IN THIS ISSUE

* Azerbaijan not waiting passively for Godot on gas exports
* Russian navy’s global deployments face infrastructure setbacks
* The Kremlin forces the Circassian republics to change their constitutions
* Kyiv relies on the IMF to alleviate Russian gas debts
** Visit the Jamestown blog on Russia and Eurasia (http://www.jamestown.org/blog):
- Putin Says Decision on “Reunification “of Georgia “Already Decided”

Azerbaijan Accelerates Gas Export Diversification Efforts

Vladimir Socor

Gas production in Azerbaijan is set to reach 30 billion cubic meters (bcm) annually by 2013 from currently operating fields (Trend Capital, November 13). Over and above that level, the second phase of production at the Shah Deniz field is projected to add another 16 to 20 bcm per year at the plateau stage after 2015 (Trend Capital. November 14). Beyond mid-decade, probable gas deposits at the Apsheron field –currently under exploration– can be brought on stream. Furthermore, substantial natural gas deposits have been ascertained below the level of the Azeri-Chirag-Guneshli offshore oil fields (ACG deep gas) and await exploration and production, subject to business and political deliberations.

Meanwhile, with the planned Nabucco pipeline to Europe mired in slow-motion, and the Turkish westward transit route blocked, Azerbaijan is accelerating its efforts to open other export routes for its gas. Baku is mostly seeking short to medium-term solutions that would not prejudice Azerbaijan’s continuing, full-scale commitment to the European Union-backed Nabucco and Southern Corridor projects, once these take a more definite shape.

On November 11, Azerbaijan signed agreements of intent with Bulgaria to consider transportation of Azerbaijani compressed natural gas (CNG) via Georgia and the Black Sea to Bulgaria and onward into E.U. territory. An accompanying agreement envisages transportation of Azerbaijani natural gas to Bulgaria through the Turkey-Greece-Italy Interconnector (currently under construction) and a short pipeline link from Greece to Bulgaria (currently planned with E.U. support). The volumes envisaged are 7 to 8 bcm annually for CNG; and 1 bcm annually from 2011 onward for pipeline-delivered gas (EDM, November 16).

On November 11, Azerbaijan’s State Oil Company (SOCAR) and Iran’s National Gas Company signed a memorandum of understanding on Azerbaijani gas supplies to Iran, starting in 2010. The contract is expected to be signed before the end of 2009. The initial annual volume will be at least 500 million cubic meters (mcm), with the possibility to increase the deliveries, depending on supply and demand and the technical state of pipelines. This amount comes above and beyond the small volumes being swapped between the two countries for deliveries of Iranian gas to Azerbaijan’s exclave of Nakhichevan.

Azerbaijan and Iran are connected by the Soviet-legacy Gazi Mahommed-Gazakh-Astara pipelines, with a design capacity of up to 10 bcm per year. The worn-out pipeline is currently being refurbished on Azerbaijani territory. Iranian gas shortfalls, particularly during seasonal consumption peaks create a market for Azerbaijani gas in northern Iran for peak-season consumption and off-season storage. Under the November 11 agreement, the Iranian purchase price shall be calculated based on the peg to the oil-products basket (www.day.az, APA, November 11).

SOCAR has already signed with Russia’s Gazprom a contract to sell at least 500 mcm of Azerbaijani gas annually to Russia for a five-year term, starting in 2010, for consumption in Russia (EDM, October 15, 22). That small volume is susceptible to further increases at any time, subject to Azerbaijan’s own gas surplus availability, but definitely not mandatory. The Russian purchase price is apparently equivalent to the average European netback price or close to it.

No third-country transit solutions are necessary for Azeri gas to reach Russia or Iran. Nor is the construction of new pipelines necessary. Pipeline connections with Russia, which had traditionally operated north-south until 2006, can easily be adapted for reverse-use from Azerbaijan to Russia.

According to President Ilham Aliyev at the signing event in Bulgaria, Azerbaijan fully supports the Nabucco project, but the consortium and the E.U. “must address the issues of the resource base, transit agreements, and financial investment” (BTA, November 13). The final investment decision for Nabucco has been postponed from early 2010 to late 2010 (EDM, November 13). On the same occasion, Azerbaijan’s State Oil president remarked, “Azerbaijan is the only resource base for Nabucco thus far. Nothing depends on us now. We have done a lot. We wait for further progress on the Nabucco project” (www.day.az, November 14).

Meanwhile, unlike Samuel Beckett’s characters, Azerbaijan is not waiting for Godot passively, but instead is actively pursuing alternative gas export options.

New Dimensions of the Russian Naval Presence: Prospects Versus Realities

Jacob W. Kipp

Before departing for the APEC Summit in Singapore President Dmitry Medvedev signed into law new legislation concerning the use of Russia’s armed forces abroad. While retaining the stipulation that the armed forces would only be used under extreme circumstances, the new law stated that force could be applied to protect Russian citizens and interests around the globe. Medvedev had asked for the legislation in August just after the first anniversary of the Russo-Georgian War. On signing the bill Medvedev stated: “Our citizens must be protected in any part of the world, and they must feel protected by the state.” The legislation provides a legal basis for the use of the armed forces abroad to repel attacks on Russian forces deployed overseas, to repel or deter attacks on foreign states seeking protection from Russia, defend Russian citizens abroad, fight piracy at sea and to protect Russian maritime commerce (RIA Novosti, November 9).

The mention of anti-piracy operations and protection of maritime commerce underscores the importance the Russian government has now placed on having a naval presence as a means of protecting Russian interests. To make that point even more apparent, Medvedev’s attendance at the APEC summit had a distinctly naval aspect with the visit of the missile cruiser Varyag, the flag ship of the Russian Pacific Fleet. Singapore, which maintains littoral naval forces to protect shipping in the vital Straits of Malacca, is hosting this port call. Russian anti-piracy flotillas have been transiting the Straits during their deployments from the Pacific Fleet's bases to the coast of Somalia and back home. The Varyag docked at Singapore’s Changi naval base. President Medvedev, despite his busy schedule of multilateral and bilateral meetings with heads of state, took time to make an official visit to the Varyag, and met with its crew in the officers' mess (ITAR-TASS, November 16). Medvedev used the occasion of the visit to the cruiser to announce the government’s intention to increase naval presence around the world. He confirmed the trend of increased deployment, which began in 2007, and when asked by a crew member if this would continue, he said: “Yes, it is planned” (ITAR-TASS, November 16).

On the same day, the Pacific Fleet announced the return of the anti-submarine warfare (ASW) destroyer, Admiral Tributs, and her escorting oceanic rescue tug, MB-99 and tanker, Boris Butoma, to Vladivostok after the completion of its 141-day deployment to the coast of Somalia. On its way home the flotilla made a port call in Kuala Lumpur, Malaysia (Krasnaya Zvezda, November 17). The Admiral Tributs was the latest of the Russian warships to conduct anti-piracy operations in the theater. The destroyer carried a detachment of naval infantry trained for special operations and two KA-27 (NATO-designation Helix) ASW helicopters, which were employed in an anti-piracy role on this deployment.

In a recent interview onboard the Varyag, Rear-Admiral Sergei Avakiants, the commander of the flotilla that included the cruiser, addressed the challenges the Pacific Fleet met during this year’s training, exercises and deployments. He paid special attention to the long-range cruises undertaken by Russian naval detachments off the coast of Somalia at a time when the navy was undergoing major changes in personnel policy, training and education, and an increased operational tempo. Rear-Admiral Avakiants emphasized the need for new vessels to replace those long in service. Avakiants, a surface warfare officer with command experience in the Northern Fleet, took pride in the current level of naval activities: “Indeed, I was very pleased that many of the fleet’s ships, as they say, do not rust at the pier, and solve various problems away from home, at different points in the oceans. It just creates the familiar rhythm of this seaman naval service, [and] adds confidence about the future” (Krasnaya Zvezda, November 11).

Other professional observers are not so confident in the navy’s ability to meet the demands of change. The prominent defense correspondent Viktor Litovkin wrote a critical article on the main naval staff and its enthusiasm for signing contracts without doing the groundwork necessary to ensure their efficient execution (Nezavisimaya Gazeta, November 2). He drew attention to the purchase of the Mistral-class amphibious assault ship from France. Litovkin was responding to an interview on Ekho Moskvy by Vice-Admiral Oleg Burtsev, the Deputy Chief of the Naval Staff. Burtsev had listed a long series of priority projects that the Navy High Command was addressing. In addition to the acquisition of the Mistral-class amphibious assault ship from France, he enumerated the construction of similar ships in Russia, the acquisitions of helicopters for them, the establishment and modernization of a Russian naval base at Tartus, Syria, to support long-range deployments, the re-commissioning of two nuclear-powered cruisers of the Peter Velikii (Peter the Great) class, and the construction of new surface combatants and submarines.

Litovkin expressed doubts about the naval leadership’s ability to complete all these projects in a timely and efficient manner. Litovkin noted the admiral’s silence on one timely topic, the recent abandoned test-firing of the failure-plagued Bulava missile from the Dmitry Donskoi strategic nuclear submarine (SSBN) entering service. He particularly noted the delays associated with construction in Russia’s naval shipyards. He concluded the article with a stinging indictment of a leadership prone to dream, but poor in the planning and execution of projects (Nezavisimaya Gazeta, November 2).

Recent events have raised questions about the competence of the navy. The recent spectacular explosion of naval ordnance at a base near Ulyanovsk and the crash of a Pacific Fleet Tu-142M3 long-range reconnaissance aircraft because of engine failure lend credence to Litovkin's concerns. Professional naval officers will strongly argue for long-range cruises and active deployments as the best way to prepare crews, develop élan, and forge combat-effective squadrons and flotillas. But the naval leadership must provide an infrastructure to support such cruises. In the absence of that, the cruise becomes only an episode and not a foundation for further growth and development. That is the real challenge before the Russian navy: it is not new.

Moscow Excises “Separatist” Articles from Constitutions of Circassian Republics

Fatima Tlisova

The parliament of the Republic of Kabardino-Balkaria has ratified changes in the republican constitution at the request of the Russian Prosecutor-General. Final agreement was reached on November 10 after prolonged debates followed by two unsuccessful attempts to vote on the issue (Gazeta Yuga, November 12).

The Prosecutor-General asked for the removal of two articles from the constitution of Kabardino-Balkaria. Both of them refer to the status of Kabardino-Balkaria as a sovereign republic in the Russian Federation. Article 4 states that: “The highest authority and the source of the power in Kabardino-Balkaria is the multi-ethnic people of Kabardino-Balkaria.” Article 9 goes on to state that: “The land, natural resources, rivers, forests, flora and fauna of the Republic are the heritage and the foundation of life and work of the people of Kabardino-Balkaria.”

The prosecutorial request had been based on a Russian federal Constitutional Court’s decision stating that the only source of power and the owner of all resources in the Republic of Kabardino-Balkaria (KBR) is the people of the Russian Federation. The head of the committee of law and government of the parliament of Kabardino-Balkaria, Zaur Apshev, opposed the prosecutors’ request, arguing that the same articles that they asked to be removed from the Kabardino-Balkaria’s constitution exist and are fundamental parts of the constitutions of Moscow, St. Petersburg, Tatarstan, Chechnya and many other regions of Russia. “Why does this fact not bother the Prosecutor-General and Constitutional Court?” Apshev said after asking the republic’s legislators to vote against the prosecutors’ request. “Why are we in Kabardino-Balkaria forced to change our constitution? It does not seem to me to be logical,” he continued (Gazeta Yuga, November 12).

The chairman of Kabardino-Balkaria’s parliament, Ilias Bechelov, supported Apshev’s opposition by replying: “They do not see violations inside the Sadovoe Koltso (Russian for the Garden Ring, the circular avenue around central Moscow), but can easily accuse someone of separatism” (Gazeta Yuga, November 12).

Kabardino-Balkaria’s prosecutor, Oleg Jarikov, the parliamentary deputy Victor Nesutulov and the deputy head of the republican presidential administration, Zalim Kashirokov, insisted that the request has to be supported and the constitution needs to be changed, “You can vote however you wish but the problem must be solved today,” Jarikov said. After the republican parliament voted twice against the changes in less than an hour, Nesutulov proposed that the next vote take place immediately and without anonymous voting. Kashirokov argued that the constitution has to be changed “if we want our republic ever to be removed from the Kremlin’s black list” (Gazeta Yuga, November 12).

The third and final attempt ended up with 39 open votes in support of the prosecutorial request, when 37 votes were needed for the decision to be final. The two “separatist” articles were thereby erased from the constitution of Kabardino-Balkaria.

The very detailed description of the voting process given above is necessary to show how the Kremlin’s democratic mechanism works in reality.

The recently changed constitution of Kabardino-Balkaria is what remains of the constitution of 1996. Since 2000, the constitution had been changed frequently. Seventeen articles of the KBR constitution involving laws on historical/cultural heritage and the ethnic rights of the indigenous population or laws on the republic’s status were changed or removed from the original version of the constitution.

For instance, in April 2006, Ruslan Abazov, deputy chairman of the KBR parliament’s committee on law, state building and issues of local self-rule, complained in an interview with Kavkazsky Uzel: “Practically at each session of the Kabardino-Balkaria parliament we consider changes in the republic’s constitution in connection with the fact that its articles do not conform to the Russian Federation constitution (www.kavaz-uzel.ru, April 5, 2006).

The first changes were aimed to ease the process: for example if the original constitution insists that only the Constitutional Court is authorized to change the constitution, according to the current version, one-third of votes of the members of the local parliament is sufficient to approve any changes in the constitution (http://constitution.garant.ru/DOC_30408244.htm/). The force for change is not limited to Kabardino-Balkaria. Two other republics in the Northwest Caucasus with a significant presence of ethnic Circassians are experiencing the same sort of pressure from the Kremlin. For example, the constitutions of Adygea and Karachaevo-Cherkessia were changed with the exact same intensity as in the neighbouring KBR.

The constitutional articles designating the Circassian language as the official language of the republics, equal to Russian, were among the first regulations erased from the constitution of Adygea, and later on from the constitutions of Karachaevo-Cherkessia and Kabardino-Balkaria. Another fundamental change made in the constitution of Adygea was in an Article 6, which states: “The constitution of the Russian Federation [and] federal laws has supremacy over the constitution of the Republic of Adygea and direct effect on the territory of the Republic of Adygea” (http://www.humanities.edu.ru/db/msg/62377).

The opposition that the local parliaments are displaying during the required voting shows the people and authorities of the Circassian republics are unhappy as well as suspicious of the policy that Kremlin is developing vis-a-vis one particular ethnic group. This factor, combined with the historical background of a brutally violent relationship between Russia and Circassia in the nineteenth century, does not seem to be the most intelligent way to convince the Circassians to give up their autonomy.

Ukraine Relying on IMF Payments for Russian Gas Purchase

Pavel Korduban

Ukraine finds it increasingly difficult to survive without money from the International Monetary Fund (IMF). The country paid Russia for October’s gas deliveries with IMF funds and the same means will be used for November’s gas deliveries. However, the IMF did not disburse the fourth $3.8-billion tranche of its $16.4-billion loan to Ukraine in mid-November because of the government’s populist policies (EDM, November 4). This means that Ukraine may not receive more IMF money until after the presidential elections in January and February, and consequently it is unclear where it will find the money to pay for Russian gas in early 2010. The debt-ridden Naftohaz Ukrainy state-run oil and gas behemoth ran out of money long ago. There are fears that the situation in early 2009, when gas deliveries to Europe via Ukraine were stopped for two weeks over a pricing dispute between Russia and Ukraine, may be repeated.

It was feared that Ukraine would be unable to pay even for October and the head of the European Commission (E.C.) –the European Union’s executive arm– Jose Barroso telephoned President Viktor Yushchenko and urged him to pay for the gas. Fearing that Ukraine’s failure to pay for the gas could affect gas transit to the E.U., Barroso said in clear terms that European consumers should not suffer because of Ukraine. Yushchenko assured Barroso that Ukraine would pay from the $2 billion that it received in accordance with its share in the IMF in August and September as a result of a one-off distribution of the IMF’s funds (UNIAN, November 5). Ukraine transferred to Gazprom $480 million from the IMF money on November 6, several hours before the deadline for payment (Channel 5, November 6).

Ukrainian Deputy Prime Minister Hryhory Nemyrya admitted in his November 9 interview to Channel 5 that Ukraine may find it difficult to pay for December’s Russian gas deliveries in early January 2010 if the IMF does not release the fourth tranche in 2009. Nemyrya said he feared a repetition of the January 2009 crisis. He stated that Kyiv will most likely use the IMF’s funds received in September in early December to pay for November deliveries, but he admitted that it is uncertain how Ukraine would pay in January. President Yushchenko’s aide Oleksandr Shlapak shared Nemyrya's view point. Also speaking to Channel 5, he said that Ukraine cannot pay for gas in December and January without the IMF's assistance.

While admitting that the payment to Gazprom due in early January may be delayed, Yushchenko’s administration pretends that it does not see any link between this and transit to Europe. This means that Ukraine will blame Russia for any transit disruptions again, like in January 2009 when gas bound for transit was used by Ukrainian consumers after Russian deliveries were halted. Yushchenko’s energy aide Bohdan Sokolovsky dismissed Moscow’s warnings that transit to the E.U. may be disrupted because Ukraine has no funds to pay for gas. He said Ukraine had accumulated enough gas in underground storage facilities to last over winter and its gas transit network is fully operational. He also warned that Naftohaz faces fines of up to $8 billion for buying less gas in 2009 than stipulated by contracts with Gazprom (Interfax-Ukraine, November 9).

The fines, added to a $4-billion hole in Naftohaz’s 2009 budget according to Yushchenko’s estimates (Ukrainska Pravda, November 12), would bankrupt Naftohaz. However, Yushchenko may be exaggerating Naftohaz’s problems as Kommersant-Ukraine reported on November 11, citing documents of the Ukraine-Russia commission for fuel and energy, that the fines should not exceed $1.8 billion. Prime Minister Yulia Tymoshenko flatly dismissed Yushchenko’s warnings about such fines. She reiterated that Russia would not fine Naftohaz and she recalled that Russian Prime Minister Vladimir Putin had “firmly promised” this. Putin has “not once let us down whenever we agreed on something,” she noted (Interfax-Ukraine, November 14). Gazprom Deputy CEO Aleksandr Medvedev confirmed that Gazprom would not fine Naftohaz because of the difficult financial situation in Ukraine. Nonetheless, he noted that Gazprom formally retains the right to fine Naftohaz (UNIAN, November 15).

Naftohaz may face fines not only from Gazprom, but also from RosUkrEnergo, a joint venture between Gazprom and businessman Dmytro Fitash which was banished from the Ukrainian market in January 2009. RosUkrEnergo’s 11 billion cubic meters of gas, which had been kept in Ukraine’s underground storage, became Ukrainian property in early 2009 according to agreements between Gazprom and Naftohaz. RosUkrEnergo sued Naftohaz for $8.26 billion in damages (Vedomosti, November 16).

Tymoshenko will discuss gas issues with Putin at the CIS summit in Crimea on November 19. Irrespective of the outcome of their talks, it is clear that only the continuation of cooperation with the IMF will enable Ukraine to pay for gas. “But without fruitful cooperation between Ukraine and the IMF, it would have been impossible to live through this year,” Tymoshenko admitted in her recent meeting with foreign ambassadors (Ukrainska Pravda, November 11). In order to receive the fourth tranche, the cabinet will have to revise its unrealistic 2010 budget bill, and increase domestic gas prices to ease pressure on Naftohaz’s budget while parliament and Yushchenko avoid increasing wages and pensions beyond the limits agreed with the IMF.

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