06MOSCOW10620, RUSSIA: AMBASSADOR’S MEETING WITH ANATOLIY CHUBAYS

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Reference ID Created Released Classification Origin
06MOSCOW10620 2006-09-22 08:26 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXYZ0014
PP RUEHWEB

DE RUEHMO #0620/01 2650826
ZNY CCCCC ZZH
P 220826Z SEP 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 2738
INFO RUEHCH/AMEMBASSY CHISINAU PRIORITY 1012
RHEHAAA/WHITE HOUSE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 010620 
 
SIPDIS 
 
SIPDIS 
 
NSC GRAHAM/MCKIBBON, EUR FRIED/KRAMER/MWARLICK/AHOLMAN, 
USTR/SCHWAB, DOE, COMMERCE/BROUGHER 
 
E.O. 12958: DECL: 09/20/2016 
TAGS: AF ECON ENRG IAEA KNNP PGOV RS
SUBJECT: RUSSIA:  AMBASSADOR'S MEETING WITH ANATOLIY CHUBAYS 
 
 
Classified By: Ambassador William J. Burns for reasons 1.4 (b/d) 
 
1.  (C)  Summary:  In a September 19 meeting with the 
Ambassador, UES CEO Chubays was very upbeat about UES reform 
and the liberalization of electricity prices.  He confidently 
predicted that strategic investors and IPOs in London and 
Moscow would raise the investment UES needs to meet its five 
year target.  While clearly distraught about the Kozlov 
assassination, Cubays nonetheless was cautiously optimistic 
that banking reform would continue.  End Summary. 
 
PASAT CASE 
---------- 
 
2.  (C)  Chubays thanked the Ambassador for USG assistance on 
the Pasat case. (the former Moldovan Defense Minister who was 
charged with embezzlement involving the sale of Mig-29s to 
the U.S.).  Chubays had learned that U.S. authorities 
assisted by providing affidavits in the case. 
 
KOZLOV ASSASSINATION 
-------------------- 
 
3.  (C)  Chubays expressed doubt that the perpetrators of 
deputy Central Bank chair Kozlov's murder would ever be 
found.  Nonetheless, he had spoken with the Central Bank 
chair Sergey Ignatiev, and he was cautiously optimistic that 
Kozlov's murder would not slow down the Central Bank's 
efforts to increase supervision over the banking system. 
Chubays agreed that Kozlov would be difficult to replace 
because of his knowledge, experience, and reputation. 
 
 
UES REFORMS 
 
SIPDIS 
----------- 
 
4.  (C)  On UES reform, Chubays boasted that no one had 
thought it would be possible to accomplish market 
liberalization and private investment in the electricity 
sector.  Without Putin's support, the reforms would be 
impossible.  No one expected such difficult decisions, such 
as the liberalization of electricity prices, could be made so 
close to the elections.  He described the Russian model as 
the &best (designed) market in the world8 because it 
included no price caps, and the best software and legal 
foundation. 
 
5.  (C)  Chubays said his road show through Western capitals 
had been a success and UES would have no problem getting 
investors to fulfill its 5-year investment target of $81 
billion.  He predicted that IPOs planned for next year in 
Moscow and London would raise up to $17.5 billion.  The real 
test will be the upcoming winter.  Last winter consumption 
unexpectedly grew by 5 percent instead of 2 percent.  He is 
expecting to impose usage restrictions in 16 regions (in 
contrast to 3 regions last year).  Chubays admitted, given 
expected shortages, reform could actually pose some risks, 
but market signals, by differentiating between peak and 
non-peak hours, would create a powerful instrument for the 
industry. 
 
ELECTION CYCLE POLICIES INSTEAD OF REFORMS 
------------------------------------------ 
 
6.  (C)  On the economy, Chubays said that he did not support 
many of the policies being enacted.  Referring to the state's 
growing footprint in the energy and automobile sectors, he 
cited Gazprom, Gazprombank, and Avtovaz as examples of 
policies that he could not support. Avtovaz was a mistake and 
it would soon be obvious.  He predicted that the government 
would realize its mistake and reverse its decisions after a 
few years.  Chubays expressed his frustration that nothing 
was happening with reforms in the pension, health, education, 
and housing sectors, as Russia was entering into another 
political cycle.  It would be difficult to do anything until 
after the elections. 
 
 
POLITICAL LANDSCAPE 
------------------- 
 
7.  (C)  When asked about the merger of Federation Council 
Speaker Mironov's Party of Life, Rodina, and Party of 
Pensioners, Chubays said that while not a fan of Mironov, the 
merger of the parties on the left was &pragmatic8 and 
&reasonable8 because it increased the chance that the 
 
combined party will make the 7 percent cutoff for seats in 
the Duma.  The current consolidation of parties reminded him 
of a similar tactic during the Yeltsin years.  Rodina was 
very dangerous, but under Mironov (even with all his faults) 
Rodina could become &civilized.8  Chubays repeated the 
refrain that the parties on the right have to unite (to 
become a viable political force). 
 
 
8. (C)  About the outcome of the presidential elections, 
Chubays remarked that &it is determined.  Whoever Putin 
chooses to be the candidate will win.8  The &traditional 
way8 would be to select a successor no earlier than one to 
one and a half years prior to the elections and install them 
as the Prime Minister.  In that scenario, whoever holds the 
Prime
 Minister position at the end of 2006 might well become 
the next president. 
 
U.S.-RUSSIA RELATIONS 
--------------------- 
 
9.  (C)  When asked about the current state of U.S.-Russia 
relations, Chubays spoke in broad terms about the post 9-11 
missed opportunity when international support was strong.  He 
warned that anti-American sentiment is growing in Russia and 
U.S. moral authority, which is a key component of the 
relationship, is slipping.  Those who criticize the U.S. 
argue that rhetoric on democracy building and actions in Iraq 
do not coincide.  These arguments are resonating with the 
population and could bring U.S. critics to power.  Chubays 
cited Vice President Cheney's speech in Lithuania as an 
example of what negatively affects our relationship.  Chubays 
agreed with the Ambassador that there was nothing new in the 
speech, but repeated that it was a mistake, and claimed that 
such rhetoric is counter productive. 
 
10.  (C)  On economic relations, Chubays said he was very 
upset when the WTO bilateral talks during the July G-8 
meetings did not result in an agreement on Russian accession. 
 He had an &emotional talk8 with Economic Minister Gref 
lamenting the failure to close the deal.  He emphasized that 
both sides needed to find the political will to conclude 
negotiations.  Further delay would seriously undermine the 
relationship, handicap the process of economic modernization 
in Russia, and play into the hands of the domestic opponents 
of modernization. 
 
COMMENT 
------- 
 
11.  (C)  UES restructuring is one of a small handful of 
positive developments in Putin's second term reform agenda, 
but progress will come with its own challenges and 
opportunities.  As Chubays himself acknowledged, price 
liberalization is fraught with political risks, but, the 
Kremlin's attention to politically sensitive issues like 
inflation will probably mean that any increases will happen 
gradually.  The Kremlin,s role in the selection of strategic 
investors for UES assets will also be a key indicator to 
follow.  Kozlov's death has made a strong impact on Chubays; 
he was clearly distraught at Kozlov's wake. 
BURNS

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