From Volume 4, Issue Number 24 of EIR Online, Published June 14, 2005
Russia and the CIS News Digest

Mosenergo Chief Resigns in Shakeout Over Blackout

Arkadi Yevstafyev resigned as general director of Mosenergo, the Moscow electric power company, after the harsh criticism he and the utility came under from President Vladimir Putin at a June 4 Security Council meeting, held to review the May 25 power blackout in the Russian capital.

Putin had ridiculed Mosenergo's attempt to blame the event on underfunding, noting that its executives paid themselves multimillion-dollar bonuses, but failed to maintain plant and equipment—although the four-decades-old transformers that failed could have been replaced at under $5,000 apiece. The Russian President termed the excuse "simple blackmail, an effort to protect corporate interests at the expense of consumers and, therefore, the entire country." He told Prime Minister Mikhail Fradkov to look into "the cynicism and obvious professional incompetence of the Mosenergo leadership," adding that "it would also be useful to check the tax payments of Mosenergo. It seems strange that some of its subsidiaries are based in Cyprus." This last was a somewhat disingenuous remark about a situation that is rampant in Russian business, but it echoed loudly, in the wake of the conviction of Yukos Oil execs for tax fraud.

Yevstafyev is the former personal secretary of Anatoli Chubais, who headed the State Property Committee in the mid-1990s, and is now CEO of United Energy Systems (UES), the parent company of Mosenergo. In 1996, Yevstafyev was one of two men detained while carrying half-a-million U.S. dollars in cash, in connection with the 1996 Presidential election campaign. Chubais protected Yevstafyev at that time, Russian commentators have noted.

Chubais has been questioned by prosecutors in connection with the blackout, but Putin did not attack him personally during the State Council session. Political Research Institute Director Sergei Markov noted June 4 that Chubais—who is attempting to reform UES, based on British and related models of utilities privatization—is still strongly supported by Finance Minister Aleksei Kudrin and Minister of Economic Development and Trade German Gref, with whom Putin does not see fit to break.

Moscow Mayor Yuri Luzhkov's recent high profile as a critic of Chubais and, especially, his cabinet allies Kudrin and Gref, therefore puts a point on June 8 reports that Mosenergo Deputy General Director Dmitri Vasilyev has proposed to sell a controlling stake in the company to the city of Moscow, by means of a new shares issue. First Deputy Mayor Yuri Roslyak, in a June 8 Ekho Moskvy interview monitored by RFE/RL Newsline, bolstered the reports by pointing out that the city wants 1.7 billion rubles ($56.7 million) compensation for the blackout.

Russian-Chinese Economic Talks in St. Petersburg

Officials meeting at the First Russian-Chinese Business Forum, held in St. Petersburg the week of June 6, agreed to boost bilateral trade from $20 billion (achieved in 2004, two years earlier than anticipated) to $80 billion annually. A special joint working group will seek ways to increase of the scope of cooperation.

Taking part from the Russian side were Minister of Economic Development and Trade German Gref, Presidential representative for the Northwest Federal District Ilya Klebanov, Moscow Mayor Yuri Luzhkov, and St. Petersburg Governor Valentina Matviyenko. Ma Kai, Chairman of China's State Committee for Development and Reforms, Vice Premier Zeng Peiyan, and Cai Laising, president of Shanghai Foreign Investment & Construction Corporation, were in the Chinese delegation.

Zeng said that China was prepared to invest $12 billion in the Russian economy over the next 15 years. Included would be the $1.3 billion Baltic Pearl residential and commercial development project, being launched by Shanghai investors and builders on a 200-hectare tract in southwest St. Petersburg. Other possible projects are construction of a major pulp mill in Khabarovsk Territory in Russia's Far East, a petrochemicals plant in Moscow, and an agro-industrial complex in Nizhny Novgorod. Mayor Luzhkov told the forum about a new Chinese project in Moscow, known as Huangming Business Park, which is to be completed by 2010.

In his speech, Gref also focussed on bilateral cultural cooperation, emphasizing that the number of Russian secondary schools and universities offering Chinese-language instruction is quite insufficient.

Rosneft and Sinopec Sign Strategic Agreement

On June 9, Russia's state-dominated oil company Rosneft and China's Sinopec (which includes the Chinese National Petroleum Company, CNPC) signed a memorandum of cooperation, including provisions for certain joint projects, Izvestia reported June. 10. In particular, the two companies will develop oil-shelf projects on Sakhalin, and oil refining in the Russian Far East. In 2006, Rosneft and Lukoil are going to boost Russian oil exports to China from 10 to 15 million tons, for that year. "Rosneft has effectively replaced Yukos in Russian-Chinese oil cooperation," explained Izvestia author Fyodor Chaika.

According to Chaika, the "mysterious" $6 billion received by Rosneft in December 2004 for the acquisition of Yukos's major production unit, Yuganskneftegaz, was advance payment by CNPC for the future delivery of 48 million tons of oil.

Prosecutor Projects More Cases, After Yukos

Russian Deputy Prosecutor General Vladimir Kolesnikov gave an interview on NTV June 5, speaking publicly after the sentencing of ex-Yukos Oil CEO Mikhail Khodorkovsky to nine years in prison for tax evasion. "We have more files in store," said Kolesnikov, and the Yukos case "will not be the last." He also hinted that Khodorkovsky and other former Yukos execs might face separate, "purely criminal" charges, for organizing murders and attempted murder.

Kolesnikov is a powerful figure in the Prosecutor General's office, who speaks out only occasionally. He is reputed to have initiated the prosecution of tycoon Boris Berezovsky, who fled into exile in London. Kolesnikov is also on record as saying that the Central Bank of Russia should be a state-controlled institution, providing credit for the economy to function, rather than being remodelled after Western central banks, as it was in the 1990s.

On June 9, the Ministry of Internal Affairs filed a criminal suit against a subsidiary of LUKoil, Naryanmar Oil and Gas, for evading 24.5 million rubles of taxes in 2004 by falsifying VAT information. Naryanmar, in the far northern Nenets Republic, is currently undergoing transformation into "Rusco," a joint venture of LUKoil with ConocoPhilips.

Itar-TASS reported June 1 from unidentified Russian government sources, that first-quarter budget revenues were 50% above target, at 1.2 trillion rubles ($40 billion). Among other factors, the source cited the collection of penalties from Yukos Oil, as well as payment of tax arrears by another oil company, Sibneft, and some unnamed firms in the oil-producing republic of Bashkortostan.

Russian Defense Minister: No NATO in Black Sea

Attending a NATO Defense Ministers' meeting in Brussels June 10, Russian Defense Minister Sergei Ivanov voiced objections to NATO's plans for expanding its Mediterranean anti-terror operations into the Black Sea. There would be no reason for Operation Active Endeavor, a mission that has monitored shipping in the Mediterranean and Strait of Gibraltar since Sept. 11, 2001, to begin patrolling the Black Sea, Ivanov said.

In the area of cooperation, Ivanov said that joint exercises by Russian and NATO ground units might be held near Pskov, Russia, next year.

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