case appears in the role of a feudal lord: if I feel like giving information, I’ll give it, and if I don’t, I won’t. It is understandable that such “activity” has nothing in common with the law «On the mass information media».

Photo of “Its Highness” the monopolist «Gazprom» advertising on Nevsky Prospekt in St. Petersburg by Grigory Pasko

Alas, «Gazprom» is not alone in its lordship. Its “kinsman” in this could very likely be Rosatom: over there, they too love to create all sorts of obstructions for those journalists who are “not their own” – not raised and nurtured by them. Furthermore, at Rosatom, they once proposed to me that I… send them my article for “coordination” (that’s their prudish term for “censorship”) before publication. It goes without saying that I passed on such “coordination”. As a result, they killed my chances of going on a trip to certain Rosatom facilities.

If when Putin spoke of “dictatorship of the law”, he meant the diktat of petty officials at monopolist agencies, then his idea has been successfully implemented in practice.

During his tour through Australia, Robert Amsterdam was featured in this article in the daily newspaper The Age:

Call to condemn Russia over human rights

An international human rights lawyer is calling on the Australian government to impose strict conditions on a new uranium deal with Russia and condemn the country's human rights abuses.

Canadian lawyer Robert Amsterdam is in Australia to hold talks with government officials about their role in dealing with what he says is the departure from the rule of law in Russia.

Mr Amsterdam is defence lawyer for one of the world's highest-profile political prisoners, Mikhail Khodorkovsky, the former chief executive of Russian oil giant Yukos.

Mr Amsterdam said Mr Khodorkovsky has been jailed because of his vocal opposition to the President Vladimir Putin's regime and his support for pro-democracy parties and organisations.

Since his arrest by the secret police and deportation in 2005, on the last day of his client's appeal, Mr Amsterdam has set out to inform the world about the actions of the Russian government, which he says is rapidly moving towards authoritarianism.

"One of the things I swore to myself when I was being deported was not to remain silent about not only the trial that I had been (involved) with but what I had witnessed," Mr Amsterdam told AAP.

He said that included colleagues jailed, murdered and disbarred, and his clients' illegal incarceration and stabbing because of their opposition to the Russian regime.

Mr Amsterdam said Australia had a role to play in addressing the situation in Russia, including ensuring that a new uranium deal with Russia was tied to a condition of improving democracy.

In April, Foreign Minister Alexander Downer revealed the government may expand its uranium deal with Russia, allowing Australian producers to supply Russia's nuclear power industry.

"In respect of the uranium deal (Australia should impose) conditionality, in other words, making sure that the Kremlin's control of this uranium is conditional on an improvement of the democratic situation in Russia," Mr Amsterdam said.

Mr Amsterdam said public condemnation of Russia's behaviour by the federal government would also help.

"Even the simple pronouncement of what's going on in Russia by responsible members of the government dramatically helps the situation in Russia," he said.

"It is the silence of the west and the complicity of some of our business community ... that is to some significant extent also complicit in what's going on in Russia today."

He said Australia should care about the actions of the Russian government because Russia is a major nuclear power, and it's one of Australia's only resources and commodities competitors.

On top of that, he said, Australia has an obligation as a signatory to the UN charter on civil and political rights.

"Mr Putin will be coming to the APEC meeting and I think it's important for people to understand that Russia's departure from the rule of law and Russia's move away from a free market in terms of energy has long term implications to the future of Australia," he said.

"Russia has declared an energy war on four or five of the governments of Europe just recently, they've declared cyber war on Estonia, and last week they threatened Europe with re-targeting missiles.

"You simply can't close your eyes to what's happening to human rights in Russia and carry on as if business is usual."

From the Moscow Times:

The 1,400 members of the press were herded about in small groups by sometimes catty chaperones.

"Don't leave my side," one of them told her gaggle of reporters. "If you are seen walking around alone in the conference center, you will be taken for an outsider or a spy, and appropriate actions will be taken."

Things were not much more relaxed during the late-night parties on the deck of the Estonian liner. About one-fifth of the male guests on the upper deck Friday were grim, dark-suited men, who scrutinized the other guests from the back of the room. The watchers stayed stone cold sober until the parties wound down at about 3 a.m.

Asked whether he was with any of the state security services, the largest and most sullen of them said, "I'm here by myself." He was seen in a security detail the next day.

The heavy security appeared to affect one of the forum's speakers, Yevroset CEO Yevgeny Chichvarkin, who took a swipe at regulators and security firms in general in his speech Saturday, saying, "Several million adult men are effectively engaged in the industry of distrust."

About half of the female guests on the cruise liner Friday night appeared to have no visible connection to the forum, except that they were escorting foreign delegates. "What forum?" one of them said.

Rumors circled about secret VIP parties around the city for the more distinguished guests, and the highest-profile personage seen at Friday's party was billionaire Rustam Tariko, the head of the vodka-and-banking conglomerate Russky Standart.

Just in case the bar ran dry, he brought with him a bottle of his own vodka, even though a dozen uniformed waitresses stood about, carrying laden trays of the stuff.

After the forum's final news conference Sunday, Gref and Matviyenko rushed off to a gala dinner on the banks of the Neva River that featured the entire orchestra of the Mariinsky Theater, 12 grand pianos, a fireworks display, a performance by teen pop trio Serebro and an open bar made entirely of ice.

Gref held court with Matviyenko at the top table, and got up to dance, albeit stiffly, with award-winning singer Larissa Lusta.

About 1,000 guests, including most of the forum's speakers and panelists, were in attendance. Gentlemen in shiny suits gave 1,000 ruble tips to the waiters, and young women emerged in pairs from bathroom stalls with men who seemed to have the sniffles.

Along with their sea scallops, crab legs and whiskey, some of the Japanese guests enjoyed the company of Russian girls who hung on their arms and laughed a lot, without having a language in common.

Happy Day of the Adoption of the Declaration of Sovereignty of the Russian Federation, otherwise known by the less cumbersome title, Russia Day! The holiday was first declared by Boris Yeltsin to commemorate the Duma's first declaration of sovereignty in 1990. But make no mistake, the real official celebration of this holiday is a Putin invention dating back to just 2003, and this year, perhaps more than any other, the populist flavor has grown even stronger. Below are some collected images, and here is some Kremlin-approved commentary from RIA Novosti.

(AP)

The sign in the background reads: the Day of Russia. (AP Photo/Dmitry Lovetsky)

These politically savvy young Chechens carry a lovely, bright sign reading "Putin is our President" (AP)

Tossing rifles in St. Petersburg (AP)

In Vladivostok (Reuters)

[Editor's note: the following is a first in the series of new articles from our blog correspondent Grigory Pasko, who has travelled to the north of Russia to follow the proposed route of the North European Gas Pipeline - a controversial project which many say poses a threat to European energy security.]

Russia's Natural Gas Wealth Inaccessible to its Citizens

An introduction to the story of my recent journey: Moscow-Vologda-Gryazovets-Babayevo-St. Petersburg-Vyborg-Portovaya Bay-Moscow

By Grigory Pasko, journalist

Construction of the North European (it would be more honest to call it “Russian-German”) Gas Pipeline, which has now acquired the name NordStream, was planned to begin in the autumn of 2005 and end in 2010. Its creation assumes the laying of a pipe through the Baltic Sea from Russia to Germany with a throughput of 55 billion cubic meters of gas per year. “Gazprom” had unveiled the NEGP project way back in 2002. In the years 2010-2011, it is planned to place the first phase with a throughput of 27.5 billion cubic meters on stream. It is assumed that the NEGP will allow for the transport of Russian gas to Europe bypassing the gas transport systems of the countries of Eastern Europe. Just from this circumstance alone, one can come to the conclusion that the NEGP is more likely a political brainchild than an economic one.

Russian map of the route of the North European Gas Pipeline

The North European Gas Pipeline will connect the Russian coast of the Baltic Sea in the are of Portovaya Bay (not far from the city of Vyborg) with the German coast of the Baltic Sea (not far from the city of Greifswald). It will be possible to extend a branch of the pipeline along the territory of The Netherlands and beyond – to the English city of Bacton.

The length of the North European Gas Pipeline will exceed 1.2 thsd. kilometres. On the whole, the project will cost investors $5.7 bln. «Gazprom» is taking $2.2 bln of this on itself; the North European Gas Pipeline Company (NEGPC), a consortium which will receive management rights to the new gas pipeline after completion of construction, promises to find another $3.4 bln. The management board of this company since only several weeks after his retirement has been headed by former chancellor of Germany Gerhard Schroeder.

Representatives of the consortium declare that construction of the NEGP will be implemented with observance of ecological norms and will not disturb the environment of the Baltic Sea. At the same time it is known that conclusions of an environmental impact assessment does not yet exist. In addition to this, there is not a conclusive declaration on the state of the Baltic Sea bed, in which over 300 thousand tons of poisonous chemical substances of the times of the Second World War are submerged.

Why is it that this project, with which several countries of the Baltic region have issues, suddenly lurched into high gear and was given a “green light”? Obviously, it’s not just a matter of the personal relations between president Putin and former chancellor Schroeder. It is known that unlike Ruhrgas, which owns around 10% of the shares in «Gazprom», BASF and «Gazprom» are connected by ties of an informal character. The largest shareholder of BASF Wintershall, is the German DresdnerBank, the management board of which from the beginning of the current decade has been headed by Matthias Warnig — the former head of the representative office of the bank in St. Petersburg and a personal friend of Vladimir Putin’s.

Based on an assumption of The Wall Street Journal, Mr. Warnig was supposedly recruited by Putin, which is what determined his subsequent dizzyingly rapid business career. Since that time, the bank Dresdner has been methodically carrying out the most sensitive errands of the government of Russia. Thus, Dresdner turned out to be mixed up in the offensive against YUKOS — in August 2003, the Russian Ministry of Justice entrusted the company Dresdner Kleinwort Wasserstein (DrKW) to carry out an appraisal of YUKOS’s key asset, the oil company «Yuganskneftegas», for subsequent sale. As the magazine asserts, “Putin and Matthias Warnig …still continue to meet, sometimes dine together in the out-of-town residence of the president, although not quite as often as had been before.”

Before today’s project, «Gazprom» had already twice unsuccessfully attempted to access the European market. The «Yamal-Europe» gas pipeline with an overall cost of over #35 bln intended to start transport to Europe of more than 30 bln cubic meters of gas bypassing Ukraine through Belarus and Poland. After absorbing $10 bln in investments the project turned out to be on the verge of commercial collapse due to the absence on its route of underground gas storage facilities.

The second attempt to bypass Ukraine was «Blue Stream» — a gas pipeline with a capacity of 16 bln cubic meters and a cost of around $5 bln, which was laid from the RF to Turkey along the bed of the Black Sea. This project likewise ended in collapse, but for now only commercial — as in the case with «Yamal-Europe», there didn’t turn out to be storage facilities along the route of this pipeline.

And now we have the third project, which also may not be implemented in its original form.

During the course of a week, I traveled the route of the Russian land portion of the pipeline, from Gryazovets (Vologda Oblast) to Vyborg (Leningrad Oblast) with one aim – to see with my own eyes how the people are living in the places of the “construction project of the century”. What do they think of the project? How are the gasmen working?

Before the trip, I contacted the Gazprom press service for help. They refused to help me. I am writing about this in detail not only because I consider the press service team unprofessional, but also because the management of «Gazprom» had promised on numerous occasions: construction of the North European Gas Pipeline will be open for the press. They lied. The way bureaucrats who are Soviet in their essence often (if not always) lie. They make like they’re modern, European, civilized, and open, in practice applying particularly Chekist methods of closedness and falsity to the style of their work.

Photo of the NEGP pipe (laid underground) in the vicinity of Babayevo of Vologda Oblast by Grigory Pasko

Luckily, the people “on site” turned out to be more open to the press than the bureaucrats in Moscow. It should be borne in mind that it is specifically these people who are doing concrete work – building and servicing gas pipelines. The majority of those who are in Moscow are nothing but freeloaders. And, according to established tradition that has existed in Russia since time immemorial, it is precisely the freeloaders who get the big salaries. By the way, I must admit that it was still a surprise for me to learn that the average salary of a worker in the line-operation service of a compressor station comprises 5 thousand rubles – 200 dollars per month.

I have seen how the Germans who consume Russian gas live. They live well.

And now I have seen how the Russians who are literally sitting on this gas and yet effectively do not have access to it live. They live badly, in poverty.

Why is this so? Could it be precisely because the bosses – all those “top-managers”, as they like to style themselves – are living so well and in such wealth from the gas?

Could be. Just like it could also be that my field notes might seem subjective to someone. Don’t forget that I never did get to experience the “sublime pleasure” of being able to visit «Gazprom» facilities or the warm and friendly participation of the gas empire’s bureaucrats in my journey.

From John O'Sullivan in the Chicago Sun-Times:

Such people are naturally sympathetic to Bush because he has spoken out forcefully in support of democracy and human rights. They gave him a thunderously warm reception. He returned the compliment: "If standing for liberty in the world makes me a dissident, I wear that title with pride."

Liberal bloggers have been erupting indignantly at this claim. Some of them regard Bush as himself little more than an apprentice dictator. But the president took some steps to justify this claim when he came to the topic of Vladimir Putin: "In Russia, reforms that once promised to empower citizens have been derailed, with troubling implications for democratic development."

It was the kind of tough talking needed in a week when Putin had been issuing threats of nuclear targeting like some unreconstructed Cold Warrior. It had an effect. By the time Bush reached Germany for the G-8 summit, Putin was offering to collaborate on the U.S. missile defense he had previously been denouncing. And the two presidents ended up smiling together.

There's the rub. Promoting democracy can never be more than one strand in a U.S. foreign policy that has to balance competing interests and values. Inevitably the dissidents will sometimes be disappointed at the gap between grand statements of principle and the grubby compromises of diplomacy.

Anne Applebaum observes that the different ways in which the media in each G8 country played up the results of the G8 conference shows that there is no longer any international consensus that terrorism is the #1 priority problem.

I am exaggerating here to make a point: In fact, the Germans did mention Africa a few times, as sort of an afterthought. But it's not exaggerating at all to say that the events of the past week -- and the wildly divergent international news coverage that accompanied them -- illustrate a profound transformation that has taken place, slowly and quietly, over the past several years. Call it post-post-Sept. 11, or maybe just a return to status quo ante: Either way, it's pretty clear that that brief moment of consensus -- those very few years when the world's most powerful governments all believed that the world's worst problem was international terrorism -- has now passed.

Once again, everybody is on a different page: Some think the worst problem facing the world is climate change, some think it's poverty in Africa and some think it's the need for a missile defense shield, while others think that all are irrelevant by comparison with Iraq. And once again, Americans are more interested in their own problems than those everywhere else. As far as I could discern, in the United States the main news coming out of last week's summit was that President Bush had a stomachache and missed some of the morning meetings. The world's attention has wandered away from international terrorism -- and so, if I may say, has ours.

From an op/ed by Arnaud de Borchgrave in the Washington Times:

The reasons behind Russian President Vladimir Putin's increasingly hostile attitude toward the Bush administration are becoming clearer. To understand them in their proper context, imagine the United States and its allies had lost the Cold War. NATO has collapsed.

Next thing we know capitalism collapses, along with America's two political parties. In their place springs a one-party system, known as USA, which now stands for United Socialists of America.

As we lick our military, diplomatic and psychological wounds, Canada and Mexico follow our former European allies into the Warsaw Pact. France, Germany, Britain, Italy, Spain and the Benelux countries join COMECON, the Warsaw Pact equivalent of the now defunct European Economic Community. The North American Free Trade Agreement (NAFTA) folds and is replaced by INTER-ARTA (Inter-American Regulated Trade Association). Brazil, Argentina, Chile, Peru and Venezuela become charter members.

The Soviet leader -- Mikhail Gorbachev, Boris Yeltsin or Mr. Putin -- then embarks on a triumphant tour of the former NATO capitals, including Ottawa and Mexico City, now full-fledged Warsaw Pact allies.

Soviet hubris has led the world's most powerful nation to punish a recalcitrant dictator in the Middle East, say, Iraq. The men in the Kremlin decide to invade Iraq to depose Saddam Hussein, roping in key satellites in a coalition of the unwilling. Oblivious to local tribal and sectarian forces, Soviet and coalition forces find themselves bogged down in another Afghanistan.

When the Soviet leader first met with his new counterpart in the White House, he stared into his soul and liked what he saw: an American socialist who could be trusted. But now that the Russian imperialist was bogged down in Iraq, the USA president was beginning to enjoy his discomfiture. He then went on to criticize the Kremlin leader for the biggest blunder in the history of socialism. The Russian's ratings plummeted to single digits.

Tomorrow will mark the 20th anniversary of President Ronald Reagan's famous speech given at the Brandenburg Gate in West Berlin, one of the most important events in bringing an end to the Cold War. Revisiting Reagan's remarks from this historic day and contrasting them with the current approach to solving problems with the Russian Federation shows that there is still so much work to be done to build a properly functioning relationship.

Reagan:

And now the Soviets themselves may, in a limited way, be coming to understand the importance of freedom. We hear much from Moscow about a new policy of reform and openness. Some political prisoners have been released. Certain foreign news broadcasts are no longer being jammed. Some economic enterprises have been permitted to operate with greater freedom from state control.

Are these the beginnings of profound changes in the Soviet state? Or are they token gestures, intended to raise false hopes in the West, or to strengthen the Soviet system without changing it? We welcome change and openness; for we believe that freedom and security go together, that the advance of human liberty can only strengthen the cause of world peace. There is one sign the Soviets can make that would be unmistakable, that would advance dramatically the cause of freedom and peace.

General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization: Come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!

These days it is difficult to imagine another world leader willing to reach such a level of direct rhetoric to express their concerns to Russia. But then again the Reagan administration didn't have to worry about major multinational corporations and financial institutions defending the actions of the Kremlin to protect their investments and maintain their proximity to power. Just look at outgoing PM Tony Blair, who is being heavily criticized by UK businesses for questioning Russia's democratic values (Even Peter Hambro and Tony Hayward have jumped on the bandwagon, despite directly experiencing Russia's hostility and bullying).

There cannot be much optimism for the development of a free society in Russia when so many Western firms are enthusiastically underwriting autocracy, and thereby inhibiting governments' ability to stop Russia's drift toward repression.

On Sunday, Vladimir Putin addressed about 100 chief executives at the International Economic Forum in St. Petersburg, where events quickly took a turn toward the surreal as Jeroen van der Veer of Royal Dutch Shell, the poster child of a business deal gone bad in Russia, again actually thanked Mr. Putin for the theft at Sakhalin:

Van der Veer thanked Putin for helping Shell secure a good agreement over the $22 billion Sakhalin project and then asked what the rules of the game were in Russia, participants and a Shell spokesman said.

Putin replied by giving a short history of the deal and thanking Shell for helping Russia secure such a good agreement.

One participant also quoted Putin as saying that the rules of the game were very simple: honesty.

This must be Putin's greatest one-liner since the now infamous democracy quote - the fact that he no longer takes these kinds of serious questions with any level of sincerity is a disturbing trend.

From this weekend's FT:

With nine months left before he is due to step down, the world is still groping to answer the question that has been posed throughout the former KGB colonel's seven-year presidency: "Who is Mr Putin?" First he was the soft-authoritarian liberal, "Putinochet", who would restore order after the chaotic post-Soviet 1990s while driving through liberal economic reforms.

After September 11 2001, he was the west's friend, telephoning Mr Bush with sympathies and backing US military bases in former Soviet central Asia to support the war in Afghanistan. Since his 2003 assault on Mikhail Khodorkovsky, boss of the Yukos oil company, in a campaign to crush the wealthy "oligarchs" who grabbed power under president Boris Yeltsin, Mr Putin has seemed a darker figure. This Putin has clamped down aggressively on opposition and the media, grabbed state control of energy assets and used cold war-style rhetoric against the west.

But over his two presidential terms, a clearer sense has emerged of Mr Putin's character. Alexander Rahr of the German Council on Foreign Relations, a Putin biographer, says he is warm in private. "In personal contacts he is much more charming, more open," Mr Rahr says. "He can win people over in one-to-one debates more than in front of the broad public."

That may explain Mr Putin's success in turning foreign leaders such as Germany's Gerhard Schröder and Italy's Silvio Berlusconi into friends. But in public, Mr Putin can appear cold indeed. After 336 people died in the Beslan tragedy, the Russian president in a televised speech dwelt little on their suffering. Instead, he vowed to prevent any repeat, using a phrase that perhaps sums up his mentality: "Russia has been too weak," he said. "And the weak get beaten."

Mr Putin has packed the Kremlin and state companies with cronies, suggesting he trusts only long-time friends and is intensely loyal. But he bears deep grudges against those, like Mr Khodorkovsky, who he thinks have crossed him. "For Putin, there are enemies, but you can reach agreements with enemies, and there are traitors. With traitors there can be no discussion," says Alexei Venediktov, editor-in-chief of Echo of Moscow radio, oneof Russia's last independent media outlets.

The west may have tried too hard to pigeonhole Mr Putin, as a liberal, statist or KGB man. In fact, he is a combination of all three. He is an economic liberal, but believes the state must play a big role in sectors such as energy and defence. His political thinking is statist, too. The lesson Mr Putin drew from the Yeltsin era was that, for now, liberal freedoms in Russia equate to chaos and collapse. As he wrote in an open letter to Russians before becoming president: "The stronger the state, the freer the individual." Mr Putin is also very much a KGB man. Mr Rahr says two camps vying to succeed Mr Yeltsin in 1999 proposed different paths for Russia. One, led by the "oligarch", Boris Berezovsky, advocated a more liberal path of partnership with the west, which would also have enabled the oligarchs to maintain influence.

Another, backed by the security services and some lower-profile businessmen, believed in recentralising power in the Kremlin and KGB, strengthening the state, and greater independence from the west while wooing powers such as China. Their initial candidate was Yevgeny Primakov, a former head of foreign intelligence and briefly prime minister under Mr Yeltsin. After Berezovsky-controlled media crushed Mr Primakov, the oligarch backed Mr Putin, apparently believing he would do his bidding. Instead, Mr Putin sought to tame the oligarchs, fell out with Mr Berezovsky, who fled to London, and delivered essentially the Primakov agenda.

In other ways, too, Mr Putin struggles to escape the instincts of a KGB man. Nato's eastwards expansion is seen not as young democracies' desire to join a protective alliance, but as "encirclement" of Russia. Western support for democracy in Ukraine and Georgia is viewed as imperialist meddling in Russia's backyard. He remains cynical about western democracy and the press. "He sees the press not as an institution of civil society, but as an instrument for achieving a goal. He uses it that way, he thinks his opponents use it that way . . . " Mr Venediktov says.

Complete article.

The attached translated opinion article by Robert Amsterdam was published in the German daily newspaper Sueddeutsche Zeitung today.

Engage with the Right Russia

By Robert R. Amsterdam

In its burgeoning relations with Russia, German business leaders are increasingly facing a choice between denying the lessons of history or accepting them. It is incumbent upon them to recognise that failing to engage with the right Russia will only further en-able and entrench autocracy.

On one side of the argument, Klaus Mangold advocates an embrace of lawlessness. He whitewashes the injustices and illegalities now rampant in Russia, espousing tolerance and acceptance of state-led misdeeds. His argument relies on denying, dismissing or discounting the real negative trends in Russia today. Let’s do any kind of business with the Russians – he seems to me to be saying – until they and their society one day evolve into fully civilised equals and even more lucrative commercial partners.

The Mangold policy betrays those reformers who still exist in Russia and who want their country to evolve along the principles of a law-based market economy. Mr Mangold has given up on those real reformers, and he es-pouses further empowering the autocrats who have nearly completed their consolidation of all the country’s power.

On the other side of the argument, I advocate a more principled engagement with Russia. I do not advocate isolation. Yet a healthy and mutually beneficial German-Russian relationship cannot be built upon false pre-tences or obfuscations of reality. This means no complicity in state-led illegality. This means, as Angela Merkel has had the courage to do, declaring and adhering to standards of ethics while seeking mutually beneficial commercial ties. This means not engaging in “constitutional dumping” – that is, accepting standards of law or ethics abroad far below those of one’s home country, hoping that no one in the home country will quite realise upon what basis the resulting profits are being earned.

Mr Mangold’s approach underlines a frightening phenomenon that is gaining some traction – that Western business leaders can and should embrace Third World-like corrupting influences in Russia. Few people would deny that Russia is heading in the wrong direction. From the dismantling of nascent democratic and judicial reforms to the withdrawal of press freedoms to the acceptance of officially-supported racism and the use of brainwashed youth to beat up political opponents, this is a movie we have seen before.

In assessing Russia one must take into account the distorting influence of the resource curse. The wealth now being channelled into the Kremlin creates a false sense of security, all the while spreading corruption among officials and leading to the decay or destruction of institutions of the state. And the Kremlin’s corruption is viral, attacking the body politic of both those that offer funds and those who receive them.

The Mangold camp preaches a narrative of Russia-as-victim – the country and the people have been through so much that we must raise the threshold very high before we criticise anything its leadership does or does not do. Yet there is a dangerous consequence to subscribing to this narrative. Not only does the narrative render Russia’s aggressive geopolitical conduct a rationale – it also enfeebles those in the West who might criticize Kremlin conduct, and through this enfeeblement turns the protagonist into the real victim.

It is a violation of the rules of history for German business leaders to blind themselves to the negative course of today’s Russia. And it is a violation of basic human morality to deny Politkovskaya or to deny Khodorkovsky – and march in solidarity with those who stand by or actively participate as political opponents are mur-dered or quashed. Those in power in Russia today have poured poison into the legal and political system in which they operate. They are capable of resuscitating the very best of Stalinist show trial tactics to silence those who would criticize them.

Sooner or later, the consequences of the breakdown in Russia’s rule of law will become apparent. Then those who so vociferously denied reality and es-poused business-as-usual will be put in the dock and forced to testify about their role in the resulting disaster.

From the OECD to Freedom House to Amnesty and Transparency International, every statistic and register lends support to the view that the Russian state is the most thoroughly corrupt among major powers in the world today. It is well-known that for German business groups entering the market in today’s Russia, the constant advice has been to clear all issues with the Kremlin and not worry too much about the rampant lawlessness among the bureaucrats.
German business leaders who have been complicit in the Kremlin’s misdeed will have no excuse. Messrs Schroder and Mangold and those aligned with them, as well as their Ital-ian counterparts around Messrs Berlusconi, Prodi and Scaroni, are all engaged in a race to the bottom of human values. The only certain outcome is that the Russian people will lose.

Andrei Illarionov was perhaps the last great reformer to quit or be forced out of the Kremlin. He and others like him, now marginalised, have suffered the betrayal of those in the West who scurry to make favour with Russia’s new state barons. It is Germany, with its free press and solid political institutions, which is one of the last hopes of the Russian people, whose voices are being squelched by an axis of Western business complicity.

Greetings from the land of the rising sun. As I come to the end of a week-long stay in Tokyo, Japan, I thought I would put down some of my thoughts and impressions from this trip.

This week I’ve participated in several speaking platforms, interviews, and meetings with officials to discuss the Khodorkovsky case, energy relations, and Russia’s role in Asia. As I had hoped, the experience has been enormously positive, and I had the good fortune of meeting some very intelligent people, including a few of Japan’s leading commentators on Russia. However my visit also included many unexpected surprises, including a generally vague and pessimistic public perception of the government’s success in maintaining and projecting Japan’s influence in the region – almost like a political exhaustion similar to Chirac-era France of years past.

During my short time here, a few things have become clear. Firstly, in regards to regional geopolitics and the complex triangulation game theory being played out between Japan, China, and Russia, to date it has been Japan that has been losing out to the interests of the other two countries, mostly due to its own tactical missteps. Not only in terms of energy diversification and military/security presence, but also the Japanese have been losing ground diplomatically in the longstanding dispute with Russia over the Kuril Islands (the Northern Territories). And this is a much larger issue than many outsiders realize: I believe it is fair to say that the depth of feelings over here regarding the status of the islands is beyond almost any Westerner’s comprehension.

For the Japanese, the islands are far more than just a territorial question. They are viewed as a question of national honor and pride, and given Prime Minister Shinzo Abe’s increasingly nationalist politics, Japan is prepared to allow this dispute to completely block any future serious political dialogue between the two countries. I’m interested for people to comment on this, because it is my view is that the Russians are fully aware of Japan’s disproportionate obsession with these islands (compared to the insignificant strategic value of the territories to Russia), and are adeptly dangling proposed resolutions as a tool to remove Japan from the equation while Russia moves in both the Koreas and in China.

Lately the dispute has been as prickly as ever, showing that Vladimir Putin’s short patience for diplomacy and energy-fed confidence is projected not only toward the West, but also to the East. For example, just ahead of the G8 Summit, Putin declared Russia’s willingness to begin negotiations on the Kurils, stating “We don't consider them contestable, as the situation arose as a result of the Second World War, and was fixed in international law, and in international documents. But we understand the motivation of our Japanese partners. We want to get rid of all thorns of the past, and we are seeking a solution to this issue together with Japan.” Yet in the very same breath, Putin had dispatched his Foreign Minister Sergei Lavrov to fly to the Kuril Islands and re-assert Russian sovereignty, telling the news media that Russia was not prepared to give the islands up. This Kremlin doublespeak, which has become a standard characteristic of the Kremlin’s engagement with the West, did not go unnoticed among the indignant newspaper columnists in Tokyo. End result: on Wednesday the Japanese Foreign Minister issued a somewhat embarrassing warning to the Russians requesting them to abstain from “provocative actions” in the islands dispute.

Aside from the Kuril Islands, Japan’s relationship with Russia has also been soured by the experience at Sakhalin, when along with Royal Dutch Shell, the companies Mitsui and Mitsubishi saw their stakes in the huge extraction project reduced and given over to Gazprom, thanks to the unlawful bullying of regulators. And in his never-ending quest to balance the powers between Medvedev at Gazprom and Sechin at Rosneft, Putin is now thought to be considering a move on Sakhalin-1, which involves Japanese companies in the Sakhalin Oil and Gas Development Corp. (SODECO). As Sakhalin-1 has a majority participation of Exxon Mobil, a company which is known as a fighter, when Oleg Mitvol gets tasked with the regulatory attack on SODECO to help push Rosneft into the project, it is most likely that the Japanese will get bumped instead of the Americans. Add this to continuing political games of bait-and-switch regarding Siberian pipeline routes to Japan’s failed overtures in the Middle East, and you have a fairly strong argument that Russia is actively undermining Japanese efforts to build energy security.

As I said during one speech in Tokyo, Japan has found itself to be an indirect victim of the Yukos affair. If the regulatory, quasi-legal destruction of Yukos and theft of its assets had not been greeted with Western silence, and at times the open complicity of its financial institutions, would Russia in fact continue to use the same tactics at Sakhalin? I highly doubt it. Yukos may have been the dress rehearsal for the Kremlin methodology of forced expropriation, but it is showing that Sakhalin and Kovykta are the real opening acts.

So why hasn’t Japan acted in its own defense? Perhaps there hasn’t been as strong of a reaction because of a lack of awareness. While the local media has certainly taken Moscow to task on the islands dispute, it has largely shied away from any criticism of Russia’s retreat from democracy, or comment on the perilous human rights situation there for journalists, NGOs, and political opposition. The impact on Japanese public awareness of Russian affairs has been huge. In some of the conversations I had, it was the first time that many had heard about the revolutionary changes that are happening in Russia, and many were hungry for more information and eager to take action. The geopolitical significance of Russian energy imperialism and the new model of state corporatism have yet to receive a thorough analysis among many decision makers.

But even more than a lack of awareness, there seems to be an issue of the psychological approach to the problem. It was my impression that Japan’s self-perception of its role in Asia has been one of a diminishing power, caused by a combination of the massively growing footprint of China and the growing swagger of Russian energy politics. In many of my comments I have incorporated some of the principles from a well known speech of Japanese Foreign Minister Taro Aso. While the Arc of Freedom and Prosperity is undoubtedly a revolutionary approach to emphasizing values in foreign policy, it also underscores the modesty and hesitance of the contemporary Japanese character. Here we have the world’s second largest economy, boasting a vibrant democracy and numerous national achievements to be very proud of, yet it is a country that is not inclined to project power in disputes with Russia. Much like how Europe relied on the United States as a security blanket in the 1970s, one wonders if this policy of “subsidized sovereignty” can readily survive in the new realpolitik of the 21st century.

I do hope for Japan’s sake that its unwillingness to exercise power does not become a self-fulfilling prophecy.

A relatively new report has been released by the French Institute on International Relations (L’Institut français des relations internationales - IFRI) containing an interesting analysis of the corruption underscoring Gazprom's relationship with certain interests in the Ukrainian government. While much of the paper is descriptive, there are also some valuable comments. The full paper, "The Opacity of Russian-Ukrainian Energy Relations" by Arnaud Dubien can be downloaded here. Below are the concluding remarks from the paper (emphasis mine).

Fifteen years after the collapse of the USSR, the gas issue is central to the domestic and external challenges which Ukraine faces. The country's economic modernization, the condition of its rapprochement with the EU requires above all an in-depth reform of its production system, which is the world's most energy-hungry. At the political level, the perpetuation of gas management models based on opacity fuels corruption within the leading elites and constitutes one of the principal obstacles in breaking with the post-Soviet heritage. Finally, the Ukrainian foreign and security politics is and undoubtedly will continue to be durably conditioned by the country's vulnerability in terms of hydrocarbons supply.

In this respect, the Russian factor is obviously central. Often analyzed through the prism of Moscow's neo-imperial ambitions, the protagonists of the Ukraine policy instead relates more to a multiplicity interests and logics. It is obvious that the Kremlin has made energy one of the privileged vectors of its strategy for influence. Yet it is more difficult to clearly separate Russian state interests from those of Gazprom or those of concerned individuals. Keeping the trader RosUkrEnergo as the required intermediary of gas relations between Ukraine and Russia, in disregard of any economic rationality, is the most striking illustration of this ambiguous, if not incestuous, symbiosis. The moderation Gazprom has shown in the fall of 2006 has certainly something to do with the position taken by Ukrainian Prime Minister Viktor Yanukovich on NATO, which tends to confirm a linkage between energy issues and broader strategic issues. On the contrary, the alignment of gas prices on international tariffs, envisioned for 2008, is witness to a certain trivialization of Ukraine in Russian perception and to an autonomisation of the gas question. As if the Kremlin was at Gazprom's service and not the reverse.

Can the changes in Turkmenistan after Saparmurat Niyazov's death and the new political crisis in Kyiv at the beginning of April have an impact on the country's energy issues? The new Turkmen President, Gurbanguly Berdymukhammedov, does not appear eager to call into question the agreements signed in 2003 with Gazprom. A situation which thus a priori excludes Kyiv from again joining direct bilateral gas relations, but which offers Ukraine certain guarantees as for the volume of its supplies, which could be called into question should Ashkhabad carry out the project of exporting gas to China or the Indian subcontinent. The show of force between Viktor Yushchenko and Viktor Yanukovich concerning the Parliament's dissolution is not directly related to gas issues, even if the systematic lock the various clans surrounding the Prime Minister have of the energy sector has undoubtedly weighed on the report of the “usurpation of power” stressed by the President to justify his decision. A return of Yulia Timoshenko, if her party were to gain possible anticipated legislative elections, would undoubtedly have for consequence a complete overhaul short of a cleanup of gas relations between Ukraine and Russia.

RIA Novosti reports that the Moscow Bar Association has refused to disbar Karinna Moskalenko, who faced charges of "failing to defend" Mikhail Khodorkovsky.

Qualifications panel refuses to disbar Khodorkovsky lawyer MOSCOW, June 8 (RIA Novosti) - The qualifications commission of the Moscow Bar Association rejected prosecutors' request to recommend that a lawyer for jailed Yukos founder Mikhail Khodorkovsky be disbarred, the lawyer in question said Friday.

The bar association will consider Karina Moskalenko's disbarment June 21.

"The qualifications commission found no reason to impose a disciplinary punishment on me and recommended to the Moscow Bar Association that I not be disbarred," Moskalenko said.

Prosecutors have accused Moskalenko of failing to provide a proper defense for Khodorkovsky during criminal proceedings against him by failing to visit him.

"Today, an official from the Prosecutor General's Office firmly insisted that I violated Khodorkovsky's right to a defense, but in reality it is the prosecutor's office which violated his rights," Moskalenko said.

The founder of the once best-run crude producer, Yukos, who financed opposition parties and was said to be pursuing personal political ambitions, was convicted in May 2005 and has been serving an eight-year jail term near Chita, Siberia. In mid-December, he was transferred to a pretrial detention center in Chita to face new money laundering charges.

Moskalenko said the prosecutors' disbarment request prevented her from attending hearings on a defense appeal against a court ruling to extend Khodorkovsky's custody.

The International Commission of Jurists (ICJ) called on Russian prosecutors Thursday to stop pursuing Moskalenko, and said the campaign was nothing but harassment.

Moskalenko is not the first of Khodorkovsky's lawyers to be threatened with disbarment. In 2005, prosecutors requested that the bar associations of Moscow and St. Petersburg disbar five lawyers of the jailed tycoon, but the requests were not granted.

Yukos, once Russia's largest oil company, was declared bankrupt in August 2006 after three years of litigation with tax authorities. Yukos's key assets have been auctioned off to state-run oil company Rosneft.

Who Needs Radioactive Waste?

By Grigory Pasko, journalist

In Angarsk

Early this year, I spent some time in Angarsk, a small Siberian town just west of Lake Baikal, about 60 kilometers down the Angara River from Irkutsk. I was interested in the Angarsk Electrolysis Chemical Complex (АЭХК), on the territory of which the leadership of the country and Rosatom had decided to build an International Uranium Enrichment Center. Inasmuch as 3% of the territory of Russia is contaminated with radiation (that’s an area equivalent to France in size), I was interested in the question: how is АЭХК planning to store the radioactive waste that remains after the uranium has been enriched? And a second question: in what state is that waste which is already being stored on site at АЭХК?

In order to visit the facility, I contacted the Rosatom press service. The long negotiations ended with low-level Rosatom officials assuring me that I just had to go there, and I would be met and shown the facility.

When I arrived in Angarsk, I was told that the enterprise’s management was not in, and that the question of my visit could not be resolved in their absence. Obviously I knew that they had been lying to me from the very beginning, as they do quite often at Rosatom.

In Angarsk, accompanied by journalist colleagues from Irkutsk, I took a drive to АЭХК. About a kilometer before we got there, we saw an international no-entry road sign with the words “Except departmental transport”. “Departmental transport” frequently drove past us – mostly buses with people. We could see a barrier gate and armed security guards further down the road. Without permission, there was no point in driving any further than this sign.

Photo of no-entry sign on the road to АЭХК by Grigory Pasko.

Back in the town, we had a chance to chat with some of the local inhabitants. Elena, a mother of two children, said that she doesn’t want to live in a radioactive town and intends to move someplace else. Representatives of АЭХК, whom we met at an amateur choir rehearsal at the local palace of culture, were strongly in favor of the creation of a uranium enrichment center at their enterprise. Then, the explained, they would definitely have work and get paid. Radiation doesn’t scare them. They somehow don’t seem to give much thought to the danger of radiation contamination of a huge territory, including the pristine waters of Lake Baikal, in the event of an accident.

At the same time, local ecologists spoke quite a bit about precisely this threat to Baikal at a rally that took place the day before in Irkutsk. (I recalled the words of one girl from Rosatom about how “those environmentalists” were, to put it mildly, “not all there”. Or, to put it more bluntly, they were idiots, the only proper place for whom was a psychiatric hospital.) There were a lot of police at this rally, and then a bus filled with АЭХК employees arrived on the scene. They carried posters saying that the environmentalists were working off money they’d received from the west. I tried to talk to these new arrivals, but they refused to answer any questions. But one young man did hand me a leaflet, in which the safe functioning of the center in Angarsk was promised in the words of the head of Rosatom, Sergey Kiriyenko.

In Germany

In the opinion of the leading independent European expert on the uranium industry, Peter Diehl, if earlier the company Urenco had sent its radioactive waste to Russia with the aim of re-enrichment, getting back uranium, then now the this practice, from all appearances, has stopped. At the present time, the quantity of uranium in the waste of the company Urenco is so low that re-enrichment no longer makes any sense. And this signifies that the European atomic workers are sending radioactive waste to Russia exclusively with the aim of storage.

“We demand a stop to subjecting the population in zones of transit of nucular wastes to mortal danger. And storage of waste produced in Germany on the territory of Russia is nucular colonialism, which it is necessary to stop” – thus declared Matthias Eickhoff of the Aktionsbündnis Münsterland gegen Atomanlagen (Münster) during the time of a recent manifestation of ecologists during the time of the movement of a train with uranic materials from Gronau to Rotterdam.

According to the information of the group «Ekozashchita!» [Ecoprotection!], the plant in Gronau (the German unit of the corporation URENCO) has been sending waste from the uranium enrichment process (so-called depleted uranium hexafluoride or “uranium tails”) to Russia. Since 1996. Up to 90% of the waste brought in remains at Russian enterprises for long-term storage, which is carried out for free for European companies. The overall quantity of radioactive waste that has entered into Russia over the past decade is close to 100 thsd. tons.

On 26 April, the anniversary of the Chernobyl accident, I spent some time with German environmentalists near URENCO enterprises at Almelo in The Netherlands and Gronau in Germany.

In Almelo, it didn’t take more than five minutes for the security guards of the enterprise to come running out to us. Having learned that the assembly had been sanctioned and that there were journalists among those gathered, the security guards ran back. As became clear later, they called the police on the telephone. The police showed up five minutes later. Having checked our documents, they smiled and left, having shaken hands with everyone in parting.

“We” consisted of the German ecologists Udo Buchholz and Georg Bütefur, as well as a scientist from the Netherlands, Jacob Visser.

We spent more than an hour by the URENCO complex in Almelo. In this time, we were able to discern that repairs (or a reconstruction) were in full swing at the enterprise.

Then we came to Gronau. Inasmuch as the action of picketing the enterprise was sanctioned, the police were already in place. I chatted with the commander of the police unit. He said that the environmental activists can do anything they want, as long as it was within the law. It turned out that he was already acquainted with Udo Buchholz. And in general, it seemed to me that the senior policeman was positively inclined in relation to the environmental activists. I asked him: how, in his opinion, good is URENCO doing by sending radioactive waste to Russia? The policeman said that being an official person, he would not answer this question. So I suggested he imagine that he and I are sitting someplace having a beer and talking about life in general. And that I’m asking the same question of him as an ordinary civilian, not an official. The policeman thought a moment and said: “The fact that I don’t want to answer your question directly probably is my answer.”

Photo of demonstrators outside URENCO gates in Gronau, Germany by Grigory Pasko

There is a multitude of such people as this policeman embedded in the system of international atomic relations. Some blindly carry out their duty; others, like the teacher Georg Bütefur, protest against nuclear colonialism and the moving out of waste in their free time from work. In this time, the atomic world mafia is doing its dirty (in the direct sense of this word, considering the level of radiation contamination of different territories) little radioactive deeds, pushing through decisions and laws through unprincipled politicians.

I saw how the people live in Angarsk – they live bad. And I think that the people live just as bad in other cities of Russia where waste is going to be shipped: in Novouralsk of Sverdlovsk Oblast, Seversk of Tomsk Oblast, Zelenogorsk in Krasnoyarsk Kray… And I doubt they’re going to start living better just because someone else’s radioactive waste is going to start accumulating somewhere right nearby them.

In Angarsk

The political decision about the creation of the International Uranium Enrichment Center in Angarsk has been adopted. That’s exactly what the leaflet I was given by АЭХК employees spoke about. Like Rosatom press secretary Sergey Novikov said, “Russia in such a manner is making a huge contribution towards strengthening the non-proliferation regime”. At the same time, it is known that the center in Angarsk is being created at the initiative of president Putin.

Ecologists are speaking out against the construction of the center, asserting that the interested countries will get nuclear fuel, while Russia will get the waste from the uranium enrichment process.

“The International Uranium Enrichment Center in Angarsk will become a direct environmental threat for our region”, considers the head of the «Baikal ecological wave» movement, Marina Rikhvanova. She likewise noted that representatives of Rosatom had promised that if the population and the local administration will be against, the center will not be created.

I recall how Rosatom head Sergey Kiriyenko had given an analogous promise in the summer of 2006 concerning the construction of new atomic power stations. However, this promise didn’t stop the government of Russia from approving a federal program for the construction of 40 (forty) new nuclear reactors throughout the whole country.

Photo of the city of Angarsk, still watched over by Lenin, by Grigory Pasko

It is known that since 1996, from 130 to 290 tons of depleted uranium hexafluoride has been shipped annually to АЭХК for enrichment under contracts with the Dutch/German/British company Urenco and the French company Eurodif SA. Ecologists assert that “enrichment of uranium tails” is just a covert method for bringing nuclear waste into Russia: after enrichment, only 10% of the nuclear material is returned to Europe, while 90% remains essentially stored for free in Russia.

Around 500 thousand tons of depleted uranium hexafluoride is currently being stored on the territory of АЭХК. The waste is situated in warehouses and on open-air pads and represents a great danger. In the opinion of «Ekozashchita!» activists, if a hermetically sealed container of uranium hexafluoride were to break, this would result in a lethal outcome for any living thing within a radius of 32 kilometers [20 miles], and if such an accident were to occur in windy weather, the radioactive cloud would get to Irkutsk (with a population of over half a million) in 1.5–2 hours.

While the people are protesting in Russia and Germany against the plans of the politicians and the atomic kingpins, the waste continues to take its dangerous journey from one country to the other.

Joseph Nye in the Boston Globe:

Yet these tensions also create an opportunity. We should offer Russia a grand bargain: We would delay our plans for missile defense in Eastern Europe, while the Russians would agree to back stronger sanctions against Iran.

Since our technology is not fully developed and Iran is not on the brink of having long range missiles that can accommodate nuclear warheads, we could afford to offer Russia a delay in deployment while we engage in broader discussions of our military relationship. At the same time, since an Iranian nuclear weapon will undercut Russian security, and Russia has already offered to provide enrichment services to Iran if the Iranians forgo their own enrichment program, Russia might find the bargain tempting.

Critics might worry that we would give away too much. But we can afford to buy ourselves a little time. It's not likely that Iran could develop missiles capable of reaching Europe or the United States for at least a decade. Therefore, we can take our best shot at blocking Iran's nuclear ambitions without compromising our immediate security.

The United States clearly intends for any missile defense in Eastern Europe to protect against Iran, as well as any other hostile states. But we have the opportunity right now to prevent Iran from getting the nuclear bomb we're trying to defend ourselves against. By striking a deal with Russia to support sanctions against Iran, we would get a chance to make our strongest bid yet to prevent Iran from becoming the newest nuclear state. Everything else should be second to that goal. Although the administration will be reluctant to alter its missile defense plans, Rice often speaks of transformational diplomacy. What better example than for Bush to suggest this bargain to Putin when they meet at Kennebunkport this summer?

From Fred Kaplan on Slate:

A president tends to make categorical statements only when his truth is in doubt. "The only thing we have to fear is fear itself." "I am not a crook." "The state of the union is sound."

Thus, on Wednesday, at the G8 summit, when President George W. Bush said, "Russia is not an enemy," he did so, clearly, because many people are wondering if maybe it is.

Today the Economist reports on the arrest in Austria and subsequent extradition request for Rakhat Aliyev, the son-in-law of the president of Kazakhstan. Underneath the numerous layers of political intrigue, family in-fighting, drastic consolidation of power, and the competing regional energy interests of U.S. and Russia, there is also another Austrian banking scandal involving the sale of Nurbank - largely overlooked in this article. Raiffeisen (RZB) is considered a leading bidder to acquire Nurbank.

Excerpt from the Economist:

A new political scandal hit the country in late 2005-early 2006 when two prominent opposition figures, both critics of Mr Nazarbayev, were murdered. A senior official close to the then speaker of the Senate, Nurtay Abykayev, was convicted of the killing of the second, following which Ms Nazarbayeva called publicly for Mr Abykayev to resign, on the grounds that he was the immediate superior of the convicted murderer.

Having apparently weathered the controversy created by subsequent allegations by a member of the security services that Mr Aliyev had been involved in the killing (Mr Aliyev successfully sued the intelligence officer for libel), in January 2007 he became embroiled in the Nurbank scandal. Shortly afterwards Mr Nazarbayev appointed him as ambassador to Austria, a move that was probably already planned but that the president had to bring forward. Any hope that Mr Nazarbayev had that the move to Austria would isolate Mr Aliyev from domestic politics was dashed, however, as the allegations against his son-in-law refused to die down.

Making a point, at home and abroad

However much the Nurbank scandal was seen to be damaging the presidential circle's reputation, the decision to initiate an international arrest warrant against Mr Aliyev was nevertheless unexpected. Notwithstanding Mr Aliyev's claim that his presidential aspirations were the catalyst for his arrest, it is likely that there is a combination of motives.

Mr Aliyev's presidential ambitions were undoubtedly a factor; together with his wife he headed one of Kazakhstan's main political factions, and was widely believed to be jockeying for power, in the event that Mr Nazarbayev were to leave office. If he did in fact confirm to Mr Nazarbayev earlier this year that he intended to contest the presidency, this presumably came at a time when the president was preparing to alter the constitution to remove the limits on his term. Mr Nazarbayev might have perceived the threat that Mr Aliyev would spend the next five years strengthening his position to contest the election as too high to risk, and therefore decided to act now to remove him from the political arena.

Another reason why Mr Nazarbayev might have decided to act now against Mr Aliyev was that the ongoing scandal at Nurbank was damaging Kazakhstan's aspirations to chair the Organisation for Security and Co-operation in Europe (OSCE) in 2009—Mr Aliyev's diplomatic remit in Vienna included the promotion of Kazakhstan's bid. At their meeting in late 2006 the OSCE postponed until their next summit in 2007 a decision on whether to award Kazakhstan the chair, following concerns among some Western members that the country's democratic record was incompatible with this role.

It looks like BP might get nipped by the Russian bear at Kovykta

From the Independent: Energy regulation: Exit, pursued by a Russian bear?

Kovykta, he [Putin] said, had reserves of 3 trillion cubic metres, equal to almost all the natural gas reserves of Canada. It was of tremendous importance to Russia. "But if the members of the consortium are doing nothing to meet licence obligations, how much longer do we have to tolerate this?" He acknowledged that there were many reasons for the delays. But, he said, "they knew about it when they bid for the licence; they knew about these problems and possible restrictions, and they nevertheless bought the licence".

BP, for its part, has been cautious in the extreme about making any public comment on the situation. And why should it? One interpretation of the pre-G8 postponement might be that representations are still being made, or that the Russian authorities are in disagreement. It makes no sense for the company to write off Kovykta until it absolutely has to - not least because the actual financial implications for TNK-BP, at least at this stage, are negligible.

Although the value of the field, once exploited, could run to $20bn or more, the licence is worth almost nothing to the company under the terms and conditions that currently apply. Nor, strictly speaking, would the loss of the licence be a huge financial liability for BP. The company neither negotiated the deal nor paid for it; the licence came with TNK, having been negotiated long before BP came on the scene as part of the Nineties carve-up of Russia's natural resources. None of this means, however, that the decision - when it comes - will have no significance. The reason it has been so keenly anticipated is that it is seen as a crucial indicator of Russia's intentions towards foreign investment in general, and foreign investment in the country's energy sector in particular. If, as expected, the licence is revoked, this will be seen as a negative answer to a host of questions that are, just about, still open.

Is Russia really interested in foreign investment in its oil and gas sector? Is it ready to deal with foreign investors on terms that are consistent and regulated by a recognised system of law? And how far is foreign access to Russia's energy reserves dictated by politics rather than economics? And if the answers to all these questions are also negative, will it then be time for the international oil and gas companies to conclude that they are unwelcome, cut their losses and seek opportunities elsewhere?

Although a Google News search for "russia missile" turns up 8,324 articles, I'm prepared to hand out the award for best headline to the always acerbic copyeditors of STRATFOR:

"Putin Tells Bush Where to Put His Missile Defense System"

STRATFOR stopped short of running this AP photo

(Sorry to disappoint, but the answer is Azerbaijan).

Fyodor Lukyanov, editor of Russia in Global Affairs, explains the Russian view of the Pol-Czech Missile Crisis:

When Putin criticises the US aggressively over its anti-missile system plans, I can imagine the faces of China's leaders, sitting quietly in Beijing and happily nodding approval because Putin is fighting for them against a system none of them want. Putin reflects the views of all those who are not US allies.

Joel Brenner, the man in charge of U.S. counterintelligence efforts, was featured in an interesting interview with NPR yesterday - which can now be heard here. Brenner says that espionage has returned to Cold War levels, and that the Russians are among the best in the business.

For TNK-BP, it's much worse

By Derek Brower, journalist

IT SEEMS TNK-BP will have to wait another few days, possibly until after the St Petersburg Economic Forum this weekend, to learn the fate of its Kovykta gasfield in Siberia.

TNK-BP is losing some of its lustre

Last week, BP’s chief executive, Tony Hayward, was in Moscow to meet with Gazprom chief Alexei Miller. Ostensibly, Hayward was there to discuss a range of issues and to attend a TNK-BP board meeting, according to BP. But he was also there to try to save TNK-BP from disaster at Kovykta.

BP knows that its joint-venture in Russia, TNK-BP, won’t be able to keep control of Kovykta. Strategically, the field is too important for Russia’s plans to export gas to China and meet the supply requirements of its own domestic market to allow its development to be undertaken by TNK-BP.

And, in any case, the pre-text for the Russian state’s desire to revoke the licence that TNK-BP controls at Kovykta, through its majority stake in the Rusiya Petroleum consortium developing it, is sound. Rusiya has not met the terms of its contract to produce 9bn cubic metres a year from the field.

The fact that local demand in Irkutsk is not sufficient to justify production of such volumes makes the contractual stipulation absurd. But TNK-BP was aware of the clause when it took control of Rusiya in 2003, a period under President Putin’s rule when foreign companies in Russia’s oil and gas sector were welcome.

That was then. Now, however, TNK-BP has been doing its best to save a bad situation from becoming much worse. Losing the Kovykta licence would cost the company $400m it has already spent developing it, TNK-BP said earlier this week. That figure hides much more value that the company would lose if the contract is shredded. At peak output, Kovykta would have amounted to around 20% of TNK-BP’s total production.

The response from TNK-BP and its supporters – BP itself and the UK government chief among them – has been to seek the kind of deal that Shell secured on Sakhalin. Assuming that the pressure being applied over the licence has been orchestrated to manoeuvre Gazprom into control over the project, TNK-BP has sought to play clever. Its chief executive, Robert Dudley, has been saying since last summer that Gazprom would be a welcome participant in the project. Most recently, TNK-BP offered Gazprom the chance to buy a 51% controlling stake in Rusiya. Hayward’s chat with Miller in Moscow last week was another effort to cut a deal.

Gazprom, knowing TNK-BP is in a tight spot, has turned down the joint-venture’s kind offer. Amid a war of words with the UK over the Litvinenko affair and the pointing of missiles in Europe, Moscow is in no mood to be generous to BP or its Russian joint venture. And why should Gazprom want to pay market rates for a stake in Rusiya when it will be able to buy the Kovykta licence more cheaply at auction next year?

Oleg Mitvol, the deputy-head of the environmental watchdog Rosprirodnadzor – and the man who brought Shell to heel on Sakhalin at the end of 2006 – says he is now “99% certain” that TNK-BP will lose its licence. When it does, it will be designated a “strategic” field, ensuring no-one but Gazprom can expect to buy the new licence when the Russian government re-sells it cheaply. Valery Nesterov, an analyst at Troika Dialog, says the auction might not happen for a couple years.

The involvement of Mitvol – who himself dodged a bullet when colleagues tried to have him sacked earlier this year – in the Kovykta affair has reminded many commentators of the Shell’s Sakhalin humiliation.

In fact, BP-TNK’s Kovykta problems are even more severe than Sakhalin Energy’s were. Without the involvement of Shell on Sakhalin, Gazprom would not have been able to execute what will be one of the world’s largest LNG projects. Putting control of Sakhalin Energy in Russian hands was the goal of the campaign against Shell on the island in Russia’s Far East. But Gazprom still needs Shell to do the donkey work to get the project on stream.

Kovykta is different. Gazprom knows it can develop the project on its own. It has no need for TNK-BP to be involved. President Putin knows that too, which is why his statements about the field have focused on the output clause in the contract. This time, the Kremlin wants to stick to the letter of the law. Moscow has the legal grounds to revoke the licence and it will. Probably next week after the foreigners have gone home from St Petersburg.

In normal circumstances, the Kremlin would have allowed TNK-BP to develop an export option for Kovykta’s gas and would have welcomed more foreign capital being invested in its upstream. In fairly normal circumstances, it would have insisted that Gazprom pay market value for an asset it will soon acquire. But in the context of Russia’s ever deteriorating relations with the West, TNK-BP’s total defeat on Kovykta shouldn’t surprise anyone.

Here is a short newsclip from CNN reporting on the U.S.-Russia tensions at the G8, where the general and reasonable message from both sides is "calm down, everybody." The clip contains a interesting, short interview with the Kremlin spokesman Dmitry Peskov, which reminds us how he got his job in the first place.

Perhaps a coincidence, perhaps symbolic, Vladimir Putin is positioned on the right-hand side of Angela Merkel over and over at the G8 Summit, reinforcing Germany's important role as the West's key interlocutor with Moscow.

Today the FT reported that the United Kingdom's Home Foreign & Commonwealth Office (FCO) has stepped up its warnings to British businesses about the increased risks of investing in Russia, saying that the "challenges of market entry should not be underestimated."

Deputy Finance Minister Sergei Storchak shows he can Blair bash with the best of them.

This is a remarkable and sudden change of direction from the FCO, which up until now has been very tame and tight-lipped on the political risk faced by foreign investors in Russia. Here, for example, is an excerpt from their country profile for Russia.

Notwithstanding current high growth rates, there are longer-term causes for concern about the Russian economy. Russia needs to maintain the confidence of domestic and foreign investors (which took a knock after the arrest of the head of Yukos in October 2003 and the gradual break-up of his company thereafter). Recent domestic policy developments in the gas sector, for example, notably the Gas Export law which enshrines Gazprom’s de facto export monopoly, contrast with the G8 principles Russia has signed up to. State structures remain little reformed. State influence, including direct ownership, in the economy is growing. Over regulation, uncertainty and corruption remain serious problems. The external trade surplus could fall sharply if oil prices do not rise further, creating liquidity problems. Major investment is needed across a range of sectors, including gas, where according to the IEA it is not certain that Russian supply will be able to meet both export and domestic demand by 2010. Russia's demographic decline will present a growing economic and labour-force challenge.

The FCO's warning comes in lockstep with critical comments made by Tony Blair, who issued a warning to Russia while speaking before MPs in the House of Commons: "I have good relations with President Putin. We want good relations with Russia. But that can only be done on the basis that there are certain shared principles and shared values. The consequence if there aren't - there is no point in making hollow threats against Russia - is that people in Europe will want to minimise the business they do with Russia if that happens."

Russia didn't take long at all to lob another zinger back. Deputy Finance Minister Sergei Storchak said "I doubt business will react to the rather emotional words of, after all, an ex-prime minister."

Ouch.

Just in case the RZB money laundering scandal with Russia weren't enough drama for the ethically upright Austrians, another mess from a foreign country has landed at their doorstep.

Rakhat Aliyev, the son-in-law of the president of Kazakhstan, has been arrested in Austria in connection with a kidnapping scandal involving Nurbank, a bank in which he owns a majority share (coincidentally, RZB is one of the leading bidders to take over the bank). Ever since the charges were issued against Aliyev, who fell out with his father-in-law some time ago and is now known as a fierce critic, two news websites he owns have been blocked by the Nazarbayev government. Now released on bail and called a dissident by some and a crook by others, Aliyev is desperately appealing to the Austrian authorities to avoid extradition to Kazakhstan.

When Kazakh President Nursultan Nazarbayev waived term limits a few weeks ago, the Economist crowned him the "Kazakhbashi"

To say that the Aliyev case is complex is a vast understatement. As an indication of the labyrinthine power struggle we are dealing with here, STRATFOR recently published a breakdown of the family feud (emphasis mine):

Nazarbayev has cracked down on most of the opposition in Kazakhstan during his 16 years as president. He has set up four main groups in his inner circle to control the largest influential sectors in the country (and to balance each other in the process). Most of the four groups are either made up of family or clan members -- hence Nazarbayev's reputation for creating a family dynasty in Kazakhstan.

The controlling players are:

* Nazarbayev's eldest daughter Darigha and her husband (Aliyev), who control one political faction and the media;

* Nazarbayev's second daughter Dinara and her husband Timur Kulibayev, who are in charge of the other large political faction and the government oversight of Kazakhstan's energy wealth;

* Nazarbayev's longtime friend and clansman Nurzhan Subkhanberdin, who oversees the country's financial sector;

* The one player with no family ties to the president, the Eurasia Group (not to be confused with the international consulting firm of the same name). This group is the connection between foreign energy players and the government. The Eurasia Group is three non-Kazakh oligarchs that took control of many key industries -- such as metals and energy -- in Kazakhstan at the fall of the Soviet Union. The group then created lucrative relationships with foreign companies -- like the United States' Chevron Corp. and ExxonMobil -- to persuade them to enter Kazakhstan. The Eurasia Group also has personal and political ties to the Kremlin.

Rakhat Aliyev: "Austria must not turn me over to a system where my life and the lives of my family are endangered."

... Of all the headlines Aliyev has made, this was the first in which he challenged Nazarbayev's position. Days later, Nazarbayev passed a law that would give him unlimited presidential terms, solidifying him as president for life. Aliyev then blasted his father-in-law, calling the move a "retreat to totalitarian Soviet past." This was the break point for Nazarbayev, who issued an international warrant within hours. Aliyev was arrested and charged with the 2005-2006 murders in Kazakhstan. Since Aliyev has immunity from such charges, the order could only have come from Nazarbayev himself. Aliyev is now out on bail in Austria. He has appealed to the Austrian government not to extradite him back to Kazakhstan, saying he will be killed upon returning.

The timing of Nazarbayev's order for Aliyev's arrest and the timing of Aliyev's challenge to his father-in-law's power have not escaped anyone. Many are wondering if this is the end for Aliyev, or if Nazarbayev will accept him as the prodigal son-in-law once again. Then again, Aliyev could try to oppose Nazarbayev's authority.

What happens next depends on Nazarbayev's eldest daughter and Aliyev's wife, Darigha. She has long stood by her husband, writing infamous articles in his defense in the past and blasting other Kazakh power players. But this situation is very different. Her future is at risk and her loyalties to her father and her husband are being tested. Nazarbayev has already shut down Darigha's media empire, closing some of Kazakhstan's largest Internet sites, newspapers and television and radio stations. Without media to voice her usual protests, Darigha is remaining quiet for now -- which leads to further confusion on where her loyalties lie.

Truly material for fantastic fiction, as blogger Bonnie Boyd has pointed out. She has been the first to really get the ball rolling on investigating the Aliyev banking ties story, and her post is a must read:

But there’s some bad stuff going down in the Austrian financial community at the moment, and Raiffeisen Zentralbank (RZB) is smack dab in the middle of it. Austria is a small state with over 1,000 financial institutions–a financial nexus that needs both foreign capital to come in, and to develop customer niches in foreign locations. Raiffeisen began about 1864 as a community credit organization, and its central bank is owned more or less by its branches, rather than the other way around. Raiffeisen Capital, however, is fully owned by Raffeisen: that particular division of RZB is expanding, and wants to continue to expand, into former Soviet states. They have a significant presence in Russia. The Russian connection is currently under investigation for money laundering conspiracies with Russia’s Diskont Bank.

The U.S. is currently investigating RZB in connection with money laundering for RosUkrEnergo, a holding company which makes money off of Russian pipelines on Ukrainian soil. Fifty percent of RosUkrEnergo is owned by undisclosed parties and administered by the Raiffeisen Bank. As of May 22, the state of Ukraine owes RosUkrEnergo USD 400 million. The other 50% is owned by Gazprombank, which means that Ukraine owes Gazprom 200 million.

On May 25, RZB denied all allegations of money-laundering, saying that it is an attack on the largest non-Russian bank within Russia’s borders. This certainly fits other recent Russian takeover events, such as the threats to TNK-BP, Sakhalin Island projects, the Caspian Pipeline Consortium, and many others.

Adding to this thread, ace Central Asia blogger Joshua Foust at Registan breaks down the critical questions we are left with (again, emphasis mine):

* Why did Aliyev kidnap executives at a bank he mostly controls?

* Did Austria deny his asylum request so his ownership stake can be canceled and the two Austrian banks can buy majority stakes in Nurbank?

* What role do the Russian and Ukrainian gas companies have to play in the motivations of the Austrian banks?

* What other laws may have been broken by the Austrian banks in their takeover bid for Nurbank?

Ever since the Russian news magazine The New Times published two investigative pieces (which are exclusively available in English on this blog here and here) on alleged money laundering links between the defunct Diskont Bank and the Austrian Raiffeisen Zentralbank (RZB), opening up a possible alternative line of inquiry into the Andrei Kozlov assassination, there has been a steadily building amount of coverage and speculation. Below is a new article from the Moscow Times which digs into Diskont's past, and shortly following this post we will put up some new information regarding another financial scandal unfolding in Austria involving a family feud in Kazakhstan and, again, RZB.

The Moscow Times - Thursday, June 7, 2007. Page 1.

A Pocket Bank and A Murder Mystery

By Simon Shuster and Nikolaus von Twickel

On a quiet residential street in northwest Moscow, a simple logo above a door is the only trace that remains of Diskont Bank, a pocket bank at the center of a money-laundering investigation involving hundreds of millions of dollars.

Despite its unassuming appearance, this is the front line of the country's fight against money laundering -- a campaign that was led until last September by the Central Bank's first deputy chairman, Andrei Kozlov, who was gunned down in a contract-style killing.

The murder is widely seen as connected to Kozlov's efforts to investigate and close down banks involved in money laundering, and the day after his death, President Vladimir Putin called on law enforcement agencies to crack down on the laundering of "billions of rubles every month" amid an "intensifying ... battle against criminal activity in the economic sphere."

Prosecutors insist they have solved the murder case with the arrest of Alexei Frenkel, the CEO of VIP-Bank, which was shut down by Kozlov.

Yet if the case of Diskont Bank is anything to go by, the fight against money laundering is an altogether patchier affair.

Diskont was one of seven banks that had its license revoked in the month before Kozlov's death, and one of 44 closed down last year by the Central Bank's supervisory agency that he headed.

It had all the obvious trappings of a pocket bank -- small, discreet and unwelcoming to customers.

The trigger for its closure was a freeze placed on Diskont's correspondent account at Raiffeisen Zentralbank in Vienna on Aug. 30. The bank alerted Austrian and Russian authorities to $44 million in suspect transfers that day to more than 50 offshore companies, amid $112 million in such transfers over the previous four days.

Kozlov acted quickly, and the following day an order came down from his office to revoke Diskont's license, effectively putting it out of business.

On the surface, there would appear to be no more reason to link Kozlov's death with Diskont Bank than with any of the other banks he had closed, including VIP-Bank.

But in the days that followed Diskont's license revocation, the suspect transfers continued, according to Finance Minister Alexei Kudrin, who singled out the bank when asked about money-laundering links to Kozlov's killing.

"The bank's personnel exported assets" after the bank's license was revoked, Kudrin told reporters on the sidelines of a Sept. 16 Group of Seven finance ministers' meeting in Singapore, adding that criminal cases had been opened against these employees.

Lending support to these statements at a news conference last week, Kudrin said that amid the closure of Diskont Bank, "concrete individuals lost their assets. This doesn't happen in all cases, but in this case, it happened."

The fact that the bank's closure happened just two weeks before Kozlov's shooting on Sept. 13 led Austrian investigators to see a possible link between the two events.

A subsequent Austrian Interior Ministry report concluded that a link between Kozlov's murder and "the criminal actions in Russia" could not be ruled out. "Rather the indications imply a causal relation," it said.

A spokesman for the ministry in Vienna said the link to the Kozlov case was made because of the "very interesting chronology of events."

The possibility of a link between Diskont and the Kozlov killing was explored in a May 21 article by The New Times, a liberal Russian-language weekly. Citing Russian Interior Ministry sources, the article said the money-laundering investigation into Diskont had uncovered a scheme in which senior officials, including Kremlin insiders, were funneling more than $1.5 billion in illegal profits abroad.

Kremlin spokesman Dmitry Peskov declined to comment on The New Times' allegations or the Diskont case, referring inquiries to the Prosecutor General's Office.

The investigation by the Prosecutor General's Office, however, appears to have focused on the link with Frenkel's VIP-Bank and Sodbiznesbank, a bank he headed that was closed down by Kozlov in 2004. The VIP-Bank link was seen as the most likely trail in a front-page article in Izvestia on Sept. 15, just a day after Kozlov's death.

In January, Frenkel was charged with ordering the killing of Kozlov through an intermediary, an amateur boxing promoter named Liana Askerova, who purportedly helped him find three Ukrainian gypsy-cab drivers to carry out the hit. On May 22, the Prosecutor General's Office said the case was closed, and that Frenkel and the six other suspects would go on trial shortly.

Meanwhile, in the Diskont case, what progress has been made nine months after the license revocation -- and whether there is any link to Kozlov's killing -- remains a mystery.

Inquiries to the Prosecutor General's Office this week revealed only that the Diskont Bank money-laundering case was being handled by First Deputy Prosecutor General Alexander Bastrykin, who is the only official authorized to comment. Bastrykin did not respond to several requests for information.

Likewise, the Interior Ministry declined to comment on the ongoing investigation into Diskont Bank employees, which was opened on Sept. 8, eight days after the license revocation.

A report delivered by an Interior Ministry official to a Moscow banking conference in March, however, indicates that the money-laundering investigation at Diskont was on a far wider scale than that discovered in the Raiffeisen account by Austrian investigators.

Fyodor Putintsev, head of one of the Interior Ministry's investigative units, said Diskont had "carried out fictitious transactions benefiting foreign companies in connection with the purchase of various industrial products with a combined value of 41 billion rubles [$1.6 billion]," according to a transcript of his speech posted on the Association of Regional Banks' web site.

The men behind Diskont could have gotten away with this before, The New Times reported Monday.

The magazine found that three Diskont executives -- Viktor Bukato, Ilya Khaikin and Sergei Shcherbakov -- had also been at the helm of Vneshagrobank, which was closed by the Central Bank in December 2003 on similar charges to those leveled against Diskont. At the time, Russian media reported that money was siphoned out of the bank after it was officially shut down, partly through Diskont.

The three executives could not be located for comment Wednesday.

This would have had to happen under the nose of the Central Bank, which by law is responsible for sending in a temporary administration to wind up the bank's affairs, said two members of the State Duma's Committee for Credit Organizations and Financial Markets.

The administration assigned to Diskont Bank on Aug. 31 was headed up by Yury Gubochkin, chief economist in the department for liquidating credit organizations at the Central Bank's oversight agency.

The bank was officially declared bankrupt five months later.

During this period, Gubochkin and his team were in charge of Diskont's "accounting and other documentation, seals and stamps, materials and other valuables," according to a Central Bank document posted on its web site and signed on Jan. 31 by Kozlov's successor as first deputy chairman of the Central Bank, Gennady Melikyan.

"When the license is revoked and that full stop-order goes onto the bank, then the temporary administration handles all transactions and none can go through without their signature," said Oleg Ivanov, a member of the Duma's Committee for Credit Organizations and Financial Markets. "This is all written into the laws."

Even if Gubochkin's team had been physically kept out of the bank, no money could have been transferred out without the Central Bank's approval, said Ivanov, also vice president of the Association of Regional Banks. "The only way to get anything out of that bank is to physically carry any cash from the register out the back door, any gold, anything like that," he said. "But that would not be very smart. ... There are huge fines slapped on for such actions."

These proceedings are also handled by the Central Bank's administrators.

Reached several times by telephone last week, Gubochkin refused to comment on any aspect of Diskont's temporary administration.

Another employee in the liquidation department, who declined to give his name, made it clear that no comment about the winding-up of Diskont would be forthcoming. "You can forget about ever getting a statement out of this department, period," he said.

The Central Bank's handling of money-laundering cases has been criticized harshly by Frenkel, who has lashed out in ranting letters published while in custody. In these, Frenkel proclaims his innocence, and points the finger instead at the Central Bank.

But if the letters serve as proof of anything, it is that Frenkel indeed had a deep hatred for Kozlov, whom he implicates in a scheme he calls podzhigania, or burning.

Frenkel describes this as a Central Bank practice of picking out a small bank with a few offenses on its record, and privately demanding that it transfer a large amount of money into offshore accounts, often through large financial institutions in the West. In exchange, the bank's managers are given a chance to destroy records of their own crimes. After the transfers are made, the bank's license is revoked.

The Central Bank has denied these accusations. Since Kozlov's death, however, the Central Bank has faced growing calls to tackle mismanagement and allegations of abuse of power. Vyacheslav Reznik, head of the Duma's Credit Organizations and Financial Markets Committee, proposed in February that the Central Bank be stripped of the right to revoke licenses.

"There have been many objections raised that the Central Bank is overstepping its bounds in regard to certain laws. Its decisions were not always objective, and there are often conflicts of interest between the Central Bank and the banks its oversees," said Anatoly Aksakov, deputy head of the committee.

On Feb. 5, Alexei Simanovsky, head of the Central Bank's banking oversight department, said investigators working on Kozlov's murder had concluded their inquiries into the Central Bank and found no connection to the killing. He added that a new probe based on Frenkel's claims had "not yet" been conducted.

It remains to be seen whether such a probe will take place.

Frenkel's lawyer, Igor Trunov, said a separate investigation was still ongoing. Trunov showed The Moscow Times a May 21 letter signed by Valery Khomitsky, an inspector at the Prosecutor General's Office, showing that a second case number had been assigned to the Kozlov murder investigation. The letter provided no further details.

"Today we are looking at a split in the investigation," Trunov said. "It is fully possible that in the scope of the newly opened case they will pursue other lines of inquiry, including this one about Diskont Bank."

Following President Vladimir Putin's surprisingly aggressive comments to journalists before the G8 Summit, when he threatened to aim missiles at European cities, the Kremlin image team has rushed in for some emergency mop-up work to begin repairing the damage done. Kremlin spokesman Dmitry Peskov, who you remember as Putin's most experienced flakcatcher, has been dispatched to the press corps to "clarify" and soften Putin's words. Peskov's work is greatly assisted by George Bush, who is also reassuring everyone that Russia is not a threat and will not attack Europe.

A lesson in how to apologize without looking like you are apologizing. (art: someecards.com).

On Monday Putin said: "It is clear that if a part of the US nuclear capability turns up in Europe, and, in the opinion of our military specialists will threaten us, then we are forced to take corresponding steps in response. What will those steps be? Naturally, we will have to have new targets in Europe."

Today Peskov said: "It was not some kind of threatening statement on the part of Mr Putin. He was just asked by a journalist if he would be ready, hypothetically to consider re-targeting ... and he confirmed that that would be one of the ways Russia could respond."

On Monday Putin said: "I am an absolutely pure democrat."

Today Peskov said: "Of course we are not a perfect country in everything and our democracy is not perfect." and "Russia is a democratic country that shares common world and common European values."

From Ria Novosti:

Pipelines in the Caspian region bypassing Russia do not spell confrontation with the country's energy giant Gazprom, a senior United States official said Wednesday.

Speaking at an oil conference in Azerbaijan's capital, Deputy Assistant Secretary of State for European Affairs Matthew Bryza said the U.S. welcomed supplies to Europe via the well-developed pipeline network run by Gazprom, but that U.S.-Russia energy relations would only gain from robust competition.
...
Bryza said in 2012-2015 that Azerbaijan would supply Europe with 12 billion cu m of gas from its Shakh Deniz field alone, raise supplies to 15 billion by 2015, and increase them further by 2015-2020.

At the forum in Baku, Bryza urged investment in Nabucco, the $6 billion gas pipeline project to link the energy-rich Caspian Sea to Europe, bypassing Russia. He cited independent experts who said transiting 1,000 cu m of gas via the pipeline, expected to go on stream in 2011, would cost $2.5.

BP’s $1 billion exploration deal in Libya shows that resource nationalism hasn’t closed the door on the private sector.

By Tom Nicholls

BP has returned to Libya after an absence of more than three decades, signing up a major, gas-focused exploration deal with the state-owned oil company, National Oil Corporation (NOC). The UK major plans to channel an eye-popping $0.9 billion into the country’s promising upstream sector over the next 7-10 years.

Match of the day ... BP CEO Tony Hawyard (middle) and BP chairman Peter Sutherland meet NOC chairman Shokri Ghanem

New chief executive Tony Hayward underlined the extent of that commitment, describing the deal as BP’s “single biggest exploration commitment". And, like other private-sector oil companies, it is struggling to gain access to new reserves (in the case of Russia, it may even lose assets it already holds through its stake in TNK-BP). Oil rich countries are increasingly developing their resources themselves, buying in specialist help from oilfield services companies such as Schlumberger where necessary. It brings to a successful conclusion at least two and a half years of negotiating with the Libyan authorities.

In a political deal (outgoing British prime minister Tony Blair attended the signing ceremony in Libya), BP and its local investment partner, state-owned Libya Investment Corporation (LIC) will explore 54,000 square kilometers of the onshore Ghadames and offshore frontier Sirt basins. The acreage is very large and, although exploration work in much of it is minimal, it thought to be highly prospective. BP sources are already talking unofficially about supplying LNG terminals.

If the deal represents substantial material upside for BP, it is also significant for Libya; Tripoli has bagged a very large financial commitment to developing its oil and gas industry and, by extension, the energy-driven economy. Although BP’s provisional budget is $0.9 billion, this is likely to rise to 1.2 billion, sources say. The deal also includes a big commitment – up to $100 million -- to train local people and develop technology locally. Also, BP’s cut of potential profits is modest: the production-sharing licence would give Libya’s National Oil Corporation 77.7% of production, the remaining 22.3% being split 85:15 between BP and LIC. BP is also to pay a $350 million signature bonus.

It is also an encouraging sign for other large oil companies: even in this age of resource nationalism, there are still large upstream investment opportunities to be found. And, in Libya’s specific case, it seems that the likes of BP do not have to bother with the highly competitive bid rounds, in which they have struggled to compete with smaller companies, which are able to accept a smaller rate of return. Bilateral negotiation is likely to prove a more profitable way in for the supermajors.

I was first alerted to this open letter from journalist Yelena Tregubova by some readers Germany, who say that it published in a big spread in Süddeutsche Zeitung. I assume it has been reproduced in numerous languages across Europe - below I attach the translation from the Independent. Back in December Grigory Pasko did a post on Tregubova, and included a short excerpt of her book.

Yelena Tregubova: Why I fled Putin's Russia. And why the West must appease him no longer

An open letter to the G8 from the best-selling author and prominent critic of the Putin regime

I have personal experience of Vladimir Putin's regime and the way the Russian President operates. I have been forced to seek asylum in Britain for criticising the Kremlin as an independent journalist. I have come to realise that to return to my homeland would be suicidal for me.

But this letter is not about me. I am writing to you because I fear that a tragedy is befalling Russia, with the restrictions on political and personal freedoms worsening every day. Having done away with the domestic opposition, Putin, on the eve of the G8 summit, has now decided to deal with the external "enemies".

He has threatened to aim Russian missiles at targets in Europe once again, just like in the Cold War, and has warned of a nuclear arms race. It is now clear that the escalation of aggression by Kremlin is the direct result of the policy of appeasement pursued by Western leaders who, during the seven years of Putin's rule, have turned a blind eye to his lynching of the opposition, the press, NGOs and all democratic institutions in Russia.

There has been no single example in history of a dictator who, sooner or later, did not become a danger to both his close and distant neighbours.

The goal is not the "revival of Russia" or the "revival of the national pride of the Russians", as Putin and the Kremlin's propaganda are trying to present it. It is a full-scale revenge by the secret services and the authoritarian regime with all their old methods and tricks.

Putin has shut all independent TV channels, introduced harsh censorship, blocked access to the press for the democratic opposition, accused Russian human rights activists and NGOs of being Western spies, and split up the country's biggest oil company, Yukos, among his friends from the special services.

Encouraged by your non-resistance, Putin's regime has become so strong and impudent that is now directly threatening its close neighbours, Poland and the Czech Republic, former colonies of the Soviet Union, trying to speak to them as if they were its vassals. In recent months, three ambassadors - Estonian, Swedish, and British - have been affected by the actions of extremist organisations controlled by the Kremlin.

And now events have taken a logical new turn: the Kremlin is threatening the West, by missile-rattling. The critical difference between this and the Soviet era lies in the fact that then you knew exactly which side of the barricades you stood on, when you provided moral support to the opponents of dictatorship. But nowadays due to the favourable situation in oil and gas markets, Putin has the resources to buy your indulgence and silence.

You even kept silent even when Putin signed a law authorising the murder of all Russia's enemies abroad last summer. Anyone who dares to criticise Putin is put on the enemies' list.

You have started to protest now that you have suddenly realised that it will not be too easy to get off the oil and gas hook Putin forced you to swallow. The Kremlin doesn't give a damn about your words. The only thing it does give a damn about is your money.

The Kremlin, as it has already openly shown, will use brute force against peaceful demonstrators with the sole goal of preventing next year's election from being held on a free and fair basis. Putin and his close supporters are planning to restore in Russia a clan-like dictatorship resembling the former Soviet Politburo. We are reaching the point of no return.

If, following the Heiligendamm summit, you continue to shake hands with Putin as if nothing has happened, you will further strengthen Putin's feeling of complete impunity. Putin should be faced with a stark choice: either the Kremlin restores democratic freedoms, or Russia will be expelled from the G8 and other international clubs.

All free-thinking Russians are ashamed by what Putin is doing.

You must decide whether you want to sacrifice freedom in Russia on the altar of gas and oil.

About the author

Yelena Tregubova is a former member of the Kremlin press corps. Her book, Tales of a Kremlin Digger, published in 2003, accused Vladimir Putin of stifling political and press freedoms in Russia. As a result, she lost her job and was blacklisted from the Russian media. In February 2004, a bomb exploded outside her apartment, moments before she opened the door. Tregubova, 34, has now applied for asylum in Britain.

Not since his acidic invective at the Munich security conference last February have the words of President Vladimir Putin been so widely discussed among media, policymakers, and observers. The staggering onlookers still can’t believe their own ears: the Russian head of state has just issued a direct threat to aim nuclear warheads at European cities.

Perhaps Putin had thought his bellicose bravado would be met with applause from other disgruntled nations like it was in Munich, but this time, the opposite result occurred. While seeking to aggravate tensions, he instead succeeded in sacrificing his rented goodwill (courtesy of Gazprom), and overextending his rhetoric to expose himself as an irrational, aggressive, and hubristic leader. Following that interview, it becomes harder and harder for Putin and his supporters to credibly argue that he is a victim of some sort of malicious anti-Russia bias.

It would seem that the real goal of his harsh words was not to produce a different policy outcome, but rather contribute to the disaggregation of Europe – this time over the common EU policy toward the United States. In an interview today with Radio Free Europe, Garry Kasparov went so far as to say that the moment in which Europe and the United States stopped harping on about democracy and human rights, Russia would drop this whole missile problem (so perhaps in fact those warheads aren’t pointed at European cities, but rather targeted at Russia’s endangered civil society activists and dissidents).

The technique is not without historical precedent. It bears a remarkable similarity to the co-optation of the European peace movement against nuclear deployment on the continent during the Brezhnev era, which sought to exploit the very benefits of Europe’s democratic values and influential weight of public opinion, instrumentalizing proxies to promote Soviet interests. Back then it was a strategy which proved to be tremendously successful at inflicting significant damage to the West at a minimum expense to the Russians. Today it is so far proving to be no different.

While I believe that the latest Putin threat was a serious strategic misstep, likely to galvanize, rather than shatter Western unity, one has to admire the breathtaking effectiveness of the Great Disaggregator. Putin’s uncanny ability to create, encourage, and nurture divisions between formerly allied countries has been tremendously successful in the overall projection of Russia’s influence, restoring the country’s role as a great if not central power. The fact that he is doing this with an incredibly weak hand (the military is in shambles, and most of the energy threat actually lays untapped beneath the ground) is a testament to his skills as one of the most manipulative political leaders of his generation. And while the disaggregation strategy was at first a means to an end, used primarily in energy relations to help Russia re-assert its control over what it perceives to be its “spheres of influence,” the division of Moscow’s perceived opponents is almost beginning to resemble a goal in itself – and we should all fear what this means for the hard-fought sovereignty of Eastern European and Central Asian states.

The events this week serve as a reminder that we are witnessing an important historical moment in Russian affairs – and it is high time that we began to imagine some coherent and plausible scenarios to go from where we are right now to where we want to be.

Below is a Reuters news clip showing some of President Bush's comments in regards to the heightened tensions with Russia over the missile row. Although many others have commented on Bush's friendly "I call him Vladimir" statement, the mannerisms and delivery really deserve to be seen.

From a lengthy Garry Kasparov interview on RFE/RL:

On Russia and the G8: "Inviting Putin [to the G8] as one of the equals created a very bad atmosphere for us in Russia because any time we are trying to criticize Putin and to look at his record, sending the message to the Russian people that Putin has destroyed democratic institutions, Kremlin propaganda shows these pictures with Putin and [U.S. President George W.] Bush and [then German Chancellor Gerhard] Schroeder and [then Italian Prime Minister Silvio] Berlusconi and saying, 'Look, they receive him as an equal, so who are these radicals, marginals, extremists that are criticizing Putin?'

"We believe that the U.S. administration owes us very strong statements about the current situation in Russia. Again, it's not anti-Putin or it should not be Other Russia, pro-Kasparov. We want them to support democratic institutions in Russia, so that the basic values that made Europe Europe and America America -- Putin should get an unequivocal message: 'You cannot act as Lukashenka and be treated as a democratic leader. So behave yourself or you will not be part of this exclusive club.'

"We can hope that the whole atmosphere will change because Putin used to sit surrounded by his business partners like Schroeder and Berlusconi or by his friends: Schroeder, Berlusconi, [then French President Jacques] Chirac, Bush, [British Prime Minister Tony] Blair. Now it's a different atmosphere. Now he's no longer -- he might be treated as equal but he understands that the message is that he, Putin, doesn't belong there.

"They could keep this atmosphere, I think that would be a strong message not only to Putin but also to his allies in Russia because they can't afford to break up relations with the West. They can't afford a new Iron Curtain, they can't afford a new Cold War, because this regime carries no ideology. When I hear stories about a new Cold War, I'm laughing because the Cold War was always based on ideas. Putin's only idea is: 'Let's steal together.'

Below are links and excerpts from the raw transcripts both President George Bush and Vladimir Putin's public comments leading up to tomorrow's G8 Summit. Maybe the Kremlin's press secretary should begin adding the "applause" indications to help heighten the drama.

Bush transcript:

We're also applying that lesson to our relationships with Russia and China. (Applause.) The United States has strong working relationships with these countries. Our friendship with them is complex. In the areas where we share mutual interests, we work together. In other areas, we have strong disagreements. China's leaders believe that they can continue to open the nation's economy without opening its political system. We disagree. (Applause.) In Russia, reforms that were once promised to empower citizens have been derailed, with troubling implications for democratic development. Part of a good relationship is the ability to talk openly about our disagreements. So the United States will continue to build our relationships with these countries -- and we will do it without abandoning our principles or our values. (Applause.)

We appreciate that free societies take shape at different speeds in different places. One virtue of democracy is that it reflects local history and traditions. Yet there are fundamental elements that all democracies share -- freedom of speech, religion, press, and assembly; rule of law enforced by independent courts; private property rights; and political parties that compete in free and fair elections. (Applause.) These rights and institutions are the foundation of human dignity, and as countries find their own path to freedom, they must find a loyal partner in the United States of America.

While most people quoted the "I'm the world's only pure democrat" part, as well as the threat to aim Russian warheads at European cities, there were many other comments Putin made to reporters that didn't make the cut.

Let us not be hypocritical about democratic freedoms and human rights. I already said that I have a copy of Amnesty International’s report including on the United States. There is probably no need to repeat this so as not to offend anyone. If you wish, I shall now report how the United States does in all this. We have an expression that is perhaps difficult to translate but it means that one can always have plenty to say about others. Amnesty International has concluded that the United States is now the principal violator of human rights and freedoms worldwide. I have the quote here, I can show you. And there is argumentation behind it.

There are similar claims about Great Britain, France or the Federal Republic of Germany. The same could be said of Russia. But let us not forget that other countries in the G8 have not experienced the dramatic transformations that the Russian Federation has undergone. They have not experienced a civil war, which we, in fact, had in the Caucasus.

And yet we have preserved many of the so-called common values even better than some other G8 countries. Despite serious conflicts in the Caucasus, we have not abandoned our moratorium on the death penalty. And, as we know, in some G8 countries this penalty is applied quite consistently and strictly enforced.

The Independence of Lawyers – a bone in the throat of the Russian power?

A new draft law has been approved which will make legal assistance even more expensive for citizens

By Grigory Pasko, journalist

The announcement that the authorities are trying to disbar Mikhail Khodorkovsky’s lawyer Karinna Moskalenko probably didn't raise very many eyebrows among those familiar with Russian justice, as the so-called law-enforcement organs are known to periodically pressure the former YUKOS head’s lawyers. It is enough to recall that Robert Amsterdam went through the same thing in his day, brutally cast out beyond the confines of Russia. No doubt so he wouldn’t interfere in the perpetration of lawlessness.

Illustration from the website Newsru.com

In the building where I live, there is a lawyer’s office and a notary’s office. There is a line of people standing outside both all day. This despite the fact that the fees both of them charge for their services are mind-boggling, even by Moscow standards.

The legal profession was popular it Russia at one time. During the time of the presidency of Vladimir Putin, it has become devoid of respect and one could almost say persecuted. This was particularly evident in the YUKOS case, when the lawyers of the former heads of the company were subjected to unprecedented pressure on the part of the authorities.

In many ways, the lawyer’s profession is becoming useless in Russia. Judge for yourselves: a lawyer tries for all he’s worth to defend the interests of his client in a court of law, and does this absolutely brilliantly, from the point of view of the law. However, in the courtroom his opponent becomes not only the procurator in his capacity as the prosecuting party, but also the judge, in his capacity as an ally of the procurator! How can even talk about a “level playing field” or “equality of arms” or an “adversarial process” in a situation like that? Needless to say, the lawyer nearly always loses.

Attempts had been made on numerous occasions to try and incorporate the legal community into the infamous Putinite vertical of power. Many believe that the current law «On the bar and lawyers’ activities» is a good one (although I’m prepared to argue that this isn’t exactly true). In this law, for example, it says that a person who has previously been held criminally liable can not be a lawyer, or even a lawyers’ assistant. In Putin’s Russia, where they’re constantly locking up anybody and everybody left and right, this innovation has turned out to be very apropos indeed for the new power. All they need to do is open a criminal case in relation to an overenthusiastic lawyer, and voila! – he is automatically deprived of the opportunity to work as a lawyer. This is how people like Sergey Brovchenko and Mikhail Trepashkin were removed from the bar in their day. True, Brovchenko was subsequently reinstated, but Trepashkin remains imprisoned in a camp to this day).

It became known a couple of months ago that the consultative council attached to the Federation Council [the upper chamber of Russia’s parliament—Trans.] had already approved a draft law “On legal services”. According to this draft, only lawyers, notaries, patent attorneys, and employees of the legal departments of companies will have the right to provide legal assistance to organizations and citizens. In the opinion of the drafters, this is a first step towards the establishment of a lawyers’ monopoly on representation in court, something that exists in many foreign countries [but not currently in Russia, where even a non-lawyer can officially serve as a defender in court—Trans.]. This means that citizens and companies can not appear in court on their own behalf, without the assistance of a lawyer accredited to the given court.

The reference to foreign experience seems justified only at first glance. In reality, as is always the case in Russia, everything is completely different from what the drafters of the innovations and lobbyists for the draft law are asserting. Indeed, in England, for example, there exists a distinction between court lawyers – barristers – and the huge army of solicitors, who actually interact with clients and act as intermediaries between them and the barristers.

But what the lobbyists aren’t telling us is that the distinction between solicitors and barristers is already beginning to blur even in England, where the court lawyers were granted the right to work with clients directly last year.

What can dividing lawyers into a court and non-court variety lead to in Russia? No question about it – it will lead to a significant increase in the cost of legal services, inasmuch as a client will be forced to pay both the former and the latter. Nor should we forget that in Russia, unlike in civilized countries, there are in practice no alternative methods for settling disputes, such as arbitration tribunals, ombudsmen, or conciliators.

It could also happen that the courts are going to start exerting influence on “their” lawyers, while these, in their turn – fearful of losing their status as court lawyers – will start to play along with the judges. In this case, retaining the status of a court lawyer will have taken precedence over the desire to make money off of a client.

While I was in prison myself, I had a chance to read through a very large number of verdicts of my fellow inmates. It became obvious to me that people were being sentenced to lengthy terms of deprivation of liberty merely because they didn’t have a lawyer representing them in court. I would ask them why they hadn’t hired a lawyer. In the majority of cases, the answer was: “Too expensive”.

The new draft law will without a doubt make legal assistance completely beyond the means of many people.

Below is the beginning of a book review from American.com of the new work "Good Capitalism, Bad Capitalism, and the Growth of Economics and Prosperity," by the economists Carl Schramm, Robert Litan, and William Baumol.

Good Cap, Bad Cap

Why don’t people take risks and start new businesses?

By Nick Schulz

“The government and the regional authorities [in Russia] have failed to create conditions for small-and-medium-sized businesses to flourish. Everyone who opens a new business and registers a company should be given a medal for personal bravery.” - Vladimir Putin

“In societies where individuals may become too comfortable – much of Western Europe, for example – people may be reluctant to take the risks inherent in any entrepreneurial endeavor. Indeed, in 2004, a French government employee wrote a best-selling book called Bonjour Paresse (Hello Laziness), which extolled the virtues of not working hard.” - Carl Schramm, Robert Litan, and William Baumol

Why do people start new businesses? Or perhaps a better way to ask it: why don’t people take the risk involved in starting a new enterprise?

One answer is that incentives matter. It’s trite to say so. But it’s also true. As the above quotes indicate, the right mix of incentives can make all the difference.

Russia today features an oligopolistic form of capitalism with more than a smidgen of gangsterism. This makes the entrepreneurial start-up of new businesses fraught with peril. Starting new businesses is always risky, since no new enterprise is guaranteed to succeed. But in Russia, as Putin acknowledges, success can make you a target of political elites backed by oligarchic firms.

Western Europe has a different set of incentives in place. It is relatively rich and comfortable. It has a wide and deep social safety net. Entrepreneurial returns are culturally frowned upon. Growing businesses must work within a rigid labor market structure that makes it costly to fire or replace employees as market conditions change. Given this mix of incentives, when it comes to starting a new business, many would-be entrepreneurs are apt to conclude Bounjour Paresse! indeed.

Both quotes at the beginning of this essay come from an important new book, Good Capitalism, Bad Capitalism, and the Growth of Economics and Prosperity. The authors are all economists of some distinction. William Baumol teaches entrepreneurial studies at NYU. Robert Litan is a senior fellow at the Brookings Institution. And Carl Schramm is president of the Kauffman Foundation and a fellow at the Darden School of Business. One would expect economists to conclude that “incentives matter” when it comes to starting businesses. But their book does much more than that.

Good Capitalism, Bad Capitalism presents a smart and accessible overview of the relevant academic literature on growth and innovation. And the authors build a helpful conceptual framework for how to think about “capitalism.”

Capitalism is not a monolith. Instead, they argue, there are several varieties of capitalism: state-guided capitalism, oligarchic capitalism, big-firm capitalism, and entrepreneurial capitalism. Most countries feature some mix of these forms. Big-firm capitalism, for example, can also be oligopolistic capitalism, as it is in many parts of Latin America.

The authors make a compelling case that the best form for any nation is a mix of big-firm and entrepreneurial capitalism, of which the United States is the most prominent example. Large firms provide the productive capacity and economies of scale to service growing populations. Entrepreneurs are the primary drivers of innovation, technical change and growth. As importantly, entrepreneurs keep large firms on their toes, forcing them to innovate or stagnate.

The problem with state-guided and oligopolistic forms of capitalism is that they are inherently “replicative” and “imitative.” They tend to reward forms of “redistributive entrepreneurship” instead of genuinely creative and innovative forms. These models of capitalism can work for periods of time, but there are upper limits to their success.

Click here to read the complete review.

In our continuing coverage of the probe into the Austrian bank Raiffeisen's alleged ties to money laundering and possible trail leading back to the assassination of Andrei Kozlov, below we are posting an exclusive English translation of the second investigative piece from the Russian magazine The New Times, which kicked off the whole RZB scandal. Yesterday we posted the translation of the first New Times investigative piece, which followed my first post on this case.

Translated from The New Times - Issue No. 16 of 28 May 2007, p. 12

Sensational details have appeared in the case about the laundering of large sums by Russian officials through the bank «DISKONT» and the Austrian «Raiffeisen»

By Natalia Morar

— From the story of «DISKONT» —

In the last issue (No. 15 of 21 May), The New Times described in detail the scheme for taking money out to the West by big Russian officials, close to the oil companies controlled by the Kremlin and lieutenant-general Alexander Bortnikov, deputy director of the FSB and head of the department of economic security of the FSB of Russia. More than 50 Russian banks were involved in the scheme. Five of them are in the top ten banks of Russia. The money from these banks with the use of 17 fictional firms was transferred to accounts of dummy Russian commercial companies, founded by the bank «DISKONT». Next, «DISKONT» transferred the money to three foreign offshores, registered on the British Virgin Islands and on Cyprus, with accounts in Raiffeisen Zentralbank Oesterreich AG, and already from these offshores, that very same «Raiffeisen» transferred the money to the accounts of various European banks. On 8 September 2006, based on the act of a mass removal of money beyond the border, the MVD of Russia initiated criminal case No. 248089. A week earlier the deputy chairman of the Centrobank of Russia, Andrey Kozlov, had revoked the license from the bank «DISKONT». Five days later the banker was killed.

— Speak, «Raiffeisen» —

The Austrian «Raiffeisen» reacted to the article in The New Times without delay. An official representative of the bank, Gregor Bitschnau, declared that “information about the participation of the Austrian Raiffeisen Zentralbank Oesterreich in schemes with respect to the laudering of monetary funds out of Russia, disseminated by a series of mass information media, is absurd.” However, Mr. Bitschnau admitted that in the year 2006, the bank had found itself involved in a series of doubtful operations. “We conduct business with a respected bank in Russia. This bank received money and transferred it to us. Being a provider of services with respect to the transfer of funds, we forwarded this money to other international banks”, reported Bitschnau, not specifying about which specific bank he was speaking.

“In August of the year 2006 we received a warning about how the transactions, perhaps, are doubtful. We promptly reported about this to the corresponding authorities in Russia and Austria.”

In the Austrian «Raiffeisen» they likewise told The New Times about the existence of three Latvian offshore companies, which in actuality were mixed up in the doubtful transfers from Russia. “As soon as it became known to us about this, we immediately submitted all the information to the competent Austrian organs”, they noted in so doing in the Austrian bank.

— According to the data of the MVD of Austria —

However, that which the Austrian «Raiffeisen» calls “absurd”, in the MVD of Austria they are regarding as a cause for the most serious criminal investigation. Materials of an annual report on the struggle with the laundering of monetary assets, prepared by the Ministry of internal affairs of Austria based on the results of the work of the Administration of financial intelligence of Austria in the year 2006, have turned out to be at the disposal of The New Times (the report was presented at the end of April 2007). From the part of the report devoted to Russia it follows that a series of suspicious monetary operations was conducted between a certain Austrian bank and a Russian bank (names are not indicated) in 2006. The New Times cites excerpts from the report without changes.

“In the year 2006, one Austrian bank received information from the president of one Russian bank (by telephone) that large volumes of monetary funds (the result of operations with respect to currency exchange) were credited to the correspondent account of one Russian bank (they are speaking, most likely, of the bank «DISKONT» — The New Times), opened in this Austrian bank.

“As was reported by telephone, the given monetary funds were the result of an operation with respect to the laundering of money, in connection with which an inquiry was sent about their blocking.

“With the help of one of the employees of the Russian Centrobank (perhaps they have in mind former deputy chair of the CB of Russia Andrey Kozlov — The New Times), it became known to the Austrian bank that this Russian bank had already been formally accused of not paying taxes and laundering money and it had been prohibited by the Centrobank of the RF to carrying out any further payments whatsoever. Likewise the Russian Centrobank asked the Austrian bank to return all assets from the correspondent account.

“Received on the account of the Russian bank were $44 mn 435 thousand, which by means of 34 payment orders during the course of one day were distributed to a multitude of offshore companies (at the meeting of ministers of finance of the countries of the «Big eight» in Singapore on 18 September 2006, the head of the Russian Ministry of Finance, Alexey Kudrin, declared that employees of the bank «DISKONT» had allowed the taking out of assets to take place already after the arrest of the accounts and the shutting down of operations — The New Times).

“The Austrian lending institution directed to A-FIU (the Administration of financial intelligence of Austria — The New Times) a report-substantiation on suspicion. A-FIU immediately presented the circumstances of the case together with results already had of an investigation to the procuracy.

“By a temporary order of the corresponding court, the monetary funds had on the correspondent account of the Russian bank (the current balance of the dollar account comprised $2 990 290 and on the euro-account 2618 euros) were shielded.

“To the urgent inquiries of A-FIU, Russian organs of power answered only that a criminal case had been started up for managing an enterprise with violation of the law and laundering money on the responsible persons of the Russian bank.

“In September the channel ORF (that same channel to which initially president Putin had refused an interview last week — The New Times) under the headline ‘Execution by shooting of deputy head of Russian Centrobank’ reported about the killing of the head of the agency for control over banking activities and his driver on a football training field in the northeast of Moscow. This crime may have been connected with his activities.

“The head of the banking supervision department of the Russian Centrobank communicated by telephone with A-FIU and the Austrian bank right up until what happened.

“During an evaluation of the accounts conducted by A-FIU it was established that all told, during the course of only four days, $112 056 428 and two cents were credited to the correspondent account of the Russian bank, which money upon the instructions of three offshore companies by means of 189 transactions were distributed without delay to 50 other offshore companies with addresses and bank accounts all over the world.

“For the reason of the very complex and voluminous offshore construction at the present time it is impossible to establish who of the concrete persons could stand behind these transfers, and, correspondingly, what aim during the use of this money could have been pursued…”

— Unfinished business —

In the Ministry of internal affairs of Austria they confirmed for The New Times that the case about the laundering of funds through two banks – an Austrian and a Russian – is indeed found under consideration and that a probe is being conducted with respect to it. “For now we can not comment on this case, inasmuch as it is still not closed and the probe continues. Who is engaged in it (the MVD or Interpol — The New Times), we likewise can not say in connection with secrecy of investigation”, they noted in the MVD of Austria. In the Austrian procuracy, on conditions of anonymity, they likewise confirmed the existence of a so-called case with respect to the laundering of money from Russia for The New Times; however, in the words of the source, the Russian Procuracy-General never did submit all the necessary materials, which were requested by the Austrian side.

Unlike its Austrian colleagues, the Russian Procuracy-General has so far not commented in any way on the article in The New Times.

Departing the land of democracy, arriving to Heiligendamm

Some collected opinions on the G-8 Summit in Germany, which looks like it is going to descend into a veritable fiasco.

WSJ: The G-8's Cognitive Dissonance

The original G-7 countries are straining to divine the motivations behind Moscow's recently ratcheted-up nationalist bluster. Maybe Mr. Putin wants to shore up the Kremlin's hold on Russia less than a year before hand-picking his successor. Or maybe he wants to intimidate the outside world into staying out of what he deems to be Russia's internal affairs. Or perhaps he wants to split the Europeans and carve out space for Russia in the old Soviet sphere of influence. Or...

FT: Russia has lost all sense of proportion over missile defence

After what it sees as the humiliations of the 1990s, and ahead of an electoral season, Russia is in no mood to accept what it sees as a US foothold in Poland and the Czech Republic. Mr Putin’s lieutenants have brushed aside US offers to co-operate on missile defence. Instead Russia threatens to pull out of two landmark arms control treaties and has made ever more belligerent noises towards the west.

Such a course of action is not just out of proportion and wrong; it is also counterproductive. Although Germany’s Social Democrats have criticised the US for its role in the dispute, the German electorate is showing signs of turning against Mr Putin’s bullying behaviour. And while public opinion in Poland and the Czech Republic is against the missile defence bases, largely because of fears provoked by Russia’s threats, the two countries are likely to become more, not less, anti-Russian in feeling.

Chicago Sun Times: Bush has chance to set wise policy on Russia

This threat is an amazing blend of chutzpah and boomerang. First the chutzpah: Putin is denouncing a system intended to defend Europe against nuclear missiles from Iran when he has been helping Iran to develop such a capability by assisting its nuclearization program.

Second the boomerang: Putin's direct threat to aim missiles at Europeans would