April 4, 2001 

This Date's Issues:   5185 • 5186 • 5187  

Johnson's Russia List
#5187
4 April 2001
davidjohnson@erols.com

[Note from David Johnson:
1. Reuters: Russia's NTV protests takeover, CNN deal reported.
2. AFP: Magazine staff opposes Kremlin takeover, plans go-it-alone bid.
(Itogi)
3. BBC Monitoring: Russian MP speaks in support of NTV. (Alexei Arbatov)
4. Itar-Tass: New treaty set to star at Chinese president's visit to Russia in July.
5. Reuters: INTERVIEW-Russian trade minister wants US clarification. (Gref)
6. Bloomberg: Russia's Gref Seeks Fewer Embraces, More Business With US.
7. Nezavisimaya Gazeta: Vitaly Tretyakov, REVOLUTION UNDER THE GUISE OF EVOLUTION. Putin has given this task to those who really need it.
8. Vedomosti: BEHIND THE SCENES AT THE PRESIDENTIAL ADDRESS. How Putin's address to parliament was written - and who benefits.
9. Moskovsky Komsomolets: Mikhail Rostovsky, PUTIN'S "SECRET FRIENDS." It's no longer the done thing to be known as an oligarch.
10. Financial Times (UK): Richard Marsland, At risk of losing a wild reputation: RUSSIA: The country is notorious for lawlessness. But western legal firms are finding that things are changing fast.
11. The Independent (UK) editorial: Mr Putin cannot be lauded as the saviour of Russia without political reforms.
12. Financial Times (UK) editorial: Putin's task.] 

*******

#1
Russia's NTV protests takeover, CNN deal reported
By Daniel McLaughlin
 
MOSCOW, April 4 (Reuters) - Journalists at Russia's only independent
nationwide television station NTV protested on Wednesday against a takeover
by a state-dominated gas firm amid reports that CNN founder Ted Turner was to
buy into the channel.

The journalists at NTV have angrily rejected a boardroom takeover on Tuesday
by the gas firm Gazprom, which the journalists say is the tool the
authorities are using to seize the channel and silence a vocal critic.

The boardroom coup saw Gazprom-nominated directors take over key positions
and ousted NTV's founder Vladimir Gusinsky.

Gusinsky, fighting extradition from Spain on fraud charges he says are part
of the clampdown on his media outlets, has tried to attract international
investment in NTV. CNN quoted a source as saying Turner and Gusinsky had
clinched an outline deal.

Gusinsky's Media-Most holding company said it had no information. The
Washington Post cited sources as saying the deal was worth $225 million.

The journalists' protests against the takeover at the station, based at
Moscow's Ostankino television tower, saw many of them spend all night at
their desks.

The action continued with a break to normal programming to show only news
programmes, interpersed with commercials.

NTV ACCUSES PRESIDENT

NTV is by far the most influential source of information outside Kremlin
control. Two other national stations, ORT and RTR, are either
state-controlled or fully state-owned.

"In protest at the attempt illegally to change the board of NTV, only news
programmes will be broadcast," said a caption which NTV was showing for most
of the morning on the background of an empty news reader's chair in the
studio.

NTV's case is widely seen as a test of President Vladimir Putin's tolerance
of dissent, although the Kremlin says it is above the fight. Gazprom says the
affair is purely financial as Media-Most owed its millions of dollars in
loans.

Yevgeny Kiselyov, who rejects the Gazprom decision to replace him as NTV's
editor-in-chief, blasted the president. "Putin declared war on NTV and now he
says he has no link to this," he told reporters.

NTV also showed regular shots of the station's foyer, where its own reporters
and many from other media were awaiting the ousted NTV directors and,
possibly, the new management.

The arrival of three policemen, broadcast live by NTV, created a brief flurry
of excitement amid rumours the new managers would have to force their way
into the building through crowds of NTV supporters and hordes of journalists.

But the police only asked Kiselyov to assist them in pushing back the crowd
which gathered at the ground floor entrance.

"OUTLINE DEAL"

Turner's representatives have already visited Moscow to investigate buying
into NTV and CNN's report cited a source as saying the two men had struck an
"outline" deal, under which Turner would receive most of Gusinsky's holdings.

A spokesman for the Atlanta-based cable news network told Reuters that Turner
was acting outside his role as vice chairman of AOL Time Warner (AOL.N), the
parent company of CNN.

The Washington Post said in a report on its website that the price had been
set at $225 million and that Turner was to buy into Media-Most, Gusinsky's
holding company with a stake in NTV.

Kiselyov declined to comment on a possible deal.

Gazprom said on Tuesday that Gusinsky had been replaced as chairman of NTV by
Alfred Kokh, head of Gazprom's media arm.

It also appointed Boris Jordan, a U.S. banker prominent in a messy 1990s
privatisation programme, to run the network, and appointed a new
editor-in-chief.

Bitter boardroom battles at Russian firms have sometimes spilled over into
violence between rival factions.

More than 10,000 NTV supporters gathered at the weekend in one of the largest
demonstrations Moscow has seen in years. Organisers said a similar protest
could be held this weekend.

*******

#2
Magazine staff opposes Kremlin takeover, plans go-it-alone bid

MOSCOW, April 4 (AFP) -
While journalists occupied the premises of the NTV television Wednesday to
protest a takeover of the network by Kremlin loyalists, colleagues at the
weekly news magazine Itogi were preparing to strike out on their own to avoid
suffering a similar fate.

Dmitry Biryukov, head of Itogi's publishers Sem Dnei, is planning with the
state-controlled Gazprom gas company to install a new editorial team and
change the magazine's editorial line, political editor Sergei Avdeyenko said.

Itogi, which is published jointly with the US news magazine Newsweek, formed
part of Vladimir Gusinsky's Media-MOST empire along with NTV until February
when Biryukov joined with Gazprom to form a 50 percent plus one share
majority holding in Sem Dnei.

Gazprom-media chief Alfred Kokh "is planning to close the daily Sevodnya,
which operates at a loss, and install around 30 journalists from the paper to
run Itogi," Avdeyenko told AFP.

The move coincides with the takeover of NTV, hitherto Russia's main
independent television network and a frequent critic of President Vladimir
Putin, by Gazprom, previously a minority shareholder in the station.

Faced with the prospect of also coming under effective state control, the
entire Itogi staff of more than 70 is planning to form a new magazine,
keeping the old title if possible, with a new title if necessary, he said.

"We are in negotiations with Sem Dnei management. If we are forced to leave,
we hope to be able to keep the title," he said.

According to Avdeyenko, the Itogi staff is "100 percent behind the idea."

Itogi, along with its stablemate publications, a television guide Sem Dnei
and a glossy magazine Karavan Istorii, has shown a healthy profit since it
started publishing six years ago, with revenues of up to 1.5 million dollars
a year, according to the business daily Kommersant.

The move against Itogi comes a matter of weeks after the decision to close
down the loss-making Sevodnya.

Avdeyenko said his staff had been ordered to change the magazine's editorial
line, with the threat of around 30 Sevodnya journalists waiting to take their
places if they did not.

"For Beryukov, it is mainly about increasing profits, but for Kokh it is
clearly political," Avdeyenko said. "Given the current situation at NTV, they
have chosen this moment to say, in effect, we are the boss, we can do this if
we want."

Itogi editor Sergei Parkhmenko is discussing the situation with Newsweek,
which has expressed concern about the proposed changes, Avdeyenko said.

"Their contract with us allows them to withdraw from the partnership, and I
don't think they will want to stay with Biryukov. I think there is a real
chance they will continue with us," he said.

A Newsweek spokesman was quoted by Moscow Times Wednesday as saying that the
US publisher was "very disturbed by the developments in Moscow and seeking
clarification from the people who have apparently taken control of Itogi."

*******

#3
BBC Monitoring
Russian MP speaks in support of NTV
Source: NTV, Moscow, in Russian 0400 gmt 04 Apr 01

[Presenter] One of the Yabloko faction deputies who decided to stay at the
NTV studio overnight to express their support to us is with me now. This is
deputy chairman of the Duma defence committee, Aleksey Arbatov. [Passage
omitted: greetings]

You and your colleagues are going to raise the issue of NTV developments at
today's Duma session. Do you think this is an effective measure? Taking
into account the cynicism of the authorities, can this idea have any
consequences?

[Arbatov] You see, we believe that Duma deputies, regardless of their
political beliefs, should be interested in protecting freedom of the press.
Only free media can express their views and get their message across to the
public. We hope that all those who appreciate this opportunity to have an
instrument of legitimate political struggle will support us. Of course, the
Duma is not the entire power, but it is a branch of federal power, of
supreme power. If deputies from various factions are to be present here, I
think that those who intend to replace the NTV management will think hard
before resorting to use of force.

[Presenter] You say you represent the federal power. This is a paradox -
not only laws are not working in the country, but also the Constitution is
not working in the country. Yesterday's situation has shown this absolutely
clearly. Freedom of speech is being violated. What can we do in this
situation? It is difficult to have faith in anything.

[Arbatov] I would not be that gloomy. There is law, there is the
Constitution, there are branches of power, there is the public. The public
has already demonstrated its support of NTV. I think we have
constitutional, nonviolent means and we should not disregard this.
President Putin said in his address yesterday that the government should
not own the entire economy. He said we had had this, he meant, in the
Soviet Union. I would like to remind the president that the government
should not own the entire politics either. The government should now have
the monopoly on information because, just as in the economy, this will
bring about the collapse of the state. Without freedom of speech, without
opposition, without active participation of the public in running the
country the authorities become a car without brakes - in the end it will
inevitably crash. The president, as a guarantor of the Constitution, should
remember this. He can use the support of whatever resists him. The
opposition is useful, it sends signals when the state swerves into a wrong
path. As a person who works on the defence committee, I would like to say
that the future of NTV is especially dear to me because no other TV company
has covered our army's problems so widely. NTV spoke about the troubles of
officers. Other companies did not help us to improve the situation as much,
but because of the NTV coverage we could improve our laws and improve the
servicemen's situation...

[Presenter] My last question is - what is the way out? Some people will say
this is a question of business and it has nothing to do with politics. They
may say this is an argument between two economic entities. What is the way
out?

[Arbatov] I would like to look into the eyes of those who say such things
and ask them whether they believe that NTV would be faced with any
financial problems if it always showed its loyalty to the authorities? I
think that no-one who has at least some conscience could answer positively.
We are all well aware that this is not a financial problem. This is a
political problem, and this issue should be tackled in the Supreme Court.
We should stop this illegal taking of power in NTV and wait for the
decision of a higher court. I am sure that a higher court will think about
Russia's prestige in the world, about the court's power in the country. I
believe that the court will show it is an instrument of justice, real
justice for the sake of which it should work.

[Passage omitted: thanks, sign off]

*******

#4
New treaty set to star at Chinese president's visit to Russia in July
ITAR-TASS

Moscow, 4 April: The signing of a new treaty with China will be the central
event of the visit which Chairman of the People's Republic of China Jiang
Zemin will pay to Russia at the beginning of July, Russian Deputy Foreign
Minister Aleksandr Losyukov told journalists on Wednesday [4 April].

He noted that the new treaty on friendship, good-neighbour relations and
mutual assistance, which will be signed for ten years with subsequent
prolongation, "elevates Russia to strategic cooperation with China".

Losyukov said that the text of the future document was preliminarily
agreed. He stressed that this treaty, which will replace the expired
previous document, was called upon to fix the Moscow-Beijing relations on
foundations of partnership and strategic cooperation.

*******

#5
INTERVIEW-Russian trade minister wants US clarification
By Anna Willard
 
WASHINGTON, April 3 (Reuters) - Russian trade and economy minister German
Gref on Tuesday called on the Bush administration to clarify its policies
toward Russia.

Gref told Reuters in an interview that in discussions with U.S. officials
earlier on Tuesday, there was a "long list of questions about policy
towards Russia but very few answers."

"It's easier to talk about policies they are clear on than the ones that
they aren't," Gref said. He said U.S. officials had unequivocally backed
Russia's entry into the World Trade Organization and also expressed
understanding of its decision to pull out of signing a one-year standby
agreement with the International Monetary Fund.

"They understand that there is no sense in this kind of agreement when we
don't need the funds," Gref said.

On Tuesday, Gref met with John Taylor, the nominee for the U.S. Treasury's
top international post, Energy Secretary Spencer Abraham and Commerce
Secretary Don Evans among others. On Wednesday, he is due to meet with
World Bank President James Wolfensohn.

Asked when Russia was likely to discuss further with the IMF the
possibility of a three-year program, Gref said "it depends on when we might
need additional resources and restructuring with the Paris Club."

FAVORABLE U.S. RESPONSE PREDICTED

"If we follow the program that has been stipulated by the (Russian)
government and the central bank, then the U.S. will have a favorable
response to it," Gref said.

"We don't need financial assistance from the U.S. but we should be able to
coordinate our policies," he added.

Last month, the Russian government approved in principle a long-term
economic strategy aimed at ensuring stable growth and creating an
attractive investment climate.

Gref said the restructuring of Russia's debt to the Paris Club group of
creditors has only been discussed "in passing" with U.S. officials. Earlier
this year, Russia was hoping to restructure further billions of dollars of
outstanding debt to the Paris Club, but several creditors, including
Germany, felt that Russia had enough money to continue making its debt
payments for the next few years. These creditors cited as evidence the high
price of oil which has swelled Russia's foreign exchange reserves.

"I confirmed our determination to fully pay back our debts; but in 2003 we
will have difficulties with regard to the peak of the debt payments and it
is highly possible that we will need restructuring at this point," Gref said.

He said that U.S. officials had reacted with "understanding" to the
possible need for restructuring in 2003, but Gref said it is too early to
say what the actual U.S. response to this would be.

Asked about his recent announcement to liberalize foreign exchange
controls, Gref said: "Right now, we are drafting a package of measures
which would lead to liberalization of currency regulations. This would lead
to a reduction of obligatory currency sales but this is all currently being
debated between the government and the central bank."

Gref said he hoped that a proposed package of changes to the banking sector
would be presented to the Duma, the lower house of the Russian parliament,
this year but not before the Spring session. He said that this package
would also include proposals for changes to the state-run Sberbank.

"We are discussing the guarantees which Sberbank enjoys today. We are
talking about the possibility of lifting the guarantees and spreading them
out between all the banks for a limited amount of money so that all banks
will be equal."

Gref was speaking to Reuters on the sidelines of a dinner hosted by the
U.S.-Russia Business Council. He told the audience that the slight slowdown
in economic growth that Russia is currently experiencing had been
anticipated by the government and was accounted for in this year's budget.

RUSSIAN SLOWDOWN

In his annual state of the nation address, Vladimir Putin said he was
worried by signs of a slowdown after the highest growth levels in almost 30
years. GDP grew 7.7 percent in 2000, but is expected to slow to 4 percent
this year.

Russia's industrial output has slowed and its inflation has remained high,
eroding the competitiveness of Russian producers by leading to a real
appreciation of the rouble.

Gref said the slowing was likely to persist for several more years until
investment picks up. But he added that he was confident that all the
economic forecasts laid out in the budget for this year would be met.
However "(Inflation) might exceed the targets by a couple of percentage
points."

On the topic of energy, Gref said he recently visited China, where he has
held talks on a potential gas pipeline between Irkutsk in Siberia and China.

"We did discuss this with China and it's still under discussion but I'm not
prepared to talk about the exact dates of the project's implementation," he
said.

*******

#6
Russia's Gref Seeks Fewer Embraces, More Business With US
 
Washington, April 4 (Bloomberg) -- Russia and the U.S. must  build new
business ties based less on good will and more on  business interest,
Russia's trade minister said. 

``With the Democrats we had good ties, but realistically very  little was
done,'' German Gref, Russia's minister for economic  development and trade,
said at a dinner with U.S. business leaders  in Washington yesterday. 

``Let us not embrace as much as we did, but let's develop  business ties,''
Gref said. 

Gref, who met with State, Energy and Treasury department  officials, said
Russia is looking for ``clarity'' from President  George W. Bush. 

Gref's visit follows weeks of antagonism between the Bush  administration
and Russian policy makers over alleged spying on  each side. U.S. Treasury
Secretary Paul O'Neill also recently  quashed Russia's plea for easier
repayment terms on Soviet-era  debt, forcing the Russians to pledge to pay
all the $5.9 billion  they owe on that debt this year. 

Neither of those moves must undercut the building of Russian  and U.S.
business ties, Gref said. 

``We've made a determined decision to pay all of our debts,  as long as the
economic situation allows us to do that,'' he said.  ``We do not need
financial assistance; what we need is equal  treatment.'' 

Equal treatment means waving transit visas, anti-dumping  trade complaints
and anti-Russian legislation, he said. 

``All of these little pranks do not add to optimism'' for  future trade and
investment, Gref told the U.S.-Russia Business  Council. ``This is a way
that leads nowhere.'' 

Gref's comments came on the day President Vladimir Putin  unveiled his
agenda for the next year. Putin vowed to put in place  laws to protect
company shareholders and curb the flight of  capital out of the country to
counter the risk that the Russian  economy will slow from its 7.7 percent
growth of last year. 

Much of that growth was fueled by oil revenue that touched  decade highs,
allowing the government to amass a record $29.5  billion in foreign
reserves in February. Russia last week rejected  a credit line agreement
offered by the International Monetary  Fund, saying the fund's conditions
were too tough and the money  wasn't needed as it could afford to pay its
bills. 

*******

#7
Nezavisimaya Gazeta
April 4, 2001
REVOLUTION UNDER THE GUISE OF EVOLUTION
Putin has given this task to those who really need it
Author: Vitaly Tretyakov
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
PUTIN'S ADDRESS TO PARLIAMENT IS ENCOURAGING. HE HAS VIRTUALLY
DECLARED WAR ON THE BUREACRACY; IF THESE PLANS SUCCEED, POWER WILL PASS FROM BUREAUCRATS AND TYCOONS TO CITIZENS - UNPRECEDENTED IN RUSSIA. BUT THE BUREAUCRACY IS UNLIKELY TO GIVE IN WITHOUT A FIGHT, SO MORE DISMISSALS SHOULD BE EXPECTED.

     Putin's address to the Federal Assembly was less radical than
everyone expected, less radical than it should have been.
     This is the essence of Putin's style. However, the president's
address is very radical - if this radicalism can be implemented.
     Putin did not threaten anyone with dismissal. However, he
repeated twice at the end of his speech that "the main task of state
officials is to work efficiently until they leave public service" (in
other words they have to carry out the tasks specified by the
president). In addition the president addressed the Cabinet: it must
prove that it can control its activities. In other words he meant real
control over economic processes (without the need to report to the
IMF). On the other hand the president meant the quality of the
cabinet's performance. If this does not improve, the president will
dismiss the Cabinet. This is the only way the president's threat can
be interpreted. Putin said that revolutionary action is over, and the
time of stability and ordinary professional performance has come. The
word "stability" is meant for the public, which the president does not
want to stir up. The phrase "ordinary professional performance" is
aimed at officials. This is a revolutionary demand for the semi-
anarchic Russia, where tycoons divide property. Russian officials and
the public in general do not know what "ordinary professional
performance" means. Revolution under the guise of evolution and
stability is the best method for carrying out reforms. It is possible
that as a result of the reforms a radically new state and society will
be created.
     Social calm and social stability are very important. But the
trouble is that it is possible that citizens and the bureaucracy will
try to evade "ordinary professional performance". Before the break-up
of the USSR the Politburo tried to make people work efficiently - but
failed.
     Putin's address is rather encouraging because along with a fair
enumeration of problems (for instance, the shadow economy, off the
record payments for health care and education, shadow legal
proceedings) Putin devoted the major part of his report to the reforms
of the judiciary and the administrative reforms. Both are political,
because their success will mean an anti-bureaucratic revolution in
Russia. In other words, power will move from bureaucrats and tycoons
to citizens. This is unprecedented in Russia.
     However, the bureaucracy will not surrender without a fight.
Bureaucracy survives thanks to hindering ordinary professional
performance. That's why we should expect more dismissals and
structural reforms.
(Translated by Alexander Dubovoi)

*******

#8
Vedomosti
April 4, 2001
BEHIND THE SCENES AT THE PRESIDENTIAL ADDRESS
How Putin's address to parliament was written - and who benefits
Author: Mikhail Kozyrev, Bulat Stoliarov, Alexander Bekker
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
THE ADDRESS DELIVERED BY PRESIDENT PUTIN TO THE FEDERAL ASSEMBLY
YESTERDAY WAS UNUSUALLY LONG, AND UNUSUALLY SPECIFIC ON A NUMBER OF POINTS. IT WAS GENERALLY IN LINE WITH THE VIEWS OF PUTIN'S ECONOMIC ADVISER ANDREI ILLARIONOV. THIS HAS SOME IMPORTANT IMPLICATIONS FOR THE DEFENSE SECTOR.

     The address delivered by President Putin to the Federal Assembly
yesterday was unusually long, and unusually specific on a number of
points.
     According to our sources, speechwriter Naibullina got virtually
no sleep for two days, as Putin kept her busy rewriting the most
important economic points in the address. As a result, an indirect
message was conveyed: the government is no longer just talking about
"living within our means", but actually doing it.
     The government will not permit lobby groups to profit from its
actions and budget; it will stop further bloating of the bureaucracy;
it will bring the most financially challenged regions under federal
management.
     The Economic Development Ministry, as reform headquarters,
managed to insert passage of the Tax Code and joining the World Trade
Organization into the presidential address. Herman Gref's pet project
- reducing red tape in business - was at least given a passing
mention. Meanwhile, the issue of foreign debt vanished from the
address completely, while housing reforms and restructuring the
natural monopolies were given scant attention. According to one state
official, "this is Illarionov's handiwork". Our source, who is
involved in planning restructuring of Russian Joint Energy Systems,
says: "Illarionov didn't want to see anything in the address about
reforms being essential. This wouldn't be good for him, in the lead-up
to a report from Herman Gref's group being presented to Cabinet on
April 15."
     Andrei Illarionov himself dismisses such assumptions as "total
nonsense". He went on to say: "Yes, I did take part in drafting the
presidential address, but the final corrections were made by the
president."
     Not everyone in the Cabinet staff blames Illarionov. For example,
one senior official says the absence of any reference to foreign debt
means "the president hasn't set a strict timeframe for the Cabinet on
this sensitive issue."
     However, the views of presidential economic adviser Illarionov
are perceptible in Putin's assessment of the Cabinet's dealings with
the IMF: "I think the Cabinet is capable of controlling its actions
[without a formal agreement with the IMF]." Illarionov has always
favored no further borrowing, and more independence from the IMF on
economic policy. This reasoning is definitely supported in the
presidential address. Putin's subsequent comment bodes ill for the
Cabinet. The president said that the Cabinet "must prove" it can
operate without being monitored by the IMF, but "within the framework
of the program which has been prepared". In other words, if the
reforms run into trouble, many heads will roll. Given Illarionov's
political activity, it can't be ruled out that Putin's adviser could
focus the president's attention on personal failures.
     In the wake of yesterday's presidential address, it becomes clear
what he had in mind at his first meeting with the newly-appointed
security officials, when he said: "Reforms to the security bloc should
be in line with the state's economic capacities." Essentially, in his
address the president has cleared the way for private enterprise in
Russia's defense sector. He said, "we should expand the involvement of
private companies in defense research and production". This clearly
runs counter to the plans of the relevant state bodies (the Defense
Ministry and five defense agencies) for defense sector reforms. These
plans had included concentrating the defense sector around ten
vertically integrated holding companies, in which the state would hold
the controlling stakes; arms procurement and export contracts would be
distributed among them. Defense enterprises which have already been
privatized would have to agree to join the state-controlled holdings
if they wanted to stay in the game.
     Essentially, the president let it be understood that he doesn't
think it is wise to concentrate shares in defense sector enterprises
in the hands of the state, solely for the sake of establishing state
control over the industry. Moreover, state-controlled enterprises
should not have any special privileges over private companies in terms
of how state arms procurement contracts are distributed.
(Translated by Elena Leonova)

*******

#9
Moskovsky Komsomolets
April 4, 2001
PUTIN'S "SECRET FRIENDS"
It's no longer the done thing to be known as an oligarch
Author: Mikhail Rostovsky
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
ALTHOUGH THE PROCESS OF REMOVING YELTSIN'S OLD GUARD IS UNDERWAY, THE REAL RELATIONS BETWEEN BUSINESS AND GOVERNMENT DO NOT SEEM TO HAVE CHANGED MUCH UNDER PUTIN. WHILE BEREZOVSKY AND GUSINSKY ARE OUT, SOME OTHER TYCOONS ARE STILL AROUND. A GUIDE TO SOME OF THE KREMLIN'S LESSER-KNOWN BUSINESS ASSOCIATES.

     Who rules Russia? Two years ago almost any Russian citizen would
answer this question unambiguously: "Berezovsky and the oligarchs!"
Now such an answer will be less categorical: "The president!"
     However, it would be very naive to think that in a year of
Putin's rule the power of oligarchs in Russia has been magically
reduced to zero. Even in the West the balance between government and
big business has never been regulated properly.
     So what sense does it make to speak of Russia? The "family"
method of ruling the state was not Boris Yeltsin's invention. Nearly
all countries with transition economies go through this phase. Thus,
the process of shedding the oligarchs is likely to be a long one, by
definition...
     We have managed to "detect" two people who are unknown to the
public, but play a significant role in the Russian economy and have
much freer access to Putin than all the rest. The third figure in our
report is not an oligarch yet, but he may soon become one.
     SERGEI PUGACHEV: AN INVISIBLE OLIGARCH
     Sergei Pugachev, head of Mezhprombank, can easily be called an
invisible super-magnate. Within last five years this banker has been a
confidant of such political heavyweights as Pavel Borodin, Valentin
Yumashev, President of Bashkortostan Murtaza Rakhimov (through his
partner Veremeenko), Russian Patriarch Alexy II, and finally Vladimir
Putin.
     The career of Pugachev, a graduate of Leningrad State University,
took a sharp turn in the mid-1990s when he joined the team of Borodin,
presidential property manager at that time.
     Thanks to lobbying Borodin, Mezhprombank was included on the list
of companies operating internationally with financial organizations.
Accounts of the largest Russian corporations, like the Almazy Rossii
diamond company, flowed into Pugachev's bank.
     Soon after that, Pugachev became close to other senior Kremlin
officials. He was frequently seen at Yumashev's office, and one of the
main implementers of the financial and other instructions issued by
Yeltsin's insiders. For instance, the credit cards for Yeltsin's
daughters Tatiana Dyachenko and Elena Okulova, which caused such a
scandal, had been issued by Mezhprombank. "Pugachev has always been
considered a sort of an understudy and possible replacement for
Abramovich", a well-known Russian oligarch told us.
     At the same time Pugachev was working on another "goldmine",
which finally turned into a real Klondike for him. The smartest
Russian business leaders had understood long ago that close contacts
with the top of the Orthodox Church are fantastically lucrative.
     Financial donations to the Patriarch's Office bring very fast
dividends, both in the form of various privileges as well as thanks to
acquisition of a powerful political lobbyist. Pugachev, who had
considered himself a deeply religious person, suited the these
"Orthodox business leaders". Pugachev's distinction was that at the
slightest hint about financial assistance, he immediately pulled out a
checkbook and signed out a check for any amount, say people at the
Patriarch's Office. As a result, Pugachev managed to become member of
Alexy II's closest circle.
     The circumstances of Sergei Pugachev's first acquaintance with
Putin are clouded. However, they had close contacts when the future
president was Borodin's deputy. At that time Putin was in charge of
Russian property abroad, while this sphere was among Mezhprombank's
immediate business interests. Pugachev's extremely good relations with
Putin's assistant Igor Sechin have possibly played a role in
establishing contacts between the banker and the politician. However,
the theory that Putin's and Pugachev's mutual interest in religion
helped them become close seems most likely. A short time after Putin
was appointed prime minister, his father died. According to one story,
quite unexpectedly the director of Mezhprombank brought one of the
highest Church hierarchs to the funeral. Being considered a person
without a political future, and therefore lacking special attention,
Putin is said to have been deeply impressed.
     Somehow or other, Sergei Pugachev is now among the business
leaders closest to Putin. Several of our sources confirm that the
director of Mezhprombank has free access to the president. However,
the nature of their current relations is not quite clear. Pugachev
fulfills only one function, some sources say: he is a link between the
president and the Patriarch of the Church, and any political influence
is out of the question.
     However, sometimes Pugachev does give political advice, according
to other sources. In 2000 he attended an informal meeting of security
structures directors, where a decision to arrest Gusinsky was made,
some sources report. Many tend to connect Vladimir Ustinov's
appointment as General Prosecutor exactly with Pugachev's name. As we
know, the director of Mezhprombank visited the Kremlin shortly before
the president suddenly changed his decision - and instead of
nominating Dmitry Kozak, as had been prepared in advance, submitted to
the Federation Council the nomination of Ustinov.
     Generally speaking, Pugachev is a man of many mysteries.
According to official statistics, Mezhprombank is among the largest
Russian banks. But even the most powerful Russian business leaders are
perplexed: what are its main revenue sources? Pugachev's way of life
also adds to the mystery. The banker spends most of his time abroad,
making irregular visits to Moscow, during which he can make some
surprising moves.
     VLADIMIR KOGAN: A COLLECTOR OF POLITICIANS
     A graduate of the Leningrad Engineering Construction Institute,
Vladimir Kogan decided to go into business with the sole aim of
getting himself and his young wife out of a shared apartment in St.
Petersburg. However, he apparently learned to like business very
quickly. At present, the 38-year-old Kogan is not only among the most
important bankers in St. Petersburg, but is also a friend to a huge
number of senior politicians - from federal deputy prime ministers to
the president himself.
     Vladimir Kogan started out as an ordinary traveling salesman: he
was delivering appliances from the Baltic states. However, business
soon expanded. He opened his own store, then a computer sales company.
It was time to open a settlement account at a bank. In order to become
a customer at Promstroibank, which was very highly regarded in the
city, one had to purchase at least 100 of its shares. This turned out
to be fatal for the old management team at Promstroibank. They were
accustomed to the slow Soviet pace; but a large package of bank shares
came under Kogan's control, which soon led to Kogan taking total
control of Promstroibank. The process was easy from there. With every
year, Kogan's business empire has taken over more and more enterprises
in St. Petersburg.
     Kogan's main secret of success lies in his skill at establishing
close contacts with politicians. The list of former and current
employees of offices under his control resembles a "Who's Who in
Politics": Sergei Stepashin's wife and son; Victor Yatsuba, a power-
broker and chief-of-staff for St. Petersburg Governor Victor Yakovlev
during his first term; several former deputy governors of the
Leningrad Region... A greater number of civil servants are connected
with Kogan by ties of friendship. Putin's assistant Igor Sechin is
very much obliged to Kogan as well.
     During Sobchak's rule Promstroibank quickly became the closest to
the Mayor's Office of St. Petersburg lending agency. A lion's share of
accounts of city budget-financed structures was moved to Kogan's bank.
Kogan himself became a close friend to many senior officials of St.
Petersburg. He established especially good relations to senior deputy
mayor of St. Petersburg at that time Vladimir Putin, who factually
ruled the city. Many testimonies witness that the friendship continued
also after the future president moved to Moscow. Not by chance Putin
was keeping his savings exactly in Promstroibank...
     Quite naturally, now Putin and Kogan communicate incomparably
less than before. But Kogan is always welcomed at the Putin's
reception. The fact that Kogan's relations with the clan from St.
Petersburg, which has conquered the commanding heights in Moscow now,
create no need for him to ask something from Putin, is quite a
different matter. For instance, Kogan has close contacts to Alexei
Kudrin, Deputy Prime Minister and Finance Minister. Deputy Prime
Minister for Defense Iliya Klebanov has been working in close
association with Kogan.
     No wonder Kogan has recently started making active attempts to
seize control of the most modern and lucrative enterprises of the
Russian defense sector. Now, for instance, the magnate from St.
Petersburg has been fighting to establish control over the Almaz
concern, which produces the famous S-300 anti-aircraft systems. At the
same time, Kogan has been trying to gain control over Antei, producing
Tor-M1 missile systems. Moreover, creating a large holding from the
largest enterprises of the Russian aviation industry - MiG and Sukhoy
- is among his prospects.
     VLADIMIR LITVINENKO: GAZPROM BETTER THAN MOUNTAINS
     "Over twenty people have asked to be my campaign manager in St.
Petersburg - but I want you to do it," acting President Vladimir Putin
said early last year to a person who is not among the list of business
leaders. However, just the mention of Vladimir Litvinenko, head of the
St. Petersburg Mountain Institute, provokes a storm of emotions at the
offices of Moscow authorities. A 46-year-old professional geologist is
considered the most likely replacement for Rem Vyakhirev as director
of Gazprom.
     Putin and Litvinenko met in the early 1990s, when they were
dealing in export operations, with Putin heading the municipal
committee for international relations and Litvinenko as deputy head of
the Mountain Institute. Putin's assistant Igor Sechin became a
frequent visitor at a building on Vasilievsky Island. Putin's "alter
ego" gained his doctorate there. Moreover, Sechin's daughter is now
studying at the Institute.
     Therefore, transformation of a mountain institute from a rather
wealty, but still Soviet, higher education institution into a "show-
case of Russian education" took place literary before Putin's eyes.
Already working in Moscow, the future president chose the Mountain
Institute headed by Litvinenko as the place to gain his doctorate.
Frequent contacts with the rector from St. Petersburg were resumed
after Putin made it to the Kremlin.
     Litvinenko says he doesn't want to leave his Institute for any
other office. But at the same time, he has his own opinions on the
most urgent questions of developing Russia - and is not shy about
expressing them, including to Kremlin officials: Litvinenko's detailed
reports are regularly dispatched to the president.
     No wonder Moscow authorities treat Litvinenko with extreme
suspicion and alarm. Judging by some reports, Natural Resources
Minister Boris Yatskevich, who is now in danger of dismissal, thinks
that the rector from St. Petersburg may replace him. However,
Litvinenko may be appointed to a higher position. Together with
Sheremet and Rodionov, the present deputy chairmen of the board at
Gazprom, Litvinenko is among the most likely contenders for the top
job at Gazprom after Vyakhirev's resignation - which is scheduled for
this year, according to our sources.
     OLIGARCHS FADE INTO THE BACKGROUND
     How have relations between the Kremlin and business changed?
Actually, they haven't changed; only the public image has changed.
This opinion, expressed by an oligarch, cannot be considered an
exaggeration. However, the magnate is right about one thing: the image
component of relations between oligarchs and the government has
changed greatly over the last 16 months.
     Business leaders who have real access to the president not only
refrain from flaunting their relationship with him, but also do their
best to keep this a secret from the public. An influential Duma deputy
from Unity, who is still involved in business, told us he doesn't have
any "special relations" with Putin, although the faction's leadership
knew this was untrue. Only Putin's personal intervention helped a
famous Russian magnate strike a profitable bargain. However, instead
of thanking Putin in public, the oligarch kept asking us not to
mention this fact. The list of similar episodes may be continued.
     The reason for such behavior is not extreme shyness of either
business leaders or the president. In the rule of Yeltsin oligarchs
like Berezovsky had openly stated that the authorities should service
interests of large-scale business, while the Kremlin officials had
found similar statements rather appropriate. Putin on the contrary
thinks that the people shouldn't perceive the authorities as a maiden
to anyone: this is fatal for the authorities' reputation.
     Therefore, "outspoken" magnates Berezovsky and Gusinsky were
demonstratively punished. The rest of the business leaders acknowledge
the Kremlin's authority, and are meek and mild in public. Another
change: under Boris Yeltsin, the status of an "oligarch" was extremely
honorable. Now everyone considers the term embarrassing. It is
considered more politically correct to be called an "industrialist".
     However, these are all just image details. What has been
happening behind the scenes? The overwhelming majority of our sources
say that the president has actually been trying to avoid showing any
obvious preference for either of the opposing business clans. Firstly,
this is because Putin likes it when members of his team debate and
compete against each other. Secondly, Putin tries to stay out of the
battles between the oligarchs. Should the situation require Putin's
intervention, he acts as supreme arbitrator. However, the problem of
overly close relations between government and business hasn't
vanished: it has just been taken to a lower level.
     Most of the Russian government is still closely connected with
various oligarch groups. Director of the Presidential Administration
Voloshin has been assisting Roman Abramovich's clan, as before.
Voloshin's deputy Surkov is connected with Abramovich and his
colleagues as well, and also the Alpha Group. "Government reformers"
Kudrin and Gref have been working closely with Chubais and
abovementioned Kogan... It turns out that real rules of the game
between business and government haven't changed much with the dawn of
the Putin era.
(Translated by Andrei Ryabochkin)

******

#10
Financial Times (UK)
4 April 2001
At risk of losing a wild reputation: RUSSIA: The country is notorious for
lawlessness. But western legal firms are finding that things are changing fast
By RICHARD MARSLAND

To judge from Moscow's news media earlier this year, it is hardly a golden
period for the rule of law in Russia.

The country's former justice minister was on trial for corruption in
Moscow, while the former head of the Kremlin property department was
sitting in a New York jail awaiting extradition to Switzerland. The
government grudgingly agreed to stop using teams of heavily armed, masked
agents to raid companies suspected of tax evasion. And as legal nemesis
caught up with Napster, the US music-trading website, Russia's community of
RuNet users continued happily swapping music files - secure in the
knowledge that pir-ated material accounts for 60 to 90 per cent of Russia's
music market.

All this in a single week. No wonder there is a widespread perception that
Russia is a society where untrammelled market forces are running beyond the
control of a corrupt legal system.

Yet more than 50 international law firms have established offices in
Moscow. And that raises the question of how they can operate in such a
lawless environment.

The answer is: astonishingly well. Russian law is far from perfect. Yet
what strikes foreign lawyers is just how much progress has been made since
communism fell.

Hugh Verrier, Moscow managing partner of White & Case, the global law firm,
argues that most criticism misses the point. "Our function is to protect
the interests of clients who want to do business here - both foreign and
Russian - as best we can," he says. "Russia is not a lawless society, a
fact that is obvious from just walking down the street."

Indeed, as Mr Verrier and other lawyers point out, the problem in Russia is
not too little law but too much. The highly regulated character of Soviet
society persists in a continuing flow of legislation, aimed both at
introducing the checks and balances needed in a modern market economy and
at ensuring that the government gets its cut from commerce.

Much of this law is poorly drafted - the commonly used word is "dreadful" -
and frequently contradicts other statutes. These shortcomings create
further strains in the underfunded court system.

And then there is corruption. Most Moscow lawyers claim that many of the
infamous Russian Mafia have gone "legit" and are running real businesses. A
new tax code, slashing the income tax rate to about 13 per cent, is a
further incentive for former black-marketeers to come above ground.

However, the petty grind of day-to-day corruption is encouraged by a system
that asks judges and civil servants to get by on Dollars 200 (Pounds 140) a
month. One western expatriate observes: "The Russian bureaucracy is hugely
overmanned and hugely underpaid. The best thing you could do is sack half
the civil service and double the salaries of the remainder."

Setting up a company can take three months and involves registering with
several local and national government bodies in a prescribed sequence. Many
foreign lawyers privately admit that they leave the bureaucratic details to
their local contacts - following a policy of "don't ask, don't tell".

That is probably just as well. A partner with one of Russia's biggest local
law firms, who declines to be named, smiles at the western connotations of
the word "corruption". "We give gifts to almost everyone," he says. "Maybe
it's not money - maybe just a box of chocolates - but you always need to do
something or else your application will be considered only when they have
nothing else to do. It's the mentality here."

Yet international lawyers argue that most people's perceptions are
dangerously one-sided. Most insiders believe that operating in Russia is no
worse than it is in other developing countries.

Although Alan Jowett, head of Herbert Smith's Moscow office, thinks the
system has weaknesses, he says: "It really has been a remarkable
achievement in such a short time (since communism) and despite its
shortcomings it really is workable. The final piece in the jigsaw is to
create international confidence in the court system."

Others say that the gap between the international perception of Russia and
the highly regulated reality crops up time and again. Jane Tarassova,
managing partner of Salans Hertzfeld & Heilbronn International in Moscow,
tells how she was recently explaining the regulatory regime to a group of
oil investors from the Middle East.

"They had come to Russia for the first time and were expecting some kind of
frontier 'Wild East'-type environment with no restrictions whatsoever," she
says. "So I started to tell them about joint stock company laws and federal
securities requirements and antitrust filings and they got more and more
gloomy. Finally they turned to me and said that this was as regulated as
the west - and I said: 'Of course, what did you expect? Did you think the
country had been sitting here doing nothing for 10 years?'"

John Hammond, of CMS Cameron McKenna in Moscow, relates how his firm went
to court in Moscow against a company closely linked to the FSB (the former
KGB) - and won. "That case really undermines the view that the system isn't
independent of entrenched interests," he says.

Partly as a result of such cases, the high commercial court in Moscow has a
relatively good reputation for fairness. While the system is open to
political pressures - which some claim are getting worse as the current
government looks to boost revenues - foreign investors appear generally
happy with the protection they get. They say Russia is different from some
parts of Asia, where being foreign means you will probably lose.

Alexandra Nesterenko, head of legal affairs in Moscow for Unilever, the
Anglo-Dutch consumer products company, says she does not feel the company's
foreign ownership "has ever made a difference" in Russian courts, although
she does worry about enforcement: "You can win a case and get the judgment
but you cannot guarantee that you will get enforcement as a result," she
says.

Ms Nesterenko traces the roots of this problem to Soviet days, when almost
all judgments were between state-owned bodies and enforcement in effect
involved the government moving assets from one pocket to the other. She
hopes for improvement after a recent law letting courts receive bonuses for
successful enforcement.

But she should not expect miracles. "Russia will never be Denmark," says
one local lawyer. "At best we may become like the south of France."

*******

#11
The Independent (UK)
4 April 2001
Editorial
Mr Putin cannot be lauded as the saviour of Russia without political reforms

IN HIS state-of-the-nation speech in the Kremlin yesterday, Vladimir Putin
seemed eager to press the right economic buttons. A year after becoming
President, Mr Putin pointed to the need for greater stability. He noted the
lack of trust in the legal system and emphasised that Russia is suffering
from capital flight of $20bn a year. He made it clear that Russia must
become a more attractive destination for investment. With admirable
frankness, he noted that the value of the largest companies in tiny Finland
is five times greater than the capitalisation of Russia's entire stock
market, and added caustically: "Compare the dimensions."

So far, so good. Reformist noises such as these are one reason why Tony
Blair seems as enamoured with Mr Putin as Margaret Thatcher was with
Mikhail Gorbachev. Mr Putin seems to understand - more than Boris Yeltsin
did, and far more than the Lenin-loving reformer Mr Gorbachev - that the
market economy should not be seen as a poisonous threat, but is Russia's
hope for a better future. He complained about bureaucrats who "squeeze
business initiative" and reduce the willingness to invest. He has tried to
impose order on the country's hopeless taxation system. He has curbed the
powers of the regional bosses who have often been political dinosaurs. Last
month, using new powers, he sacked the hated governor of the Vladivostok
region, where corruption and violence have flourished.

It would be wrong, however, to laud Mr Putin - as Mr Blair often seems
tempted to do - as a bright new hero for Russia's future. His political
appointments have been patchy, at best. He boasted that the appointment
last week of a new defence minister, Sergei Ivanov, marked
"demilitarisation of Russia's public life". Up to a point; Mr Ivanov is a
KGB veteran and former head of Mr Putin's security council. The new
interior minister, Boris Gryzlov, seems to have been selected above all for
his pliability.

Most important, there is a seemingly unbridgeable gap between Mr Putin's
reformist words on the economy and his political deeds, which drag Russia
back into the Brezhnevite past. Russia's behaviour in Chechnya has been
nothing short of horrific. This week, Human Rights Watch described as "a
charade" the Russian investigation of a mass grave of 50 bodies found near
a military base. Human Rights Watch rightly noted, too, "the international
community's utter failure to hold Russia to its international obligations
during this conflict". Mr Putin fatuously claimed yesterday that the
Chechnya war was almost won (where have we heard that before?), even while
the number of dead increases daily.

His behaviour on media freedom, too, has shown that his talk of reform is,
in some respects, quite empty. The clamp-down on the independent television
station NTV and the hounding of NTV's boss, Vladimir Gusinsky, have created
a climate of fear among Russian journalists; few doubt that the charges
against Mr Gusinsky are politically motivated. The attempted ousting of the
NTV board yesterday by the state-dominated gas monopoly, Gazprom, and a
public protest by the station's journalists marked just the latest twist in
that drama.

It seems that Mr Putin simply does not understand the pressing need for
free and independent media, let alone for political dialogue with enemies.
Russia today has a better chance of moving forward than ever before. Mr
Putin's emphasis on the need for economic change is welcome. But economic
and political progress must go hand in hand; the country's citizens must be
allowed and encouraged to think independently. Without that, Russia is
doomed to remain mired in a resentful past.

********

#12
Financial Times (UK)
4 April 2001
Editorial
Putin's task

It is hard to fault Vladimir Putin for his analysis of Russia's daunting
problems in his state of the nation address yesterday. The Russian
president pulled few punches in spelling out the need for further drastic
measures to clarify and simplify the legal system, reduce the arbitrary
interference of the state, and guarantee property rights, to underpin
economic recovery. He was much less clear on how and when it could be done.

In attempting to transform the Russian state from the corrupt and ossified
world of public ownership to a law-based market economy, Mr Putin has to
perform an extraordinary balancing act. He has to revitalise the system of
government, with a clear division of power between Moscow and the far-flung
regions, while reducing its interference in citizens' lives. Yesterday he
paid a great deal of attention to the former but rather less than he should
to the latter.

The Russian president is right to lay great stress on the need for clarity
and predictability in the judicial system. The country is plagued by laws
and regulations, usually in conflict with each other, whose arbitrary
enforcement therefore becomes a cause for rampant corruption. The number of
bureaucrats has actually increased in the past decade. But lacking clear
rules to define their competence, they usually end in conflict.

No wonder investors, both Russian and foreign, hesitate to put their money
in productive ventures. Distribution of state assets and exploitation of
natural resources are far more profitable. Capital flight exceeds Dollars
20bn a year, Mr Putin says. He is right that it cannot be stopped by
currency controls: only a transformation in economic conditions, and
security of property ownership, will do the trick.

Mr Putin admits that the first year of his presidency was spent more on
asserting his authority, and less on reforming the economy. It was a missed
opportunity, when high energy prices boosted the trade surplus and curbed
the budget deficit. This year will be much tougher.

He rules out any attempt at redistributing ownership of former state
assets, and thus directly challenging the power of the financial oligarchs
and state managers who seized control of the most profitable parts of the
economy in the chaotic first phase of privatisation. Instead, he will seek
to tax their ill-gotten gains, and enforce laws to make their accounting
transparent.

This is an admission of weakness, not strength. If he fails to curb their
commercial dominance, as well as the arbitrary authority of the state, Mr
Putin will be unable to liberalise the entrepreneurship urgently needed to
revive the Russian economy. The country needs the rule of law but it also
needs free spirits to produce prosperity.

*******

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