Russia and the CIS News Digest
First Rail-Sea Shipment On North-South Transport Corridor
The first consignment of goods transported by railway left the Russian coast of Caspian Sea for Iran on July 28, in the framework of the North-South International Transport Corridor. Russian Prime Minister Mikhail Fradkov officiated at a ceremony in Astrakhan, saying, "Here we have a gateway of both Europe and Asia." Also present were Gennadi Fadeyev, managing director of the Russian Railways, his Iranian counterpart, Mohammad Sa'id Nejad, and ambassadors of several countries.
The shipment became possible with the inauguration of a new rail line, connecting Yandyki railway station to the port of Olya on the Caspian. Fadeyev underlined the significance of the Yandyki-Olya link in the corridor: "Given the remarkable reduction in the cost and time of shipment [compared with shipping through the Suez Canal], more consignments will be shipped via the North-South Corridor in the future." The route now links Asia to Russia and Europe, in particular northern Europe. The 49-km rail line between Olya and Yandyki connects the port city to Russia's rail network. The project cost 3 billion rubles (about $104 million) and was funded from Russia's transportation budget.
The North-South Corridor is chaired on a rotating basis by its three founders: Iran, Russia, and India. Iran chairs the corridor in 2004. Seven countriesIran, Russia, India, Kazakstan, Belarus, Tajikistan, and Omanhave access to the corridor, according to the agreement. Meanwhile, the applications of Ukraine, Syria, Azerbaijan, Armenia, and Bulgaria for membership in the treaty are currently being examined. Turkey also recently applied for membership in the North-South corridor.
Yukos Situation Increases Oil Price Volatility
Benchmark crude oil prices rose above $43/barrel on July 28. One factor was the announcement of Russian bailiffs' orders against the sale by Yukos Oil of any "property," pending seizures to satisfy its unpaid tax bills. Justice Ministry and Yukos officials both said July 28 that the orders included oil currently being produced, as well as Yukos's various production units and other assets. The next day, the orders were clarified: They do not apply to oil sales. Yukos produces about 20% of Russian crude, or 1.7% of world production.
There were dramatic developments around Yukos in July, some of them in the open and others the stuff of murky rumors.
* As of July 16, the trial of former Yukos and Menatep (the holding company above Yukos) execs Mikhail Khodorkovsky and Platon Lebedev finally began.
* On July 20, the Russian Ministry of Justice announced that Yuganskneftegaz, the main production unit of Yukos, will be sold to satisfy the company's tax debts.
* July 21, it was reported that Yukos shareholder Lev Nevzlin, living in Israel to avoid Russian prosecution, had asked the Russian prosecutor-general for protection against threats from one Yevgeni Rybin, head of an Austria-based company called East Petroleum Handelsgas. Four days later, instead, Prosecutor-General Ustinov's office indicted Nevzlin on charges of organizing two murders and attempting others, including Rybin's.
* Yukos CEO Steve Theede, an American, announced July 22 thateven without losing Yuganskneftegaz immediatelythe company will soon run out of cash and "not be able to fund our business operating expenses, sometime during the first half of August." From that point on, Yukos stock plunged by about 60% on the Moscow exchanges.
* On July 27, Igor Sechin, the Kremlin official long rumored to be driving the assault on Yukos, was named chairman of the board of Rosneft Oil.
* July 28 alone saw a 20% one-day drop in Yukos share prices, after reports of the bailiffs' orders, and before their "clarification" brought a slight rebound.
Sechin Appointment Linked With Energy Sector Restructuring
On July 11, the London Daily Telegraph publicized gossip about a "secret plan for the restructuring of Yukos," allegedly associated with an "unknown oligarch" named Gennadi Timchenko, whose Kinex company is involved with Surgutneftegaz and with the state-owned Rosneft Oil company, and would now market Yukos oil on Western markets. The plan, went the story, was coordinated with Igor Sechin, deputy chief of the Russian Presidential Administration. The Telegraph pointed to this "Kremlin-linked restructuring" as one possible ultimate fate for Yukos, while purchase by a "strategic investor" from the West would be the other.
On July 27, Rosneft's board of directors elected Sechin its new chairman. Deputy chairmen will be Sergei Oganesyan, director of the Federal Energy Agency, and Yuri Medvedev, acting deputy director of the Federal Property Agency. Kommersant-Daily wrote the next day, that the appointments would be the first step towards creating a state energy company to "define the rules of the game for Russia's most important market." Kommersant suggested that Rosneft has enough money to purchase Yuganskneftegaz from Yukos. Stanislav Belkovsky of the National Strategy Institute circulated the analysis earlier in July, that Sechin plans for a new state-run energy-sector holding company, based on Rosneft and Gazprom, to acquire about half of Yukos Oil's assets.
Prof. Stanislav Menshikov headlined his July 23 column in Slovo newspaper, "Yukos Gobbled Up by the 'Putin Group,'" citing various indications to "confirm the long existing suspicion that the real purpose of the attack on Yukos was to start redistributing property, taking it away from the old oligarchic groups formed under Yeltsin and passing it on to new groups, favored by the current President."
Putin Changes Foreign Ministry, Lays Out Priorities
On July 12, Russian President Vladimir Putin held his first session in two years, with the entire Russian diplomatic corps. On the eve of the meeting, Putin signed decrees to reorganize the Foreign Ministry, reducing the number of deputy ministers to one. Former deputy foreign ministers are reassigned to major ambassadorial posts, including India, China, and the United Nations. Putin's speech to Russia's ambassadors abroad was covered in the West for his exhortations to improve Russia's image. He also made more substantial comments:
The top priority, said Putin, is relations with the Commonwealth of Independent States (CIS)former Soviet republics. He said Russia was "not using sufficiently well the historical credit of trust and friendship, the close ties that link the people of our countries," and that Russia risked leaving a vacuum, which "other, more energetic states will fill." Most important for the CIS, he said, is the "integration processes" occurring within the Eurasian Economic Community (EurAsEC). He also cited the importance of the Shanghai Cooperation Organization (which goes outside the bounds of the CIS, as China is one of its leaders), as a new force on the world scene.
Putin called relations with Europe "our other traditional priority," but spoke about them in brusque terms: "The latest wave of EU and NATO expansion has created a new geopolitical situation on the continent, and the task now is not so much to adapt ourselves to it as, first, to minimize the potential risks and damage to Russia's economic security interests and, second, to find here advantages for ourselves and exploit them."
Putin called for "constant attention" to relations with the USA, aimed at "sustained and bona fide strategic partnership." He said that "the Asia-Pacific region is becoming the most dynamic centre of world economic development and our foreign policy line on deepening relations with APR should be closely tied up with domestic tasks, with the promotion of potential Russian interests towards using these ties to further develop the economy of Siberia and the Far East. Big opportunities also exist, of course, in relations with India and China."
Reform of Russian Intelligence Starts Without Warning
The belief that a reshuffle in the Russian "force ministries" had been postponed until September, has not come true. In addition to streamlining the Foreign Ministry and Emergency Situations Ministry, President Putin signed a decree July 11, reforming the Federal Security Service (FSB). FSB spokesman Gen. Col. Yevgeni Lovyrev said that the decree elevated FSB head Nikolai Patrushev to the status of cabinet minister and expanded his authority to appoint and promote staff. He will work with two first deputies (one for the FSB Border Service) and two deputies, instead of the recent structure of 12 deputy directors.
Lovyrev denied media reports that the FSB was being renamed the Ministry of State Security. Lovyrev did not officially confirm, reports that the revamped FSB would reincorporate agencies that were spun off from the old Soviet KGB in the earlier 1990s, such as the Foreign Intelligence Service (SVR). Many Russian media, however, rushed to headline, "FSB will have practically all the functions of the USSR KGB." London's The Electronic Telegraph (Daily Telegraph online) followed suit with a July 15 headline, "Putin brings back the Cold War spy system," which asserted that Putin had reunited the SVR with the FSB "under one directorate"which is not actually stated in the decree, though there are leaks in Moscow that it will happen soon.
Russian General Staff Downgraded; Chief Retired
Recent amendments to the Russian Federal Law "On Defense," curtailing the functions of the Armed Forces General Staff and subordinating it more than before to the Minister of Defense, have been implemented much faster than most people expected, with the July 19 dismissal of Army Gen. Anatoli Kvashnin as Chief of the General Staff. Kvashnin refused a new appointment that was offered to him, and has retired from the Armed Forces. His replacement, Gen. Col. Yuri Baluyevsky, has been a top strategic arms negotiator; Strana.ru notes that Baluyevsky's lack of command experience is consistent with "the end of the epoch in which the General Staff was the managerial elite of the Armed Forces"a downgrading that is also provided for in the recent legislation. The operational functions, previously assigned to the General Staff, will now be in the purview of Minister of Defense Sergei Ivanov, directly.
Important Russian Military Exercises in June
Beginning June 7, the Russian Armed Forces conducted an unusual military exercise, the first of its kind since the end of the USSR, involving an airlift of forces into a combat theater. Paratroopers from the Pskov-based Airborne Division plus an 800-man motorized infantry regiment with its heavy military equipment, were transported by air from bases in western Russia to staging grounds in the Russian Far East. The scenario for the exercises, named Mobility-2004, included deployment against "an attempt by separatists from an Eastern country to capture part of the Russian sea coast," according Russian TV reports. President Putin and Defense Minister Ivanov observed the combat training at a base near Vladivostok on June 23.
In two memos posted on Johnson's Russia List in mid-June, Kansas State University Prof. Dale Herspring, a specialist on the Russian military, noted that the exercises were the first test of a stated goal of Russian military doctrine, to develop "mobile forcesnew operational-strategic unitsincluding airborne forces, naval infantry, light infantry units, military air transportation and helicopters," and linked its happening at this time to the eclipse of Anatoli Kvashnin.
Before his dismissal, Kvashnin lashed out at the government's 2005 defense budget, as well as at Russia's unpreparedness for attacks like the June 21-22 raid on law enforcement agencies in Ingushetia. On June 22, Military News Agency reported Kvashnin's as saying that the fact that the "brazen raid by Chechen fighters was made in daylight and took federal troops by surprise raises many concerns." On June 17, RIA Novosti reported that Kvashnin harshly criticized the 2005 draft federal budget, at a cabinet meeting that day. Kvashnin said, "The draft budget does not allow us to expect significant changes in the attitude to national defense, nor does it allow overcoming the crisis in the Armed Forces." Kvashnin asked the government "to revise the parameters of the budget and pay attention to the amount of money allocated for effecting the program of modernizing arms." He went on, "I also ask to make transparent the mechanism replacing privileges for servicemen [with payment of money], to envisage matters associated with indexing, increase salaries for servicemen and make allocations in accordance not with the planned figures for inflation but with real figures indicating a price increase." Premier Fradkov promised these matters would be taken up by an appropriate commission.
Ukraine Wants To Withdraw Troops from Iraq
Ukrainian Defense Minister spokesman Vyacheslav Bolotniuk said July 29 that his country was in discussion with the USA about pulling Ukrainian forces out of Iraq. He gave no timetable, but the mandate of the 1,650 troops is up for renewal in August. Ukraine has Presidential elections in October. On July 27 Prime Minister Victor Yanikovych, who is one of the Presidential candidates, stated that Ukraine is not yet prepared to join NATO. Amendments to Ukraine's new military doctrine were just announced, by which Ukraine drops the previously announced goal of full membership in NATO and the European Union.
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