Daily Archives: August 1, 2007

Annals of Weaponizing Psychiatry: Now, the Neo-Soviet Dark Nights of Terror Begin in Earnest

Other Russia reports:

Larisa Arap is a writer and an activist for the United Civil Front, the opposition group founded and chaired by Garry Kasparov in 2005. The UCF has been an integral force in the Other Russia since its inception and Larisa Arap has been active in our activities in Murmansk and elsewhere. Ms. Arap also wrote an article detailing abuses in children’s mental health facilities, including the use of electroshock. As a consequence, she has been abducted by the authorities in Murmansk at a psychiatric clinic. She was held from July 5 to July 18 with no medical or legal information being given out by authorities. Only later did a court say she was “a danger to herself and others” — the classic formulation. She is being held and medicated against her will, although the hospital will not confirm her presence there.

UPDATE JULY 30: Ms. Arap’s daughter Taisiya has been able to visit her mother in the hospital. She requested to see the diagnosis of her mother and was refused by doctors citing privileged information. The photo above right was taken by her daughter with her cell phone at the clinic where her mother is being held (at left is the Ms. Arap’s normal view). We will be following Ms. Arap’s story closely. [We understand that the American consul from St. Petersburg is heading to Murmansk to inquire.]

The use of psychiatric detention as a weapon was quite popular in the days of the USSR. Dissidents regularly disappeared into prisons and hospitals under charges of mental instability. This time the interests are likely of a baser nature, as Kasparov puts it: “It could happen if you attack the interests of the local Gazprom, the local military base, the local medical mafia. Attacking the interests of local bureaucrats is a terrible risk, because they don’t stop at anything to get their own back.” This is not the first such incident of the Putin era and it is no surprise to see the revival of the old Soviet methods.

As is often the case after such incidents hit the news, Russian opposition websites have been attacked and made unavailable by massive DDOS assault. As of this writing, namarsh.ru and kasparov.ru are under attack.

To see our other reports on efforts to weaponize psychiatry in neo-Soviet Russia, click the “weaponizing psychiatry” link at the bottom of this post.

Editorial: Dear John (re Beslan)


Dear John (re Beslan)

It’s no secret that we here at La Russophobe consider ourselves to be rather good at exposing the flaws inherent in the the russophile position that supports continued power to Russian dictator Vladimir Putin. But we have to admit that, next to the russophiles’ own ability to destroy themselves, our powers are puny indeed.

Case in point: A comment offered on our recent post about Beslan by a reader who calls him/herself “John.” This idiot says that blaming Vladimir Putin for the mass killing that occurred at Beslan is no more legitimate than blaming George Bush for the 9/11 killings. Let’s help “John” look foolish, shall we?

To start with, of course, there is no analogy between 9/11 and Beslan because at 9/11, unlike Beslan, all the victims were killed instantly by the terrorists. At Beslan, there was a siege and a so-called rescue effort. At 9/11 there was no such effort mounted by George Bush. So it’s clear from the beginning that “John” didn’t think for even a second before making his comment, he simply and predictably spewed out the same ridiculous sort of propaganda that destroyed the Soviet Union. It’s emperor’s-new-clothes stuff, all over again.

A better analogy to the Beslan crisis would have been, for instance, the 1993 assault by Bill Clinton on the Branch Davidian compound in Waco, Texas, which killed many of the people inside the compound, including innocent children. But if we actually go so far as to compare the facts of Waco and Beslan, then Vladimir Putin comes off looking even worse than he did in our post about Beslan. For that reason, perhaps, it’s not surprising that “John” would fail to do so. Then again, his failure might be attributable to simply russophile ignorance.

There are two key differences between Waco and Beslan.

1. Clinton Waited, Putin Attacked

Bill Clinton’s FBI forces laid siege to the Branch Davidian compound in Waco for a period of more than 50 days (nearly two months) before they attacked. They tried everything they could think of to negotiate with the terrorist group and save the innocent children inside before taking action.

Vladimir Putin, by contrast, waited only two days before attacking the Beslan compound. His government proved itself totally incompetent at the basic task of communicating with the terrorists, much less in protecting the interests of those inside the school. And this should not be surprising to anyone, given that Putin’s only strategy for dealing with Chechnya has been to kill its people (who are supposedly Russian citizens) “in their outhouses.”

2. Clinton Investigated, Putin Covered Up

After Waco turned ugly, Bill Clinton appointed an independent counsel, John Danforth, to investigate the Waco tragedy and issue a public report on accountability. Senator Danforth was a Republican, a member of Clinton’s opposition party, so nobody could question his objectivity, and he was given full power to explore all leads in his investigation, as well as the financial resources with which to do so. The Danforth report concludes that the Branch Davidians themselves set the fire which killed so many of their members.

Vladimir Putin, by contrast, has steadfastly refused to conduct any kind of genuine independent public investigation of the Beslan events, much less to place such an investigation in the hands of a rival like Grigori Yavlinsky, and thrust the matter into the backrooms of his rubber-stamp legislature. That investigation has been exposed as a pure sham. As Wikipedia states:

At a press conference with foreign journalists on September 6, 2004, Vladimir Putin rejected the prospect of an open public inquiry, but cautiously agreed with an idea of a parliamentary investigation led by the Duma. He warned, though, that the latter might turn into a “political show”. On November 27, 2004, the Interfax news agency reported Alexander Torshin, head of the parliamentary commission, as saying that there was evidence of involvement by a foreign intelligence agency. He declined to say which, but said “when we gather enough convincing evidence, we won’t hide it”. On December 26, 2005, Russian prosecutors investigating the siege on the school claimed that authorities had made no mistakes. Family members of the victims of the attacks have claimed the security forces of incompetence, and have demanded that authorities be held accountable. On August 28, 2006, Yuri Savelyev, an MP and member of the official parliamentary inquiry panel, publicized his report proving that Russian forces deliberately stormed the school on 4 September 2004 using maximum force. According to Savelyev, a weapons and explosives expert, special forces fired rocket-propelled grenades without warning as a prelude to an armed assault, ignoring apparently ongoing negotiations. On December 22, 2006, a Russian parliamentary commission ended their investigation into the incident. They concluded that the number of gunmen who stormed the school was 32 and laid much blame on the North Ossetian police; the commission stated that there was a severe shortcoming in security measures. Also, the commission said the attack on the school was premeditated by Chechen rebels including Aslan Maskhadov. In a controversial move, the commission claimed that the shoot-out that ended the siege was instigated by the hostage takers, not security forces. Ella Kesayeva, who leads the Voice of Beslan support group, suggested that the report was meant as a signal that Putin and his circle were no longer interested in having a discussion about the details. “We personally didn’t expect anything different from Torshin,” she said. In February 2007, two members of the commission broke their silence to denounce the investigation as a cover-up, and the Kremlin’s official version of events as fabricated. The pair said they refused to sign off on the report because of their misgivings.

Since then, as we reported in our post about Beslan, evidence continues to mount that the Russian government itself was the primary cause of the fatalities at Beslan. Putin’s dogged refusal to allow an independent public investigation, combined with the obviously rash manner in which his forces attacked the school, are clear indications that he has something to hide. In a courageous and heroic manner, the parents of the children who perished in Beslan are organizing and demanding that justice be served, and it is to be expected that they will be met with dishonest propaganda such as that which “John” is repeating on behalf the malignant little troll who dwells within the high blood-red walls of the Moscow Kremlin.

This is the way it has always been in Russia. Instead of actively looking to expose mistakes and reform, Russia’s response to failure is inevitably denial and cover-up. Instead of trying to root out Putin’s mistakes at Beslan, these russophile scum, more dangerous to Russia by far than any foreign enemy, argue instead that since George Bush has also made mistakes Russian errors should be ignored. Because of this, Russia goes on repeating the same mistakes over and over again (for instance, electing a KGB spy to be president) while America learns from its mistakes, reforms and grows stronger. In less than a century, Russian society has collapsed not once but four different times (Tsar Nikolai, Kerensky, Lenin and Yeltsin) while America has maintained the world’s oldest continuously effective constitutional democracy.

To be sure, the analogy between Waco and Beslan isn’t perfect. There was nobody inside the Waco compound except the extremist community; they were not taken hostage by interloping extremists from outside. But if the Kremlin thought it could save the hostages at Beslan by acting as it did, and that its action was justified because there were hostage-takers, nobody can now doubt that it was literally dead wrong. Yet it hasn’t apologized, much less reformed. And Waco shows that incidents like these can erupt not only from the actions of aggressive terrorists but also organically, and therefore government action must be more sophisticated than simple blunt trauma in attempting to deal with them. Sophistication begins with introspection, something it’s clear the Kremlin cannot even contemplate.

Indeed, Vladimir Putin’s thug-like Kremlin is capable of nothing besides blunt trauma and, as Beslan and Dubrovka clearly show, it can’t even do blunt trauma well. It’s hard to imagine how anything the terrorists might have done could have caused the two incidents to end more horrifically for the people of Russian than they did when the Kremlin became active. America has not had one single incident of domestic terrorism since 9/11, yet the American people still crush George Bush with wickedly unfavorable reviews in the polls. Meanwhile, the pathologically cowardly people of Russia douse Vladimir Putin with maniacal praise, encouraging him to do more of the same.

And so it goes in Russia.

On the Trail of Litvinenko’s Killers

Contributor Jeremy Putley refers us to the following item in the London Review of Books. Jeremy writes: “I find this article interesting, as having been written by a professor emeritus of theoretical physics who knows the subject better than most. Professor Dombey hypothesizes that polonium-210 was first tried out, experimentally, on the Chechen prisoner, Lecha Islamov, murdered by his jailers in 2004, and then used on Roman Tsepov also in 2004. When Putin is eventually succeeded by an honourable president in Russia (at an unknowable future date) perhaps the truth about Putin’s murders will then become known.”

The word ‘radioactive’ was first used in public on 18 July 1898, when Marie Curie and her husband, Pierre, reported to the French Academy of Sciences on the progress of their work on becquerel rays – what we would now call ionising radiation. The Curies had subjected pitchblende, a black mineral composed largely of uranium dioxide, to repeated heating, then dissolved the residue in acid. The process yielded a substance four hundred times more radioactive than uranium; they named it polonium, after Marie Curie’s country of origin. Later that year, they isolated radium.

The hazards of working with radioactive materials initially seemed restricted to occasional fatigue and skin burns but in November 1925 Nobus Yamada, who had worked in the Curies’ laboratory on the preparation of polonium sources, fainted suddenly a few days after his return to Japan. He died eighteen months later. In the summer of 1927, the Curies’ daughter Irène wrote that Sonia Cotelle, a Polish researcher who had also been working with polonium, ‘was in very bad health’: she had stomach problems and had suffered ‘an extremely rapid loss of hair’. Cotelle continued work despite this for a few more years until a glass containing polonium shattered in her face. She died two weeks later. Yamada and Cotelle are the earliest known victims of polonium poisoning.

On 1 November last year, the Russian exile and former intelligence agent Alexander Litvinenko began vomiting after drinking a cup of tea at a London hotel. He was taken to a local hospital. His symptoms – hair loss and blistering in the mouth – seemed to indicate radiation poisoning, but a Geiger counter showed no signal. He was transferred to University College Hospital, where he was placed in intensive care and underwent further tests. Amit Nathwani, the consultant haematologist in charge of his case, established that his bone marrow function had failed: another symptom of acute radiation poisoning. He died on 23 November.

Litvinenko’s murderers should not have carried out their operation in London. Almost anywhere else, the death would have been merely suspicious and its cause would have remained unknown. But UCH is not only a leading teaching hospital; it is also associated with University College London, which has a Department of Medical Physics with a strong radiation physics group. A network of haematologists, radiation experts and toxicologists was assembled from UCH and other major London teaching hospitals, in an attempt to isolate the cause of the illness, and when radiation poisoning was suspected, the police sent Litvinenko’s blood and urine samples for analysis to the Atomic Weapons Establishment at Aldermaston.

Three distinct forms of radiation are emitted by radioactive substances: alpha radiation, which is composed of helium nuclei; beta radiation, which consists of electrons; and gamma radiation, electromagnetic radiation of higher energy than X-rays and carrying no electric charge. Alpha radiation, which is emitted by polonium and radium, is stopped by a thin layer of matter – skin, for example – while beta and gamma radiation can penetrate tissue. Geiger counters detect beta and gamma radiation; but the detection of alpha radiation requires specialised equipment such as that used at Aldermaston. The polonium discovered by the Curies is a mixture of isotopes: more than 20 polonium isotopes are now known, ranging from polonium-184 to polonium-218. The polonium that killed Litvinenko, however, was not refined from pitchblende, but was the pure isotope Po-210, obtained by neutron irradiation of bismuth-209 in a nuclear reactor. Aldermaston suspected Po-210 when they detected a weak gamma signal of the right energy. Polonium sticks to metal and a silver disc was used at Aldermaston to collect an enriched sample, which produced alpha particles with an energy of 5.3 million electronvolts, the signature of Po-210 decay: this definitively identified the poison.

More than 95 per cent of the world’s Po-210 is made in one place: the nuclear weapon assembly plant of Avangard in the formerly closed Soviet nuclear city of Arzamas-16, now called by its original name, Sarov. Russia exports about eight grams of Po-210 a month to Western countries, where it is used in minute quantities in devices that remove static charge in industrial processes. Po-210 is enormously radioactive: one gram emits 140 watts, enough to power two light bulbs; the isotope can be used as a lightweight power source in spacecraft. One picogram (one millionth of a millionth of a gram) of Po-210 has an activity of more than 100 alpha particle counts per second, so even unimaginably small amounts will register radiation on an alpha-particle counter. The investigation into Litvinenko’s death found a trail of the isotope extending from Moscow to London via Hamburg. In May, Scotland Yard announced that Andrei Lugovoi, a former KGB and FSB agent, was wanted for murder and the Crown Prosecution Service began extradition proceedings against him. Russia has refused extradition on the grounds that its constitution does not allow it, and has claimed that Litvinenko killed himself or was killed by his patron Boris Berezovsky.

It is clear, however, that only a state-sponsored group or rogue elements within a state-sponsored group, could have had access to Po-210, and there can be little doubt that in this case the state was Russia. It is well known that the KGB specialised in poisoning: Laboratory No. 12 was founded in 1921 to carry out research in this area. The KGB has poisoned people in Britain before. In 1978, the Bulgarian journalist Georgi Markov was killed with ricin, injected by means of a specially adapted umbrella. In April 2005 Boris Volodarsky, a former Soviet military intelligence officer now living in the West, wrote an article for the Wall Street Journal in which he listed some recent poisonings that he claimed had been carried out by the FSB. These included the use of a dioxin-based poison on Viktor Yushchenko during the presidential election campaign in Ukraine in 2004, and the 2002 killing of a Chechen-based militant known as Khattab by means of a poisoned letter. Ivan Rybkin, who stood for the presidency against Putin in February 2004, disappeared for several days during the campaign and when he reappeared claimed the FSB had drugged him; in September 2004, the journalist Anna Politkovskaya, who was murdered in Moscow shortly before Litvinenko became ill, lost consciousness after drinking tea aboard a flight to Beslan (she later asserted that FSB agents on the plane had poisoned her); and the Russian MP and human rights activist Yuri Shchekochikhin died suddenly in 2003 from a mysterious illness which caused his skin to fall off and his internal organs to swell up – probably the result of radioactive thallium poisoning.

None of this, needless to say, proves that Putin ordered Litvinenko’s assassination, as Litvinenko claimed on his deathbed. However, a new law – passed by the Duma in June 2006 – gives the FSB authority to send commandos abroad to assassinate ‘terrorist groups’, and this power is to be used only at the discretion of the president. In Death of a Dissident, Alex Goldfarb and Marina Litvinenko present further evidence which, they claim, shows that Putin was personally responsible for targeting the London-based group of Russian exiles centred on Boris Berezovsky. Some of it is compelling, in particular their argument that the real-time monitoring of phone calls between Russia and London (as distinct from calls being recorded and listened to later) could only have been authorised at a very high level: in the Russian system that means the presidential office. They also claim that the use of such an unusual method of assassination would have been intended to make clear to Russian exiles in London the extent of the power of the Russian state.

The use of Po-210 as a poison requires a detailed understanding of its properties. During the Cold War, both Soviet and American scientists explored the effects of Po-210 on animals and humans. In the US, the Atomic Energy Commission sponsored experiments at the University of Rochester on the use of injections of Po-210 to treat patients with terminal cancer, and also studied its effects on animals. In the Soviet Union more detailed studies were made of Po-210 as a poison. Its ‘devastating effects were studied in the 1960s at a Moscow institute where the isotope was administered to dogs, rabbits and rats’, according to Boris Zhuikov, the head of the radioisotope laboratory in the Nuclear Studies Institute of the Russian Academy of Sciences, in an interview with the Washington Post. ‘If someone hates, really hates,’ he added, ‘then it’s a good material’ to use: ‘This is real suffering.’ Although alpha particles do not penetrate skin, if an alpha emitter is ingested it can be lethal. In March, the Radiation Protection Division of the Health Protection Agency published a paper, ‘Polonium-210 as a Poison’, which estimated that 20 micrograms was required to kill a man weighing 70 kg. A little more than this was probably used to kill Litvinenko.

But theoretical knowledge wouldn’t have been sufficient. Tests on animals would be useful in establishing the dosage for humans, but are not finally reliable. A senior radiation expert, one of those consulted by the Health Protection Agency over the Po-210 contamination in London, told me that tests would have been carried out on humans as well as animals in order to determine the efficacy of the poison. An assassination attempt, especially one to be carried out overseas, would require a carefully tested poison: the amount of Po-210 would need to be enough to kill but not to cause a major public health incident. Just as the KGB developed the ricin capsule in the Markov case, the best method of administering Po-210 would have had to be studied. It is not yet known how this was done: it could have been a drop of liquid from a fountain pen or a grain of specially prepared sugar dissolved in Litvinenko’s tea.

So who was Po-210 tested on? In April 2004, it was reported that Lecha Islamov, a Chechen guerrilla commander serving a nine-year prison sentence, had died after being admitted to hospital in Volgograd with a mysterious illness. ‘Sources close to the convict,’ ran a report in the Chechnya Weekly, ‘told the online newspaper Vremya Novostei that they suspect he may have been poisoned by Russia’s security agencies . . . Islamov’s symptoms – including hair loss and massive blisters – were said to be inexplicable to the doctors who have been trying to treat him.’ Islamov’s relatives said that he’d told them his jailers had summoned him several days before his death for an ‘informal conversation’, during which he was given a snack and some tea. ‘He began to feel ill within five minutes,’ they said, ‘as he was being taken back to his cell.’

A second possible precedent for the use of Po-210 as a poison was discussed on the BBC’s File on 4 in February. Julian O’Halloran reported that in September 2004 a man was taken to Hospital No. 31 in St Petersburg, which used to be a clinic for the Communist elite. ‘The man, who had a background in security, had fallen ill two weeks earlier. At first it looked like food poisoning, but after a brief apparent recovery, the man’s symptoms grew much worse, leaving his doctors utterly perplexed.’ One of the doctors said that the patient ‘was very feeble. He stopped vomiting and the diarrhoea became less frequent, but there was still no sign of toxic infection. It was a poisoning without a poison. What we didn’t like from the start was the low level of white blood cells. It was as if his immune system was switched off.’ The patient was Roman Tsepov, who was, O’Halloran continued,

in the security and bodyguard business. In the 1990s, he’d guarded the city’s powerful mayor and even the local man who, seven years ago, became Russia’s president: Vladimir Putin. Tsepov was reputed still to have friends in very high places. In September 2004 he was 42, busy and active, when he fell ill after a trip to Moscow . . . Hospital tests showed that Tsepov’s white blood cells, vital in fighting infection, had dropped to a seventh of their normal level. His physician, by now desperate, concluded the bone marrow was being destroyed.

Tsepov died soon afterwards; no cause of death was ever established.

If Tsepov and Islamov were victims of Po-210 poisoning, then – given that the isotope’s half-life is 138 days – the three and a quarter years since Islamov’s death would have reduced the level of Po-210 in his body by a factor of around 600, rather less in Tsepov’s case. If the dose of Po-210 administered was around 30 micrograms, then at least 50 nanograms would still be present in their bodies: enough to be detectable in tissue samples using alpha radiation spectrometry. So, in principle, it would be possible to establish whether polonium has killed others – but the Russian authorities would first have to allow the bodies to be exhumed.

Norman Dombey is a professor emeritus of theoretical physics at the University of Sussex.

Another One Bites the Dust

A reader points out that the BBC reports that yet another businessman has run afoul of Russia’s creeping nationalization of business:

Mikhail Gutseriyev said “unprecedented persecution” from authorities had forced him to step down and sell up. Aluminium tycoon Oleg Deripaska has now applied for regulatory approval to buy the group for an undisclosed amount. The company is currently facing tax claims of around $1bn (£500m) and police charged Mr Gutseriyev with illegal business activities in May. In an open letter in the Russneft company magazine, Mr Gutseriyev said there was “an attack on all fronts” against the firm from tax authorities, the prosecutor general’s office and the interior ministry. “They told me I could take the easy way out. I refused. Then to make me more ready to negotiate, my company came under unprecedented persecution,” he added.

Sold on

As a result, he said he had decided to quit and hand over control of the firm to a new owner he believed would resolve all of Russneft’s problems over time. Basic Element, the holding firm of Mr Deripaska, is expected to win approval within the next month to take over the firm in a deal rumoured to be worth about $6.5bn (£3.2bn). Mr Deripaska is widely seen as loyal to the Kremlin and has previously said that he would sell his aluminium assets to the state if he was asked. Commentators have likened the plight of Mr Gutseriyev to that of former Yukos boss Mikhail Khodorkovsky who is currently serving an eight year jail sentence in Siberia for tax evasion. Oil giant Yukos was carved up after being hit with claims for $28bn in back taxes, with state oil giant Rosneft later buying up most of the company. Yukos has argued that the tax demands made by the government were tied to a political campaign against Mr Khodorkovsky.

The Moscow Times has more:

The head of Russneft said Monday that months of state pressure had prompted him to sell the embattled oil company to rising, Kremlin-friendly oligarch Oleg Deripaska. “Not everyone has liked Russneft’s success,” CEO Mikhail Gutseriyev said in a letter published in the company’s internal magazine. “I was invited to leave the oil business ‘on good terms.’ I refused. Then to make me more compliant, the company was subjected to unprecedented hounding,” Gutseriyev wrote. Russneft’s board of directors approved Gutseriyev’s resignation late Monday, the company said in a statement. Senior vice president Oleg Gordeyev was appointed acting president. “Mikhail Gutseriyev is temporarily stopping his entrepreneurial activities, leaving all business projects and intends to undertake scientific activities in Russia,” the statement said.

Gutseriyev formed Russneft in 2002, after leaving state-run oil firm Slavneft and subsequently buying its assets on the cheap. He has since grown the company into Russia’s seventh-largest oil producer, pumping 300,000 barrels of oil per day. Then last year, tax and legal authorities began slapping the company and its shareholders with lawsuits as the Kremlin tightened its grip on the country’s energy sector by means often criticized as lacking transparency. Basic Element, Deripaska’s holding company, confirmed on Monday that it had asked the Federal Anti-Monopoly Service for approval to buy Russneft. Neither Russneft nor Basic Element would comment on the details of the sale. Vedomosti on Monday cited a source close to Deripaska as saying the two sides had agreed last week on a $6 billion price tag, while sources close to Russneft told the newspaper that the price had been set at $9.6 billion.

Gutseriyev, worth an estimated $2.9 billion according to Forbes, will receive a payout of $3 billion, Vedomosti said. He is estimated to own 70 percent of the privately held company. Deripaska, Russia’s second-richest man and the Kremlin’s favored oligarch of the moment, will pay off the $2.8 billion debt that Russneft owes Glencore, the Swiss-based commodity trader that helped finance the firm’s expansion, the newspaper said. Glencore already has links to Deripaska, having merged its aluminum assets with Deripaska’s Russian Aluminum and Viktor Vekselberg’s SUAL earlier this year. That merger created United Company RusAl, the world’s largest aluminum company. RusAl plans to carry out an initial public offering this year, as Deripaska seeks to shake off a controversial reputation forged during the aluminum wars of the 1990s.

If Basic Element’s request is approved, it will merge the firm into its En+ energy unit, Basic Element said in a statement. The holding also manages Deripaska’s metals, automobile, construction and property assets. Deripaska has proven his loyalty to the administration of President Vladimir Putin. “I don’t separate myself from the state,” he told The Financial Times earlier this month, adding that he would give up RusAl if the Kremlin asked him to. Analysts said Deripaska could hold Russneft before passing it on to state-controlled oil giant Rosneft, which is heavily in debt. The firm has borrowed more than $25 billion this year alone. Rosneft spokesman Nikolai Manvelov said the company was not interested in buying Russneft from Deripaska. Rosneft spent hefty sums scooping up assets that once belonged to Yukos. The purchase of two Yukos production units at forced bankruptcy auctions this year propelled it to the top spot among Russian oil producers.

Yukos was felled by over $30 billion in back tax charges and CEO Mikhail Khodorkovsky was jailed for eight years on charges of fraud and tax evasion. Gutseriyev hinted in his letter that he hoped to avoid a similar fate. “I have taken the decision to quit our company. I hand control of the holding to a new owner whose appearance, I am sure, will ensure that all Russneft’s problems will be resolved in time,” Gutseriyev said. He accused the country’s “financial and power structures,” including the Prosecutor General’s Office, the Interior Ministry and the Federal Tax Service, of carrying out an unprovoked attack against the company. “I don’t know what I am guilty of and where I made mistakes” in drawing their ire, Gutseriyev said in the letter.

The Kremlin was believed to be unhappy with Gutseriyev for seeking several Yukos assets without its approval, but Russneft said last week that it had dropped its interest after receiving requests from Gazprom. The Federal Tax Service had brought a total of eight lawsuits against 11 companies that are or have been shareholders in Russneft. In May, Gutseriyev himself was charged with fraud, and in June, tax authorities froze some of the company’s shares. “This whole affair, including Gutseriyev’s claim that he was forced out of the company through the combined effort of state agencies … could cast a shadow over investors’ perceived sentiment as to the business environment in the Russian oil and gas industry,” UBS warned in a research note.

Gutseriyev’s exit comes fresh on the heels of TNK-BP’s decision to sell its share in the Kovykta gas project to Gazprom, after months of pressure from the Natural Resources Ministry. Shell, Mitsui and Mitsubishi sold a majority stake in the Sakhalin-2 oil and gas project to Gazprom after a similar campaign late last year. “The government is moving toward increasing the state share of production,” said Julia Nanay, a senior analyst at PFC energy. “Russneft has been high profile, with aggressive goals to grow its output,” she said. Gutseriyev said last year that the company was seeking to raise net income to $1 billion this year by producing 20 million tons of crude. The company was also considering an initial public offering.

Analysts say the state’s increased activity in the energy sector shows it hopes to consolidate control over the industry ahead of presidential elections in March. According to Alfa Bank, the state currently controls 44 percent of the country’s oil production, if Russneft is included. Russneft owns 30 production assets, three refineries and 300 petrol stations, the company’s web site said

July 31, 2007 — Contents


(1) Annals of Beslan

(2) Explaining Russia’s Unsafe Skies

(3) Nationalizing the Neo-Soviet Economy

(4) Politkovskaya Lives

(5) Annals of Educated, Cultured Russia