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Russia Report: February 6, 2006

6 February 2006, Volume 6, Number 3
By Roman Kupchinsky

Russia's state-controlled monopoly Gazprom is the world's largest gas company, and the 10th-largest company in the world after its shares rose over 13 percent on the London market in mid-January. But its ambitions don't necessarily end there. Is Gazprom looking to assume control of the gas-transit market in Eastern and Central Europe?

After the disintegration of the Soviet Union in 1991, Viktor Chernomyrdin -- then head of Gazprom and on the way to being appointed prime minister -- devised a plan to maintain as a single unit, falling under Gazprom's purview, the gas- transportation infrastructure of Russia, Ukraine, and Belarus.

In formulating the plan, Chernomyrdin and his advisers were following the most fundamental principle in gas geopolitics -- the winners need not only access to large gas reserves, but also efficient systems for delivering that gas to market.

He who controls the pipelines, therefore, controls the buyer -- and, to some degree, the country where the gas originates.

It was a good plan -- but it failed. Ukraine and Belarus refused to give up what they considered the lucrative business of gas transit and insisted on nationalizing the pipelines on their territory. The main components of the former Soviet system were divvied up between the three states.

But Gazprom, looking at the defeat as a short-term setback, set itself the far-reaching goal of buying up much of the gas- transit systems in the former Soviet Union as well as in Eastern and Central Europe. Its hope was to someday control the entire regional gas distribution system.

To date, Gazprom has had only mild success realizing its plan in the FSU. The pre-independence gas pipeline system in Belarus, for example, is still controlled by Beltransgas, the state-owned pipeline company. (This should not be confused with the post-Soviet Yamal-Europe pipeline, built and owned by Gazprom, which carries Russian gas through Belarus to Poland and on to Germany.)

In Ukraine, the Soyuz pipeline and the two-thread Urengoy- Uzhgorod pipeline remain under Kyiv's control. Georgia -- still shivering from its abrupt shutoff of Russian gas after apparent pipeline sabotage last week -- likewise resists pressure from Moscow to cede control over its pipeline in exchange for cheaper gas.

Elsewhere, Gazprom is gaining ground. Armenia, trying to diversify its energy sources, is currently building a pipeline to Iran. Gazprom, however, has insisted the diameter of the pipe be smaller than originally planned -- in order to prevent Armenian from shipping surplus Iranian gas to Georgia.

In Estonia, Gazprom owns a greater share of the national gas company, AS Eesti Gaas (30.64 percent) than the Estonian government (27 percent). Eesti Gaas, in turn, owns the country's gas transportation system.

The list of other Gazprom holdings in former Soviet republics includes Moldova's Gazsnabtranzit, where Gazprom owns 50 percent of the authorized capital; and Lithuania's Stella Vitae, of which it owns 30 percent. Gazprom also owns 25 percent of Latvia's Latvias Gaze.

And Gazprom, of course, has a significant presence even beyond the former Soviet Union.

The gas pipeline system running through Poland was built jointly with Russia, and Gazprom holds a 50-percent share. Gazprom also holds 46 percent of the Polish company EvRoPol Gaz.

In 2005, Gazprom arranged for Poland to buy 3.4 billion cubic meters of gas from RosUkrEnergo (RUE), the Swiss-based company now serving as an intermediary in Russia's controversial gas deal with Ukraine. "Platts Commodity News" reported that in September 2005, RUE became the main supplier of Russian gas to Poland. Gazprom also holds a 35-percent stake in Poland's Gas Trading consortium, and nearly half of EuRoPol Gaz joint-stock company.

In the early spring of 1991, Gazprom attempted to buy a 25- percent stake in Verbundnetz Gas AG, which operated the entire gas distribution system in the former East Germany.

But despite help from the German chemical company BASF, Gazprom was not allowed to take part in the tender and the stake was bought by Germany's Ruhrgas.

Gazprom's bid was primarily based on a wish to lower its dependency on Ruhrgas. Ruhrgas had been dictating the prices it paid for Russian gas, a practice that angered Chernomyrdin. He felt that Russia, as the seller, was in a position to name the price it wanted to charge.

But in the ensuing years, Gazprom was able to gain a considerable presence in the German gas market through its partnership and joint venture agreements with the German gas company Wintershall. Today it has three major joint ventures with Wintershall, Wingas WIEH and WIEE, as well as agreements with Ruhrgas, Verbundnetz Gas and Siemens AG.

Gazprom holds a 50-percent stake in Hungary's Panruysgaz. And in 2001, it set its sights on the country's chemical company BorsodChem. This was not only for its chemicals, but also because it owned a minority stake in TVK, Hungary's second- largest chemical firm, which also controlled a large part of the country's pipelines.

A Europol report from September 2001 reported that 24.8 percent of BorsodChem's shares were owned by a principal Hungarian bank that was "simultaneously acting on behalf" of Sibur, the Russian petrochemical firm controlled by Gazprom, in acquiring more shares.

The report went on to say a further 8 percent of BorodsChem was owned by MDM, a Russian bank. A further 5 percent was owned by unidentified financial investors, two of whom were linked to organized crime groups in St. Petersburg, and another of whom worked in collusion with MDM.

Europol also noted that Austrian investment bank Vienna Capital Partners "colluded with Sibur in coordinating share bids in BorodsChem."

In the end, Gazprom did not succeed in gaining a share in Hungary's pipeline system. But Gazprom has used the same tactics elsewhere, to better effect.

Gazprom's activities in Slovakia are significant since most gas which transits through Ukraine bound for Europe first enters Slovakia and is then routed further west.

In April 1997, a series of agreements were signed between Chernomyrdin and Slovak Premier Vladimir Meciar that gave Slovakia's national gas company SPP a discount of $5 per thousand cubic meters. (Slovakia used 6 billion cubic meters of gas in 1997.) In return, a Gazprom-Slovak joint venture was created to transport Russian gas to the EU. The exact terms of the joint venture were never published. The 1997 agreements are to expire in 2008.

In July 2002 the European Commission approved the purchase of a 49-percent stake in SPP by Gazprom, Ruhrgas and Gaz de France.

The deal was worth $2.7 billion and was financed by Ruhrgas and Gaz de France. Gazprom paid a third of this sum in installments. The SPP pipeline system transports about 70 percent of all gas supplied from Russia via Ukraine to Europe. Gazprom also holds a 50-percent stake in Slovakia's Slovrusgaz.

And the investments don't end there. Gazprom has shareholdings in Italy's Volta (39 percent), the British-Belgian company Interconnector (10 percent), France's Fragaz (50 percent), and similar companies in Austria, Serbia, Greece, Finland, Bulgaria, and Turkey. In October 2005, the amount Gazprom had spent on those investments was estimated at $2.6 billion.

The "International Herald Tribune" cited Emmanuel Bergasse, administrator for Central and Eastern Europe and the International Energy Agency, as saying "Gazprom has substantial market power from being the supplier of gas down to the customer. It is the chain that counts."

He added: "Gazprom's stated aim is to extend its dominant position, with obvious consequences for European energy diversification."

By Robert Parsons

Russian President Vladimir Putin said during his 31 January Kremlin press conference that there is a need for "universal principles" to settle "frozen" conflicts. His comments come against the background of impending talks on the future status of Kosovo, which many predict will grant it a form of "conditional independence" from Serbia and Montenegro. As an ally of Serbia, Moscow has consistently opposed the idea of Kosovar independence. Putin's remarks suggest he may be shifting his position, but only if the principles applied to Kosovo are also applied to frozen conflicts in the former Soviet Union. If Kosovo can be granted full independence, he asked, why should we deny the same to Abkhazia and South Ossetia?

It's the context that is all important. After years of behind-the-scenes negotiations on the future status of Kosovo, a deal appears imminent. But not the deal that Russia wanted.

Ethnic Serbs and ethnic Albanians were scheduled to begin talks in Vienna on 25 January but were forced to put them on hold because of the death of Ibrahim Rugova, the leader of Kosovo's majority Albanian population.

But even before the talks were due to begin, the word was that Britain, France, the United States, and Russia -- the interested international powers -- had reached a degree of consensus. The talk is of "conditional independence," a formula that would separate Kosovo from Serbia and Montenegro but leave it subject to an international mission.

Since Moscow regards Serbia as a political ally, this is a diplomatic battle that Russia appears to have lost. But Putin hinted at his Kremlin press conference this week that Russia might try to exact a price.

"If someone believes that Kosovo should be granted full independence as a state, then why should we deny it to the Abkhaz and the South Ossetians? I am not talking about how Russia will act," Putin said. "However, we know that Turkey, for instance, has recognized the Republic of Northern Cyprus. I don't want to say that Russia will immediately recognize Abkhazia or South Ossetia as independent, sovereign states, but such precedents do exist in international practice."

Is that a heavy hint at the future direction of Russian foreign policy or more a reflection of wounded pride? Perhaps both, but Aleksei Malashenko of the Carnegie Endowment in Moscow believes that Putin's search for universal principles for solving frozen conflicts will get Russia nowhere.

"It will give him an opportunity to press on Georgia and to say all the time that if it was done in Kosovo the same thing can be done in Abkhazia and maybe in South Ossetia, but at the same time I don't believe in this way Putin will be successful because the idea of universalism is rejected by the Western community," Malashenko said. That's a view shared by Edward Lucas, the Central and Eastern European correspondent of "The Economist" magazine, who suggests too that Putin may find that drawing general conclusions about conflict resolution from Kosovo may be more difficult than he thinks. "There's two conflicting principles here of self-determination and territorial integrity. But I think the key thing is that there is no one outside power that is backing Kosovo," Lucas said. "Kosovo is not the client of a powerful neighboring state the way that Abkhazia, South Ossetia, and Transdniester are. So I think the first thing we would have to say if one were trying to find a common standard would be that no neighboring country should exercise a big unilateral blockade or support for one of these frozen conflicts and that, of course, would put Russia in a very difficult position."

Russia might also find itself treading on very thin ice. The principle of self-determination in particular cuts both ways. "And there's also Chechnya," Lucas said. "If you accept that there's the right to self-determination, or at least that it has to be taken into account, and one doesn't only deal with inviolable territorial integrity, then it does of course raise the question of Chechnya now and, perhaps at some other date in the future, some other bits of Russia that are there more by coincidence that by historical right like, for instance, Karelia or Tatarstan."

Thin ice or not, there is clearly sympathy in Russia for drawing parallels with Kosovo. Sergei Markov, director of the Institute of Political Studies, a Moscow think tank with close ties to the Kremlin, noted on 31 January that while Russia opposed independence for Kosovo because Serbia is Russia's ally, it would be prepared to accept it on condition that the precedent is extended to the four frozen conflicts in the Commonwealth of Independent States.

By Liz Fuller

Most Russian media coverage of Daghestan over the past year has focused on the activities of groups of militants who have systematically gunned down dozens of police officers and other officials. That upsurge in violence, whether it is motivated by religious considerations or simply reflects an ongoing battle for resources and influence among powerful political interest groups, has overshadowed the possibility that new conflicts could erupt at any time over rival claims to parts of Daghestan's territory.

One of those disputed regions is the former Aukh district, until 1944 a part of the Checheno-Ingush ASSR. The Chechen and Ingush population of that republic was deported en masse to Central Asia in February 1944 on orders from Soviet leader Josef Stalin on suspicion of collaborating with the advancing Nazi German forces, and the internal border was redrawn to make the Aukh district part of Daghestan.

The district was subsequently named Novolak and forcibly resettled with Laks from two mountainous central districts of Daghestan, up to 30 percent of whom died during that forced resettlement. The Laks constitute the sixth largest of Daghestan's 14 titular ethnic groups. The Akkin Chechens returned to their homes after their rehabilitation in 1957, but two years ago issued an ultimatum to the Laks to leave the district, according to "Vremya novostei" on 23 August 2004.

In accordance with a 1992 Russian government directive on reversing the injustices to which some ethnic groups in Daghestan were subjected under Stalin, a program was drafted that envisaged returning some 13,000 Laks from nine villages in the Novolak district where they constitute a majority.

On 20 December 2005, the Russian State Duma's Commission for North Caucasus Problems convened to assess the implementation of that program, reported. The commission found that to date only some 2,100 Laks have left Novolak, partly because of delays in the construction of new homes for them (the plan envisages building nine separate villages to replace the villages they are to leave, together with highways, water, gas and electricity supplies, and related infrastructure), and partly because the area to which the Laks are to be resettled is not suitable for agricultural purposes and there is no alternative employment, according to Mamma Mammayev (Unified Russia), who is one of Daghestan's deputies to the Russian State Duma. Moreover, according to Mammayev, up to 80 percent of the Lak population was not informed about the impending resettlement.

In addition, some representatives of Daghestan's authorities may have misgivings about, and possibly even seek to sabotage, the exodus of Laks from Novolak. Their departure would leave the Avars, who are the largest single ethnic group in Daghestan, outnumbered by the Chechens in Novolak by a factor of 3:1 -- a ratio that Mammayev fears might impel the Chechen leadership to ask for Novolak to be returned to the Chechen Republic. (The Akkin Chechens, who have little liking for the current pro-Moscow Chechen leadership, would in all likelihood oppose any such initiative.)

Daghestan Supreme Council speaker Mukhu Aliyev sought to downplay the possibility of Chechen territorial claims on Daghestan, telling the commission that "not all the Laks will leave," and that he "will not cede a centimeter of Daghestan's territory to anyone." At the same time, Aliyev predicted violence if the resettlement of those Laks who do wish to leave Novolak is not completed within two years, claiming that "populists" (he did not specify of which nationality) would undoubtedly seek to take advantage of the ensuing tensions.

Meanwhile, some representatives of another of Daghestan's ethnic groups, the Lezgins, plan to campaign for the incorporation of those regions of southern Daghestan that constitute part of their ancestral homeland to be transferred to the Azerbaijan Republic, reported on 26 January.

The Lezgins are the sixth largest ethnic group in Daghestan. There are an estimated 204,000 of them in southern Daghestan and a further 180,000-260,000 in Azerbaijan, where they constitute the second largest ethnic group after the Azeris, according to the Institute for War and Peace Reporting on 6 October 2005.

The Lezgin national movement Sadval, which emerged in 1990 in Daghestan, initially lobbied for the creation of an independent Lezgin state comprising those regions of southern Daghestan and northern Azerbaijan that constitute the Lezgins' historic homeland. That demand was reportedly fuelled by the fact that Daghestan's Lezgins felt -- and still feel, according to on 26 January -- that they are routinely treated as "second class citizens." Unemployment in the Lezgin-populated districts of Daghestan is reportedly almost double the republican average of 32 percent.

Sadval split in late 1998 into a radical wing and a more moderate wing. The former continued to espouse the idea of an independent Lezgin state, while the latter advocated the creation of an autonomous territory for the Lezgins in Daghestan that would have the status of a separate federation subject and of a free economic zone, according to "Nezavisimaya gazeta" of 27 January 1999. Infighting between the two factions continued for several years, during which the movement apparently forfeited much of what popular support it once enjoyed.

In an interview with "Nezavisimaya gazeta" on 25 August 2004, one of Sadval's co-chairmen, Nasyr Primov, admitted that Sadval was experiencing "a period of stagnation," and that "we do not have an electoral base as such." (Politically active Lezgins may have chosen to pin their hopes instead on the extraterritorial Federal Lezgin National Cultural Autonomy established in March 1999. The leader of that body, a Lezgin from Azerbaijan, was quoted by "Nezavisimaya gazeta" on 27 October 2004 as affirming that "the broad mass of the Lezgin people will never support the separatists.")

Primov nonetheless insisted that Sadval's goals remain unchanged, namely, "to unite the Lezgin nation, make the frontiers transparent, and give people the opportunity to meet and move freely." Asked whether Sadval still harbors territorial claims on Azerbaijan, Primov denied that it pursues any aims in Azerbaijan, but in a seeming contradiction he added that "our only desire, our dream if you like, is to unite the entire Lezgin people in one state."

The moderate wing of Sadval now intends to resurrect that goal, but by redrawing the borders of Azerbaijan to incorporate the Lezgin-populated regions of southern Daghestan and creating a Lezgin autonomous region, according to an article published on 26 January in the Azerbaijani online daily The paper quoted an unidentified source within Sadval as arguing that "the Daghestan Lezgins cannot remain within a republic that is being turned into a breeding ground for international terrorism and which is choking in the grip of an interethnic confrontation in which several foreign countries have a hand."

But Sadval's proposed solution is, as observed, unrealistic insofar as neither the Russian Federation nor Azerbaijan is likely to agree to a redrawing of the border between the two countries. At the same time, the online daily also notes that all Moscow's efforts to impose stability on Daghestan have proven fruitless, and the republic's future remains unclear. Sadval may at present number nothing more than a few dozen embittered feuding nationalists, but it remains a potent myth, and one that foreign powers with an interest in destabilizing the Caucasus might seek to co-opt for their own ends, concluded.

By Claire Bigg

The European Court of Human Rights has ordered Russia to pay 250,000 euros ($300,419) to Aleksei Mikheyev, a former traffic police officer who was tortured by police. Human rights campaigners have hailed the ruling as a landmark victory in the fight against torture in Russia. Mikheyev is far from being the only Russian to pin his hopes on the Strasbourg-based human rights court. The number of cases lodged by Russians has ballooned over the past few years, reflecting the growing frustration of Russians with their country's justice system.

The case against Aleksei Mikheyev began in his hometown of Nizhny Novgorod in 1998, when he was arrested in connection with the disappearance of a woman to whom he had given a car ride. Mikheyev says police officers tortured him into falsely confessing to rape and murder by attaching electrical wires to his earlobes and subjecting him to electric shocks. To escape further torture, he jumped out of the building, injuring his spine. As a result, Mikheyev, 29, is now in a wheelchair.

The woman turned up alive and well the same day, saying she had gone to visit a friend without informing her relatives.

Two police officers have been handed four-year prison sentences for torturing Mikheyev -- but their conviction came only after his case was scheduled to be heard by the European court.

Mikheyev, who lives on a pension of less than $100 a month, decided to turn to the European Court of Human Rights after exhausting his appeals in Russia.

The Committee Against Torture, a group based in Nizhny Novgorod, helped him take his case to Strasbourg.

Olga Sadovskaya, the committee's deputy chairwoman, tells RFE/RL that she is confident Mikheyev's legal victory will encourage victims of police brutality to seek justice. "The success in this case will help us show that it is possible to defend one's rights and claim compensation for torture and inhuman treatment by officials," Sadovskaya says. "We hope this ruling will also help us bring to justice those guilty of dragging out the inquiry into this case. Those people -- the investigator and the prosecutor's office -- who deliberately dragged out the investigation for seven years have not been punished."

Mikheyev's case has attracted international attention to police brutality in Russia. In the Nizhny Novgorod region alone, Sadovskaya says more than 300 people have contacted her committee over the past five years to report brutality or torture at the hands of police officers.

Mikheyev is not the first Russian to obtain justice in Strasbourg for official brutality. Before him, the court backed nine plaintiffs who had accused Russia of breaching Article 3 of the European Convention on Human Rights, which protects against cruel treatment, torture, and humiliating and degrading treatment.

Mikheyev, however, is the first Russian to win a torture case at the European court. Russia will be forced to pay Mikheyev since the court falls under the jurisdiction of the Council of Europe, which Russia joined in 1996.

Olga Chernyshova, a Russian lawyer at the secretariat of the European Court for Human Rights, says the number of cases filed by Russians has risen sharply since Russia ratified the European Convention on Human Rights on 5 May 1998.

"Between 5 May 1998 and January 2006, some 28,000 complaints [from Russia] have been lodged," Chernyshova says. "Last year, in 2004,over 20 percent of all complaints received by the court came from Russia."

The court, however, only considers a fraction of these cases. In 2005, it judged 83 cases filed by Russian plaintiffs, a sharp increase from the 15 Russian cases judged in 2004.

Plaintiffs also include prominent Russian figures such Mikhail Mirilashvili, the former leader of the Russian Jewish Congress and a noted St. Petersburg businessman.

Mirilashvili was sentenced in 2003 to 12 years in jail on charges of kidnapping and attempted murder in what some have denounced as a politically motivated trial.

Mirilashvili's lawyer, Aleksandr Afanassiev, told RFE/RL that his client appealed to the European court after his legal rights were repeatedly violated. His case is currently pending.

Afanassiev believes that judicial corruption is what pushes other Russians to seek redress in Strasbourg: "Our appeal to the Strasbourg court was linked exclusively to the fact that the basic norms and principles of Russian criminal legislation were systematically violated during the examination of Mikhail Mirilashvili's case by Russian courts. I think that, in the majority of cases, people appeal precisely for this reason. In the European court, they seek truth and justice."

It worked for Vladimir Gusinsky, the exiled former media tycoon, who sued the Russian authorities for allegedly using imprisonment to force him to sell his media assets. The European court ruled in favor of Gusinsky in 2004 and ordered Russia to pay him 88,000 euros ($105,698) in damages.