Eurasia Daily Monitor — The Jamestown Foundation
Monday, February 27, 2006 — Volume 3, Issue 39

IN THIS ISSUE:
*Putin ignores 50th anniversary of Khrushchev’s Secret Speech
*Kazakh oilfields to be explored by Rosneft
*Aliyev welcomes Putin to Baku

KHRUSHCHEV’S SECRET SPEECH AND PUTIN’S PUBLIC PRAISE

Besides the Olympic headlines, in the last two weeks the Russian media
has presented a remarkable variety of comments and reflections on an
event that shocked the country 50 years ago. On February 14, 1956, the
20th Communist Party Congress opened in Moscow. It proceeded routinely
until the last day, February 25, when Nikita Khrushchev delivered his
“Secret Speech,” describing the scale of internal repressions in the
country from the mid-1930s until Stalin’s death on March 6, 1953.

The astounded delegates had then to inform all party members in strict
confidentiality that the “Great Leader” was in fact a bloody tyrant. The
Soviet leadership was deeply split about this speech, which was not
written prior to the start of the congress. Khrushchev insisted that his
decision was partly driven by the struggle for power and partly by the
desire to escape from the fear that had dominated their lives for so
many years (Argumenty i fakty, February 15; Nezavisimaya gazeta,
February 17; Grani.ru, February 22).

There were several events around this anniversary, including a
conference at the Gorbachev Foundation, but Russian President Vladimir
Putin chose to ignore it. He covered a great many topics at his extended
press conference on January 31, found time to congratulate every Russian
Olympic champion, issued special decrees to commemorate composer Dmitry
Shostakovich and scholar Dmitry Likhachev, but did not say a word about
that remarkable watershed, much the same way that he never mentions the
coup of August 1991.

There is certainly more to this silence than just the political gut
feeling to avoid issues that remain divisive and might damage his
popularity in some marginal groups. The main guideline of the
“de-Stalinization” campaign launched by the 20th Congress was against
the super-concentration of power in one pair of hands — and that is
exactly what Putin has been doing since arriving at the Kremlin. A
carefully orchestrated PR campaign has sought to prove that this style
of governance suits Russia the best, so now 57% of Russians are sure
that the country needs a determined leader who could rule with a “firm
hand” (Newsru.com, February 25). This opinion ties logically with
others: 47% of respondents have a generally positive view of Stalin and
21% perceive him as a “wise statesman” (Vedomosti, February 14).

The main target of Khrushchev’s emotional condemnation was the KGB,
which had been the main instrument of repression. Putin, in recent
weeks, has been busy strengthening the role of the FSB, the direct and
proud successor of the all-penetrating structure created by Felix
Dzerzhinsky and empowered by Lavrenty Beria. The shadows of these
“founding fathers” were probably present at the annual meeting of the
FSB top echelon where Putin expressed his full satisfaction with their
work, praising particularly the success in countering espionage
(Nezavisimaya gazeta, February 8). He was far more generous with praise
to his former colleagues than to the system of law enforcement that,
according to his address to the session of the General Prosecution
Collegium, was unable to check the “alarming trends” in crime growth
(Vremya novostei, February 6). Prosecutor General Vladimir Ustinov,
nevertheless, apparently feels quite safe in his job, as he proved his
loyalty beyond a doubt by making the criminal case against Mikhail
Khodorkovsky and his colleagues.

These declarations and evaluations were followed by a potentially very
significant presidential decree, “On Measures in Countering Terrorism,”
since the main initiative among these measures was the creation of the
National Anti-Terrorist Committee under the chairmanship of FSB Director
Nikolai Patrushev (Lenta.ru, February 17). This Committee will include
representatives of all military and paramilitary structures, from the
General Staff to the Ministry of Emergencies, and will be served by the
Federal Operational Headquarters with a staff of 300 officers that would
constitute a separate unit in the FSB structures. The State Duma, always
very attentive to signals from the Kremlin, has urgently approved
legislation that provides a formal mandate for the new bodies (Lenta.ru,
February 22). It is quite obvious that terrorism has not suddenly
acquired new scale or urgency that would require
large-scale counter-measures. The newly created Committee might in fact
have very little to do with the threat of terrorism but quite a lot to
do with the struggle for influence and power between the key “power
structures.” The FSB has accepted the main responsibility for fighting
terrorism (which it carefully denied during the crises in Beslan and
Nalchik) and thus secured for itself the dominant position vis-à-vis
the Ministry of Interior and every other state authority (Kommersant,
February 17).

This certainly does not mean that the Kremlin clock is turned back to
Stalin’s times. Putin’s regime remains essentially “bloodless” and
cannot reproduce the fear of repressions; the FSB is not disciplined by
any ideology and its main driving force is greed, which makes a big
difference. The stylistic resemblance, nevertheless, is unmistakable —
and it probably explains why the Russian political establishment was so
upset by the resolution on the “Need for international condemnation of
crimes of totalitarian Communist regimes” adopted by the Parliamentary
Assembly of the Council of Europe (Expert, 12 February).

Putin’s courtiers fancy themselves as heirs of the Generalissimos, but
at the same time they want to be accepted as equal members in “elite
clubs” like the G-8. The influx of “petrorubles” has made them
arrogantly self-confident but money can buy them only time – and
probably not that much of it. They are busy exploiting their special
gift – to turn every real proposition into a fake:
Quasi-authoritarianism and pseudo-democracy, phony elections and PR
exercises instead of “national projects.” That is why reflections on the
revelations at the 20th Congress are so disturbing for them: At the most
inappropriate moment somebody might suddenly stand up and establish for
fact that their emperor is wearing no clothes.

–Pavel K. Baev

ROSNEFT EXPANDING ITS ROLE IN KAZAKHSTAN

The chairman of Russia’s state oil company Rosneft, Sergei Bogdanchikov,
has completed a round of discussions in Kazakhstan with Kazakhstan’s
Prime Minister Daniyal Akhmetov, Energy and Mineral Resources Minister
Baktykozha Izmukhambetov, and the KazMunayGaz state oil and gas company
management. During the concluding news conference Bogdanchikov told the
press that Rosneft is set for a significant expansion of its role in
Kazakhstan’s oil extraction and transportation. Before outlining those
intentions, Bogdanchikov claimed that Rosneft now holds first place
among oil companies worldwide regarding estimated oil reserves. The only
certainty about this claim is that Rosneft’s assets grew spectacularly
as a result of the destruction of the Yukos company by the Russian
state.

Kurmangazy Field: Rosneft and KazMunayGaz have decided to form a common
management structure for their joint venture at the offshore oilfield
Kurmangazy and start drilling this spring the first of two exploratory
wells. Kurmangazy’s recoverable reserves are estimated at 900 million to
1 billion tons of oil. The production sharing agreement, signed in July
2005, envisages total investments of billion for a 55-year period,
including 10 years for exploration and 45 years for extraction.

The KazMunayTeniz offshore oil company — a division of KazMunayGaz —
holds a 50% stake in the project; Rosneft, 25%; and another Russian
state company, Zarubezhneft (specializing in offshore drilling) the
remaining 25%. The field is situated at a shallow depth in the northern
part of Kazakhstan’s Caspian sector. Bilateral agreements on seabed
delimitation in 1998 and 2002 placed Kurmangazy under Kazakhstan’s
jurisdiction. However, Kazakhstan had to agree that the field would be
turned into a parity joint venture with Russia and that Kurmangazy’s
output would have to be exported via Russia (as opposed to a
trans-Caspian westbound route).

Imashev Field: The sides have initiated discussions on joint development
of the Imashev offshore field. The field holds estimated reserves of 130
billion cubic meters of gas and 21 million tons of condensate, adding up
to some 200 million tons of oil equivalent, and with a high sulfur
concentration of at least 20%. Under a border delimitation agreement
signed in 2005, Imashev is to be developed as a parity venture. At least
two issues remain to be resolved: first, which Russian company (or
companies) will be designated to hold Russia’s 50% stake; and, second,
where to separate the sulfur content from the field’s mix of
hydrocarbons.

Atasu-Alashankou Pipeline: Rosneft expresses “serious interest” in
delivering oil to China through the Atasu-Alashankou pipeline.
Apparently, the Russian company intends to match the Kazakh oil volumes
that are slated for delivery to China through that line. Commissioned
in December 2005 and financed entirely by China, the 990-kilometer
pipeline is scheduled to start commercial operation this coming May. The
initial throughput capacity of 10 million tons annually is slated to be
expanded to 20 million tons annually from 2010 onward. Oilfields owned
by China’s National Petroleum Corporation (CNPC) in Aktobe and Kumkol
(western and central Kazakhstan, respectively) will feed the pipeline,
but it may not be commercially profitable without additional volumes
coming from Siberian oilfields.

Yuganskneftegaz, formerly the main production unit of Yukos, seized by
Rosneft, is slated to supply most of the volumes Rosneft plans to pump
through the Atasu-Alashankou pipeline. Rosneft seeks urgent
clarification on three major issues: First, overhauling and expanding
the capacity of the Omsk (Russia)-Pavlodar (Kazakhstan) pipeline and
linking it with the Atasu-Alashankou line; second, determining the
volumes and schedules of Rosneft’s oil deliveries to China; and, third,
setting the transit charges for those deliveries on Kazakhstan’s
territory. All this will require negotiations in several formats,
including a quadripartite one among Rosneft, Russia’s state oil pipeline
company Transneft, KazMunayGaz, and CNPC.

In a concurrent development, the government of Kazakhstan has confirmed
the intentions of KazMunayGaz and Gazprom’s Orenburg gas processing
plant (on Russian territory close to Kazakhstan) to sign in coming
months a joint venture agreement. They envisage delivering 15 billion
cubic meters of Kazakh gas annually (up from approximately 6 billion
cubic meters annually at present) for processing at the Orenburg plant.
The Karachaganak field in northwestern Kazakhstan will supply that
volume. The field, among the world’s largest, is being developed by the
Karachaganak Petroleum Operating in which Italy’s state company ENI and
British Gas hold stakes of 32.5% each, ChevronTexaco 20%, and Russia’s
Lukoil 15%. It seems an odd development to route gas to Russia at a time
of looming problems with the supply of Western countries.

(Interfax, February 23, 24)

–Vladimir Socor

PUTIN IN AZERBAIJAN

Russian President Vladimir Putin paid an official visit to Azerbaijan on
February 21-22, presumably to inaugurate the “Year of Russia in
Azerbaijan 2006” celebration, following the “Year of Azerbaijan in
Russia 2005.” While cordial, the atmosphere was far more sober than the
love fest of Armenian President Robert Kocharian’s Moscow visit last
month to inaugurate the “Year of Armenia in Russia” (see EDM, January
16). Azerbaijan’s President Ilham Aliyev described the bilateral
relationship as an “example of relations between neighbors, practical
good-neighborly relations” (Azertaj, February 21). Far from eroding
Azerbaijan’s reliance on the United States to advance common energy and
security interests, Putin’s visit inadvertently underscored how little
Russia can offer Azerbaijan in those regards.

Oil: Azerbaijan declines Russian proposals to increase its reliance on
the Baku-Novorossiysk pipeline for export of Azerbaijani oil. Azerbaijan
uses this pipeline only as a backup option while committing almost its
entire export volumes to non-Russian routes. In 2005, Azerbaijan’s State
Oil Company pumped 4.1 million tons of oil to Novorossiysk, up from 2.5
million-2.7 million tons annually in the preceding years. This temporary
increase was necessitated by delays in commissioning the Turkish section
of the Baku-Ceyhan pipeline, even as Azerbaijan’s oil extraction grew on
schedule, requiring an outlet. Transneft, owner of the Russian section
of the Baku-Novorossiysk pipeline, charges a transit fee of .67 per ton
of oil. The charge is exorbitant, though relatively tolerable as long as
oil market prices remain high. However, Transneft cuts further into
Azerbaijan’s profits by mixing the
low-quality Russian Urals blend with high-quality Azerbaijani oil before
the latter reaches the world market. A compensation mechanism known as
“oil quality bank” is standard international practice, but Russia
refuses to use this mechanism with Azerbaijan and other Caspian oil
producers.

In 2006, Azerbaijan intends to scale back its oil export to Novorossiysk
to 3 million tons, provided that the Baku-Ceyhan pipeline’s Turkish
section is commissioning by May 27 as now rescheduled. Once that problem
is resolved, Azerbaijan may reduce its export to Novorossiysk even below
the pre-2005 level of 2.5 million tons, unless the Russian side agrees
to use the oil quality bank mechanism. In Baku, Russia’s Industry and
Energy Minister Viktor Khristenko renewed a proposal to Azerbaijan to
move from annual contracts to a long-term contract for using the
Baku-Novorossiysk pipeline. However, this is clearly not in Azerbaijan’s
interest (Interfax, February 21, 22; Trend, February 23).

Gas: Azerbaijan is extricating itself from dependence on
Russian-delivered gas. Azerbaijan imports gas from Russia in order to
save fuel oil, which it previously used for electricity generation. It
imported 4.5 billion cubic meters of gas in 2005 from Russia and has
contracted for the same volume in 2006, despite the price hike to 0 per
one thousand cubic meters, up from in previous years. According to
Industry and Energy Minister Natig Aliyev, this year’s price is
reasonable, but the import volumes after 2006 will depend on the price
of Russian gas — i.e., that import may decline. Azerbaijan’s State Oil
Company plans to raise gas extraction to 4 billion cubic meters annually
from the Guneshli field and 9 to 10 billion cubic meters from the
Shah-Deniz field by 2008, sufficient to cover internal consumption and
some export (Turan, February 21, 22; Trend, February 23).

Military Issues: The two presidents’ joint communiqué mentions the
possibility of “cooperation in military industry,” implying procurement
of Russian equipment by Azerbaijan. The country is creating a new
Ministry for Defense Industry in charge of military procurement.
According to First Deputy Prime Minister Abbas Abbasov during Putin’s
visit, Azerbaijan will cooperate in that regard “not only with Russia,
but with various countries, not excluding Russia” (Trend, February 21;
Interfax, February 22).

Two contentious issues in the military and security sphere were not
publicly addressed during Putin’s visit to Baku. The first is
Azerbaijan’s concern over the transfer of some Russian heavy weaponry
from bases in Georgia (which are slated to be closed) to Armenia. The
other issue is Moscow’s proposal for the creation of a joint naval force
of the five Caspian countries, Casfor, under de facto Russian control.
Minister of Foreign Affairs Sergei Lavrov again raised this issue in a
curtain-raiser interview on the eve of Putin’s visit (Zerkalo [Baku],
February 21). Azerbaijan, however, has resisted this proposal since its
inception in 2005 and continues to do so.

At the presidents’ joint news conference, Putin announced that he has
made a “promise” to invite Kocharian to Russia in the near future to
discuss a resolution of the Karabakh conflict. The move seems intended
to catch up with the United States, which currently leads the effort to
settle that conflict. While it may play spoiler, Moscow has few
resources to drive that process.

–Vladimir Socor

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