Alrosa is Now an Arm of Putin and The Russian Government

There is a transformation underway. In 2006, the Putin government made a deal with Alrosa, the Russian Mining company. After significant pressure, similar to what happened with Gazprom, Alrosa accepted State Control and received a monopoly in the Russian Diamond trade. Alrosa now claims to control 100% if the Russian Diamond trade, and 20% of the trade in the rest of the world.

Why is this important?

Because in Africa, when Gazprom or Alrosa speaks it must be clearly understood that it is the Putin government speaking

-make no mistake of entering into arrangements with them believing that they are private companies, as is understood in the west....

Gazprom's methods will be much more like the KGB than BP

Look at the Boards of these companies, read the very public biographies. Note that the "Seconds" in Gazprom and Alrosa are former KGB old guards, and maintain Active FSB ties.

For more background, read about Putin's People in The Economist.


-Shimron

Here is a long, boring 256 page report about how they did it. What follows is a brief excerpt of an English translation of a Russian document, so please bear with the economic-English-Russian speak:


"....ALROSA JSC − to the Center became the «price» of prolongation of
Vyacheslav Shtyrov’s powers.

Vladimir Putin set this task before the Ministry of
Finance in 2001, however its solution was hampered by the fact that the process
of redistribution of the «diamond» financial streams is touching upon the
interests of very many influential political players of federal scale.

In this case both the representatives of the «liberal» grouping of elites, for which ALROSA
assets constitute the main resource base, and «siloviks», potentially interested in
the expansion to the sphere of their competitors’ traditional influence, are
implied.

The fight for ALROSA continued for several years at the regional level, but
only in November of the last year[2005-added by shimron] the administration of the Ministry of Finance headed by Alexey Kudrin managed to make the administration of the Republic of
Saha (Yakutia) sign the protocol fixing the main stages of federalization of the
Joint Stock Company.

At that, having formally agreed to the conditions of division
of the property suggested by the federal center, President of Yakutia for a long time
has been evading from taking active steps in this area, preferring the policy of
«maneuvering» with the purpose to avoid an open conflict with main federal
interest groups and oriented at the support of local elites and the republic’s
population.

Simultaneously the negotiation process was carried out on the issue of
compensation of the inevitable budget losses of Yakutia. The transfer of the
property of the production and scientific association Yakutalmaz, on the facilities
of which in the early 1990−ies the company was created (the parties must introduce
these assets to the authorized capital of ALROSA as the payment for the federal
and republican shares), to the property of Joint−Stock Company ALROSA entails
the decrease of the republic’s income by 10 billion (according to the
administration) or 9 billion (according to the Ministry of Finance) rubles a year.

The originally declared demands of the republic’s administration in this
connection totaled to the unprecedented amount – 500 million dollars from the
federal budget.

However, accomplishment of the process of transfer of diamond monopoly
under control of the federal Center before the end of the current year was of
strategic importance, − in the first turn, for the administration of the Ministry of
Finance, therefore, to achieve the set goal, Alexey Kudrin was ready to agree to a
series of concessions to regional elites.

One of them, in the long run, became the prolongation of Vyacheslav Shtyrov’s powers. The economic aspect of the achieved agreements looks as follows.
Russia 2006. Report on transformation

Deputies of Il Tumen (the State Assembly) have approved the variant of the
amicable agreement pursuant to which the main share of the property of
Yakutalmaz will be transferred to the state with its subsequent introduction into the authorized capital of ALROSA JSC. [highlingted and bolded by Shimron]

In its turn, the new procedure of distribution of the Mineral Extraction Tax is called to satisfy the economic requirements of Yakut elites: in accordance with the recently adopted law, all receipts of the diamonds extraction tax are transferred to regional budgets (earlier their share
constituted 60%).

Yakutia will get practically all losses of the federal center (2,6 billion rubles a year), with the exception of 18 million rubles in favour of the budget of Arkhangelsk region (extraction of diamonds by Severalmaz JSC) and 0,4 million rubles to Perm Krai (Uralalmaz mine).

The transfer of several social objects and infrastructure from the balance of Yakutia to the balance of the Russian Federation will become the second source of compensation.

These assets in the amount of 2 billion rubles are included into the state budget of 2007.

Deductions of ALROSA for implementation of local social, economic and ecological
programs – 2% of the cost of crude diamonds sold by ALROSA – will also remain
in the republic’s budget.
Besides, representatives of Gazprom OJSC [emphasis added by Shimron] have already declared that of the 2,4 trillion rubles planned for implementation of the general scheme of gas supply and gasification of the Far East, over 500 billion rubles will be used in the republic. At last, Rosimushchestvo (the Federal Property Management Agency) took the principle decision on recognition of the legitimacy of the recent incorporation of the company Yakutugol (Coal of Yakutia): the
government of Yakutia (75% minus 1 share) and Mechel group (25% plus one
share) became the shareowners.

Thus, the main stage of returning the diamond monopoly to the state property should be accomplished before the end of the year.

Strengthening of the administrative positions of Alexey Kudrin, the head of the
Ministry of Finance and one of the leaders of «liberal» grouping, who has
implemented Vladimir Putin’s strategically important order, will be the most
significant political consequence of the final redistribution of assets.

Gazprom management, increasing its influence in the region which is perspective from the
point of view of the resource potential, will have to solve the problem of
minimization of possible «costs» of interaction with national elites in future."

-Russia 2006. Report on Transformation, page 57

Organized Crime In Africa

This is Almost three weeks old

23 July 2007

Gumisai Mutume
In one swoop in April, authorities in Guinea-Bissau seized 635 kilogrammes of cocaine, worth an estimated $50 mn. But the traffickers managed to escape with the rest of the 2.5-tonne consignment because the police could not give chase.

United Nations Office on Drug Control (UNODC) Executive Director Antonio Maria Costa commended the seizure, but lamented the poor state of policing in the West African nation. "It is regrettable that the rest of the consignment was not intercepted, but hardly surprising as the police are woefully ill-equipped and often do not even have enough gasoline to operate their vehicles."

That same month, media reports noted that drug traffickers had established a transit area along the Gulf of Guinea as a way to elude tighter policing off the coast of Europe.

Fragile states in Africa are often overwhelmed by other pressing challenges such as poverty, weak public institutions or political instability and can provide a haven for such groups.

One of the illicit networks, operating in Guinea-Bissau, is made up of South American suppliers, African transporters and European distributors.

Mr. Koli Kouame of the UN International Narcotics Control Board reports that tighter policing on the Iberian Peninsula, which has traditionally been the transit point for drugs heading for Europe from South America, is forcing the syndicates to seek alternative routes through Africa.

Strategically located close to Europe and with a porous coastline made up of a labyrinth of islands, Guinea-Bissau provides an ideal sanctuary.
The case of Guinea-Bissau illustrates some of the challenges facing many poor African countries. With weak enforcement capability, underpaid officials and porous national borders, these countries provide an ideal environment for organized criminal rings to extract or tranship illicit commodities.

Africa has far fewer police per citizen than other regions. There are only 180 police per 100,000 people on the continent, while in Asia there are 363. Moreover, when police officers are underpaid and government officials are susceptible to corruption, the job of traffickers only becomes easier. Public officials can be bribed to look the other way or even be induced to work in direct collusion with traffickers.

Transnational crime syndicates deal in a wide range of illicit commodities, including narcotics, diamonds, petroleum, ivory and weapons. They also smuggle human beings. The UN has reported that 90 per cent of African countries are affected by human trafficking flows, either as a source, transit site or destination.

Policeman in Rwanda: Many African police forces need to be better trained, equipped and financed to tackle the challenges of organized crime and smuggling.

Because drug trafficking, prostitution, gambling, loan-sharking and official corruption are illegal and many transactions are consensual, experts note that the extent of organized crime is hard to establish on the basis of official data, in Africa or elsewhere.

"But perception surveys, as well as international crime intelligence and seizures of contraband, suggest that Africa may have become the continent most targeted by organized crime," UNODC states in a 2005 report, Crime and Development in Africa. "Lack of official controls makes the continent vulnerable to money laundering and corruption activities, both of which are vital to the expansion of organized crime."

Although current data is scarce, the South African police estimated in 1998 that the country was losing more than $3 bn annually in potential revenue as a result of the operations of more than 30 Asian, Italian, Nigerian and Russian crime groups in the country.

• Angola, another country recovering from conflict, is one of many in Africa that are losing millions of dollars' worth of national resources that could be ploughed into development. The Southern African nation attracted scores of transnational crime syndicates during its decades-long civil war as the rebel National Union for the Total Independence of Angola (UNITA) traded diamonds and other natural resources to fund its war against the government. When the war ended in 2002, some of its fighters switched from military activities to transnational crime.

The Rest @ AllAfrica.com

This is a summarized version of a great PINR report (See below), that illustrates Chinas impact in Africa

-Shimron

The Financial Times reported on July 13 that the Chinese National Offshore Oil Corporation (C.N.O.O.C.) has signed a deal with Somali President Abdullahi Yusuf to explore the northern Puntland region for oil.

• The initial agreement was signed last May, and it was endorsed at the China-Africa summit held in Beijing last November. [See: "Upcoming Summit Highlights Africa's Importance to China"]
• A meeting between C.N.O.O.C. and Somali officials was held on June 24 to finalize the deal.
• The terms indicate that the Somali government would retain 51 percent of the oil revenues under a production-sharing arrangement.
• Further reporting from the Financial Times, however, revealed that Somali Prime Minister Ali Mohamed Gedi was not aware of the contract, suggesting that the oil deal remains vulnerable to political infighting.
• China's willingness to invest in Somalia -- before the Transitional Federal Government (T.F.G.) completes work on a national oil law and as the security situation continues to deteriorate -- shows that Beijing has not been deterred by the growing backlash across Africa at Chinese policies and remains willing to take on political risks that Western firms will not tolerate.
• Threats to China in Africa Chinese investments have come under attack in recent months, and a general wariness about closer ties with Beijing has become part of the political dialogue in most African countries where China does business.
• Days after the June meeting in Somalia, a Chinese mining executive was kidnapped in Niger.
• The incident followed the killing of nine Chinese workers in Ethiopia, near the border with Somalia, in April.
• Chinese workers have also come under attack in Nigeria in recent months.
• Politically, Chinese investments have become a touchy subject.
• Michael Sata's opposition campaign in Zambia received strong backing after he attacked Chinese investments and threatened to renew ties with Taiwan.
• He ultimately failed in his bid for the presidency, however, after China threatened retaliatory measures if he was elected.
• Similar complaints have been raised in Nigeria and South Africa.
• China began to address the growing unease in Africa toward its investments earlier this year.
• Chinese President Hu Jintao visited Zambia and South Africa in February where he pledged further investments and a greater focus on community development plans.
• China has also publicly used its leverage in Sudan to press Khartoum to accept the terms of last year's U.N. Security Council resolution on the Darfur crisis. [See: "China Adjusts its Approach in Africa" and "China Claims Success on Darfur"]
• Nevertheless, China's fundamental goals in Africa have not changed.
• In Africa, China is looking to secure access to the natural resources it needs to keep its economic expansion humming, as well as support for its policies at the United Nations.
• The C.N.O.O.C. deal in Somalia is evidence that China's risk appetite has not decreased as it pursues these goals in Africa.
• Somalia has no proven oil reserves, and only 200 billion cubic feet of proven natural gas reserves.
• Companies including Agip, Shell (Pecten), Conoco and Phillips (now merged), and Amoco (now part of BP) spent over US$150 million on onshore exploration in the 1980s and early 1990s, but no oil reserves were discovered.
• Still Range Resources, a small Australian-based oil firm with close contacts to the government in Puntland, estimates that the region could hold 5 to 10 billion barrels of oil based on an analysis of the previous exploration reports.
• The Puntland province claims autonomy from the government in Mogadishu, but not independence like Somaliland.
• The region has been relatively calm compared to central and southern Somalia since 1991, but the political situation remains uncertain.
• President Yusuf was certainly involved in the negotiations with the Chinese firm, as he hails from the Puntland province and maintains close ties with the local leadership, but the prime minister of the T.F.G. was left out of the loop.
• The fact that Prime Minister Ali Mohamed Gedi was kept out of the negotiations suggests that the terms of the deal are not beneficial to the T.F.G. or Somalia's other provinces.
• This could exacerbate already strained ties between the prime minister and the president. [See: "Somalia Continues its Political Collapse"]The prime minister appears to have led an effort within the T.F.G. to pass a national oil law that would allow Western firms to return to Somalia under production-sharing agreements, which require oil firms to share their production with the government after initial costs are covered.
• He told the Dow Jones Newswire in April that a national oil law would be passed within two months, a deadline that has slipped. The oil law in question seems to be similar to the one pushed in Iraq by the United States, which has also not been passed.
• China may have wished to sign the deal for exploration rights in Puntland before the law was passed, in order to avoid competition with Western majors, but the emergence of a national oil law could threaten the investment. [See: "Sectarian Fighting Overshadows Oil Law Debate in Iraq"]
• The fact that China would enter into an agreement in such an uncertain legal and political environment, to say nothing of the security concerns, shows that it is still willing to take on risks that the Western oil majors cannot tolerate.
• This remains the main competitive advantage for China in the race to secure natural resources around the world -- while Chinese firms do not have the technology to drill in some of the conditions that Western firms can, they do not have the same political and financial constraints that prevent them from investing in regions considered off limits to Western firms.
• Last month, for example, China National Petroleum Corporation (C.N.P.C.) signed a deal to co-develop an offshore block in Sudan, where China has been the dominant player in the oil sector after sanctions caused Western firms to suspend their operations or pull out completely.
• Sudan now supplies up to ten percent of China's oil imports.
• In Angola, China provided $2 billion in soft loans to the government that allowed it to avoid implementing reforms requested by Western donors. In return, Angola ensured that it would provide continuous oil supplies to Beijing. [See: "China and Angola Strengthen Bilateral Relationship"]
• C.N.O.O.C. said earlier this year that it would boost output to 78 million tons from 40.3 million tons last year. In order to maintain growth rates near this level, Beijing will need to continue to help its oil companies invest in regions where Western firms cannot.
• This means that China will fund infrastructure projects in countries under Western sanctions, such as Sudan, or where security concerns dissuade Western firms from investing more, such as Nigeria.
• The decision to invest in Somalia's Puntland region is part of this strategy.
• Only a small firm, such as Range Resources, would be able to take on a similar risk level, and that firm has spent several years courting the local government officials there.
• With the financial and political backing of the Chinese government, C.N.O.O.C. and C.N.P.C. have a distinct advantage over the smaller Western firms.

China's move into Somalia's oil industry is a further example of its strategy for securing access to natural resources around the world.

• Rather than purchasing oil on the global markets, as the United States does for the most part, China prefers to secure control of the resources it needs at the source.
• However, because China's oil firms lack the technical capabilities and political clout of the Western majors, Beijing prefers to deal with regions that are out of reach to the competition.
• This practice has sparked a growing backlash across Africa to China's policies.
• Many locals see Beijing's actions as protecting corrupt and often dictatorial leaders.
• Beijing has attempted to counter this perception recently by investing in infrastructure projects in regions where the backlash is strongest, leaking reports of its unhappiness with the most controversial leaders, and granting local businesses better access to China's markets in some industries.
• The investment in Somalia's Puntland province still looks risky, even by Chinese standards. The deal appears to have been struck with the local officials in the province that claims autonomy from the transitional, central government. However, the president of the T.F.G., who is from the region, was involved in the deal. The prime minister of the T.F.G. appears to prefer another model to attract investments, passing a national oil law that will clarify the legal questions that prevent Western firms from returning to Somalia.
• The Chinese deal may well fall victim to the political infighting that is likely to follow. Still, the T.F.G.'s claim to control Puntland appears to be weakening as the central government remains frozen in a state of political collapse.
• Two days after the Financial Times first reported about the Chinese oil deal, the much awaited national reconciliation conference had to be delayed because security for the meeting could not be guaranteed in Mogadishu. Given the T.F.G.'s uncertainty, Beijing's decision to work with the local representatives in Puntland may well prove to be enough, and China could soon be pumping Somali oil, if it even exists.

Adam Wolfe

The Power and Interest News Report (PINR) is an independent organization that utilizes open source intelligence to provide conflict analysis services in the context of international relations. PINR approaches a subject based upon the powers and interests involved, leaving the moral judgments to the reader. This report may not be reproduced, reprinted or broadcast without the written permission of enquiries@pinr.com. PINR reprints do not qualify under Fair-Use Statute Section 107 of the Copyright Act. All comments should be directed to comments@pinr.com.

The Rest @ PINR