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N°83 - September 11 2008

Published every two weeks / International Edition

P. 1-4

Politics & Government

RUSSIA/GEORGIA

c 

A Conflict Closely Tied to

the Kremlin’s Energy

Strategy

c 

Russian Generals at the

“Georgian Front”

c 

Irakly Okruashvili: “The

military option in Tskhinvali

was injustified

PROFILE

c 

Arkady Rotenberg, A New

Rising Star in the Putin

Network

ALERT

c 

Fetisov Leaps into

Vladivostok 

P. 5-7

Business & Networks

OIL

c 

TNK-BP: What is Behind

the Compromise

ALERT

c 

Gazprom Sets its Sights on

Nigeria

AIR CARRIERS

c 

Chemezov, Luzhkov and

Usmanov Outwit Aeroflot

ALERT

c 

Is Oleg Mitvol Teaming up

with Oleg Deripaska?

PIPELINES

c 

South Stream vs Nabucco :

Moscow Scores Some

Points

BEHIND THE SCENE

c 

Udokan: High Stakes Win

for Alisher Usmanov

A Conflict Closely Tied to the Kremlin’s

Energy Strategy

c

P. 8

One month, give or take a few days, after the start of the armed conflict between Georgia and

Russia leading to the recognition by Moscow of South Ossetia and Abkhazia as independent

nations (Russia Intelligence n° 82 of 28 August), the following conclusions can be drawn:

1/ On the ground, Moscow remains in control of the timetable and of operations.

The agreement

obtained by Nicolas Sarkozy in Moscow on September 8 represents but a minor thaw in rela-

tions between Russia and the European Union. The only positive point is that a deadline was set

for the removal of Russian troops from Georgian soil, which should be completed by mid-Octo-

ber. Meanwhile, check-points, notably around Poti are being disassembled as we go to press. The

fate of the “security zones” established by the Russian military along the Georgian sides of the

Ossetia and Abkhaz borders appears settled as Russia will leave them under the surveillance of

European observers as of October 1. As for the rest, Dmitry Medvedev clearly spelled out to Nico-

las Sarkozy, Jose Manuel Barroso and Javier Solana that recognizing the independence of South

Ossetia and Abkhazia is an irrevocable decision and that it is up to international institutions to

treat the two territories as sovereign nations. Furthermore, the long-term commitment of Russ-

ian troops in Abkhazia and South Ossetia has been de facto established. The Russian defense

minister Anatoly Serdyukov, said that 3 800 troops and officers will be stationed in South Osse-

tia (versus fewer than 600 peacekeeping forces in place before August 7) and an equal number

in Abkhazia. Although the withdrawal of Russian troops from Georgian soil is a victory for French

and EU diplomacy, the main objective (a return to pre-conflict positions) has not been and will

not be achieved in the short-term. 

Elsewhere on the ground, the media war between Russia and Georgia continues. Russ-

ian television is replete with reports, investigations and “revelations” on the secret participation

of U.S. advisors and secret agents in the “Fascist aggression” of Georgian forces in South Osse-

tia. Recently returned from Vladikavkaz (capital of North Ossetia) and Tskhinvali, (capital of

South Ossetia) Russia Intelligence can vouch to the significant destruction wrought by the Geor-

gian forces on  sometimes surprisingly non-military targets including schools, the university, the

parliament building and residential districts. The Georgian districts of Tskhinvali are empty of

their inhabitants and all the private homes, service stations or shops in these districts are de-

stroyed or burned. Graffiti visible on the soot-covered walls leave little doubt as to those respon-

sible for the damage. It’s clear that “territorial continuity” between North Ossetia and it’s sister

state, South Ossetia, is a reality despite the presence of an authentic border checkpoint. In Tskhin-

vali, letters are carried by the Russian postal service. Between Vladikavkaz and the border, along

the single, mountain road that climbs toward the border with South Ossetia, there is evidence of

progress being made on the gas pipeline that straddles the two republics. Work is moving ahead

on the road widening project of the main access artery between the two capitals. It may not be

discussed officially, but integration between North and South Ossetia has begun and is wished

for by most officials met in Vladikavkaz who cite reasons of “security” and “reunification”.

2

/Georgia is facing a difficult re-armament problem. For Mikheil Saakashvili

, seeing Russian

troops leave Georgian soil offers short-lived relief. Faced with Moscow’s refusal to discuss issues

of respect for the integrity of Georgia’s territory, the European Union appears to have accepted

the losses of South Ossetia and Abkhazia. Georgia finds itself in a very difficult position. Presi-

dent Saakashvili faces domestic opposition that will become more and more vocal in coming

weeks (see page 3; interview with former Georgian foreign minister Irakli Okruashvili and the

last issue of Central Asia and Caspian Intelligence). Efforts by the president and his faithful

followers to hold the Russian Army responsible for the August 7 attack on Tskhinvali

Regions & CIS

CAUCASUS

c 

Ingushetia on the Brink 

ddd

RUSSIA/GEORGIA

2

Russia Intelligence N°83 

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September 11 2008

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NTELLIGENCE

Po l i t i c s   &   G ov e r n m e n t

have failed to convince due to a lack of hard, ver-

ifiable evidence. The unease within the ranks of the Geor-

gian Army is palpable, both because of the high price in hu-

man life (treated as a state secret) and because of the severity

of the destruction inflicted on buildings and infrastructure

as well as the manner in which combat occurred. Mikheil

Saakashvili was forced to undertake some brutal sackings in

recent days. The deputy chief of staff, Alexiy Osepaishvili,

was replaced by artillery commander Devi Chankoladze,

while infantry commander, Mamuka Balakhadze, was sent

to Germany for training and replaced with Zurab Agladze.

Furthermore, the commander-in-chief of the National Guard,

David Aptsiauri, responsible for the preparation and mobi-

lization of reserve troops was removed from his post thus pay-

ing the price for the disastrous manner in which the reserves

were deployed against the Russian forces. Georgia is loudly

demanding that NATO and the United States provide aid for

new weaponry. For the moment, the West has remained pru-

dent. A NATO technical mission was recently dispatched on

site to evaluate the magnitude of the destruction to which

the Georgian Army was subjected. It’s urgent to restore the

country’s Air Force but there is also a need to replace the

thousands of automatic weapons and the dozens of armored

vehicles that the Russians “recuperated”. But Russia has al-

ready submitted a proposed resolution to the United Nations

Security Council placing an embargo on arms sales to Geor-

gia. This is bound to become a bone of contention between

the U.S. and Russia in coming weeks. In Russia, some of the

military hierarchy is very critical of Georgia’s re-armament

projects and has warned that it will be keeping a vigilant eye

on events. The next episode could be played out at the NATO

meeting (ambassador level) scheduled in Tbilissi on Septem-

ber 15 and 16.  

3/The Kremlin has comforted its regional energy stra-

tegy.

Diplomatically, the international community has not

finished with Russia and the latter will have to tread softly

in order to avoid threatening, once again, the current “sta-

bilization”. Nonetheless the Kremlin can claim to have

scored some tangible points towards consolidating its dom-

inant position in the Caspian and Central Asian energy

sectors. From this perspective, U.S. vice-president, Dick

Cheney’s, visit to Baku on September 3 was a notable dis-

aster. Dick Cheney and Azerbaijan president Ilham Alyiev,

are old acquaintances since both have worked in the oil

and oil derivatives industry. Yet, Aliev sent a mere first vice-

minister, Yagub Eyubov, to head the welcoming commit-

tee which greeted the US vice-president upon arrival. Later

in the day, discussions stalled between Cheney and Aliev

on topics such as gas pipelines linking the Caspian Sea to

Europe while by-passing Russia (Nabucco, for example).

The Azerbaijan president wanted to do nothing that would

displease Moscow, to the point that Cheney decided not to

attend the dinner offered in his honor. Cheney had barely

left before Medvedev picked up the phone to Aliev, to set

up a meeting in the near future. The two met as recently

as July in Baku to discuss potential gas sales by Gazprom

at “European” rates. Add to this recent Gazprom accords

with Turkmenistan (Russia Intelligence n°82 of 28 Au-

gust), discussions launched with Uzbekistan on the con-

struction of a new gas pipeline (see Central Asia & Caspian

Intelligence), it’s clear that Russia wants to impress on its

Western partners that it holds the key to access to the en-

ergy resources of the Caspian and Central Asia region. But

more than anything it wants to prove that, as far as Europe

is concerned, Georgia has now become a liability rather

than an asset.

d

ddd

Nearly unanimously declared a brilliant military success, the

“Five Day War” brought to the fore the crucial role played by a

dozen high-ranking officers in the field and in Moscow.

One of the most visible was Vyacheslav Borisov. The deputy

commander for airborne training, a rotund man with a rich vo-

cabulary, commanded operations around Gori. This could be

seen as revenge for the former head of the Batumi Base, eva-

cuated in 2007. In the early 2000s, Vyacheslav Borisov develo-

ped close ties to former Adjarian president Aslan Abashidze.

Following several declarations to the Western press considered

unfortunate by the ministry of defense, Vyacheslav Borisov was

quickly removed from the media limelight. As for the comman-

der of the 58

th

Army, engaged in South Ossetia, General Khru-

lyov left the theater of operations when wounded by a Georgian

sniper.

The spearhead of the Russian counter offensive, the 76

th

Pskov

Parachute Division, was led by General Kolpachenko. Units ba-

sed in Novorossiysk (7

th

Guards Airborne Division and a de-

tachment from the Black Sea Fleet) were deployed on the oppo-

site, Abkhazia front. Inter-army operations were

Russian Generals at the “Georgian Front”

well-coordinated and led by General Viktor Astapov and Admi-

ral Sergey Menyaylo. For the Navy, the commander of the

Black Sea Fleet’s flagship (the missile-launching cruiser,

Moskva), Igor Smolyak, commanded the group which des-

troyed most of the Georgian Navy in Poti.

In Moscow, the crisis was managed directly by the head of mili-

tary intelligence (GRU), Valentin Korabelnikov, one of the few

high-ranking Russians to have survived intact the Yeltsin and Pu-

tin years (he was appointed in 1997). No doubt the Kremlin is

not regretting its decision to favor the GRU by installing it in

brand-new headquarters, in 2006, on Khoroshevskoe Street, in

northern Moscow.

Communication was ensured by the deputy chief of staff, Gene-

ral Anatoly Novogitsyn. He too was gratified by a small perso-

nal revenge because although short-listed in 2005 to replace

General Mikhailov to command the Air Force, he was ultima-

tely passed over (the post finally fell to General Zelin. Russia In-

telligence

n°55 of 18 May 2007). Anatoly Novogitsyn is schedu-

led to meet with members of the Valday Club in order to brief

them on the military aspects of the Georgian conflict.

d

3

Russia Intelligence N°83 

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September 11 2008

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NTELLIGENCE

Po l i t i c s   &   G ov e r n m e n t

www.russia-intelligence.fr

The diplomatic repercussions of the Caucasus war are not limited to

Russo-European or Russo-U.S. relations. The affair is having more

unexpected ramifications in regions far distant from the theater of

operations. On September 1

st

, Australian foreign affairs minister,

Stephen Smith, said that Canberra would take into account “recent

events in Georgia” when it comes time to ratify a bilateral accord to

supply uranium signed last fall by Vladimir Putin and former prime

minister John Howard (Russia Intelligence n°61 of 13 September

2007).

A parliamentary commission is currently examining the document

and some comments (such as those of Labour MP Kelvin Thomp-

son) suggest that it could be problematic. The issue is taken very se-

riously in Moscow. Russia’s ambassador to Australia, Alexandre

Blokhin, warned against reneging on the 2007 agreement. Such a

decision would constitute a “partisan political choice that could

harm Australia’s economic interests,” he said. Sergey Kirienko, the

head of Rosatom, has yet to comment on the issue. In Israel, mem-

bers of a Knesset commission on government control, reporting to

prime minister Ehud Olmert, recommended to halt the retroces-

sion to Russia of the Hermitage of the Sage Serge in Jerusalem.

Built at the end of the 19

th

century by the Imperial Orthodox Society

of Palestine, founded in 1882 by Alexander III, it has housed the

Australia, Latin America, Israel, Scandinavia: Echoes of a Distant Georgian War 

services of the Israeli agriculture ministry since the rupture of

diplomatic relations between Moscow and Tel-Aviv in 1967. Retro-

cession talks began after Vladimir Putin’s spring 2005 visit to Israel.

John McCain, the Republican candidate for the U.S. presidency is

reportedly also against returning the hermitage to Russia’s jurisdic-

tion, according to Israeli media. 

In Latin America, the echoes of the Georgian crisis are both politi-

cal and military. Nicaragua became the first state, after Russia, to

recognize the independence of Abkhazia and South Ossetia. The

decision is hardly surprising given the ties that bound Daniel Or-

tega to the KGB in the 1970-1980s (in fact, Nikolay Leonov, head

of the “reports and analysis” department of the 1

st

principal direc-

tion of the KGB and the “Center’s” top Latin America specialist,

was the first Soviet official to visit Managua after the Sandinistas

took power in the autumn of 1979). In another domain, Russia con-

firmed that it will hold joint maneuvers with Venezuela from No-

vember 10 to 14. They will include attack nuclear submarines and

strategic Tu-95 bombers which will be making a stop-over in Cara-

cas. 

Finally, events in the Caucasus could raise the question in Finland

of the country’s neutrality, a subject already debated in the presi-

dential election of 2006.

d

Irakly Okruashvili: “The military option in Tskhinvali was injustified”

As former defense minister, do you approve of the actions of the

Georgian government in South Ossetia?

To answer this question, we simply need to list all the con-

sequences of the Georgian government’s decision.  Hundreds

of soldiers and civilians are dead, official figures say there are

over one hundred thousand refugees on both sides, military

and civilian infrastructure has been destroyed, the economy

has been greatly harmed.  And most important of all, the

prospect of Abkhazia and South Ossetia returning to Georgia

has been pushed back15 to 20 years.  The Georgian govern-

ment’s action proves that a military settlement to the conflict

is totally unjustified.  It will take a long time before trust is

reestablished between Ossetians, Abkhazians and Georgians.

Do you think Russia went too far by recognizing the independ-

ence of Abkhazia and South Ossetia?

I share the opinion that the Russians went too far not only

in recognizing the independence of Abkhazia and South

Ossetia, but also by intervening in Georgia.  Sooner or later, the

military intervention will come to an end, but the recognition

of the independence of these two territories could bring about

negative consequences for Russia itself in the future.  All this

is partly the result of the recognition of the independence of

Kosovo.  After these events, the Russian authorities will have a

very difficult time working efficiently with Georgia - and not

only with the current regime.

Do you believe that Georgia should keep up its bid to join

NATO?

In Georgia, NATO is associated with the country’s security

and close ties with the West.  This has always been an important

factor in our country’s history.  I think that before this summer’s

conflict, Georgia’s chances of joining NATO (and being granted

MAP status in December) were not great.  The main reason,

other than the unresolved conflicts of Abkhazia and South Ossetia

and the “Russian factor”, were the internal problems – problems

linked to the non-respect of human rights, restrictions in freedom

of expression, the lack of an independent judiciary, problems linked

to fair and transparent elections, and so forth.  However, the situ-

ation could change radically today, and the procedure for Georgia’s

membership to NATO could speed up.  This would be the response

of the West to Russia’s actions.

Are negotiations possible between Russia and Georgia concerning

the future of their relations?

It is clear that any dialogue between the current leaders of Rus-

sia and Georgia is out of the question, on the presidential level as

well as on a lower level.  It would be impossible to achieve any re-

sult at all without European mediators.  This is especially true since

the two governments have broken off diplomatic ties.  The world

nearly found itself at the threshold of a cold war, and a cold war

does in fact truly exist in Georgian and Russian relations.

What attitude do you believe the EU should adopt towards Russia?

It is difficult to tell if one sanction or another against Russia

will be effective, but what is clear is that the lack of action on the

part of Europe would encourage Russia to engage in this type of

behavior. Europe must, without a doubt, show Russia through var-

ious methods (European politicians do it often by intervening in

public) that such practices are totally unacceptable within the Eu-

ropean family and that anyone who engages in such practices can-

not claim to be a member of this family.  Europe’s appropriate re-

sponse to Russia’s behavior is to provide efficient aid to Georgia.

d

*Former defense minister under Mikheil

Saakashvili.  Since 2008 he has been living

in France, where he has been granted 

political asylum.

c

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Russia Intelligence N°83 

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September 11 2008

www.russia-intelligence.fr

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NTELLIGENCE

Po l i t i c s   &   G ov e r n m e n t

Among the discrete but influential men in Putin’s inner cir-

cle, the most prominent are Yuri Kovalchuk, the majority share-

holder in Rossiya Bank, and Gennady Timchenko, who heads,

out of Geneva, the Gunvor oil trading firm (see Russia Intelli-

gence n°78 of  30 May 2008 as well as the updated biography of

Yuri Kovalchuk on our web site). A new name, Arkady Roten-

berg, must now be added to the list. A former sparring partner

of Vladimir Putin on St. Petersburg’s judo mats, to whom we al-

ready called attention in our 28 April edition when he was poised

to take over 10% of the commercial port of Novorossiysk, Roten-

berg has just pulled off a major deal. If information circulating

these last few days in Moscow is to be believed, over the sum-

mer Arkady Rotenberg gained control of five Gazprom subsidiaries

specializing in construction and infrastructure (Lengazspetsstroy,

Spetsgazremstroy, Volgogaz, Krasnodargazstroy, Vol-

gogazneftemash). The operation, managed through Cyprus-based

shell companies, would allow Arkady Rotenberg and his younger

brother Boris to gain control of a large chunk of Gazprom’s $20

billion investment program in which infrastructure development

is a priority.

At the heart of the “judo connection”.

Born in Leningrad in

1951, Arkady Rotenberg has known Vladimir Putin since the mid-

1960s. They both frequented the same judo club and studied un-

der the same master, Anatoly Rakhlin (as did Duma member