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Russia Report: February 20, 2006

20 February 2006, Volume 6, Number 5
For a glimpse into Russian President Vladimir Putin's views on energy and foreign policy, one need look no further than his years in St. Petersburg in the 1990s. The key players in Russia's energy industry today, in fact, are Putin's former colleagues and mentor from that time.

Putin, who had already spent more than 15 years as a Federal Security Service (FSB) agent, returned to school, studying at the St. Petersburg Mining Institute. One of the most prestigious academic institutions in Russia, it traces its history back to 1773. Since 1994 its rector has been Vladimir Litvinenko, who also serves as a member of the government's newly created Energy Commission.

Litvinenko was rector when a 44-year-old Putin in 1997 defended his doctoral dissertation examining how natural resources can contribute to regional economies and strategic planning.

Two years later, Putin -- then the director of the FSB -- wrote an article for the mining institute's journal. The title of the article was: "Mineral Natural Resources In The Development Strategy For The Russian Economy."

In it, Putin posited that hydrocarbons were key to Russia's development and the restoration of its former power. He argued that the most effective way to exploit this resource was through state regulation of the fuel sector, and by creating large and vertically integrated companies that would work in partnership with the state.

Putin formulated most of his energy views while working in the St. Petersburg mayor's office, where he headed the Foreign Economic Relations Department.

His colleagues in that office included: Aleksei Miller, now chief executive of the state-controlled Gazprom monopoly; Dmitry Medvedev, the head of the presidential administration, a deputy prime minister, and chairmen of the board of directors at Gazprom; and Igor Sechin, a man with ties to the former KGB, who is currently the deputy head of Putin's administration as well as the chairman of the board of directors at the state-owned oil company Rosneft.

As the St. Petersburg team rose in prominence, so too did the influence of the Mining Institute and its director, Litvinenko. The institute is now a compulsory stop for Russian and Germany energy leaders visiting St. Petersburg. The institute's official website notes that it has received delegations from the Germany's Wintershall gas company -- a close Gazprom ally -- as well as the board of directors of Gazprom subsidiary Surgutgazprom, and Vagit Alekperov, the head of LUKoil.

Litvinenko is also believed to have played a role in the drafting of Russia's energy strategy, which defined the role of energy as a tool of Russian state policy. Some observers have even suggested Litvinenko would be an appropriate candidate to replace Miller at the helm of Gazprom.

But it is not only Putin's former classmates and mayoral co-workers who have found a role in the current government. Former agents of the KGB, the predecessor to Putin's FSB, also enjoy crucial influence in the Kremlin, and are known as the "siloviki," or "power men." These men have an impact on both government energy policy and the way in which it is implemented.

One of these men is Aleksandr Ryazanov, the deputy chairman of Gazprom, and reportedly the head of the "siloviki" faction within the gas giant. Ryazanov became chief executive of the Sibneft oil company after it was purchased by Gazprom in 2005. He has also been appointed head of UkrGazEnergo, the newly created Ukrainian-Russian joint venture to act as an intermediary between Ukraine's state-run Naftohaz Ukrayiny and the Swiss-based RosUkrEnergo.

Another is Viktor Ivanov, another deputy head of the presidential administration. Ivanov has a colorful history. A graduate of the Leningrad Bonch-Bruyevich Electrical Technical University, Ivanov worked as an engineer before reportedly joining the KGB in 1977 and fighting with Soviet forces in Afghanistan.

Upon his return, he rose to the head of the anticontraband department of the Leningrad Oblast KGB. He retired from service in 1994 with the rank of colonel and was appointed by Putin to head the administrative departments of St. Petersburg city hall.

The two groups of men surrounding Putin -- the "siloviki" and the St. Petersburg's mayor's office group -- have become what one could call an informal "board of directors" of the new Russia. As such, they set the agenda for Russian energy policy and in fact control the country's vast energy resources. Their influence should not be underestimated. (Roman Kupchinsky)

Nuclear power occupies a special place in Russian President Vladimir Putin's national energy strategy, which was unveiled in December 2005. At that meeting, Putin told the country's Security Council that Russia has "competitive, natural, and technological advantages" and must become an "energy superpower" to regain political leadership in the world. Putin stressed that, while today Russia exports mainly hydrocarbons, it should develop nuclear, hydrogen, and other alternative sources of energy.

Speaking at a Kremlin press conference on 31 January, Putin said that the share of nuclear energy generation should increase from the current 16-17 percent to 25 percent by 2030. The Russian president emphasized the research and development of so-called fast breeder reactors (FBR), which produce more fissile material than they consume. On 30 January, Sergei Kiriyenko, the head of the Federal Atomic Energy Agency, or RosAtom, announced that Russia would build in the next 15 years up to 40 new reactors just for domestic use at a cost of $60 billion.

Russia's nuclear plans were formulated in a document drafted in December 2005 by the Moscow-based, pro-Kremlin World Development Institute. According to the institute's director, Yury Krupnov, Russia's Asian neighbors plan to increase their nuclear power output in the next 15 years. The report predicted that China is reportedly planning on building up to 30 new reactors, while India, Iran, South Korea, and potentially Indonesia are planning on increasing their nuclear-power capacity tenfold. That, Krupnov argued, gives Russia the opportunity to sell its FBRs on the Asian market.

Russia has already begun negotiating with Ukraine and Kazakhstan to restore a shared nuclear infrastructure that in Soviet times was supervised by the secretive Ministry of Medium Machine Building (Minsredmash), Prime-TASS reported.

The newly inaugurated Energy Commission will preside over the implementation of Russia's energy doctrine. The commission, chaired by Prime Minister Mikhail Fradkov, brings together high-ranking cabinet officials, business leaders, and energy lobbyists, including the Industry and Energy Minister Viktor Khristenko, Gazprom head Aleksei Miller, Unified Energy Systems chief Anatoly Chubais, and Yury Bornikov, who leads the economic security services within the Federal Security Service. The only major oil company not to be included in the new body is TNK-BP, because "it is controlled by foreign capital," according to "Izvestia" on 26 December.

The commission will deal with the exploration and energy "colonization" of eastern Siberia and its continental shelf. It is also responsible for selecting routes for new pipelines as well as setting taxes for energy companies.

In the center of Putin's atomic energy ambitions is Kiriyenko, who was appointed to head RosAtom last November. Kiriyenko has been tasked with revitalizing Russia's decaying nuclear power industry, in particular ridding it of its rampant corruption.

Allegations of pervasive corruption go all the way to the top. Yevgeny Adamov, the Russian atomic energy minister between 1998 and 2001, was arrested in May 2005 in Switzerland for allegedly diverting up to $9 million of U.S. funds earmarked to improve Russian nuclear safety into personal projects in the United States, Ukraine, and Russia. Adamov was extradited in December 2005 to Russia, where he is also indicted him on charges of embezzling $17 million of Russian state funds.

Putin has also entrusted Kiriyenko, who previously was the presidential envoy to the Volga Federal District, with leading negotiations with Iran about the construction of a joint uranium-enrichment facility in Russia. And since his appointment, Kiriyenko has announced that RosAtom should not be privatized, but remain in state hands.

Most Russians, however, remember Kiriyenko for his brief term as prime minister in 1998, when Russia experienced its financial meltdown. Reflecting on this, a 4 February article on the nuclear scientists' website stated: "It was as easy to believe that communism will be built by 1980, as it was promised [by Soviet leader Nikita Khrushchev], as it is to believe that 40 new nuclear power stations will be built and Russia will become an energy superpower." Indeed, a lot of imagination may be needed to believe that Russia, which has built only eight nuclear reactors in the last 15 years, can increase this number fivefold in the next 15 years. (Victor Yasmann)

In August 1998, Russia spiraled into financial meltdown. The subsequent ruble devaluation was a severe blow to the country's financial system and millions of people lost their savings. At the helm was Prime Minister Sergei Kiriyenko, who, along with his government, was subsequently forced to resign by then President Boris Yeltsin. Since that career low, Kiriyenko's fortunes have changed. Currently in charge of Rosatom, Russia's Federal Atomic Energy Agency, he is thought by many to be a politician on the rise.

Sergei Kiriyenko comes from a typical Soviet family. His grandfather, Yakov Israitel, made his name as a devoted Communist, who for his good service to the party received an inscribed pistol from Vladimir Lenin. In the 1930s, Yakov Israitel served as the head of the KGB border guard on Russia's southern frontier.

Sergei Kiriyenko was born in 1962 in Sukhum, the capital of Abkhazia, and grew up in Sochi, in southern Russia. After graduation from high school, Kiriyenko enrolled in the shipbuilding faculty at the Nizhny Novgorod (Gorky) Water Transport Engineers Institute, where his divorced father taught. At this time, he dropped the Jewish family name of his father and adopted Kiriyenko, the Ukrainian name of his mother.

After graduation he began his work at the Red Sormovo Shipbuilding factory in Nizhny Novgorod, which produced parts for nuclear submarines. Like many other figures in contemporary Russian politics and business, Kiriyenko's real career began in the Komsomol, the youth wing of the Communist Party, at first as the Komsomol leader in his factory and then as a first secretary in the organization's Nizhnegorodskaya (Gorkovskaya) Oblast branch.

When Soviet President Mikhail Gorbachev began the liberalization of the economy in the late 1980s, Kiriyenko went into business and became the head of the Komsomol-run trading and services company, AMK. At this time, he was also involved in organizing scratch-card lotteries -- he even invented a special type of scratchcard, which he patented in 1997, according to

After finishing a two-year management course at the government-funded National Economy Academy, in 1993 Kiriyenko became the head of a commercial bank, Garantiya. In 1996, he was appointed chairman of the board of a medium-sized oil company, Norsi-oil.

Kiriyenko was linked politically with then-governor of Nizhny Novgorod Oblast, Boris Nemtsov. Kiriyenko was an active member of the Union of Rightist Forces, which was co-chaired by Nemtsov. When Nemtsov moved to Moscow in 1997 to become a first deputy to Prime Minister Viktor Chernomyrdin, he brought Kiriyenko with him. In 1997, Kiriyenko was appointed first deputy fuel and energy minister and then later became minister proper.

In November 1998, President Boris Yeltsin appointed Kiriyenko, then relatively unknown outside the government, as prime minister. For his baby face and surprise entrance into top politics, the Russian media dubbed Kiriyenko "Kinder surprise," a reference to popular chocolate eggs containing surprise toys.

He lived up to the nickname when, on 17 August 1998, Russia unexpectedly descended into financial default and Boris Yeltsin forced Kiriyenko and his government to resign.

But as a politician, Kiriyenko survived. In 1999, he led the Union of Rightist Forces to modest success in parliamentary elections. But his true political second coming was shepherded by President Vladimir Putin, who was likely attracted by Kiriyenko's political loyalty and reputation as an able manager.

In May 2000, Putin appointed Kiriyenko as presidential envoy to the Volga Federal District. The district has crucial importance for the Kremlin as it comprises, along with some ethnic Russian regions, several non-Slav republics, including the predominantly Muslim Tatarstan and Bashkortostan. The Volga district also houses the Russian Federal Nuclear Center in Sarov, Nizhnegorodskaya Oblast, which is responsible for designing nuclear weapons. In 2001, Putin also entrusted Kiriyenko to head the State Commission for Chemical Disarmament, which is responsible for the destruction of the Soviet chemical arsenal. The program is partially funded by the United States.

Kiriyenko (left) and his government were fired by then President Boris Yeltsin after the 1998 ruble crisis (TASS)Putin, likely satisfied with Kiriyenko's performance in the potentially troublesome region, then appointed him as the head of the national nuclear agency, Rosatom. Putin said that he expected Kiriyenko to revitalize Russia's decaying nuclear power sector, RIA Novosti reported on 22 November 2005." Kiriyenko has been transferred...not [just] to head an agency. It will not be enough. I believe that, in this sector, we have obvious advantages, accumulated from previous decades, and we should not lose them," the Russian president was quoted as saying.

Following his appointment, Kiriyenko announced an ambitious program to increase Russia's share of nuclear energy generation from the current 16-17 percent to 25 percent by 2030. To do so, Rosatom plans to build up to 40 new reactors at a cost of $60 billion. By comparison, since the fall of the Soviet Union, Russia has built (or is building) only eight reactors, five in Russia and others in China, India, and Iran.

Within the framework of Putin's plan to make Russia an "energy superpower," Kiriyenko has suggested integrating all Russian nuclear centers, research, and production facilities into a single state corporation, ITAR-TASS reported on 9 February. He also suggested that, in the next 20 years, Russia should control up to 20 percent of the world atomic energy market by exporting its nuclear technology.

In perhaps his most daunting task, Putin has charged Kiriyenko with the sensitive mission of negotiating with Tehran about the possibility of building a uranium-conversion facility in Russia. (Victor Yasmann)

Russian President Vladimir Putin's unexpected decision to invite the leaders of the Palestinian militant group Hamas for talks in Moscow has had a mixed reaction in Israel, the Arab world, and beyond.

Explaining his decision, which followed a solid win by Hamas in January's Palestinian parliamentary elections, Putin said that Russia -- unlike the United States and the European Union -- had never declared the group a terrorist organization. Moreover, he said the world should accept that Hamas won the election fair and square, in a "democratic way."

Hamas does not recognize Israel, and it has claimed responsibility for a number of terrorist attacks. So Putin's overture has raised concerns in the United States, the United Nations, and the EU -- Russia's three partners in the Middle East Quartet responsible for drafting the "road map" Middle East peace plan.

Because Russia made its move unilaterally, its fellow quartet members may suspect that Moscow wants to use both the Hamas victory and the political exit of ailing Israeli Prime Minister Ariel Sharon to its personal advantage.

This suspicion was bolstered by Putin's statement at a Kremlin press conference on 31 January, when he called the Hamas victory a "great blow" for the United States' Middle East policy.

Even commentators in Moscow are suggesting Russia has begun pursuing a game of its own devising in the Middle East. Gleb Pavlovsky, a Kremlin insider and head of the Effective Politics Foundation consultancy, speaking on his political talk show, "Real Politics," said that Russia has legitimate interests in the Middle East and has the right to pursue them.

"For Russia, the Middle East begins in the Caucasus," Pavlovsky said. "We will never have peace in [a place like] Stavropol Krai until the Middle East continues the peace settlement initiated by the United States. We should go there and do the job ourselves."

The Kremlin expert also said Russia was suitably equipped to hold talks with Hamas because the group "has never waged war against Russia or committed terrorist acts on its territory."

Since Putin extended the invitation to Hamas, Russian diplomats have attempted to explain his initiative to the remaining members of the quartet. On 11-12 February, Russian Foreign Minister Sergei Lavrov discussed the issue with his U.S. counterpart, Secretary of State Condoleezza Rice. Rice later told U.S. CBS television that Russia had agreed to call on Hamas to recognize Israel and meet other quartet demands. Lavrov also spoke to UN Secretary-General Kofi Annan and Javier Solana, the EU foreign affairs chief.

Not surprisingly, the most negative reaction to Moscow's invitation to Hamas came from Israel. Speaking in New York, Israeli Foreign Minister Tzipi Levni stated that "any indication of weakness...will be perceived by Hamas as legalization of terror." She added that Hamas would have to recognize the Israeli state, lay down its arms, and repudiate terror before Israeli would consider talks with the group.

Russian Defense Minister Sergei Ivanov believes that "the whole world should hold negotiations with Hamas" (epa)Israeli Defense Minister Shaul Mofaz told his Russian counterpart Sergei Ivanov, meanwhile, that "by inviting the leaders of Hamas to Moscow," Russia had "broken the unity of the international antiterrorist front." He said at a time when crucial decisions were being made -- such as the selection of a new Palestinian prime minister -- the decision to host Hamas in the Russian capital could have an unwelcome impact on Palestinian politics. Benjamin Netanyahu, the former Israeli prime minister and leader of the Likud opposition party, sent Putin a letter asking him to revoke his invitation.

But Moscow defended its position. Defense Minister Ivanov told Mofaz that "the whole world, sooner or later, should hold negotiations with Hamas." Ivanov added that Russia would establish contacts with Hamas on the condition that the leadership of the Palestinian group admits the inadvisability of its stance toward Israel and revokes terrorism. "In that sense," Ivanov added, "Russia's position doesn't differ from the position of NATO countries."

Meanwhile, Russian experts are speculating on whether Putin's initiative will succeed. Vladimir Isaev, the deputy director of the Oriental Studies Institute, said the Russian president's move was well-calculated, but that it is too early to talk about negotiations with Hamas in practical terms, as it has yet to formulate it position and upper leadership, pravda. ru reported.

"It still hasn't instituted itself as a political party; it doesn't even know how to fill the surprisingly many places it won in the Palestinian parliament," Isaev said. "It's one thing to organize demonstrations against cartoons, and another to govern a state. Let's see how they manage. If Hamas continues to look for an external enemy, there will be nothing to talk about."

Vladimir Kulagin, the professor of the Moscow State Institute of International Relations, says Putin has made a certain risk in his overture to Hamas. If after talks with Putin the Hamas leadership repudiates terrorism and its stated goal of destroying Israel, it will be an enormous victory for Russian diplomacy. But if the talks fail, the responsibility for that will rest on Russia. (Victor Yasmann)

Sergei Ivanov was appointed defense minister by President Vladimir Putin in 2001 and charged with the task of breathing new life into Russia's crumbling army. Abuse against young draftees, however, appears to continue unabated. The outrage sparked by the brutal hazing of Private Andrei Sychyov has put the spotlight on Ivanov, and raised questions about his commitment to reforming Russia's demoralized and violent armed forces.

Ivanov is the first high-ranking state security officer to be appointed to the post of Russian defense minister. A former KGB officer, Ivanov has no military background -- in fact, he has never even served in the army. In addition, he spent his formative years inside a state structure that has a longtime tradition of antagonism toward the army.

The army he inherited in 2001 was plagued by poor morale, low pay, physical and psychological abuse, and corruption. The task Ivanov was given -- to put the armed forces back on its feet -- was therefore a heavy one, especially considering his limited knowledge of military matters.

As far as army hazing and bullying is concerned, recent events suggests that Ivanov has largely failed to meet expectations. Russians reacted with shock and outrage at the story of Andrei Sychyov, a young draftee who was so brutally beaten by older servicemen that his legs and genitals had to be amputated.

Russian news agencies are reporting that another young conscript died on 13 February in the city of Ufa after being beaten by fellow soldiers.

Ivanov fanned public anger at Sychyov's fate by first seeking to play down the incident, saying "nothing serious happened." Over the next few days, however, Ivanov struck a very different tone, vowing to punish the offenders and accusing officers of covering up the incident.

"How is it that we in Moscow found out about this incident only two days ago?" Ivanov said. "These disgraceful facts actually happened on New Year's Eve. So our first question to our own officers and generals is: Why did you fail for 25 days to report to Moscow about what had happened?"

Not all, however, were convinced by Ivanov's ostensible commitment to combating the entrenched tradition of brutalizing conscripts, known in Russian as "dedovshchina," of the "rule of grandfathers."

Alexandr Golts, a leading military analyst, describes Ivanov's promises to fight hazing as "hot air." Ivanov, he says, has on many occasions rejected the army's responsibility for hazing.

"He said many times that 'dedovshchina has long existed and will have to be fought for a long time. Dedovshchina has always existed, it has taken such a cruel character because our society has become so cruel, and society is to blame, not the army and the commanders,'" Golts said. "We have often heard this concept of things, starting from the generals and ending with Putin."

Like many other observers, Golts suspects Putin and Ivanov of deliberately turning a blind eye to hazing in order to maintain submission in the ranks -- and, later, in civilian life.

"I think that in the eyes of Putin and Ivanov, this army in its current form plays the role of an important social institution -- a place where citizens are taught obedience, are taught that the government is all-powerful and can use your life in an absolutely irresponsible manner. You can die and no one will be held responsible for it," Golts said.

Ivanov, however, can be credited with one positive step towards raising awareness of violence in the army -- he ordered the defense minister to publish statistics of noncombat deaths in the Russian army on its website.

According to the Defense Ministry, 53 servicemen died in January as a result of crimes and accidents in the army, 14 of them allegedly by suicide.

In 2005, official statistics put the number of noncombat deaths at 1,064. The Soldiers' Mothers Committee, however, estimates that the real number is about three times higher.

Besides failing to stem army brutality, Golts says Ivanov has largely botched the projected reform of the armed forces.

Plans to abolish the compulsory draft and switch to a professional army have proved relatively unsuccessful so far. Ivanov announced last year that by 2008, only one-third of the army's 1.1 million soldiers will be serving on a contract basis.

Cash-strapped and unpopular, the Russian army is only able to recruit 9 percent of conscript-aged men eligible for service every year. In order to fill the army's ranks, Ivanov in September 2005 announced that the majority of cadet faculties -- which enabled youths to avoid service -- would be closed down by 2008. The move sparked angry protests from students and their parents. (Claire Bigg and Victor Yasmann)