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By John Helmer in Moscow

Putin’s endorsement of Medvedev, and vice versa, leaves mining policy issues up in the air.

President Vladimir Putin did his best to make the selection of Dmitry Medvedev, 42, his former chief of staff and St. Petersburg lawyer, as natural an endorsement as he could of the capabilities of a man he’s worked with for 17 years. But Prime Minister Victor Zubkov went one better. He revealed the power politics behind the selection.

Putin stage-managed the announcement in Monday’s meeting with Boris Gryzlov, the outgoing parliament speaker and leader of the dominant incoming party, United Russia. It was the classic Russian line: the tsar is the father of the people. According to Gryzlov, “we believe that [Medvedev] is the most socially oriented candidate and has demonstrated his abilities well in leading the national projects and the demographic program. “Putin declared: “We have worked closely through all of these years, and I completely and fully support this choice.” This was the classic Bolshevik refrain – loyalty to unanimity, unanimity of the loyal. Victor Ilyukhin, a senior Communist Party figure, responded with the classic statement of the left opposition, identifying Medvedev as without party principle, ideology or conviction: “Medvedev is insecure, weak. Putin can have full control of him.”

It bears reminding that the poll results from the December 3 parliamentary election produced a left opposition vote totalling 28% of the electorate. The Communists drew just 12% of that; the worst result they have recorded in the post-Communist period. But there is good reason to accept their claim that about 10% of the vote was rigged. If true, there is a reserve of voter opposition to the current leadership of almost 40%. That is the electorate which Medvedev’s selection is intended to soften.

Of course, all the stage announcements are true. But it has been up to Zubkov to explain, not so much what had happened, but who had made it happen. Unprinted in the media encomiums that followed the nomination ceremony, Zubkov was shown on the Tuesday television bulletins, touring a building site, wearing a red roll-neck sweater under a fox- collared parka. The image was of the traditional commissar. But more relaxed and confident than all the other endorsers, except for Putin himself, Zubkov said Putin had talked to him about the nomination before it had been decided. Gently, he implied that Putin had consulted him. Even more gently, Zubkov said he had approved.

There is no doubt what this means. After 17 years of loyal work, eight of them in Moscow under Putin at the prime ministry, then the presidency, the child-shaped, and child-voiced Medvedev has produced no record of where he stands on anything, nor of whom he has managed to stand above, on any issue of concern to the national polity. Described as Putin’s son, it is weakness that has been his strength. Precedents for such weakness in Russia’s past have been in discussion for months – they led to the near certainty, until this week, that Medvedev would be superseded by tougher candidates – Sergei Ivanov, Putin’s comrade in arms, former defence minister and currently first deputy prime minister at Medvedev’s rank; Zubkov; and Putin himself.

Ivanov’s endorsement of Medvedev the day after was uncomfortable; gone was Ivanov’s smile and the panache of the past six months. But Ivanov signaled that he too had been in the know. “I want to say that I knew of this decision beforehand and I supported and support this decision now.”

But what do Zubkov and Ivanov mean? Firstly, that Putin’s choice of a weak man, not a strong one, indicates that the political forces and factions around Putin are volatile, aggressive, and beyond Putin’s strength to control himself. This is customarily reported in Russian and western newspapers as the fight between the siloviki – the veterans of the various armed, intelligence, police, and security organizations. Medvedev is the weakling, the child to sit at the head of the table, because the godfathers don’t trust anyone of themselves to take that power.

Secondly, Zubkov, a tough and forthright man, if ever there was one on this side of the Kremlin wall, means to explain that Medvedev is a consensus candidate, chosen by consultation with a number of powerful figures, including himself. This ought to warn against investment bank talk, like this from Renaissance Capital: “Medvedev is generally recognised as being the most pro-Western and least hawkish of all the presidential candidates whose names have been suggested.” The Financial Times editorialist also couldn’t help himself: “There are hopes that Mr Medvedev, who is Gazprom board chairman, will be more liberal towards business and more open to the west than some of the unsuccessful candidates, notably Sergei Ivanov, a hawkish ex-spy.”

For political bird fanciers, who argue about hawks and doves, Medvedev might be classed as canary or pigeon. Zubkov implies the labels are irrelevant.

It is obvious why the international mining markets must pay attention to all of this. Russia is the world’s leading producer and exporter of energy. It is a dominant global player and swing pricemaker in the world markets for nickel, palladium, diamonds, cobalt, potash, and titanium. By virtue of the geological prospecting already completed, and its cost of production, Russia is a major global miner of gold, silver, uranium, iron ore, and coal. It is also a global rival to international producers of aluminium, copper, and zinc.

Towards this natural resource sector, however, Medvedev’s record – even for the four years he’s been the chairman of the Gazprom board – is a blank. What is meant by tags in the western media like liberal has been explained by Mikhail Delyagin, a government economic adviser in Moscow. “Medvedev has such a weak personality that he would be raped by lobbyists right on his table on the second day of his presidency, and Putin knows this.” Medvedev’s nomination means that he will depend on his prime minister. But he is frail, and Kremlin politics so unstable, Medvedev could not wait more than a day to reveal that he does not intend to be his own man.

On Tuesday, Medvedev announced he will cede the real power of the presidency back to Putin, promising to name him as his prime minister.

That means that key issues of policy-making are now for Zubkov to make, or frozen until Putin cedes his place to Medvedev. On Tuesday, Medvedev announced that he will then cede the real power of the presidency back to Putin, promising to name him as his prime minister.

The announcement was brief and witless: “I consider it principally important for our country,” Medvedev said, “to keep in the most important position in executive power – in the post of chairman of the Russian government – Vladimir Vladimirovich Putin.” This is how a weakling with just 24 hours as the candidate leader in a republic with a presidential constitution lets slip an important constitutional shift that cost lives and much grief, when then President Boris Yeltsin ordered an artillery bombardment of parliament for defending a prime ministerial and parliamentary republic in 1993.

For the financial and commodity markets, and their due diligence advisors, there are a handful of pointers to what is happening. Continuity isn’t exactly what that is, although Zubkov, Ivanov, Medvedev and Putin are attempting to say it is.

One of the pointers is the contest for big new potash mining licenses, due to take place any time now, which Mineweb reported yesterday: http://www.mineweb.com/mineweb/view/mineweb/en/page58?oid=41749&sn=Detail

This pits the Minister of Natural Resources, Yury Trutnev, and the LUKoil company controlled by oligarch Vagit Alekperov, against Rosoboronexport (ROE), the arms export monopoly run by Sergei Chemezov. Trutnev and Alekperov are backing Uralkali; Chemezov is backing Silvinit. How this contest will be decided is a pointer to how the doctrine of strategic resource is going to be applied in the first term of the new presidency. For Chemezov is making a powerful bid to supplant the remaining oligarchs, and reallocate their mining and metal concessions to state-led companies. This is already impacting titanium, steel, tungsten, and iron-ore mining. It also produced a sharp shot across the bow of the oligarchs, Vladimir Potanin and Mikhail Prokhorov – at war with each other over Norilsk Nickel and Polyus – who were told that they may not be allowed to sell control of their bank, Rosbank, to Societe Generale.

ROE’s argument is that Rosbank holds bank accounts on behalf of the Russian military, and so a large foreign shareholder in the bank like France’s SocGen constitutes a security risk. SocGen has already acquired a 20% minus 1 share stake in the bank from Potanin and Prokhorov; it holds the option to raise this by an additional 30% plus 2 shares, for an additional $1.7 billion between now and the end of next year. The deal appears to have been one of the sources of the esteem in which Potanin is held by Sarkozy administration, and one of the factors that helped tip Prokhorov into a Lyon prison last January. It has been approved by the Central Bank of Russia, but it is now being threatened by ROE. While not directly impacting on mining and resource concessions under Kremlin control, Chemezov’s positioning on the strategic issue is a test of strength, and the timing is a pointer to which way the succession winds are really blowing.

If ROE wins on potash licences and Rosbank, then this will impact on the bidding next year for such big gold concessions as Sukhoi Log. In eight years and two terms, Putin never mustered the desire to choose between gold miners like Potanin and Suleiman Kerimov, owner of Polymetal, in the award of Sukhoi Log’s licence. Putin did tell Kerimov that he was too rich to continue sitting in the lower house of parliament after this month’s election; Kerimov has now repaired to the upper house, where he will shortly be nominated as a senator.

But the next administration is likely to be compelled to end the prevarication. That is because two, three or four more oligarchs, all dating from the Yeltsin period, have entered the gold sector. Roman Abramovich, an apparent favourite of Putin’s, has been assembling gold mining assets in the far northeast, where he is Chukotka’s governor. Alexei Mordashov, owner of steel mills and iron-ore mines, has bought Celtic Resources for his platform. Oleg Deripaska and Victor Vekselberg both retain mining interests in their holdings, and have said they want to bid for Sukhoi Log. They will all have a say in who succeeds Trutnev as Minister of Natural Resources – if not Trutnev – for he’s the first vote in the award of mining concessions. For the time being, Chemezov has shown little interest in the bidding for gold, but if his interest in Alrosa, the diamond miner, extends to a takeover there, he may see Alrosa launched on a gold acquisition programme that will incorporate Polyus Gold, and perhaps Sukhoi Log, too.

The turmoil at Alrosa is already a pointer to how things are changing with the presidential succession. This is because of the hot water into which the chairman of the Alrosa board, Finance Minister Alexei Kudrin, has been lately tipped. In late November, Kudrin’s deputy at the ministry, Sergei Storchak, was arrested on charges of grand larceny and embezzlement. Fresh charges were added to the indictment this month. Dozens of millions of dollars are alleged to be involved, and a substantial sum reportedly discovered by investigators at Storchak’s Moscow apartment.

Kudrin has publicly defended Storchak, while argument has surfaced between two separate groups of federal prosecutors regarding the terms of his imprisonment and denial of bail. Sources close to the government have told Mineweb they believe the charges against Storchak are also aimed at bringing Kudrin down. Kudrin and Storchak say they have been framed. The outcome of the affair depends on who command the prosecutors, and that in turn leads to a contest which Zubkov seems to be winning, and which Putin has been unable, or unwilling to halt. If a purge is threatening Kudrin, Alrosa’s financial affairs, and those of Alrosa chief executive Sergei Vybornov, are likely to come under new scrutiny. And that, as we have reported before, is an opportunity Chemezov and his men are watching for.

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