Monthly Archives: December 2006

06MOSCOW13123, PRICEWATERHOUSECOOPERS CAUGHT IN YUKOS NET

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Reference ID Created Released Classification Origin
06MOSCOW13123 2006-12-27 15:17 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Moscow

VZCZCXYZ0033
OO RUEHWEB

DE RUEHMO #3123/01 3611517
ZNR UUUUU ZZH
O 271517Z DEC 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6110
INFO RUEHFT/AMCONSUL FRANKFURT IMMEDIATE 3063
RHEBAAA/DEPT OF ENERGY WASHDC IMMEDIATE
RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RHEHNSC/NSC WASHDC IMMEDIATE

UNCLAS MOSCOW 013123 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR EUR/RUS, EB/ESC/IEC, EB/CBA 
FRANKFURT FOR SUSAN STANLEY, BILL COTTER 
TREASURY FOR BAKER/GAERTNER 
NSC FOR TOM GRAHAM AND TRACY MCKIBBEN 
USDOC FOR 4231/IEP/EUR/JBROUGHER 
DOE FOR HARBERT/EKIMOFF/PISCITELLI 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ECON RS
SUBJECT: PRICEWATERHOUSECOOPERS CAUGHT IN YUKOS NET 
 
1. (SBU) Summary.  Russian Prosecutors at the Federal Tax 
Service (FTS) have brought a civil case against International 
accounting firm PriceWaterhouseCoopers (PWC) in connection 
with their role as outside auditor of the Russian oil company 
Yukos.  In addition, the firm has been defending itself in 
Russian arbitrage court over the past six months against 
charges that its internal accounting practices are 
inconsistent with Russian law; this case is now in the final 
appeal stage before the Supreme Arbitration Court.  PWC 
maintains that both cases are without substance, and has said 
it is willing to cooperate fully with Prosecutors.  Civil 
charges have also been brought against PWC's lead Yukos 
accountant, Doug Miller (amcit), who is not currently under 
threat of arrest.  At the firm's request, the Embassy is 
assisting PWC obtain appointments for senior PWC management 
with the GOR.  The firm has otherwise not asked for further 
USG assistance, and wishes to be allowed to work this issue 
in private with the GOR.  End Summary. 
 
2. (SBU) According to PWC Russia Managing Partner Mike Kubena 
(Amcit), PWC was informally notified on December 22 that the 
FTS had brought civil charges against the firm in connection 
with the firm's role as lead outside auditor of Yukos from 
2002 to 2004.  PWC has not yet received official 
notification, but has obtained copy of an indictment against 
the firm dated December 11, which accuses the firm of 
collaborating with Yukos in tax evasion.  The charge appears 
based on the allegation that PWC exploited the difference 
between Russian accounting standards and US GAAP to Yukos' 
advantage, and in violation of Russian law. On December 25, 
business daily "Kommersant" in a front page story suggested 
that the case against PWC may lead to criminal charges being 
brought against the auditing firm, but Kubena said no such 
action has been taken to date. 
 
3. (SBU) Kubena calls the charges without substance and 
misleading.  PWC was diligent in informing Yukos in those 
instances where they felt the firm was engaging in 
questionable tax accounting practices, and can prove this in 
court.  PWC long ago sequestered all internal documents 
pertaining to its Yukos-related work, expecting them to be 
subpoenaed by the procuracy.  In the event, the Russian 
Government has never seriously asked PWC to cooperate in the 
case against Yukos, although the firm is willing to do so. 
The head of PWC's Yukos audit team, Doug Miller (amcit) was 
notified December 26 that he was personally named in the 
civil suit.  Miller did not think he was under threat of 
arrest. 
 
4. (SBU) In addition to the Yukos-related case brought on 
December 11, the firm has been in and out of court for the 
last six months in connection with another civil case brought 
against the firm concerning its internal bookkeeping 
practices in tax year 2002.  PWC also maintains its innocence 
in this case.  On a number of occasions, the firm seemed 
close to resolving this case in their favor, and even had the 
support of Finance Minister Kudrin at the last appeal 
hearing, but to no avail.  Of some concern, at the last two 
appeal hearings (the last of which was in late November) the 
prosecutor began to introduce Yukos into the case, even 
though in one instance the judge ruled the argument 
irrelevant. In the last appeal, the prosecutor focused 
approximately 30% of his argument on PWC's work with Yukos. 
PWC believes that despite this, the judges were prepared to 
rule in PWC's favor, but we dissuaded from doing so at the 
last moment.  The case now faces its final appeal, before the 
Supreme Arbitration court.  The firm must file its appeal by 
mid-February, and while it has not yet done so, it will.  FTS 
inspectors have already approached the firm in connection 
with tax years 2003-2005.  No criminal charges have been 
brought, even though the sum involved would seem to 
automatically trigger criminal code provisions.  This PWC 
chalks up to its good relations with the MVD. 
 
5. (SBU) Comment.  The Kommersant article draws broad 
analogies between PWC's role in the Yukos' case and the 
demise of Arthur Andersen in the Enron case, hardly a welcome 
development.  It also comes amid strong speculation in the 
press here about a new round of accusations being brought 
against Yukos.  Yet PWC has allies here -- it is the official 
auditor of firms comprising more than 50% of Russian GDP, 
including giant Gazprom, and has reached out to many of its 
client over the past few days for support.  That said, the 
vehemence of the current upswing in anti-PWC public rhetoric 
is very disquieting, and PWC is looking to bring senior HQ 
management to bear in meetings with the GOR this week.  At 
the f
irm's request, the Embassy is working to facilitate 
those meetings, and we expect to meet/brief PWC reps should 
their appointments come through.  We have encouraged PWC to 
brief the Washington interagency, as well.  The firm has 
otherwise not asked for further USG assistance; prefers to 
keep their problems out of the headlines; and is offering to 
cooperate fully with the Russian authorities. 
 
 
BURNS

Wikileaks

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06MOSCOW13098, MIDDLE EAST: MFA ON LEBANON, SYRIA AND IRAQ

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Reference ID Created Released Classification Origin
06MOSCOW13098 2006-12-26 16:02 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO3919
PP RUEHDBU RUEHROV
DE RUEHMO #3098/01 3601602
ZNY CCCCC ZZH
P 261602Z DEC 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 6071
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 013098 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 12/26/2016 
TAGS: PREL PGOV LE SY IZ RS
SUBJECT: MIDDLE EAST:  MFA ON LEBANON, SYRIA AND IRAQ 
 
REF: A. MOSCOW 13073 
     B. MOSCOW 12986 
     C. STATE 197800 
 
Classified By: Political M/C Alice G. Wells.  Reasons: 1.4(B/D). 
 
1.  (C)  Summary:  President Putin sought to lower tensions 
between Lebanon and Syria during back-to-back mid-December 
visits by PM Siniora and President Asad, according to the 
Russian MFA, and had urged that a solution to Lebanon's 
ongoing political crisis be found through negotiations and 
not in the streets.  MFA Director for the Middle East and 
North Africa Sergey Vershinin said that Moscow had told both 
Asad and Siniora that Russia supported the normalization of 
relations and a "depoliticized" Lebanese Special Tribunal, 
and was considering providing non-lethal assistance to the 
Lebanese military.  Siniora did not raise the question of 
weapons transfers to Hizballah, nor did Putin discuss it with 
Asad.  Russia urged Asad to use Syria's influence with Hamas 
to lower tensions in Gaza.  Vershinin raised the Yusifiyah 
power plant in Iraq and noted that while the GOR had no 
official reaction to the Baker-Hamilton report, the MFA 
embraced calls for dialogue with the SARG and Iran, along 
with the creation of a Madrid 2 peace process.  Russia's 
high-profile, but low-result Middle East diplomacy will now 
focus on Putin's planned January-February visit to Egypt and 
the Gulf.  End Summary. 
. 
TALE OF TWO VISITS 
------------------ 
 
2.  (C)  Vershinin stressed that PM Siniora's December 14-16 
Moscow visit had been scheduled far in advance and focused on 
Lebanon's internal situation.  It had involved a range of GOR 
interlocutors and included meetings with Muslim and Orthodox 
religious figures.  By contrast, Asad's December 18-20 visit 
was more impromptu, and official discussions had been limited 
to a one-on-one and expanded meeting with Putin that covered 
a broader range of topics, including Lebanon, Iraq and the 
Palestinians. 
 
3.  (C)  Noting that the back-to-back meetings had provided 
Russia a unique perspective on the situation in Lebanon, 
Vershinin stressed that Russia had not attempted to mediate 
separately between Damascus and Beirut, but had delivered a 
consistent message to both leaders  --  Lebanon's political 
situation needed to be resolved in accordance with Lebanon's 
laws and not in the streets and that Lebanon and Syria should 
build a "normal" relationship by opening embassies and 
delineating their border.  Russia wanted to aid in lowering 
tensions and have a voice in any diplomatic solution.  In 
this context, Moscow also supported Arab League SYG Moussa's 
efforts to help resolve Lebanon's political crisis. 
. 
LEBANON'S INTERNAL POLITICS 
--------------------------- 
 
4.  (C)  Vershinin said that Russia had consistently opposed 
"revolutions in the streets," and had made plain its views on 
this point to both Siniora and Asad.  The MFA understood that 
Lebanese political forces could have sharply differing views 
on what Lebanon's confession-based governance system might 
allow, but these differences needed to be sorted out through 
discussion.  Vershinin noted that "there was no love lost 
between Asad and Siniora," but the MFA assessed that each 
actor would make decisions "without emotions" to preserve 
national interests.  Vershinin asserted that Siniora had not 
raised the issue of Russian weapons passing from Syria to 
Lebanon nor had Putin discussed this issue with Asad. 
 
5.  (C)  According to Vershinin, Siniora had emphasized the 
importance of resurrecting a comprehensive peace process and 
the need to strengthen Lebanon's government structures.  No 
Lebanese leader could make a separate peace with Israel, 
Siniora told the GOR.  Turning to reconstruction issues, 
Siniora had been grateful for the work performed by a Russian 
military engineering battalion that had rebuilt nine bridges 
destroyed in the past summer's fighting.  The GOR was now 
weighing providing additional reconstruction assistance; 
Russia intended to participate in the January Paris 
reconstruction conference and was focusing on working with 
the Lebanese military.  (Vershinin noted that the GOR 
engineering battalion left all its equipment behind, 
excepting weapons, as an in-kind contribution to the GOL.) 
. 
LEBANON SPECIAL TRIBUNAL 
------------------------ 
 
6.  (C)  Vershinin noted that Russia had supported the UN 
Security Council's decision to bless the agreement negotiated 
between the UN and Beirut to establish a Lebanon Special 
Tribunal.  Moscow supported the Brammertz investigation into 
 
MOSCOW 00013098  002 OF 002 
 
 
Hariri's assassination and believed that those responsible 
needed to be brought to justice, but at the same time was 
opposed to the establishment of a "politicized" tribunal that 
did not hew closely to the evidence produced through the 
UN-sponsored investigations.  Moscow had reassured As
ad that 
it supported a "judicially clean" mechanism for trying those 
responsible for Hariri's assassination. 
. 
SYRIA, THE PALESTINIAN AUTHORITY AND IRAQ 
----------------------------------------- 
 
7.  (C)  Characterizing the discussions between GOR officials 
and Asad as regionally focused and more wide ranging, 
Vershinin said that Russia viewed current tensions in the 
Middle East as interconnected and argued that while each 
situation had its own special characteristics, resolution of 
problems could not develop in isolation.  Asad and Putin had 
traded views on the ongoing political crisis in the 
Palestinian Authority, with Vershinin noting that the GOR saw 
little likelihood of the formation of a unity government. 
Russia had encouraged Syria to use its relationships with 
Hamas to lower tensions in Gaza. 
 
8.  (C)  On Iraq, Russia had been encouraged by Syria's 
efforts to normalize relations with Baghdad and to work on 
cross-border infiltration; Vershinin wondered if the U.S. had 
taken another look at joint Syria-Iraqi-U.S. efforts in this 
area.  Asad had expressed growing concern about the 
possibility of Iraq's breakup and Syria had interpreted 
Baghdad's willingness to enter into discussions with Damascus 
as a "green light" from the U.S. for increased engagement. 
Both Syria and Iran were concerned and threatened by the 
prospect of a fragmented Iraq, as such, Vershinin discounted 
the possibility of "delinking" Syria from Iran. 
. 
YUSIFIYAH POWER PLANT 
--------------------- 
 
9.  (C)  Vershinin noted that completion of the 
eight-generator power plant was important to the long-term 
energy security of Iraq, but that Iraqi government requests 
for a Russian company to recommence construction work were 
complicated by security concerns and unresolved questions 
over responsibility for damages to the plant incurred during 
military operations.  Vershinin took on board the unanswered 
Embassy Baghdad offer to brief the Russian Embassy and 
undertook to encourage the GOR mission to respond.  He noted 
the continued difficult working conditions for the Russian 
Embassy, including a recent cut-off in electricity. 
. 
BAKER-HAMILTON REPORT 
--------------------- 
 
10.  (C)  After stressing that the GOR did not publicly 
comment on the Baker-Hamilton report because Moscow viewed it 
as a set of unofficial recommendations, Vershinin said that 
many of the proscriptions contained in the report were based 
on a widely-shared expert consensus that Moscow had long 
supported.  Responding to our expressions of U.S. concerns 
about Iran's destabilizing activities in Iraq, Vershinin 
argued that Tehran's growing influence in Iraq and in the 
region was natural and inevitable and that the U.S. needed to 
have a dialogue with Iran.  Russia continued to support the 
idea of an international conference similar to the November 
2004 Sharm El Sheikh Iraq conference that could allow 
regional states and UN Security Council members to provide 
support for Iraqi solutions.  Vershinin also reiterated 
Russian views on the need for a Madrid 2 process to restart a 
comprehensive peace process in the Middle East.  The GOR 
sought to play a helpful role in Iraq, Vershinin concluded, 
but did not know what specifically the U.S. and Iraqi 
governments sought. 
. 
COMMENT 
------- 
 
11.  (C)  An increasingly confident Russia has stepped up its 
diplomatic visibility on Middle Eastern issues, which will 
receive yet another boost when President Putin travels to the 
region in late January or early February.  However, the lack 
of any concrete results from the back-to-back visits by the 
Lebanese and Syrian leadership illustrates the limitations on 
Russia's regional role.  Moscow is willing and able to offer 
advice from the sidelines and is always ready to encourage 
"dialogue," but it lacks both the capacity and leverage 
needed to independently broker a resolution to the most 
pressing conflicts.  Moscow will continue to advocate for 
regional tensions to be resolved through the sort of 
international mediation that ensures that Russia has a seat 
at the table. 
BURNS

Wikileaks

06MOSCOW13092, NGO RE-REGISTRATION UPDATE: BACK TO WORK IN THE

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Reference ID Created Released Classification Origin
06MOSCOW13092 2006-12-26 15:15 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Moscow

VZCZCXRO3879
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHMO #3092 3601515
ZNR UUUUU ZZH
R 261515Z DEC 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 6067
INFO RUCNCIS/CIS COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE

UNCLAS MOSCOW 013092 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PREF PHUM EAID KDEM PGOV RS
SUBJECT: NGO RE-REGISTRATION UPDATE: BACK TO WORK IN THE 
NORTH CAUCASUS 
 
REF: MOSCOW 12784 AND PREVIOUS 
 
1.  (SBU) The Federal Registration Service (FRS) has 
re-registered 192 foreign NGOs as of December 22, including 
all of those providing aid in the North Caucasus.  According 
to UN sources, the re-registration of International Rescue 
Committee (IRC) and World Vision, along with the French NGO 
Action Contre la Faim (ACF), completed the re-registration of 
all those aid agencies working in the North Caucasus. 
According to our contacts, Ella Pamfilova, chair of the 
Presidential Commission on Human Rights and Development of 
Civil Society Institutions, recently raised the status of 
registrations for NGOs working in the North Caucasus with 
FRS, asking that they be re-registered as soon as possible. 
 
2.  (SBU) Aid representatives told us that assistance 
programs suspended while awaiting re-registration will resume 
in full.  World Vision Country Director Siobhan Kimmerle told 
us that World Vision will resume its operations, which have 
been suspended since October, by mid-January, following the 
end of official Russian holidays.  IRC and ACF will likely 
resume work about the same time.  (NOTE:  The French NGO 
Medicines du Monde is re-registered but is awaiting 
clarification on the terms of its re-registration before 
restarting its activities.  END NOTE.) 
 
3.  (U) Of the 29 NGOs USAID has tracked, 25 have now been 
re-registered.  In addition to IRC and World Vision, Doctors 
of the World and MiraMed were registered during the past 
week, leaving ABA/CEELI, Johns Hopkins University, Foundation 
for Russian-American Economic Cooperation, and Eurasian 
Foundation awaiting re-registration. 
 
4.  (U) To our knowledge, no U.S.-based NGO has been refused 
following the initial rejection of Doctors of the World, 
which subsequently submitted a new application and was 
quickly re-registered.  Galina Fokina, the acting chief of 
FRS' Department for Political Parties and Public, Religious, 
and Other Organizations, said at a December 22 press 
conference that FRS was considering applications from 12 
other foreign NGOs, had returned 20 applications for 
revision, and had refused 25 organizations.  She did not name 
those NGOs that have been refused, nor did she clarify 
whether the refusals incuded any foreign adoption agencies, 
but said that some of the refusals might be reconsidered. 
BURNS

Wikileaks

06MOSCOW13074, BLACK SEA FLEET RELOCATION: A PORT TOO FAR

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Reference ID Created Released Classification Origin
06MOSCOW13074 2006-12-22 14:30 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO2683
RR RUEHDBU
DE RUEHMO #3074/01 3561430
ZNY CCCCC ZZH
R 221430Z DEC 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 6049
INFO RUCNCIS/CIS COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 013074 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 11/22/2016 
TAGS: PREL MARR MCAP RS UP
SUBJECT: BLACK SEA FLEET RELOCATION: A PORT TOO FAR 
 
 
Classified By: Charge d'Affaires Daniel A. Russell for reasons 1.4 b an 
d d. 
 
1. (C)  SUMMARY:  Nearly ten years after the 1997 bilateral 
agreement with Ukraine to use Sevastopol as a base for its 
Black Sea Fleet, Russia is doing little to plan for the 
Fleet's possible relocation after the agreement expires in 
2017.  While the Black Sea Fleet will be on the agenda for 
the Putin-Yushchenko summit December 22 in Kyiv, it will be a 
low priority.  The Russian government's overall approach to 
the fleet's future seems simply to wait and see if improving 
bilateral relations will allow the fleet to remain in 
Sevastopol.  The only credible option appears to be 
Novorossiisk, but its modest naval facilities and growing 
commercial importance make it a poor choice.  END SUMMARY. 
. 
-------------------------- 
BSF: LOW ON GOR-GOU AGENDA 
-------------------------- 
 
2. (C)  Ambassador Vladimir Dorokhin, MFA's Special Advisor 
on the Black Sea, confirmed to us that, officially, in 2017 
the GOR will be prepared to vacate Sevastopol and relocate 
the BSF to a Russian port as per the 1997 bilateral agreement 
with Ukraine.  While the BSF will be on the agenda of the 
December 22 Putin-Yushchenko summit, Dorokhin told us the BSF 
negotiations were a low priority.  Dorokhin said Ukrainians 
dramatized Black Sea negotiations, citing two recent 
incidents -- demands on the GOR to pay higher rent in 
Sevastopol and increased fees for ecological damage caused by 
the BSF.  Though these issues were not spelled out in the 
1997 agreement, Dorokhin emphasized that Russia was working 
with Ukraine in good faith to resolve these differences and 
had consistently met its financial obligations. 
 
3. (C)  Dorokhin, however, condemned the seizure of 
lighthouses based on local Ukrainian court decisions. 
(Russia has staffed and operated twenty-two lighthouses in 
the Crimea since the break-up of the Soviet Union. 
Stewardship of these lighthouses was not addressed in the 
1997 agreement.)  Dorokhin claimed that a judicial decision 
on the lighthouses was not within the competency of local 
courts -- the issue must be resolved between the GOR and GOU. 
 Dorokhin feared Ukraine would use ambiguities in the 1997 
agreement to gain leverage on other Russia-Ukraine bilateral 
issues. (NOTE: The Ukrainian Embassy rebutted this analysis, 
noting that under international law, Ukraine must properly 
maintain (and staff) such facilities, since they are located 
on Ukrainian territory.) 
. 
---------------------------------- 
2017 TOO FAR AWAY: NO DECISION YET 
---------------------------------- 
 
4. (C)  Alla Yazkova, specialist on the Mediterranean and 
Black Seas at the Institute of Europe, said 2017 was too far 
away to predict whether the BSF would pull out of Sevastopol. 
 She cited recent contradictory statements by Yushchenko and 
Yanukovych -- the former declared that in 2017 there would be 
no legal grounds for the continued presence of the BSF on 
Ukrainian territory, while the latter suggested it might be 
possible for the BSF to remain beyond that date.  Yazkova 
opined that such uncertainty encouraged Russia not to take 
action and to wait for an opportunity either to extend or 
modify the 1997 agreement.  The GOR sees BSF relocation as a 
last resort; only when other options are exhausted will the 
process of relocating the BSF start.  Sergey Markov, 
pro-Kremlin Director of the Center for Political Studies, 
recently told us that the GOR fully expected the BSF to 
remain in Sevastopol after 2017. 
. 
------------------------ 
FROM FLEET TO FLOTILLA ? 
------------------------ 
 
5. (C) Aleksandr Golts, editor of the on-line "Weekly 
Gazette," told us that the BSF has no future - the BSF will 
become a flotilla like the Caspian Sea Fleet.  Golts 
dismissed Defense Minister Sergey Ivanov's recent comments 
that Russia intends to upgrade the BSF and adapt it for 
combat missions in the Mediterranean and Indian Oceans as 
"rubbish."  Golts pointed out that most BSF warships are old 
and in desperate need of repair and upgrade; moreover, there 
currently are not any ocean-going naval ships under 
construction earmarked for the BSF -- the few blue-water 
warships now under construction for the Russian Navy are 
slated to go to the Pacific or Baltic Fleets. 
. 
-------------------- 
A TALE OF TWO CITIES 
 
MOSCOW 00013074  002 OF 002 
 
 
-------------------- 
 
6. (C)  The naval facility in Sevastopol is one of the city's 
largest employers, and BSF activities contribute 
significantly to the local economy.  Sevastopol is also home 
to many BSF personnel, who maintain deep roots in the city 
which has been home to the fleet for over 200 years.  During 
his October 25 interactive call-in show, President Putin 
promised that Moscow would provide for the relocation of 
sailors and their families to Novorossiisk or elsewhere in 
R
ussia.  Institute of Europe Director Sergey Karaganov 
identified this as the toughest domestic political issue 
related to the BSF.  Putin also reminded Ukraine of the 
negative economic impact that departure of the BSF and its 
personnel would have on the Crimean economy.  Yazkova said 
that as 2017 approached, the GOR would increasingly emphasize 
the economic impact on the region of the BSF's withdrawal. 
 
7. (C)  While Novorossiisk's commercial facilities are 
well-developed, its naval facilities are modest and would 
require major investment to host the BSF.  Embassy's Naval 
Attache estimated that, at a minimum, Novorossiisk would need 
seven years to prepare for the Fleet's relocation.  Golts 
noted that Novorossiisk, upgraded with the proper naval 
facilities, would still be too small to support the 
complement of ships currently in the BSF.  The Russian Navy 
has a limited presence -- several coastal patrol boats and a 
destroyer.  Competition for space is also keen because 
Novorossiisk is one of Russia's two main ports for oil 
exports.  With nearly a million barrels a day leaving the 
port now and a likely increase in seaborne energy exports via 
the Caspian Pipeline Consortium, displacing commercial 
facilities to make room for the BSF makes little economic 
sense. 
. 
------- 
COMMENT 
------- 
 
8. (C)  While 2017 seems a long way off, the Russian 
government and military appear to be doing little to 
modernize the Black Sea Fleet or to plan for a possible new 
home port.  While the fleet (and the Crimea) will continue to 
be populist hot buttons for Russian politicians, fiery 
rhetoric alone is not going to maintain the Black Sea Fleet's 
blue water capability in the future. 
RUSSELL

Wikileaks

06MOSCOW13073, GERMAN FM STEINMEIER’S MOSCOW VISIT: MIDDLE EAST,

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Reference ID Created Released Classification Origin
06MOSCOW13073 2006-12-22 13:46 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXYZ0000
OO RUEHWEB

DE RUEHMOA #3073 3561346
ZNY CCCCC ZZH
O 221346Z DEC 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 0000
INFO ARAB ISRAELI COLLECTIVE
EUROPEAN POLITICAL COLLECTIVE
MOSCOW POLITICAL COLLECTIVE

C O N F I D E N T I A L MOSCOW 013073 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 12/22/2016 
TAGS: PREL PGOV IR LE GE RS
SUBJECT: GERMAN FM STEINMEIER'S MOSCOW VISIT: MIDDLE EAST, 
IRAN, AND RUSSIA-EU 
 
 
CLASSIFIED BY: CHARGE D'AFFAIRES DANIEL A. RUSSELL. 
REASONS:  1.4(B/D). 
 
1.  (C)  SUMMARY:  GERMAN FOREIGN MINISTER FRANK-WALTER 
 
 
 
PAGE 02 RUEHMOA3073 C O N F I D E N T I A L 
STEINMEIER MET WITH PRESIDENT PUTIN, FIRST DEPUTY PRIME 
MINISTER MEDVEDEV, AND FM LAVROV IN MOSCOW ON DECEMBER 21. 
ACCORDING TO A READOUT FROM GERMAN AMBASSADOR WALTER SCHMIDT, 
WHO PARTICIPATED IN THE MEETINGS, PUTIN CLAIMED THAT RUSSIA'S 
DIPLOMATIC ENGAGEMENT WITH SYRIA WAS AIMED AT ENCOURAGING 
DAMASCUS TO ACT RESPONSIBLY IN LEBANON, IRAQ AND THE BROADER 
MIDDLE EAST.  AFTER MEETING PRESIDENT ASAD AND PM SINIORA, 
PUTIN SAID THAT HE BELIEVED THE LATTER WAS WILLING TO SEEK A 
COMPROMISE THAT WOULD INCLUDE THE OPPOSITION.  TURNING TO 
IRAN, PUTIN SAID RUSSIA WOULD TRY TO JOIN CONSENSUS ON THE 
DRAFT UNSCR, BUT STEINMEIER WAS UNABLE TO PIN FM LAVROV DOWN 
IN A SEPARATE MEETING ON RUSSIA'S POSITION ON THE DRAFT TEXT. 
 PUTIN COMPLAINED ABOUT THE BAD PRESS RUSSIA WAS GETTING IN 
THE WEST AND POLAND'S ATTEMPTS TO BLOCK NEGOTIATIONS ON A NEW 
RUSSIA-EU PARTNERSHIP AND COOPERATION AGREEMENT (PCA). 
STEINMEIER INDICATED TO THE RUSSIANS THAT GERMANY WAS WILLING 
TO BE FLEXIBLE ON THE ENERGY PROVISIONS OF A NEW PCA.  END 
SUMMARY. 
. 
MIDDLE EAST 
 
 
 
PAGE 03 RUEHMOA3073 C O N F I D E N T I A L 
----------- 
 
2.  (C)  SCHMIDT SAID STEINMEIER MET WITH PUTIN FOR A ONE 
HOUR ONE-ON-ONE, AND THEN FOR ANOTHER HOUR IN AN EXPANDED 
FORMAT WITH LAVROV AND PRESIDENTIAL ADMINISTRATION FOREIGN 
POLICY ASSISTANT SERGEY PRIKHODKO.  WHILE STEINMEIER WAS IN 
MOSCOW OSTENSIBLY TO PROVIDE A PREVIEW OF GERMANY'S G-8 
PRESIDENCY, SCHMIDT'S READOUT FOCUSED ON THE MIDDLE EAST, 
IRAN, AND RUSSIA-EU RELATIONS.  PUTIN REVIEWED HIS RECENT 
MEETINGS WITH PRESIDENT ASAD AND PM SINIORA, NOTING THAT HE 
APPROACHED THESE MEETINGS WITH A HIGH DEGREE OF SKEPTICISM, 
BUT THAT RUSSIA WAS COMMITTED TO PREVENTING CIVIL WAR IN 
LEBANON, WHICH WOULD BE A DISASTER FOR THE REGION.  IN 
RESPONSE TO STEINMEIER'S QUESTIONING ABOUT RUSSIA WEAPONS 
SALES TO SYRIA, PUTIN SAID THAT ASAD HAD REASSURED HIM THAT 
SYRIA HAD DONE NOTHING TO VIOLATE BILATERAL AGREEMENTS WITH 
RUSSIA (E.G., END-USER AGREEMENTS RESTRICTING TRANSFERS TO 
THIRD PARTIES).  ASAD ALSO TOLD PUTIN THAT SYRIA WAS ENGAGING 
WITH THE IRAQI GOVERNMENT TO TAKE MEASURES TO STABILIZE THE 
BORDER SITUATION.  PUTIN STRESSED THAT RUSSIA WAS PRESSING 
 
 
 
PAGE 04 RUEHMOA3073 C O N F I D E N T I A L 
SYRIA NOT ONLY TO ACT RESPONSIBLY IN IRAQ, BUT IN THE BROADER 
MIDDLE EAST.  (SCHMIDT HAD FEW DETAILS TO REPORT ABOUT THE 
ONE-ON-ONE OTHER THAN TO NOTE THAT PUTIN AND STEINMEIER HAD A 
LONG DISCUSSION ABOUT THE BAKER-HAMILTON REPORT.) 
 
3.  (C)  PUTIN TOLD STEINMEIER THAT HE BELIEVED THAT SINIORA 
WAS PREPARED TO FIND A POLITICAL COMPROMISE THAT WOULD 
INCLUDE OPPOSITION MEMBERS.  THERE WAS NO TRUST BETWEEN 
SINIORA AND ASAD, PUTIN SAID, BUT HE WAS ENCOURAGED THAT 
SYRIA AND LEBANON WERE TALKING TO EACH OTHER AND HOPEFUL THAT 
A PEACEFUL, INCLUSIVE SOLUTION COULD BE FOUND.  PUTIN 
STRESSED THE SIGNIFICANCE OF "INCLUSIVENESS" THROUGHOUT HIS 
DISCUSSION OF THE MIDDLE EAST, ARGUING THAT HAMAS MUST BE 
INTEGRATED INTO ANY PALESTINIAN GOVERNMENT AND MUST NOT BE 
FORCED BACK UNDERGROUND, AND THAT NO SOLUTION IN THE BROADER 
 
MIDDLE EAST WAS TENABLE IF IT DID NOT INCLUDE IRAN. 
. 
IRAN 
---- 
 
 
 
 
PAGE 05 RUEHMOA3073 C O N F I D E N T I A L 
4.  (C)  PUTIN STATED THAT RUSSIA WOULD TRY TO COME TO 
AGREEMENT ON THE DRAFT UNSCR BECAUSE OF MOSCOW'S INTEREST IN 
FINDING A JOINT POSITION TO RESPOND TO TEHRAN.  IN A SEPARATE 
MEETING WITH LAVROV, THERE WAS AN EXTENSIVE DISCUSSION OF THE 
UNSCR, BUT NO CLOSURE.  SCHMIDT TOOK AWAY FROM THE MEETING 
THE IMPRESSION THAT LAVROV HAD NO AUTHORITY TO ENGAGE ON THE 
RESOLUTION AND THAT IT WAS THE SUBJECT OF WHAT SCHMIDT TERMED 
SIGNIFICANT INFIGHTING WITHIN THE RUSSIAN GOVERNMENT. 
ACCORDING TO LAVROV, EVEN THE POSSIBILITY OF A VETO COULD NOT 
BE EXCLUDED.  (FRENCH AMBASSADOR DE LABOULAYE NOTED TO THE 
CHARGE THAT IN A SEPARATE DECEMBER 21 DISCUSSION, SECURITY 
COUNCIL SECRETARY IGOR IVANOV HAD BEEN SKEPTICAL ABOUT THE 
PRACTICAL EFFECT OF THE RESOLUTION.  IVANOV CONCEDED THE 
IMPORTANCE OF PRESENTING A UNIFIED FRONT TO TEHRAN AND, 
SPEAKING PERSONALLY, THOUGHT RUSSIAS CHOICE ON THE UNSCR WAS 
ABSTENTION OR A POSITIVE VOTE AND THAT AN ABSTENTION GAINED 
NOTHING FOR MOSCOW.) 
. 
RUSSIA-EU 
--------- 
 
 
 
PAGE 06 RUEHMOA3073 C O N F I D E N T I A L 
 
5.  (C)  FOCUSING ON RUSSIA'S IMAGE IN THE WEST, PUTIN 
LAMENTED TO STEINMEIER ABOUT THE NEGATIVE PRESS MOSCOW WAS 
GETTING AFTER THE POLITKOVSKAYA AND LITVINENKO MURDERS AND 
THE FALLOUT FROM SAKHALIN 2, BUT OBSERVED THAT IT WAS NOTHING 
NEW, NOTING WESTERN PRESS COVERAGE DURING THE SECOND CHECHEN 
 
WAR.  IN PUTIN'S VIEW, THERE WERE "FORCES" THAT DID NOT WANT 
TO SEE IMPROVEMENT IN RUSSIA'S RELATIONS WITH EUROPE.
 BOTH 
MURDERS HAD BEEN TRAGIC, BUT THEY NEEDED TO BE INVESTIGATED 
AND THOSE RESPONSIBLE BROUGHT TO JUSTICE.  PUTIN PRONOUNCED 
 
 
 
PAGE 02 RUEHMOA3073 C O N F I D E N T I A L 
HIMSELF SATISFIED BY THE COOPERATION BETWEEN RUSSIAN AND 
BRITISH LAW ENFORCEMENT AGENCIES.  STEINMEIER RESPONDED TO 
PUTIN'S COMPLAINTS BY STRESSING THAT THERE WERE EUROPEANS 
INTERESTED IN IMPROVING THE RUSSIA-EU RELATIONSHIP, BUT THAT 
RUSSIA NEEDED TO TAKE STEPS TO HELP CREATE AN ENVIRONMENT IN 
WHICH IMPROVED COOPERATION WAS POLITICALLY FEASIBLE. 
 
6.  (C)  PUTIN CRITICIZED POLAND FOR BLOCKING NEGOTIATIONS 
OVER A SUCCESSOR PARTNERSHIP AND COOPERATION AGREEMENT (PCA). 
 HE CLAIMED RUSSIA WAS PREPARED TO COOPERATE WITH POLAND TO 
RESOLVE THE ISSUE OF MEAT IMPORTS, BUT THAT WHILE WARSAW HAD 
MADE A PUBLIC FUSS OVER THE DISPUTE, IT HAD BEEN UNWILLING TO 
SIT DOWN TO HAMMER OUT A SOLUTION.  AS PUTIN NOTED 
CAUSTICALLY, THE POLES HAD TRIED TO PASS OFF CHINESE BUFFALO 
AS POLISH VEAL. 
 
7.  (C)  PUTIN STRESSED TO STEINMEIER THAT IT WOULD BE 
POSSIBLE TO ADDRESS ENERGY ISSUES IN A NEW PCA IN A 
SATISFACTORY WAY.  SCHMIDT NOTED GERMAN WILLINGNESS IN 
DEVELOPING ENERGY CHAPTERS OF THE PCA TO DROP PROVISIONS FROM 
 
 
 
PAGE 03 RUEHMOA3073 C O N F I D E N T I A L 
THE ENERGY CHARTER TREATY REGARDING MAJORITY OWNERSHIP OF 
PIPELINES AND ENERGY FIELDS THAT RUSSIA OBJECTED TO IN ORDER 
TO COME TO CLOSURE.  STEINMEIER ALSO MET SEPARATELY 
ONE-ON-ONE WITH FIRST DFM MEDVEDEV TO DISCUSS ENERGY ISSUES, 
BUT SCHMIDT DID NOT SHARE DETAILS.  (STEINMEIER AND MEDVEDEV 
HAVE A PERSONAL RELATIONSHIP DATING FROM STEINMEIER'S 
PREVIOUS POSITION AS MEDVEDEV'S COUNTERPART.) 
. 
CIVIL SOCIETY 
------------- 
 
8.  (C)  STEINMEIER ATTENDED TWO CIVIL SOCIETY EVENTS WHILE 
IN MOSCOW.  THE FIRST, MORE POLITICALLY FOCUSED MEETING WAS 
TO INVOLVE GARRI KASPAROV (UNITED CIVIL FRONT), GRIGORIY 
YAVLINSKIY (YABLOKO), AND INDEPENDENT DUMA DEPUTY VLADIMIR 
RYZHKOV, BUT ONLY KASPAROV ATTENDED.  WHILE ACKNOWLEDGING 
THAT SOME OF RUSSIA'S PROBLEMS COULD BE TRACED BACK TO 
DECISIONS TAKEN DURING YELTSIN'S TENURE, KASPAROV ARGUED THAT 
RUSSIANS WERE BECOMING IMPOVERISHED (!) AND TALKED UP HIS 
CHANCES OF WINNING THE 2008 PRESIDENTIAL CONTEST (!!). 
 
 
 
PAGE 04 RUEHMOA3073 C O N F I D E N T I A L 
MEMORIAL, TRANSPARENCY INTERNATIONAL AND THE MOSCOW HELSINKI 
GROUP WERE AMONG THE ATTENDEES AT THE SECOND EVENT.  NGO 
LEADERS COMPLAINED ABOUT THEIR STATUS IN RUSSIA, BUT URGED 
THAT THE WEST REMAIN ENGAGED.  IN RESPONSE TO STEINMEIER'S 
QUESTION ABOUT THE "OTHER RUSSIA" MOVEMENT, MOST CIVIL 
SOCIETY LEADERS WERE CRITICAL OF ITS APPROACH AND IMPACT ON 
THE POLITICAL ENVIRONMENT IN WHICH THEY OPERATED. 
RUSSELL

Wikileaks

06MOSCOW13071, NIZHNIY NOVGOROD: VERTICAL CONTROL INSUFFICIENT?

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Reference ID Created Released Classification Origin
06MOSCOW13071 2006-12-22 11:32 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Moscow

VZCZCXRO2469
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHMO #3071/01 3561132
ZNR UUUUU ZZH
R 221132Z DEC 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 6042
INFO RUCNCIS/CIS COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 03 MOSCOW 013071 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/RUS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL KDEM PINR RS
SUBJECT: NIZHNIY NOVGOROD: VERTICAL CONTROL INSUFFICIENT? 
 
REF: A. (A) MOSCOW 12901 
     B. (B) MOSCOW 12916 
 
1. (SBU) SUMMARY.  With President Putin's appointment of 
Governor Valeriy Shantsev in August 2005, a United Russia 
political elite with strong business interests now firmly 
controls Nizhniy Novgorod and its region.  The establishment 
of the regional branch of the second Kremlin-sponsored party, 
"A Just Russia (SR)" in Nizhniy has been delayed by 
infighting among its new leadership (ref A).  Despite its 
historical significance as a military research and scientific 
center, some foreign investment, and its current position as 
the capital of the Volga Federal District (VFD), Emboff found 
during a December trip that economic development and job 
growth are anemic.  The region tightly oversees investment 
projects and corruption is allegedly rife.  The region has 
received extensive National Project funds for healthcare. 
The demographic crisis concerns the political establishment. 
END SUMMARY. 
 
--------------------------------- 
UNITED RUSSIA: ONLY GAME IN TOWN? 
--------------------------------- 
 
2. (SBU) Regional Governor Valeriy Shantsev had little 
familiarity with the Nizhniy Novgorod region before becoming 
governor in August 2005.  Shantsev was a Communist Party 
(KPRF) member who switched to United Russia before being 
appointed by President Putin.  He succeeded Gennadiy 
Khodyrev, a KPRF member who ran for governor, reportedly 
against the will of the Kremlin, and won 60 percent of the 
vote in 2001. 
 
3. (U)  Legislative Assembly elections in March 2006 saw 
United Russia (YR) win 44 percent of the vote. KPRF won 18 
percent of the vote, the Party of Pensioners 17 percent, and 
LDPR 6 percent. 
 
4. (SBU) In a December 14 meeting, United Russia Regional 
Faction Leader Aleksandr Vaynberg bragged that no other party 
would be able to compete with United Russia for the 
foreseeable future.  KPRF Regional Deputy Vladislav Yegorov 
was less impressed with United Russia's governing skills, 
labeling YR regional deputies "submissive." 
 
---------------------------------- 
KPRF: CLAIMS GROWING URBAN SUPPORT 
---------------------------------- 
 
5. (SBU)  Countering Vaynberg's assertion that the KPRF, 
which "still waved posters of Stalin," was in decline, 
Yegorov said that in the March elections, the KPRF had a 
strong showing in urban areas, winning approximately 25 
percent of the vote in Nizhniy Novgorod, Dzerzhinsk, and 
Sarov (formerly Arzamas-16).  He buttressed his claims of 
increasing KPRF support by underscoring that the 18 percent 
vote in March 2006 was 5 percent higher than KPRF's 13 
percent showing in the 2003 State Duma election. 
 
------------------------------------ 
A JUST RUSSIA: TRYING TO GET STARTED 
------------------------------------ 
 
6. (SBU)  Nizhniy's regional branch of A Just Russia has 
still not been established, reportedly because of infighting 
within the leadership.  Both Vaynberg and Yegorov were 
dubious about A Just Russia's chances of melding its three 
constituent parties into an effective coalition.  Deputy 
Chair of the Party of Life's (one of the three constituent 
parties of A Just Russia) regional committee Svetlana 
Cheromina, however, attributed the disarray to time 
constraints and predicted it would be resolved by the end of 
the year. Alluding to the fact that the leaders of all three 
parties merging into A Just Russia were strong personalities 
with powerful business interests, she suggested that power 
might be shared by instituting a rotating leadership. 
Nonetheless, she was sure that A Just Russia would win seats 
in the next Duma election. 
 
--------------------------------- 
YABLOKO: WAITING FOR THEIR MOMENT 
--------------------------------- 
 
7. (SBU) With no likely representation in the regional or 
State Duma in the near future, Mikhail Yevdokimov, the 
Nizhniy representative of the liberal democratic party 
Yabloko despaired at voter apathy and expressed amazement at 
the GOR's "paranoia." (NOTE: Emboff's meeting occurred the 
day after United Civic Front Garry Kasparov's Moscow office 
 
MOSCOW 00013071  002 OF 003 
 
 
had been raided by plain clothes security officers (ref B).) 
Saying that democratic forces had been unprepared in 1991 and 
"missed their chance", Yevdokimov confidently asserted that 
there would be another opportunity in the future.  He 
unenthusiastically agreed with KPRF's Yegorov that in the 
meantime "right" and "left" forces could work together in 
areas of mutual interest. 
 
------------------------------------- 
INVESTMENT CLIMATE: REGION-CONTROLLED 
------------------------------------- 
 
8. (SBU)  Head of the Nizhniy Novgorod Region's International 
Cooperation Division Olga Guseva was upbeat about investment 
in Nizhniy.  She spoke in glowing terms
 about the efficiency 
of the committee charged with approving investment projects. 
 Presenting a glossy package outlining the region's 
legislative support and tax incentives, Guseva reported that 
an investor conference last summer had been greeted 
positively, although she declined to discuss particulars. 
(Intel has had a presence in the region since 1992, when it 
contracted software developers from Sarov.) 
 
9. (SBU) On a less cheery note, a brand-new IKEA was closed 
for two weeks this December due to alleged fire code 
violations.  Vadim Nosov, head of the Union of Retailers 
bluntly told us that it was because bribes had not been paid. 
 
10. (SBU) Interlocutors unanimously reported that loans are 
difficult to get without collateral and that rates are 
prohibitively high, thereby discouraging the development of 
business start-ups.  While niche market low-profile 
entrepreneurs operate with little support or interference 
from the local government, entrepreneurs in more competitive 
industries are more susceptible to abrupt playing field 
changes.  Nosov pointed to the decision to close small street 
kiosks by January 1, 2007, made at the behest of businesses 
with close ties to the local government, as evidence that 
Nizhniy was a riskier place for small businesses. 
 
---------------------------- 
FEDERAL MONEY FOR HEALTHCARE 
---------------------------- 
 
11. (SBU) In the healthcare sector, Sergei Krivatkin, a 
physician, marveled at the federal money that was pouring 
into the region.  Linking Moscow's largesse to Shantsev's 
appointment, Krivatkin noted that the monies were not only 
going into salaries for doctors and improving hospitals, but 
also for purchasing state-of-the-art medical equipment. 
KPRF's Yegorov predicted that the money would stop after the 
2008 presidential election. 
 
------------------ 
FEW DESIRABLE JOBS 
------------------ 
 
12. (U) Beyond the medical sector though, progress is less 
visible.  When VFD's Presidential Representative Sergei 
Kirienko was appointed head of Rosatom in November 2005, the 
press reported that Putin expected Kirienko to revitalize 
Russia's decaying nuclear power research sector, much of 
which is heavily centered in the Nizhniy Novgorod region.  In 
a December 13 meeting, Nataliya Gladkova, a Medical Professor 
and Russian Academy of Sciences research physicist, conceded 
that while she considered life in Nizhniy vastly improved, 
many young people, including her students at the Medical 
Academy, were leaving for Moscow or abroad.  While Putin had 
stressed increased investment in the science sector, funding 
had not yet increased. 
 
13. (SBU) Per Vaynberg, the demographic crisis was the 
region's main problem.  He suggested that improving the 
environment could increase the birth rate.  Other sources 
cited the lack of housing as a difficult issue in the region. 
 United Russia Regional Deputy Aleksandr Serikov of the 
Housing Problems Committee told us that it would take at 
least twenty years to meet the housing demand using current 
methods.  Valeriy, a taxi driver, complained that while there 
was plenty of housing available, no one could afford it. 
 
14. (SBU) University students fretted that jobs were very 
difficult to get after graduation, even with an 
"indispensable" second language.  While there is an 
unemployment rate of two percent in the region, Guseva 
clarified that many of the jobs were minimum wage.  Party of 
Life's Cheromina thought university students had unrealistic 
expectations. 
 
 
MOSCOW 00013071  003 OF 003 
 
 
--------------------------- 
YOUNG POLITICALLY APATHETIC 
--------------------------- 
 
15. (U) Students seem to be apolitical.  In a university 
outreach session, students backed Putin, but had little to 
say about United Russia.  The KPRF was a dinosaur and no one 
had heard of A Just Russia. A straw poll revealed that none 
of them had voted in the last election. 
 
------- 
COMMENT 
------- 
 
16. (SBU)  Despite its control of the regional government and 
cash injections from Moscow, United Russia's leadership has 
not yet achieved meaningful success in addressing several key 
issues in Nizhniy Novgorod.  Although there does not yet seem 
to be a credible challenger, A Just Russia and the KPRF could 
make inroads during the next election if United Russia 
continues to rely on its ties to Moscow instead of addressing 
local problems. 
RUSSELL

Wikileaks

06MOSCOW13025, MOSCOW REACTION TO TURKMENBASHI’S DEATH

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Reference ID Created Released Classification Origin
06MOSCOW13025 2006-12-21 15:17 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO1449
OO RUEHDBU
DE RUEHMO #3025/01 3551517
ZNY CCCCC ZZH
O 211517Z DEC 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6005
INFO RUCNCIS/CIS COLLECTIVE IMMEDIATE
RUEHXD/MOSCOW POLITICAL COLLECTIVE IMMEDIATE

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 013025 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/RUS 
 
E.O. 12958: DECL: 12/21/2016 
TAGS: PREL PGOV TX RS
SUBJECT: MOSCOW REACTION TO TURKMENBASHI'S DEATH 
 
Classified By: Pol M/C Alice G. Wells.  Reasons 1,4 (b/d) 
 
1.  (C) Summary.  The Russian government reacted cautiously 
to Turkmenbashi's death and will send the Prime Minister and 
Head of the Presidential Administration to his funeral. 
Unofficial reactions encompassed the full range of 
speculations about succession, and stability in Turkmenistan. 
 Some analysts saw opportunities for Russia, but worried 
about opportunities of the U.S. and others as well.  End 
summary. 
 
GOR Reacts Cautiously 
--------------------- 
 
2.  C) Russian officials reacted cautiously to news about 
Niyazov's demise; some spoke about opportunities to better 
Russia-Turkmenistan relations.  Publicly, Presidential aide 
Prikhodko urged a "furthering of bilateral ties", while 
Chairman of the Duma's Committee for International Relations 
Konstantin Kosachev predicted that Niyazov's successor will 
have to make changes in Turkmenistan's foreign and domestic 
policies, and would become less isolationist.  Kosachev said 
he was certain that the Turkmen people would be "wise" enough 
to avoid a color revolution during the transition period. 
 
3.  (C) MFA Director of the Third CIS Department Maksim 
Peshkov told us that stability was Russia's paramount 
concern; the GOR was less concerned about the status of gas 
supplies than how the GOTX will resolve its "internal 
situation."  The GOR has extended formal condolences from the 
President and the Prime Minister, and PM Fradkov and Head of 
the Presidential Administration Sobyanin will represent 
Russia at the funeral. 
 
Two Scenarios: Stability or Struggle 
------------------------------------ 
 
4.  (C) The Moscow Carnegie Center's Aleksey Malashenko and 
other experts suggested two possible scenarios: 
 
--  Chinese Model:  Niyazov will continue to be lauded and 
his portrait will remain in government offices while changes 
are slowly introduced.  Most Turkmen will notice no change, 
as gas and electricity will continue to be subsidized. 
 
--  Messy Power Struggle: with no heir apparent, there will 
be a fierce power struggle among many, including the 
opposition-in-exile.  Malashenko said this period could 
resemble the post-Khrushchev period. The CIS Institute's 
Andrey Grozin did not rule out a military coup.  He doubted 
that Parliament Speaker Overzgeldi Atayev who, according to 
the Constitution is to organize the elections while acting as 
interim president, is up to the task. 
 
5. (C) Malashenko thought either scenario equally likely--a 
view that "Politika" Foundation Director Vyacheslav Nikonov 
seconded.  Nikonov suggested that Niyazov's successor might 
consider joining the Eurasian Economic Community. 
 
Once Again, It is All About Gas 
------------------------------- 
 
6.  (C) According to Malashenko, Russia was comfortable with 
Niyazov because it could reach an agreement with him despite 
his "craftiness."  Whatever happens and whoever comes next, 
the situation will not improve for Russia, he warned.  The 
gas deal that Russia has with Turkmenistan involved other 
countries such as Ukraine and Kazakhstan.  Any new deal will 
necessitate reopening negotiations with those countries as 
well.  This, in turn, opens the possibility for other 
countries to insert themselves; among them China, Iran, India 
and the U.S. 
 
Tragedy or Happy Event? 
----------------------- 
 
7.  (C) Grozin predicted that the Turkmen people would be 
divided.  For some, Niyazov's death is an occasion to 
celebrate and push for greater reform; for others, it is a 
tragedy.  Oleg Orlov, head, Memorial Human Rights Center, 
hoped that the human rights situation in Turkmenistan will 
improve.  Aleksandr Petrov, Human Rights Watch, was 
pessimistic.  Niyazov's "zero legacy"  meant most people will 
feel little nostalgia, he added. 
 
No Time to Lose for Russia 
-------------------------- 
 
8.  (U) Several analysts picked up on the GOR theme that 
Turkmenbashi's death presented an opportunity to strengthen 
 
MOSCOW 00013025  002 OF 002 
 
 
relations with the former republic, following Niyazov's 
"neutrality."  Vice President of the Geopolitical Problems 
Academy Leonid Ivashov said that Russia should become 
Turkmenistan's strategic partner and help "bolster the 
country's defense capability."  The Director of Political 
Research Institute Sergey Markov recommended that Russia take 
the lead in inviting Kazakhstan, Uzbekistan, Iran and India 
to act as mediators and immediately help their "Turkmen 
brothers."  He even hinted at a possible Lebanon-like civil 
war in Turkmenistan, for which Russia should be ready. 
 
RUSSELL

Wikileaks

06MOSCOW13022, RUSSIA ENERGY: GAZPROM SET TO ACQUIRE CONTROLLING

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Reference ID Created Released Classification Origin
06MOSCOW13022 2006-12-21 14:22 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO1394
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #3022 3551422
ZNY CCCCC ZZH
O 211422Z DEC 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6002
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 4141
RUEHUL/AMEMBASSY SEOUL PRIORITY 2636
RUEHKO/AMEMBASSY TOKYO PRIORITY 4076
RHEHNSC/NSC WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 013022 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/RUS WARLICK, HOLMAN, AND GUHA 
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK 
DOE FOR HARBERT/EKIMOFF/PISCITELLI 
DOC FOR 4321/IEP/EUR/JBROUGHER 
NSC FOR GRAHAM AND MCKIBBON 
 
E.O. 12958: DECL: 12/21/2016 
TAGS: ECON ENRG EPET PREL RS
SUBJECT: RUSSIA ENERGY: GAZPROM SET TO ACQUIRE CONTROLLING 
STAKE IN SAKHALIN-2 
 
REF: MOSCOW 12930 
 
Classified By: Econ M/C Pamela Quanrud.  Reasons 1.4 (b) and (d). 
 
1. (C) Summary.  The British Economic M/C in Moscow confirmed 
December 20 his understanding that agreement is likely by the 
end of this week between Sakhalin Energy's partners and 
Gazprom on the terms of Gazprom's cash acquisition of a 
controlling stake in Sakhalin-2.  Agreement would bring to a 
close negotiations complicated by Sakhalin Energy's 
announcement last summer of significant cost overruns, and 
capped by recent GOR threats of huge environmental damage 
claims.  While the final price Gazprom will pay is unknown, 
and will likely be on the low side of Shell's target range, 
it must in the end be a price Shell shareholders can live 
with.  End summary. 
 
2. (C) British Economic M/C in Moscow confirmed December 20 
that Sakhalin Energy and Gazprom are poised to announce a 
deal, perhaps still this week, giving Gazprom a controlling 
50 percent stake in Russia's first liquefied natural gas 
(LNG) project.  According to the press, Gazprom will acquire 
one half of each current partner's stake -- 27.5  percent 
from Shell, 12.5 percent from Mitsui, and 10 percent from 
Mitsubishi -- in exchange for cash payments.  While the price 
is unknown, it will certainly be higher than the $2.6 billion 
offered by Gazprom and rejected out of hand by Sakhalin 
Energy last week (ref).  Authorities publicly confirmed 
December 20 that the pending deal would not involve any of 
the asset swaps that had been at the heart of the previous 
Gazprom/Sakhalin Energy deal scuttled by Gazprom in summer 
2005 after Sakhalin Energy's announcement of significant cost 
overruns.  All indications are that Shell will retain 
operational control over the project. 
 
3. (C) Comment: Shell undoubtedly obtained a price it can 
present to shareholders with a straight face.  Still, the 
final amount will probably be in the lower range of Shell's 
target price, reflecting a position weakened by Kremlin ire 
over project cost overruns and threatened environmental 
claims assessed by the Natural Resources Ministry at $10 
billion.  Loss of shares will negatively impact Shell more 
than its Japanese partners.  While the Japanese are mainly 
concerned with securing energy supplies, the loss of Shell's 
Sakhalin reserves will affect the company's long-term value, 
particularly on top of recent revelations of inflated reserve 
estimates.  Our British interlocutor's request that third 
parties embrace the final deal represents an attempt to shine 
the best light on a forced hand.  End comment. 
RUSSELL

Wikileaks

06MOSCOW13012, Novosibirsk: United Russia Stronghold With High

WikiLeaks Link

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Reference ID Created Released Classification Origin
06MOSCOW13012 2006-12-21 08:38 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Moscow

VZCZCXRO0875
PP RUEHLN RUEHVK RUEHYG
DE RUEHMO #3012/01 3550838
ZNR UUUUU ZZH
P 210838Z DEC 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 5987
INFO RUEHTA/AMEMBASSY ASTANA 0023
RUEHLN/AMCONSUL ST PETERSBURG 3645
RUEHVK/AMCONSUL VLADIVOSTOK 1819
RUEHYG/AMCONSUL YEKATERINBURG 2076

UNCLAS SECTION 01 OF 03 MOSCOW 013012 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ETRD RS
SUBJECT: Novosibirsk:  United Russia Stronghold With High 
Tech Hopes 
 
Summary 
----------- 
 
1. (SBU) United Russia's (YR) dominance in Russia's regions 
is evident in Novosibirsk, where YR holds the governorship, 
has an absolute majority in the regional parliament, does 
not view the emergence of the second Kremlin party "A Just 
Russia" as a threat, and dismisses the influence of 
"democratic" parties.  In a city well known for its 
research institutes and boasting 150,000 university 
students -- a tenth of its population -- Novosibirsk elites 
see the high technology sector as central to the region's 
future.  Novosibirsk's other main selling point is its 
location as a transport hub for Siberia.  Some grumble that 
Novosibirsk has a less progressive regional administration 
than other Siberian regions -- notably Krasnoyarsk -- and 
is losing ground in attracting new investment. 
Businesspeople complained of insufficient U.S. investment 
and a time-consuming process for getting U.S. visas.  End 
summary. 
 
United Russia's Appeal and the Putin Legacy 
 --------------------------------------------- --------- 
 
2. (U) Victor Tolonskiy has been governor of the 
Novosibirsk region since 1999.  He had no formal party 
affiliation until December 2005 when he joined United 
Russia.  United Russia controls 53 seats in the regional 
parliament (still knows as a "Soviet"), giving it an 
absolute majority.  The other parties in the parliament 
are: Communists with 24 seats, the Agrarian Party with 14 
seats, and LDPR (Zhirinovsky group) with 5 seats; there are 
also two independents. 
 
3. (SBU) During a late November visit to Novosibirsk, we 
met with A. Bespalikov, Chairman of the parliament. 
Bespalikov was highly confident of United Russia's 
popularity in the region and expressed no doubt the party 
would capture a majority of the region's vote in the 2007 
elections for the State Duma.  Bespalikov stressed the 
importance to voters of the stability, order and improved 
living standards that Putin had achieved.  United Russia's 
association with these successes means that its place with 
voters is secure. 
 
4. (SBU) Bespalikov contrasted current trends with the 
situation in the 1990s, when Russians were living under 
"warlike conditions."  This "period of chaos" had totally 
discredited Yeltsin and the liberals.  Bespalikov recounted 
that center-region relations had been a shambles; Yeltsin 
largely cast regions like Novosibirsk adrift.  All this had 
changed under Putin.  The "vertical of power," had not 
subjugated the regions, but rather had saved them.  Putin 
had reconnected the country and reversed centrifugal forces 
that could have led to the disintegration of Russia. 
 
5. (SBU) Bespalikov was not worried by the appearance of 
the newly formed "A Just Russia" (SR) party, predicting 
that A Just Russia might be less than the sum of its parts. 
He added that Rodina (a constituent part of SR), LDPR and 
the Communists were all on the decline in Novosibirsk. 
 
A Just Russia 
---------------- 
 
6. (SBU) Chairwoman of A Just Russia party for the region, 
Tamara Sharogazova, said A Just Russia would attract voters 
in Novosibirsk by stressing patriotic and family values.  A 
Just Russia had just as legitimate a claim on the Putin 
legacy, she asserted.  United Russia had become a machine, 
divorced from traditional values.  She underlined that 
Putin had kept some distance from United Russia.  It was 
the party of the favored and the connected.  A Just Russia 
would reach out to poorer voters, such as pensioners, and 
make equality, social programs, and patriotism key issues. 
 
7. (SBU) One of the main concerns for A Just Russia is 
voter apathy.  If A Just Russia can not show voters that 
the party can make a difference, motivated voters from 
United Russia will dominate.  Sharogazova said that much of 
the fate of A Just Russia in Novosibirsk would depend on 
the party's national leadership, particularly that of party 
leader Sergei Mironov.  He will have to use his position as 
Chairman of the Federation Council to the maximum to build 
support and name recognition for the party -- or it will 
fail.  Sharogazova agreed with YR's Bespalikov that the 
liberal parties had almost no support in Novosibirsk, 
 
MOSCOW 00013012  002 OF 003 
 
 
despite the region's highly educated population.  The 
liberals lacked real leaders and had "done nothing concrete 
for the people." 
 
Foreign and Trade Relations 
---------------------------------- 
 
8. (SBU) The Foreign Ministry maintains offices in each of 
Russia's seven Federal districts.  For Siberia, the 
district headquarters is Novosibirsk.  We met with 
Ambassador V. Samoyenko who explained that the MFA presence 
began in 1996 as a response to regions that were conducting 
(or were perceived to be conducting) their own foreign and 
trade policies without coordi
nating with the center. 
Samoyenko reports to MFA but answers locally to 
Presidential Representative (Polpred) for Siberia, Anatoliy 
Kvashnin who, in turn, reports to Kremlin Chief of Staff 
Sobyanin. 
 
9. (SBU) Trade promotion is a central facet of Samoyenko's 
work.  He meets with foreign investors and trade missions 
and accompanies the regional governors on foreign travel. 
Novosibirsk region's main selling points are its reputation 
as a high tech center and its role as transportation hub 
for Siberia - with air, rail, river and road linkages. 
Samoyenko touted the numerous scientific institutes in 
Novosibirsk, including at Novosibirsk University and at 
"Akademgorodok," a special research town outside 
Novosibirsk that was established in the Sputnik era.  There 
is also a strong machine manufacturing sector. 
 
10. (SBU) Samoyenko said that because ethnic Germans had 
once been numerous in Novosibirsk, German investors were 
the number one foreign presence.  American investment is 
small, although Intel has a research center.  Samoyenko 
noted that Chinese were an increasing presence and engaged 
currently in such projects as construction of a large 
apartment complex.  Ties with neighboring Kazakhstan are 
excellent with many Kazakhs studying in Novosibirsk. 
 
Business Perspectives 
-------------------------- 
 
11. (SBU) We met with a group of small and medium business 
leaders.  They agreed that the region's 150,000 university 
students and research institutes, and their focus on 
applied sciences, was key to the region's future.  However, 
some faulted Governor Tolonskiy for unimaginative 
leadership.  Other governors, like that in neighboring 
Krasnoyarsk, are doing a better job of attracting new 
investment, especially in high tech. 
 
12. (SBU) The business leaders said many businesspeople 
join United Russia because it offers the chance for them to 
"help themselves."  Indeed, that is its fundamental 
attraction.  Many entrepreneurs profess to be apolitical 
and do not see elections as making much of a difference. 
Some of the businesspeople said the formation of A Just 
Russia was positive and might provide needed competition to 
United Russia.  They noted that in the absence of a U.S. 
consulate in Novosibirsk, everyone has to travel to Moscow 
(or Yekaterinburg) for visas.  Often time does not allow 
for this, hampering development of business with the U.S. 
The businesspeople said that corruption was a problem in 
Novosibirsk but was not on the top of their list. 
 
Public Affairs 
----------------- 
 
13. (SBU) While in Novosibirsk,  we addressed 150 faculty 
and students at the Academy of Public Administration; gave 
a talk at the American corner; had dinner with exchange 
alumni; met with people from the NGO sector,  and had a TV 
and a newspaper interview following our meeting with 
business leaders. 
 
Comment 
------------ 
 
14. (SBU) Increased prosperity, while most evident in 
Moscow, is also evident in cities like Novosibirsk, 
Russia's third largest by population, which has a vibrant 
commercial, entertainment and business climate.  While 
United Russia is dominant and no clear threat to it is on 
the horizon, the complacency and over-confidence YR leaders 
displayed was nonetheless striking. 
 
 
MOSCOW 00013012  003 OF 003 
 
 
RUSSELL

Wikileaks

06MOSCOW13006, DENGI FEVER”: RUSSIA’S IPO AND CAPITAL MARKET BOOM

WikiLeaks Link

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Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #06MOSCOW13006.
Reference ID Created Released Classification Origin
06MOSCOW13006 2006-12-20 16:13 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO0207
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #3006/01 3541613
ZNY CCCCC ZZH
R 201613Z DEC 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 5978
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCNCIS/CIS COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 013006 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/RUS 
TREASURY BAKER/GAERTNER 
NSC FOR GRAHAM AND MCKIBBEN 
 
E.O. 12958: DECL: 12/19/2016 
TAGS: ECON EINV EFIN RS
SUBJECT: "DENGI FEVER": RUSSIA'S IPO AND CAPITAL MARKET BOOM 
 
REF: MOSCOW 1898 
 
Classified By: ECON M/C Quanrud, Reasons 1.4 (b/d). 
 
SUMMARY 
------- 
 
1.  (SBU) Russia's initial public offering (IPO) bonanza 
continued to gain momentum in 2006.  Fifteen Russian 
companies launched IPOs this year, raising over $17.5 
billion.  At the same time, Russia's domestic exchanges have 
enjoyed explosive growth.  Russian companies are increasingly 
able to tap the domestic markets for cash, as relaxed listing 
standards and increased liquidity have made Russian exchanges 
attractive IPO venues.  Though motivations vary, many in the 
evolving IPO arena seem focused simply on raising investment 
capital.  To get to the money, Russian companies have had to 
increase transparency and improve corporate governance to 
meet foreign and domestic listing requirements.  Indeed, 
public offerings appear to be playing a significant role in 
transforming Russian business practices and creating a robust 
domestic equities market. 
 
RUSSIA'S IPO BOOM KEEPS BOOMING 
------------------------------- 
 
2.  (SBU) The Russian IPO market has reached new heights this 
year, easily eclipsing the $5 billion raised in 2005 
(reftel).  By the end of 2006, Russia will have the largest 
single stock in the emerging-market universe (Gazprom), will 
have placed the fifth-largest IPO in history (Rosneft), and 
will have raised through equity issuance more money in 2006 
than every country in the world except the U.S., China, and 
France.  And some predict 30-40 more Russian IPOs in the 
coming year, bringing another $30 billion worth of equity to 
the market. 
 
3.  (SBU) As was the case in 2005, the London Stock Exchange 
(LSE) was the foreign exchange of choice for Russian 
companies looking to list abroad, as most see U.S. standards 
as too high and too costly.  More than half of this year's 
Russian IPO activity included listings on the LSE.  However, 
unlike last year, Russian companies also came to the Moscow 
Interbank Currency Exchange (MICEX) and the Russian Trading 
System (RTS) to raise capital, with six Russian IPOs occurred 
exclusively on the domestic exchanges.  Indeed, one of the 
biggest shifts over the year has been the increase in the 
number of Russian companies looking to raise capital at home. 
 
 
4.  (C) The head of Russia's Federal Service for Financial 
Markets (FFMS), Oleg Vyugin, can take much of the credit for 
encouraging growth in the domestic exchanges.  Vyugin has 
simplified the procedure by which companies launch IPOs on 
the Russian markets.  In fact, he claimed recently to us that 
it is now easier to launch an IPO in Russia than it is to do 
so in London.  Vyugin also spearheaded a 30% domestic-listing 
requirement earlier this year, but he is slow to celebrate 
the success of this initiative.  He suspects that brokerages 
operating in Russia have been taking ordinary shares on their 
books, and then sending these same shares abroad.  A deeper 
analysis, which is currently underway, should reveal whether 
Russian capital is staying close to home.  Whatever the 
result, the impressive growth of Russia's domestic exchanges 
is hard to ignore.  The MICEX and the RTS now have a combined 
market capitalization of almost $800 billion, or 80% of GDP. 
Trading on the MICEX grew by 191% over 2005, while the RTS 
grew by 122%.  Around 70% of Russian stock trading now occurs 
on the domestic exchanges, up from 55% one year ago.  Without 
a doubt, the stereotype of a cash-poor Russian equity market 
is crumbling. 
 
NEED FOR CAPITAL IS THE MAIN, 
BUT NOT SOLE, DRIVER 
----------------------------- 
 
5.  (SBU) Russia's economy continues to chug along.  Real GDP 
looks to be coming in just below 7% in 2006.  Russia's money 
supply has increased by 40% this year, yet its inflation rate 
(though still high) will be below 10%.  Both public and 
private consumption have grown over the year, as Russians 
continue to make more money and take out more consumer loans. 
 Capitalizing on new market opportunities has been a 
challenge for Russian firms, as many still suffer from 
underinvestment.  It comes as no surprise that demand for 
investment capital is high.  Russian companies have turned to 
 
MOSCOW 00013006  002 OF 003 
 
 
IPOs to raise the money they need for growth in an 
increasingly competitive market. 
 
6.  (C) Of course, the need for investment capital is not the 
only force driving IPOs.  As in 2005, some strategic 
shareholders have looked to IPOs as a way of "cashing out" of 
their holdings.  Doing so has helped them capture immediate, 
and often tremendous, wealth.  However, our contacts have 
been quick to downplay the significance of the "cash-out" 
incentive in 2006.  They argue that strategic shareholders 
stand to gain much more from staying with their lucrative 
businesses than they do from cashing out of them. 
 
7. (C) Oleg Vyugin echoed this sentiment in our recent 
conversations with him.  He believes raising capital for 
company growth is the main target of recent IPOs.  Vyugin 
also described an additional role IPOs have assumed in 
corporate strategy: enhancing management capacity.  "As a 
company grows, it becomes more difficult for management to 
handle the size of the company."  By increasing the 
shareholder base, new people are attracted to help manage the 
firm.  In some cases, these people are industry elites with 
superlative reputations.  Company boards have been increased 
to include managers championing Western-style business 
practices.  With new management, Russian companies are coming 
to realize that efficiency, increased accountability, and 
improved corporate governance are essential to success in 
today's global market.  And, he adds, strategic investors 
(many of whom are founding oligarchs) have their hands freed 
to pursue other interests. 
 
8.  (SBU) Naturally, companies have been improving business 
practices to the extent there is incentive to do so. 
Standard & Poor's Julia Kochetygova told us that she thought 
listing requirements are shaping changes in transparency and 
corporate governance -- for the better.  For Russian 
companies looking to list abroad, this normally means 
adopting standards sufficient for listing with the LSE. 
Similarly, in an effort to attract investors, Russia's 
domestic exchanges have increased accountability standards 
for companies looking to list in Russia.  Firms trading on 
the MICEX and the RTS now boast transparency and corporate 
governance levels that meet international standards. 
Kochetygova's work shows that most publicly-traded Russian 
firms exceed the listing requirements of LSE's AIM market. 
 
WHO'S BUYING? 
------------- 
 
9.  (SBU) Improvements in macroeconomic conditions and 
increased accountability have encouraged global investors to 
boost exposure to the Russian markets.  In the wake of the 
elimination of the so-called "Gazprom ringfence," emerging 
market indexes have been substantially rebalanced this year. 
The Morgan Stanley Capital International (MSCI) emerging 
markets index, widely considered the industry benchmark, has 
been reconstituted in 2006 to increase its Russia composition 
from 6% in 2005 to 11%.  The upshot of this is that foreign 
investment in Russian equities, once dominated by short-term 
speculators, now comprises more long-term investors.  Large 
international investment houses, such as Morgan Stanley, 
Merrill Lynch, and Citigroup, have come to Russia. 
 
10.  (SBU) Russia's domestic exchanges have also enjoyed 
investment from local institutions.  Mutual funds, pension 
funds, and insurance companies constitute the bulk of 
home-grown interest.  In fact, Russia's mutual fund industry 
has grown from virtually non-existent just a few years ago to 
a $15 billion industry today.  Even so, the domestic markets 
have been slow to attract individual investors.  Less than 3% 
of the Russian population own stock or other investment 
instruments.  Nevertheless, there are signs that a domestic 
investor base is forming.  Our MICEX contacts are confident 
that middle-class Russians will come to the markets as they 
become better informed and more investment savvy. 
 
MUSINGS OF A MARKET REGULATOR 
----------------------------- 
 
11.  (C) In an early December meeting with us, Vyugin said he 
is considering abandoning the 30% domestic-listing 
requirement.  In its place, he would oblige Russian companies 
to launch IPOs on a domestic exchange -- with at least 10% of 
the capital of ordinary shares in Russia -- before listing 
abroad.  This policy change could gain momentum in the coming 
year.  Vyugin has also made some progress on a few of his 
 
MOSCOW 00013006  003 OF 003 
 
 
long-term do-list items.  A draft law addressing price 
manipulation and insider trading (first proposed two years 
ago) is now with the Central Bank, the Ministry of Finance, 
and the Ministry of Economic Development and Trade for final 
comment, although Vyugin believes he has already secured 
their basic agreement.  The draft needs to go through a 
formal signature process, after which it will go to the 
Ministry of Justice for a final check before submission to 
the Government, which he hoped would result in approval by 
the end of this year.  In addition, a draft law creating a 
Central Depository was finalized in August.  The Central 
Depository would absorb the existing depository firms -- a 
move which could receive resistance from those with an 
economic interest in the status quo.  A hardy perennial for 
ten years, Vyugin hopes remaining disagreements over the 
draft law will be resolved by the end of the year. 
 
COMMANDING HEIGHTS STILL 
COMMAND THE MOST MONEY 
------------------------ 
 
12.  (SBU) As prices for oil, nickel, aluminum, platinum, and 
copper reached new highs this year, Russia's state-controlled 
companies benefited most on the bourses.  Russia's energy and 
steel sectors still constitute the largest portion of the 
shares traded on the domestic exchanges, and foreigners 
continue to invest mostly in these sectors.  However, 
Russia's diversifying economy is also producing attractive 
investments in other sectors, particularly in banking, 
communications, and retail, where sectors which were 
well-represented in this year's IPOs.  Russia's largest 
domestic-only listing was retail giant Magnit, whose revenues 
exceeded $1 billion in the first six months of 2006.  Next 
year looks equally promising, as some predict as many as 15 
retail-related companies will launch IPOs. 
 
COMMENT 
------- 
 
13. (C) As Russian companies look to raise capital and gain 
prestige, the requirements for them to do so are slowly 
transforming Russian business practices.  And there's a sense 
that the new wave of business executives coming to Russian 
industry will serve as iconoclasts to the current paradigm of 
opacity and inefficiency.  More and more, Russian companies 
are recognizing that entry into the global business world 
cannot happen without transparency.  Even Russia's 
state-controlled companies have taken notice.  This is not to 
say that companies under state control don't still have a lot 
to learn.  As Oleg Vyugin put it, "an imitation of good 
corporate governance" won't make a company competitive. 
Recent troubles at Gazprom illustrate this fact: either you 
become efficient, or your stock price will freeze. 
 
14.  (C) Russia's domestic exchanges will continue to grow in 
2007.  Thus far, they have been able to produce surprisingly 
impressive trading numbers with relatively few issuers.  This 
year we saw signs of a virtuous circle that we believe has 
not quite run its course: with new listings come new 
investors and added liquidity, which will likely lure yet 
more to the IPO tab
le.  To the extent this also forces 
transparency and compliance with international norms and 
market expectations, it is one of the most visible signs of 
grass-roots economic reform in Russia.  The real test will 
come when global and domestic liquidity tightens, and the 
fight to keep shareholders happy sharpens. 
RUSSELL

Wikileaks