In this issue:

Putin Attacks Foreign Meddling

Yushchenko To Become President Of Ukraine

Rosneft Acquires Yuganskneftegaz

Russia To Build Pipeline To Pacific Coast

Russia And Iran Map Energy Cooperation

Russia Tests Fifth-Generation Topol-M

Russia And China To Hold Joint Military Exercises

Putin Attacks Foreign Meddling

In response to a question about Polish President Kwasniewski's recent remark that the United States would prefer Russia without Ukraine, to Russia with Ukraine, Russian President Vladimir Putin said during his Dec. 24 year-end press conference, "I was extremely surprised when I saw this interview with Aleksander Kwasniewski. ... I have the impression his remark was made not by an incumbent President, but by someone who is seeking a job because his powers are expiring soon, because I do not think his remark was correct.... What does it mean, a Russia without Ukraine is better than a Russia with Ukraine? ...

"I repeat, we are not going to annex anyone. That is the first point. Second, if this is read as a wish to curtail Russia's scope for developing its relations with its neighbors, it means a desire to isolate the Russian Federation. I do not think this is the purpose of American policy, although we will have a meeting with President Bush, it is scheduled for the near future, in the New Year, and I will certainly ask him if this is really the case...."

Putin went on to address the phenomenon of "velvet revolutions," promoted from the outside, in countries close to Russia. He said, "As far as the entire post-Soviet space is concerned, I am concerned above all about attempts to resolve legal issues by illegal means.... It is the most dangerous to think up a system of permanent revolutions—now the Rose Revolution, or the Blue Revolution. You should get used to living according to the law, rather than according to political expediency defined elsewhere for some nation or another—that is what worries me most.... Of course, we should pay attention to, support, and help democracies, but, if we embark on the road of permanent revolutions, nothing good will come from this for these countries, and for these peoples. We will plunge the entire post-Soviet space into a series of never-ending conflicts, which will have extremely serious consequences."

Yushchenko To Become President Of Ukraine

Victor Yushchenko having won the repeat Presidential election run-off, held Dec. 26 in Ukraine, the certification of his victory was announced by the Central Election Commission Dec. 28 and strengthened Dec. 30 when the country's Supreme Court rejected four complaints filed by the other candidate, Prime Minister Victor Yanukovych. Yanukovych finally resigned as Prime Minister on Dec. 31. His campaign manager, Taras Chornovyl, spoke Dec. 30 about Yanukovych becoming an opposition leader, preparing to lead a campaign for the Supreme Rada in 2006 elections.

Yushchenko, constantly dubbed the "pro-Western candidate" in the media, is behaving with great correctness towards Russia. In addition to announcing that Russia will be the first country he visits as President, Yushchenko said Dec. 17 that no steps towards NATO membership would be taken by Ukraine without a national referendum. In an interview with the German weekly Der Spiegel for its Jan. 3 issue, Yushchenko said that he fully understood the importance of Russia for Ukraine. "I am therefore not at all interested in strengthening anti-Russian forces," said Yushchenko. "Russia remains a strategic partner in the political, economic, and military fields. Our strategy aims for European integration, and in this framework we must solve all our problems with Russia."

Yushchenko said that he did not exclude legal measures against provincial politicians or governors, but added that he does not want to revise the privatizations of the 1990s: "I don't like the word renationalization—we now want stability, and businessmen want to know who they are dealing with." Major economic moves may be high on Yushchenko's agenda, especially if he follows through on his hints about naming former energy chief Yuliya Tymoshenko as Prime Minister. Izvestia of Dec. 27 quoted Tymoshenko's promise to re-do the privatization of Krivoy Rog, the giant steel complex in southern Ukraine. Under Yanukovych (as Prime Minister), it was sold to Ukrainian business interests, while USX, Russia's Severstal and Yevrazholding, and the British-based company LMN (owned by Indian-born Lakshmi Mittal, who specializes in oil and gas pipeline production) were kept out of the running.

A very immediate economic crisis for Ukraine, meanwhile, is posed by Turkmenistan's announcement that it is suspending natural gas deliveries to Ukraine on Jan. 1, over a price dispute; Turkmenistan supplies half Ukraine's natural gas requirements.

Rosneft Acquires Yuganskneftegaz

Yuganskneftegaz, the West Siberian company that was the main production unit of Yukos Oil and produces 1% of the world's crude oil, was sold at auction Dec. 19 for $9.4 billion. The Russian government put it up for sale, to satisfy back tax debts of Yukos. The Russian Federal Property Fund announced that the winning bid came from Baikal Finance Group, a company never heard of before. The week before the auction, the FPF had identified three bids—from natural gas giant Gazprom, and two other Russian government-linked companies.

The sudden appearance of Baikal Finance Group, which outbid the others, occurred after tumultuous developments: Yukos CEO Steven Theede and CFO Bruce Misamore, who are American citizens and have left Russia, filed in a Houston, Texas court to seek bankruptcy protection for Yukos. The petition demanded that assets other than the core production unit, Yuganskneftegaz, be sold first, and explicitly named the three announced bidders, including Gazprom, as threats to Yukos and its minority shareholders. U.S. Bankruptcy Judge Letitia Clark granted an injunction, barring the sale of Yuganskneftegaz. Russian Prime Minister Fradkov said the ruling had no standing in "an internal matter for Russia." But then came reports that a $10-billion loan from a Deutsche Bank-led consortium, being negotiated by Gazprom to finance its bid, had fallen through. And up popped Baikal Finance Group, which lists its office address in Tver, Russia—at a location where an Itar-TASS reporter was able to find only retail shops. "Baikal" was not named in Judge Clark's order.

On Dec. 24, the state-owned oil company Rosneft, headed by Kremlin staff official Igor Sechin, bought out Baikal Finance Group and became the owners of Yuganskneftegaz. Rosneft took possession of the company's west Siberian premises on Dec. 31.

Russia To Build Pipeline To Pacific Coast

On Dec. 30, Russian Prime Minister Mikhail Fradkov signed off on Russia's last major economic move of 2004, an order to proceed with building an oil-export pipeline from Taishet in East Siberia to the Pacific port of Pervoznaya, near Nakhodka on the Sea of Japan. The 4,200-km pipeline has an estimated price-tag of $18 billion and a projected capacity of 80 million tons (approximately 580 million barrels) of oil per year. The state-owned company Transneft will be the main contractor.

In the years-long debate over whether to build this pipeline, or an alternative route to Daqing in China, Transneft advocated the Pacific route, as opening the door to a wider range of customers for Russian oil: Japan, Korea, Southeast Asia and the United States. In talks with Japan last spring, Russia tipped the Nakhodka route as the likely choice, while continuing to promise China to increase oil deliveries there, as well. It was suggested that the East Siberia-Nakhodka pipeline could have a spur to Daqing.

Fradkov's decree, however, contained no reference to a spur into China. Other oil-related Russian announcements, affecting China and also made on Dec. 30, have to be seen in that context. Those were Railways Minister Fadeyev's commitment to increase deliveries of oil to China by rail, by two-thirds, and Energy and Industry Minister Khristenko's statement that the Chinese National Petroleum Company (CNPC) might purchase 20% of Yuganskneftegaz, the former Yukos Oil unit that produces 1% of the world's crude and was just taken over by the state-owned Rosneft company. CNPC spokesmen were reticent to comment. On Dec. 31, CNPC spokesmen Li Runsheng commented to press about Khristenko's statement, "This is their unilateral comment. We honestly can't give you a definitive reply." The Wall Street Journal on Jan. 2 also quoted CNPC executives saying, "We have no idea about any of this matter. The company's senior leadership doesn't know either," and, "These talks must be going on at the top level; we don't know any details."

Russia And Iran Map Energy Cooperation

Negotiations on energy cooperation were held at and around a Russian-Iranian bilateral intergovernmental commission meeting in Moscow, Dec. 17. It was there that Federal Atomic Energy Agency chief Alexander Rumyantsev said Russia is interested in building a second unit at the Bushehr nuclear power plant, as one of five to seven new nuclear plants in Iran . Also taking part in the talks with Iranian Minister of Economics and Finance Sayed Safdar Hoseini, was Russian Minister of Industry and Energy Victor Khristenko. On the agenda were other energy projects of Eurasian significance.

According to Kommersant, they talked about the participation of Russian companies, especially Gazprom, in the construction and operation of an Iran-Pakistan-India natural gas pipeline. Kommersant noted that Gazprom "is greatly interested in entering the Indian market." Russian companies are also invited to participate in other projects in the natural gas, oil and power sectors. It is planned for Gazprom to construct underground natural gas storage facilities; Lukoil to pump oil in Anaran oil province (with petroleum export swap arrangements); and Tekhnopromeksport, a Russian specialist in producing energy equipment overseas, to construct a conventional power plant in Tabas and a coal mine in Mazino, as well as modernizing the Shahid Mohammad Montaziri power plant in Isfahan. Russian companies will also construct a number of minor hydroelectric power plants in Iran.

In non-nuclear energy, Russia and Iran are also ready to cooperate in third countries. In particular, companies and specialists from both sides will be involved in construction of the Sangtudi Power Plant in Tajikistan. At the same time, Russia's United Energy Systems, together with the state energy authorities of Iran and Azerbaijan, will synchronize the energy systems of the three countries, building electric power transmission lines and exporting Russian and Azerbaijani electricity to Iran.

Russia Tests Fifth-Generation Topol-M

Russia carried out a successful test launch of its latest Topol-M intercontinental ballistic missile on Dec. 24. The launch, from the Plisetsk Space Center in the Arkhangelsk region, RIA Novosti reported, was designed to confirm the "serviceability" of the system, evaluate its tactical, technological, and flying characteristics, and measure the efficiency of the new design.

Russia And China To Hold Joint Military Exercises

Russian Defense Minister Sergei Ivanov said Dec. 28 at a Russian government meeting, that in the second half of next year Russia and China will hold joint military exercises involving state-of-the-art weapons. "For the first time in history, we have agreed to hold quite a large military exercise with China on Chinese territory in the second half of the year," Ivanov said. "The Russian side will not bring big numbers of servicemen, but mostly state-of-the-art weapons like naval, air force, long-range aviation, submarines—to practice interaction with China in different military maneuvers."

Ivanov also said that the Ministry of Defense is drafting a combat training plan for 2006, in which priority is being given to teamwork within the Collective Security Treaty Organization (Russia, Belarus, Armenia, Kazakstan, Kyrgyzstan, and Tajikistan). In April, training will be conducted in Tajikistan. Ivanov also said that the Russia/NATO council is preparing joint exercises, particularly joint French-Russian naval exercises, involving nuclear forces. Also, plans are afoot for a joint exercise in the Mediterranean, which will be joined not only by the USA, but also by other countries, not NATO members. Ivanov also did not rule out the possibility of an exercise with Germany.