IN THIS ISSUE

* Medvedev celebrates the fall of the Berlin Wall
* Gutseriyev case reveals expedient Russian justice
* Russian energy policy seeks to outflank Europe via Croatia and Croatia via Bosnia
* Russia increases its military presence in the North Caucasus
** New in the Jamestown blog on Russia and Eurasia (http://www.jamestown.org/blog):
- Kidnapping and Extortion: Russia’s Modus Operandi in Georgia

Medvedev’s Quasi-Modernization Hits the Wall

Pavel K. Baev

President Dmitry Medvedev is today paying a very special visit to Germany in order to participate in celebrations that have more significance for contemporary Russia than he dares to admit. Twenty years ago he was a fresh graduate of the Leningrad University with some democratic ideas influenced by his Professor Anatoly Sobchak, but with little understanding of the spectacular breakthrough that happened in Berlin. This was not the case for his senior partner Prime Minister Vladimir Putin. He was burning papers in the KGB office in Dresden, stealing a look at the unstoppable jubilant crowds from barred windows, and reflecting on the fact that the dream job he had landed a couple of years before had ended. The shock of the sudden collapse of a perfectly organized state so tightly controlled by his colleagues from the Stasi still determines his enmity to “color revolutions” (www.gazeta.ru, November 6). He has no reason to celebrate the fall of the Berlin Wall, and in that he differs from Russian public opinion, which by a majority of 61 to 11 percent sees it as a positive influence (www.levada.ru, November 6).

On the other hand, 60 percent of Russians prefer to have a strong leader and only 29 percent express a preference for democratic government, while in 1991, the latter figure had reached 51 percent (Vremya Novostei, November 6). Putin thrives in the role of national macho/godfather, but Medvedev with his daily presence on television news undermines the integrity of his performance. Not that Medvedev is any more convincing in representing an alternative figure, but the very fact that the position of supreme power is occupied by this smooth-talking courtier compromises the ideal of tsarist leadership (www.grani.ru, November 2).

Moreover, Medvedev has chosen “modernization” as the main theme of his presidency, and this seemingly innocent slogan has led him to a slippery slope where one word leads to another, while deeds lag far behind. The breathtaking plunge into recession has made his argument concerning the over-reliance of the Russian economy upon the export of raw materials fairly trivial, but the gradual climb in oil prices has not eased Russia on to the recovery track, which proves that the problem runs deeper than simply petro-dependency. Medvedev tries to set guidelines for the priority development of high-technology sectors, though his instructions find no reflection in the 2010 budget, which prioritizes defense expenditures and pension increases, while only 1.4 percent of funding supports “innovations,” primarily in space programs (www.newsru.com, November 5). It is clear that modernization requires money that the state cannot provide, consequently Medvedev attempts to cultivate a business-friendly attitude, which remains entirely foreign to the predatory system of bureaucratic control (Ekspert, November 2).

The conclusion that the Byzantine political system built (or rather re-built) by Putin is incompatible with modernization appears both impossible and irrefutable. Medvedev dares not to utter one word of criticism directed at his co-ruler and waffles over the need to build a team of modernizers who could make at least a few innovations indeed happen (Nezavisimaya Gazeta, October 30). However, he constantly spells out the proposition that the conveniently corrupt business-as-usual is over, and this message –hesitantly conveyed by the official media– gradually becomes a catalyst for the growing sense that a period of change has arrived yet again (Moskovsky Komsomolets, November 3).

This perception gained more ground after Medvedev’s strong condemnation of Stalin’s crimes that appeared first on his video-blog and was then broadcast by all television channels. Insisting on re-examining the repressions, he went against the widespread desire to close those dark pages in Russian history and also challenged the tendency towards “rehabilitating” Stalin, which was carefully cultivated by Putin (Nezavisimaya Gazeta, November 2). This step signifies a risky departure from the policy of saying only things that people want to hear, since for large groups of “patriots” Medvedev has instantly become a “traitor.”

The divide within society over Soviet history connects directly with the splits on the way out of the current crisis, which were illustrated by the ambivalent celebrations of the November holidays. There were perhaps as many ultra-nationalist rallies as officially sponsored festivities on the recently established Day of National Unity, while the communists brought thousands to the streets on the Great Revolution Day. Still, a healthy 63 percent of respondents affirmed that they would celebrate neither day (www.levada.ru, October 29).

The rising momentum of change makes the political elites edgy about setting and switching their loyalties. The more Medvedev is trying to argue (as in a recent interview with Der Spiegel) that “today, there is no doubt that our tandem, as we are commonly referred to, is working rather coherently,” the more doubts arise about its future. Commentators and economic experts pondering the pseudo-liberal discourse and budgetary populism increasingly describe the situation inside the Kremlin as panic (Vedomosti, November 2; www.gazeta.ru, October 21).

In this turbulent environment, Putin wants to position himself as a “rock” of confidence standing against the ill-conceived “innovations,” asserting at every meeting of the government that “our plans are still alive and well, and they will continue and be completed. There is no doubt about it.” He can hardly fail to see, however, that time is not on his side, and the central question of the leadership acquires critical urgency well before the presidential elections in 2012. Medvedev might think that time is working for him, but re-inventing himself as a champion of change is an order much taller than his limited intentions, which he will present this week in an address to the parliament. He fancies “modernization” as an evolutionary and certainly non-violent process over which he would preside benevolently disallowing any “excesses.” The problem is that the strength of the thoroughly corrupt system of power to which Medvedev belongs entirely is in its rigidity. Thus, opening it up for transformation – even if only by words – could trigger a spontaneous collapse. The Berlin Wall is an object lesson in such a breakdown, and Medvedev may find himself to be merely the weakest part of the wall of fear and lies that Putin has built.

Mikhail Gutseriyev and the Expediency of Russian Justice

Yuri Zarakhovich

On October 28, two authoritative Moscow-based business dailies Vedomosti and Kommersant quoted sources as saying that the arrest warrant for Mikhail Gutseriyev, a top Russian banker and oil tycoon of Ingush origins, had been cancelled and replaced with “the promise not leave” (much as this sounds ridiculous in the case of a person who had long left). Still, legally, this decision makes it possible to drop Gutseriyev from the wanted list and let him return. In fact, according to Vedomosti (Vedomosti, October 28), sources said that the Russian authorities started discussing his return with Gutseriyev last summer. “He is a major authority in Ingushetia, so Ingush President Yunus-Beck Yevkurov pleaded with Russian President Dmitry Medvedev for making Gutseriyev’s help available,” sources told Vedomosti.

Unlike the former head of the Yukos oil company, Mikhail Khodorkovsky, who is now serving his sixth year in prison, Gutseriyev had never given any grounds to be suspected of disloyalty to the Russian leadership. Even his stint as a Duma deputy and then Vice-Speaker from the ever Kremlin-compliant Vladimir Zhirinovsky’s token opposition Liberal-Democratic Party in the late 1990’s and early 2000’s was seen as a normal business venture of the kind much approved by the Kremlin.

However, once Gutseriyev’s Russneft oil company firmly entrenched itself among the top ten Russian oil producers in the early 2000’s, it inevitably followed the same route as Yukos: Russneft obviously was too lucrative an asset to be left in the hands of a businessman, who, however compliant, did not belong to the tight circle of Kremlin insiders, and rendered financial support to the Ingush President Ruslan Aushev (whom Moscow frowned upon for his stiff opposition to the Chechen war). Once Aushev was replaced as Ingush President with the Federal Security Service (FSB) General Murad Zyazikov, Gutseriyev’s business ventures in Ingushetia upset the new leadership. In May 2007, Gutseriyev was charged with large-scale tax evasion, fraud, illegal entrepreneurship and having caused financial damage to the state (Kommersant, May 15, 2007).

Facing up to 12 years behind bars and multibillion dollar fines, Gutseriyev fled to Britain. Moscow issued an international warrant for his arrest and demanded his extradition (Vedomosti, October 28). Meanwhile, Russneft was sold for $3 billion to companies, controlled by the Kremlin’s favorite Oleg Deripaska. While in London, Gutseriyev pointedly distanced himself from anti-Putin émigrés and kept probing the terms on which he could return to Russia. For their part, Moscow’s authorities did not really push his extradition hard, as long as they had taken over the prized Russneft assets.

For its part, Kommersant noted that Gutseriyev has assets in Ingushetia, worth some $2.5 billion (Kommersant, October 28). Kommersant quoted Kaloi Alkhigov, the spokesman for the Ingush President Yevkurov, as saying that Gutseriyev could provide major help to his native republic. “For all practical purposes, all industrial objects in the republic have been built by Gutseriyev. He has valuable business experience here. I think that as a potential investor, he is quite interesting to our republic,” Alkhigov suggested.

The Russian interior ministry confirmed to Kommersant that the arrest warrant for Gutseriyev was cancelled and replaced with the promise not to leave. In fact, the Gutseriyev case fits into the current Russian political and economic paradigm quite logically:

1. Russneft has been given to “the right people,” while Gutseriyev has demonstrated total submissiveness and compliance with that.

2. Security in Ingushetia is rapidly worsening. Firefights and bombings are long the order of the day, with pro-Moscow forces losing ground. Yevkurov himself barely survived an attempt on his life last June, when a suicide bomber-driver attacked his convoy.

3. Ingushetia is going through a complete breakdown of law and order. On October 25, Ingush opposition leader Masharip Aushev was shot dead in broad deadlight. Commenting on his murder, Yevkurov told the Ekho Moskvy: “We realize that law enforcers could have done this. Law enforcers do take part in gang wars sometimes” (www.criminalnaya.ru, October 26).

4. The Ingush mess demands massive financial infusions, even if just to keep the regime afloat. Always tight-fisted, the Kremlin has long launched the practice of levying top Russian business to pay for whatever the Kremlin needs, be it Putin’s maritime residence in Strelna, or the Olympic construction in Sochi. The ongoing economic crisis only enhances this strategy. Therefore, what could be more logical than dropping the charges against Gutseriyev in exchange for using his assets in an attempt to stabilize Ingushetia? Should he make any profit on that, he may always be sheared again. Nor are his current Ingush assets of $2.5 billion something that can easily be ignored.

The Gutseriyev case also serves as another reminder as to the expediency of Russian justice. Arrests and repressions have always been used as state and business management tools in Russia, the order of the day being expedience rather than justice. Be it the Vladimir Gusinsky case in 2000, when the billionaire Gusinsky “agreed” in his prison cell to surrender his most prized asset –the NTV television station– and was then released, or the Gutseriyev case now: ransom and expediency remain the cornerstones of the management paradigm in Russia.

Russian Energy Interests Target MOL on Bosnia and Croatia

Vladimir Socor

Russian economic and political penetration in parts of former Yugoslavia proceeds apace in the wake of President Dmitry Medvedev’s visit to Belgrade. Serbia risks turning into an Armenia of the Balkans by accepting Russian economic tutelage (EDM, October 27, 28). On November 6 the government of Slovenia finalized an agreement (which it had been considering since last year) to join Russian Gazprom’s South Stream project and is set to sign up imminently (Interfax, STA [Ljubljana], November 6). The recently reshuffled government of Croatia, lacking a clear policy on energy, is also considering the illusory South Stream option under Russian lobbying.

On November 5, Russian Foreign Minister Sergei Lavrov paid a working visit to Bosnia-Herzegovina, instigating the Sarajevo government to oppose U.S. and E.U.-proposed constitutional and economic reforms. The government in Sarajevo, which pursues the twin goals of E.U. and NATO membership, received Lavrov politely but coolly (Interfax, November 5, 6; BiH TV, November 5). Moscow, however, seeks to block Bosnia-Herzegovina’s Western-oriented reforms by working with the government and legislature of the Republika Srpska [Serb Republic], one of Bosnia-Herzegovina’s two entities (Interfax, November 2, 6). Medvedev held talks with Serb Republic Prime Minister Milorad Dodik to that effect during his visit to Belgrade. Russian energy companies seek to entice Republika Srpska with the prospect of oil and gas projects.

Russia’s state-controlled oil company Zarubezhneft already owns the Bosanski Brod oil refinery in the Republika Srpska, along with an 88-strong network of fuel stations. Zarubezhneft operates through the local affiliate Optima in Republika Srpska. As part of Moscow’s current Balkan political and economic offensive, Zarubezhneft promises to more than triple the refinery’s annual processing capacity, from 1.2 million tons at present to 4. 2 million tons, and double the network of fuel stations to 180 in Bosnia-Herzegovina “and neighboring countries” (Oslobodjenie [Sarajevo], October 31; Vedomosti [Moscow], November 3).

Since Zarubezhneft’s own crude oil production and reserves are meager, it presumably intends to partner with one of Russia’s big oil producing companies. Of these, Lukoil is targeting the Balkans and Central Europe for acquisitions of refining capacities and fuel distribution networks.

In recent years, however, the better-performing Hungarian MOL clearly prevailed in the contest for refinery acquisitions and fuel-market share in Croatia as well as in the Bosniak-Croat Federation, which is the other entity in Bosnia-Herzegovina. MOL is the principal stakeholder of Croatia’s oil and gas company INA since 2008, with a 47 percent stake and wide managerial authority. MOL, along with INA, is also the 67 percent owner of Energopetrol the main fuel-distribution network in Bosnia-Herzegovina’s Muslim-Croat Federation.

Whether coincidentally or otherwise, the Bosniak-Croat Federation’s government is now moving against MOL-INA in that territory. At the same time, the Zagreb government is pressuring MOL-INA in Croatia’s natural gas business. Directly or indirectly, the goal appears to be to force MOL out of INA by inflicting losses on the Hungarian company (EDM, October 14).

Bosniak-Croat Federation Prime Minister Mustafa Muezinovic now proposes to cancel the privatization sale of Energopetrol to MOL-INA and return the company into state ownership. According to the Moscow business daily Vedomosti (November 3), “this would strike a decisive blow,” inasmuch as Zarubezhneft seems poised to step in and take over.

At least some in the Bosniak-Croat Federation’s government accuse MOL of having failed in its contractual obligation to invest 75 million Euros in Energopetrol within three years. However, the three-year period expires in 2010. According to INA’s annual reports in 2007 and 2008, however, the company invested approximately 100 million Euros in Energopetrol (Wirtschaftsblatt [Vienna], November 4). In that case, the disagreement would seem to be over defining what constitutes direct investment in Energopetrol.

According to local media, MOL’s legal position seems safe. Under the contract terms, any non-fulfillment of the investment obligation would be referred to arbitration court in Zurich, Switzerland. Moreover, any such non-fulfillment –if ascertained– would result in payment of damages, without prejudice to MOL’s ownership of its Energopetrol stake (SAN [Sarajevo], November 3).

Again, whether coincidentally or otherwise, the Bosniak-Croat Federation’s Deputy Prime Minister Gavrilo Grahovac has initiated the move against MOL-INA. According to local media, “Grahovac’s SBiH party lobbied for the sale of Energopetrol to Austria’s OMV” (Croatian news agency HINA, October 31).

OMV lost repeatedly to MOL in the market competition for refineries and distribution networks in Central and Southeastern Europe. Last year, OMV staged an unsuccessful hostile takeover against MOL. This year, OMV served as a Trojan horse for Russia’s Surgut Neftegaz in another hostile takeover attempt on MOL. According to informed suppositions on stock markets, Moscow may offer a deal whereby Surgut desists, in return for MOL withdrawing from INA.

MOL’s position in INA holds a strategic significance far transcending the Croatian and Bosnia-Herzegovina markets as such. Moscow seeks to outflank Central Europe through Croatia, so as to block access routes for non-Russian oil and gas supplies from Croatia’s Adriatic coast into Central Europe. By contrast, MOL seeks to promote those alternative supply routes from Croatia to Central European countries, through existing and projected terminals and pipelines.

Moscow and Grozny Evince Growing Nervousness Over Regional Security

Mairbek Vatchagaev

Today, all Russia’s actions in the south are dictated by the increasingly active armed underground in the North Caucasus and Russia’s desire to oppose its growing influence on the region’s indigenous population. In the summer of 2009 alone 462 acts of violence were reported, while throughout the whole of 2008 only 265 incidents were registered. As a result, more than 442 persons died in the summer of 2009, while there were only 150 deaths reported in the entire year of 2008 (www.regnum.ru, October 28). In other words, the number of acts reported throughout the region by Russia has nearly doubled.

That is why it is not surprising that despite the announced Russian troop level the opposite process is occurring. Troops are being redeployed to the region, in addition to the ones that have been there since the beginning of the second Chechen war in 1999. For example, Nezavisimaya Gazeta reported on October 29 that additional military units are being redeployed to southern Russia from the Moscow area. The 474th detached motor transport battalion was deployed to the town of Millerovo (Rostov oblast) from the town of Dmitrov (Moscow oblast). An anonymous North Caucasus Military District source also told the newspaper that a major reorganization will take place on the basis of Vladikavkaz-based 58th army, where the formation of an operational command is being completed. Instead of two divisions, the command will be comprised of seven motorized infantry brigades and one tank brigade. Until recently, there were two divisions in the 58thh army; the 19th and 42nd divisions, as well as several detached regiments, brigades and battalions. In addition to the two existing mountain brigades, the Botlikh brigade in Dagestan and the Zelenchukskaya brigade in Karachaevo-Cherkessia (www.news.km.ru, October 29), the formation of the 8th detached mountain motorized infantry brigade in Chechnya was completed (located in the village of Borzoi, which is just a couple of kilometers from the Shatoi district center). Besides that, the aviation divisions and regiments of North Caucasus Military District are being transformed into military airbases, each of which will have at least five squadrons at its disposal.

The official reason offered by Moscow for the troop buildup is the supposed weakness of the Russian army in the event of an attack from the south, insinuating an imaginary threat coming from Georgia. In reality, it is not so much about Georgia, which hardly can threaten Russia in any way, but about the overall situation in the region. Armed opposition is no longer seen as something ephemeral. Its roots have expanded into almost all the national republics of the North Caucasus. Taking into consideration the multi-million-strong diaspora abroad (primarily the Circassian diaspora in the countries of Turkey and the Middle East), Russia is trying to reverse the situation by ensuring that it has an absolute multiple-factor advantage in terms of military force.

Analysts have started speculating about the worsening of the situation in the region after the murder of this or that important civil society or political figure in the region. But aside from the famous people being murdered, news briefs are also reporting recurring victims within the local population. Numerous outrages are being perpetrated by unidentified armed people. In most instances those killed are presented as members of the armed opposition. For example, on October 31, three young Shahbiev brothers (Adam, Alsan, and Usman) were shot dead on the border of North Ossetia-Alania and Chechnya, near Mozdok. According to the authorities, they were all combatants and opened fire when they were pulled over. All three were killed, along with a policeman (www.regnum.ru, October 31). However, according to Kavkazsky Uzel (Caucasian Knot) website, all three were about to leave Russia for permanent residence abroad. This does not tally with the official version, since it makes no sense that they would have traveled with guns (www.kavkaz-uzel.ru, November 1). It is worth noting that Zaindi Shahbiev, who was famous not only as a writer, but also as a civil society activist and successful businessman in Moscow, disappeared in February 2008 when he was on his way back home to the Shalazhi settlement of Chechnya’s Urus-Martan district (Novaya Gazeta, June 26, 2008). This kidnapping and the decision of the Shahbiev brothers to leave Russia may well be connected.

More and more often, Chechen President Ramzan Kadyrov is portrayed as participating in military counter-insurgency operations personally and performing the role of the planner of the militants’ liquidation. This was the case on October 31, when security forces in Grozny killed Ali Hassanov, who was accused of being the “leader of the Chechen flatlands,” which casts doubt over whether such a position exists inside the armed opposition. Kavkazsky Uzel reported on November 1 that in October alone the armed forces officially reported killing about 30 suspected combatants in Chechnya.

Meanwhile, not everything is going smoothly in Kadyrov’s relations with his former ally, Ingushetia’s President Yunus-Bek Yevkurov. Disagreements were noted between Kadyrov and Yevkurov regarding operations conducted in the contiguous republics. Kadyrov publicly expressed his displeasure, which caused irritation on the part of Yevkurov, who urged his Chechen colleague not to give him public counsel that he can do without (www.club-rf.ru, October 28).

At the same time, feeling offended by Akhmed Zakaev, who gave an interview to the Russian newspaper Kommersant, Kadyrov declined to further pursue the London-based separatist leader’s return home to Chechnya (www.bbc.co.uk, October 29). The very next day, on the tenth anniversary of the start of the second Chechen war, Chechnya’s pro-Moscow parliament headed by speaker Dukvakha Abdurakhmanov “issued an official decree regarding the dissolution of the ‘Caucasian Emirate’, ‘Ichkeria’ and other structures created by the separatists” (www.lenta.ru, October 30).

In lock step with the growth of tension in the region, an attempt is being made to shift the attention from the North Caucasus to Georgia, where again, with the help of Russian propaganda, the issue of the Pankisi Gorge has once again reemerged (www.svpressa.ru, November 1). Be that as it may, today Russia is being forced to expend far more energy and effort on the North Caucasus than in 2007 or 2008, which may serve as evidence of a deepening conflict. Additional troops in the region cannot provide a shield against the ideological hardening of the armed resistance.

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