Johnson's Russia List #6158 27 March 2002 davidjohnson@erols.com A CDI Project www.cdi.org [Note from David Johnson: DJ: Early warning: I will be in Los Angeles March 28-April 5. 1. Moscow Times editorial: No End to Politics at Kiselyov TV. 2. Reuters: Former KGB agent living in U.S. summoned to Moscow.(Kalugin) 3. gazeta.ru: Military Lose a Soldier per Day in Chechnya. 4. strana.ru: Michael Stedman, Cooler Business Heads Seek "Sustainable" Growth for Long-term. Sky's no longer the limit, though Russia's back on the radar. 5. Washington Times: David Sands, U.S. leans to larger expansion of NATO. 6. AP: Mara Bellaby, Putin Marks 2nd Year in Power. 7. Parlamentskaya Gazeta: Alexei Kiva, POLITICAL FORECAST: WHAT MONEY WILL HELP THE COUNTRY TO ITS FEET? 8. Financial Times (UK): Robert Cottrell and Stefan Wagstyl, Putin's bid to join WTO splits business community. 9. Moscow Times: Yulia Latynina, Central Bank Still Basking in Communism. 10. RFE/RL: Jeremy Bransten, Russia: Boost In Oil Production Grabs World's Attention, But Can It Be Sustained? 11. Rossiyskaya Gazeta: Masyanya Cartoon Website Political Propaganda Claim Almost Leads To Its Closure. 12. Rossiyskaya Gazeta: Former 'Oligarchs' Still Involved in Russian Media Contest. 13. EFinancialnews.com: Gerard O'Dwyer, Letter from Moscow . 14. Ekspert: Dan Medovnikov, Innovation Revolution. The government, the scientific community and hi-tech businesses attempt to turn Russia into an intellectual superpower.] ******* #1 Moscow Times March 27, 2002 Editorial No End to Politics at Kiselyov TV The changes (read takeover and liquidation) at two TV stations in the past year were driven first and foremost by political considerations, no matter what was said about debts and unprofitability. The Kremlin didn't much like the idea of their owners, Vladimir Gusinsky and Boris Berezovsky, having such a powerful tool at their disposal. Now with the tender for the license of Berezovsky's bankrupt TV6 to be decided Wednesday, we are likely to see another political decision. A Kremlin-orchestrated bid appears all but certain to win. The trouble is, if it does, it will be hard for anyone to criticize the decision because it would put Yevgeny Kiselyov and his team back on the air. In the battles first at NTV and then at TV6, where he fled after Gazprom took over NTV, Kiselyov took on the role of defender of a free press in Russia. By bringing back Kiselyov, the Kremlin can say to the world, "See, we were never trying to stifle the journalists." But whatever anyone may think of Kiselyov, and plenty of believers in a free press feel that he has discredited himself, the situation is not that simple. Behind him in the bid stand a consortium of oligarchs and two political heavyweights. The details of the arrangement are fuzzy, and its resemblance to ORT when it was set up in 1995 is unsettling. Of the 49 percent of ORT not held by the state, 8 percent was held by Berezovsky, 3 percent by Gazprom and 38 percent by a consortium of banks. Before long the full 49 percent, and effective control, turned up in Berezovsky's hands. Another issue is that Kiselyov's bid, if considered objectively, may not be the best of the 14 submitted. Pavel Korchagin and Andrei Norkin, two respected journalists who used to be part of Kiselyov's team, bid separately with serious financial backing from U.S.-owned investment fund TPG Aurora. In economic and journalistic terms, their bid is strong. Unfortunately, politically it is weak. Press Minister Mikhail Lesin's tender commission has independent members, but even they cannot always resist political pressure. Take the decision two years ago to renew TV Center's license. Commission members said they feared the political consequences of stripping Mayor Yury Luzhkov of his channel, even though TV Center's rival, the VID production company, presented a stronger concept. We don't envy the decision the commission's nine members have to make Wednesday. Some it seems may have to put their professional and personal preferences aside to do what is politically expedient. ******* #2 Former KGB agent living in U.S. summoned to Moscow By Tabassum Zakaria WASHINGTON, March 26 (Reuters) - Oleg Kalugin, a former KGB general living in the United States, said on Tuesday he would not comply with a summons ordering him to Moscow for an interrogation by the Russian domestic intelligence service. An officer of the Russian consulate in Washington on Monday served Kalugin the summons from the FSB domestic intelligence service, which did not provide any reason for it, he said. "I have an official summons from Moscow which was delivered by the consular official of the Russian Embassy which says that I am required to come to Moscow on March 28 for interrogation as a defendant, but no reason given," Kalugin told Reuters in a telephone interview. "And the notification says that if I do not show up at the designated time I may be forced to come," he said. Kalugin is a permanent resident "green card" holder of the United States, but still a Russian citizen. "I will apply for U.S. protection, if necessary, but for the time being I see no reason because it's not a court action, it's an action of the domestic service which has no right to intervene," Kalugin said. He said the "ostensible" reason for the summons may be his testimony in the spy case of retired U.S. Army Reserve Col. George Trofimoff, but that the real reason was "revenge." Trofimoff, the highest-ranking American military officer convicted of spying, was sentenced to life in prison last September for selling military secrets to the Soviet Union during the Cold War. Kalugin said he was not the one who uncovered Trofimoff as a Soviet spy to U.S. and British intelligence services. "When I was subpoenaed to come to Tampa to testify, the whole matter was already finished, I simply was used as a last witness," Kalugin said. "I simply confirmed what had been known already for years. I confirmed that I was his supervisor," Kalugin said, referring to his previous KGB relationship to Trofimoff. The real reason for the summons, Kalugin said, was revenge by former KGB officers trying to undermine him for his vocal criticism of the former intelligence service. Russian President Vladimir Putin, himself a former KGB agent, shortly after his election publicly called Kalugin a traitor and Kalugin responded by calling Putin a war criminal, Kalugin said. "After that exchange ... it's simply unwise to go to Moscow under any circumstances," Kalugin said with a dark laugh. However, he said he was concerned for the welfare of his daughter and grandson who still live in Moscow. "It shows an increasing influence of the old KGB guard on Mr. Putin and his security services," Kalugin said. "It's an act of revenge and nothing else." ****** #3 gazeta.ru March 26, 2002 Military Lose a Soldier per Day in Chechnya By Artyom Vernidoub It transpires that the military forces have been losing a soldier a day on Chechen battlefields. Yet, on some days the casualties are considerably higher. For instance, on Monday 10 soldiers of the federal forces and 7 special-purpose OMON policemen were wounded in a clash with the rebels. One soldier died immediately of heavy wounds. The rebels, too, incurred serious losses as combat aircraft attacked a gang of 50 men, Interfax reports. Citing its sources in the Defence Ministry Interfax has published unofficial data on losses incurred by the federal forces during the second counter-terrorist operation in Chechnya (August 1999 – March 2002). According to Interfax sources, 2331 military servicemen died from the hands of Chechen separatists, a further 5898 were wounded and 26 are officially considered missing in action. Those numbers concern only the military servicemen of the Defence Ministry and do not reflect losses among the Interior Troops servicemen, policemen, FSB officers and prosecutor’s office employees. The same Defence Ministry source, quoted by Interfax, said that in the near future the federal forces might suffer more losses. “Given the increasingly frequent attempts of abducted military servicemen to escape from Chechen captivity rebels are set to shoot those who are still in their hands. According to some reports, one more group of military servicemen, who had been held in rebel captivity, escaped on March 17-18”. In the opinion of a deputy interior minister Ivan Golubev, 80% of federal losses are due to lack of combat experience in young soldiers. The latest official data on losses of the federal forces was published on November 1 last year by the presidential information directorate run by Sergei Yastrzhembsky. Kremlin report said 3438 servicemen were killed and 11 661 wounded during the second war in Chechnya. Among those perished 2136 were the federal army servicemen (Defence Ministry), 703 Interior troops, 493 policemen, 106 servicemen of other paramilitary agencies. According to the leak from the Defence Ministry, the total number of military servicemen killed in the 2nd Chechen war is 2331. The latest official report provided by Yastrzhembsky five months ago suggests that the number is 2136. Thus, it transpires that beginning November 1st 168 army servicemen died in Chechnya. In other words, approximately a soldier a day. On Tuesday Yastrzhembskys’s office refused to comment on the data provided by sources in the Defence Ministry. “Maybe, we will release summary data soon,” Gazeta.Ru correspondent was told. However, judging by daily reports from the Chechen front line, it appears that the numbers provided by the military officials are somewhat under-stated. The military estimate the current situation in Chechnya as relatively stable. However, only in the past 24 hours 3 federals were killed in the republic. A major clash occurred in the settlement of Tsotsin-Yurt, frequently mentioned in human rights report after a series of ruthless security sweeps conducted here last December. According to the latest military reports, on Monday, March 25, Federals killed twelve armed Chechens in Tsotsin-Yurt. Operational headquarters have reported that on Monday morning rebels opened fire at policemen of Tsotsin-Yurt police department. Policemen were Chechen nationals. Russian Interior troops and policemen of the Interior Ministry’s department stationed in the settlement on a temporary basis rushed to help their colleagues. In this connection it is worth nothing that Chechen officials have many times complained to Gazeta.Ru that the federals prefer not to interfere into clashes between Chechens. “In the course of the shooting one military serviceman died, three military and one policeman were wounded. The rebels were encircled. To complete the operation OMON fighters arrived in Oktyabrskoye (Russian name of Tsotsin-Yurt – Gazeta.Ru). One of the armoured personnel carriers that had brought OMON fighters hit the radio-detonated mine. Whereupon a shooting began in the settlement. 7 OMON fighters and 6 Defence Ministry’s military servicemen were wounded. 12 bandits were killed in the clash,” the Operational headquarters reported. Yet, Russians could have incurred much higher losses in that clash. For comparison, in August last year 6 soldiers were killed in Tsotsin Yurt, after a military convoy of two trucks and an armoured personnel carrier was ambushed and the rebels opened heavy fire at the federals. Lately Tsotsin-Yurt is often remembered in connection with a ruthless clean up operation, conducted by the federal forces throughout the Kurchaloi district (to which the settlement belongs) at the end of December 2001. Counter-terrorist headquarters reported on elimination of over 100 rebels, whereas human rights activists said several dozen young residents of Tsotsin-Yurt were killed through summary executions. Crackdowns in Tsotsin-Yurt were also mentioned in the US Congress’ report on Human Rights Practices in Russia. The authors of the report referred to data provided by Human Rights Watch. It is also worth noting that on Monday Russia said its forces had killed more than 12,000 rebels in separatist Chechnya since August 1999. In response, HRW and other human rights groups called the figures grossly exaggerated. Diederick Lohman, head of the HRW Moscow office aid: "Even if the figure includes civilians, it is very high... I would be very skeptical." Oleg Orlov at human rights group Memorial said: "These figures have no link to reality, they are pulled out of a hat". "They said there were only 1,500 rebel fighters left last September. Since then, official announcements of Chechen deaths total 1,224. That would leave only around 300 rebels in all of Chechnya." In the meantime Russian forces continue to exercise zeal in restoring the constitutional order in Chechnya. On Monday Federal Su-24 frontline bombers hit a group of up to 50 rebels in a mountainous region of Chechnya. Federal forces continue to sweep Chechen capital Grozny. According to Interfax, early in the morning on Tuesday the military blocked off the central market in Grozny. The marketplace was encircled by armoured vehicles, and salesmen were not allowed access to their stalls. ****** #4 strana.ru March 26, 2002 Cooler Business Heads Seek "Sustainable" Growth for Long-term Sky's no longer the limit, though Russia's back on the radar. By Michael Stedman High-yield returns on investment seen in the heady days before Russia's economic crash four years ago have been replaced by more realistic and sustainable performance from big business, company executives were told in Moscow Tuesday. The critical corporate issue now was to achieve well-founded growth, and pre-meltdown returns of 40 percent had given way to cooler deliveries of between five percent and 25 percent, a top specialist declared at a "strategy round table." Senior delegates from Russian and foreign-owned corporations gathered to hear his assessment that a key issue facing managers responsible for the Russian market was "managing corporate expectations downward" as the domestic economy powered forward. It's no longer "the sky's the limit," the Economist Intelligence Unit's Russia and East European expert Daniel Thorniley told the conference. And the key task for regional managers was to push that message hard in boardrooms back home as a newly fast-moving economy and a good business environment was putting Russia "on the radar screens" of chief executive officers in foreign lands. "Most country and regional managers want to get another good commercial year under their belts in 2002," Thorniley said. "And the good news is that most think they will be able to achieve this." Perceptions of Russia were still colored by "the CNN view" of unreliable joint venture partners and mafia trouble, delegates were told. But a better long-term perspective was now producing business strategies which could be sustained. "Making moderate investments in infrastructure and staff, looking at steady regional expansion, considering partnerships and joint ventures with Russian partners and considering tactical, strategic alliances with other Western companies are all part of this strategy," Thorniley said. These could be set against negative reports which were "97 percent garbage," he added. ******* #5 Washington Times March 26, 2002 U.S. leans to larger expansion of NATO By David R. Sands BUCHAREST, Romania -- The United States has given its clearest indication yet that it will back a broad expansion of NATO into Eastern Europe when the alliance meets this fall in Prague. "In Prague, our nations will take a historic step toward removing the remaining divisions of Europe," President Bush said yesterday in a message read at a summit of nine candidate nations in Bucharest. "We will move to adapt NATO structures and improve its capabilities so that our societies and our citizens are better protected against new threats, wherever they emerge," he said. NATO, which last expanded in 1999 by taking in Hungary, the Czech Republic and Poland, would say nothing officially about which countries were likely to get the nod at the summit in Prague. But Deputy Secretary of State Richard Armitage said yesterday that the politics of NATO enlargement had changed since the terrorist attacks on New York and Washington. The terrorist attacks in the United States "have had a riveting effect on NATO and on the aspirant countries to NATO," Mr. Armitage said. "Certainly a number of our friends and allies have stepped up" in the wake of the September 11 strikes. Mr. Armitage said several East and Central European NATO hopefuls had aided their cause by offering tangible military and logistical support to the U.S.-led war on terrorism in Afghanistan and elsewhere. The leaders of nine formal candidates — Latvia, Lithuania, Estonia, Slovakia, Slovenia, Romania, Bulgaria, Macedonia and Albania — are gathered here along with their Croatian counterpart. Washington is expected to have a decisive say in which countries and how many are accepted, and delegates here have scrutinized Mr. Armitage's words for hints as to the Bush administration's sympathies. All nine nations are scrambling to complete detailed military reform programs, while at the same time trying to ensure NATO they have the political and economic stability to be useful allies. Expansion options range from a minimal expansion that might include Slovenia, Slovakia and a Baltic applicant to a much more ambitious enlargement round to embrace all three Baltic states and Romania and Bulgaria as well. Macedonia and Albania are given little chance of winning an invitation in this round of enlargement. NATO Secretary-General George Robertson, in taped remarks to the delegates assembled in the massive, marble-covered Parliament House, said the number of countries invited could range from "one to nine." Mr. Armitage made clear Mr. Bush was leaning heavily toward a larger number. "The United States looks forward to the most robust possible accession to the NATO membership at the summit in Prague," he said in an appearance with Romanian Prime Minister Adrian Nastase. Mr. Armitage said he planned to deliver the same message when meeting today in Brussels with members of NATO's Executive Council. Romania and Bulgaria, considered at best long shots a year ago, have won several supporters in recent months, pushing effectively a line that the terrorist attacks have made it imperative to shore up the alliance's southeastern flank and provide a "land bridge" to Turkey. Both countries have supplied men and materiel to NATO and U.S. missions in the Balkans and in Afghanistan. Bulgarian Foreign Minister Solomon Passy said in an interview that "it was clear NATO's mission would have to be changed with September 11." Bulgaria allowed U.S. forces the use of an air base for the Afghan campaign, the first time in its history it had permitted the stationing of foreign troops on its soil, Mr. Passy said. Romanian officials also touted a joint letter read to delegates yesterday from Senate Majority Leader Tom Daschle, South Dakota Democrat, and Minority Leader Trent Lott, Mississippi Republican. The leaders said enlargement "continues to enjoy bipartisan support" in the Senate. While offering hope on a major enlargement round, Mr. Armitage said he was cautioning NATO hopefuls that the hard work of preparing their militaries for the alliance must be maintained and would not end at Prague. Noting the mounting optimism of many of the countries gathered here, Mr. Armitage said, "We want to make sure they continue to work as hard as possible to get in." Russian objections have been cited as a key obstacle to NATO enlargement. But Mr. Bush, in his message, took note of Russian President Vladimir Putin's new entente with the West against terrorism that had tempered Moscow's criticism of the alliance's expansion. "We are determined to take advantage of an unprecedented chance to shape a relationship with Russia that focuses on realistic and concrete cooperation against common threats," Mr. Bush said. ******* #6 Putin Marks 2nd Year in Power March 26, 2002 By MARA D. BELLABY MOSCOW (AP) - President Vladimir Putin spent the second anniversary of his election Tuesday skiing down Siberian slopes - a brief respite from the Kremlin, where work is piling up half way into his first term. He promised to end the war in Chechnya but it has dragged into a third spring under his leadership. The economy has improved but remains unstable. Criminals thrive. Poverty is undiminished. Putin's pro-West foreign policy - which many see as his major success so far - has Russian nationalists grumbling about the erosion of the country's place at the center of world affairs and has left the Kremlin boss dependent on the goodwill of new and untested friends like the United States. Putin became acting president Dec. 31, 1999 after Boris Yeltsin, his predecessor, abruptly resigned. Three months later, the unassuming veteran of his country's formidable intelligence services was elected president. When he came to power, many expected the stern former KGB spy to reassert Russia's position in the world by resisting and undermining Western influence. Instead, he has taken a nearly opposite tack - reaching out to the United States after the Sept. 11 terrorist attacks, raising no fuss about U.S. troops stationed in former Soviet republics and eagerly pursuing a closer link with NATO. From his first Western news conference in London, when Putin was so visibly nervous that his hands trembled, to the ease with which he now trades barbs and endearments with President Bush, Putin has found his footing on the world stage. But some of the top brass in Russia's military privately warn that Putin is pushing Russia closer to the West at the expense of Moscow's vital security interests - and at the expense of tackling the country's very serious social ills. ``Few people expected the first two years of Putin's rule to be that successful, but many key issues have remained unresolved. The problem of ensuring a sustainable economic growth hasn't been solved, and the majority of the population will soon feel it,'' said Sergei Karaganov, chairman of the Council for Foreign and Defense Policy, an association of some of Russia's leading political analysts. When Putin came to office, he promised to push through badly needed economic reforms and to clean up the corruption that blighted post-Soviet Russia and repulsed foreign investors. Putin impressed even Bush when he imposed a flat 13 percent income tax and his hand has been strengthened by Russia's improving economy, which grew while much of the rest of the world slumped. But federal coffers remain overly dependent on the export of natural resources such as oil and natural gas, and the Russian economy remains grounded in big, inefficient and monopolistic businesses. Putin has tried to bring in a new group of leaders, ousting many of Yeltsin's former coterie from their positions of strength. But his choices - former confidants from his days in St. Petersburg or in the KGB - haven't made him many friends among Moscow's power brokers. ``Everything hinges on Putin's personal authority,'' said Andrei Fyodorov, the head of the Political Research Foundation. Perhaps the biggest challenge still facing Putin is the war that won him his first burst of popularity. The Chechen campaign is a nearly decade-old festering sore that has badly damaged Russia's image abroad. For average Russians, however, Putin continues to command high approval ratings - largely undiminished from his sweeping victory two years ago. ``The bulk of the population regards Putin as a true leader who will lead the country out of a blind alley someday,'' Igor Bunin, head of the Center for Political Technologies, told Interfax news agency. ``If someone begins criticizing the president, he undermines this faith (among the people) and rejects optimism which few people welcome.'' ****** #7 Parlamentskaya Gazeta No. 51 Marc 2002 [translation from RIA Novosti for personal use only] POLITICAL FORECAST: WHAT MONEY WILL HELP THE COUNTRY TO ITS FEET? By Alexei KIVA, political analyst The new list of the planet's most rich people, including Russians, published again by the Forbes magazine gives much food for thought. None of the seven Russian legally recognized billionaires, so to speak, has any idea of science-intensive production, to say nothing of simple industrial production. Shadow billionaires whose number is no less in Russia to judge from the funds stolen by them or, to use the official language, illegally brought by them out of the country, all the more so, have nothing to do with advanced technologies, at least the Russian ones. So, what can we state? The recommendations given by the IMF (which, as it is known, reflects the interests of the Western leading nations and, first of all, of the USA) back in 1991 to the effect that Russia should focus on the expansion of the export of energy products and raw materials have been accurately fulfilled. By sharply curtailing domestic production, Russia has significantly increased the export of raw materials, including by several times with respect for some of their types. Russia has stably become a raw material appendage of the West and, to some extent, even that of some quickly developing countries of the East. Over the years of his stay in office, Vladimir Putin has managed to do a lot to overcome the hardest legacy left to him in almost all the spheres of life by the country's first President Boris Yeltsin. The State Duma has also passed a lot of laws that are so much needed for the country's successful development. However, the economy continues to be the country's Achilles' heel. It has to be admitted that nothing has been done yet to guarantee its successful development. It is not even the matter of percentage growth, which we like to count. What really matters is the level of development (the level of decline, to be more exact), from which the growth has begun, and also its components and sustainability. What I am preoccupied with, in particular? President Putin understandably is not an economist. And he needn't be the one. The leaders of the countries that achieved surprising economic results over a short period of time (West Germany, Japan) were not economists either. However, I see in the circle of the President and the Prime Minister, excuse me for my sincerity, the same notorious radical liberals in charge of economic matters. I also see the same familiar persons who have failed to prove to be competent and who have never given any realistic forecasts on the prospects of the development of the domestic economy. Moreover, they kept mum at the most critical periods for many Russians who were losing their last savings, including at the period of the rampage of financial pyramid fraudulent schemes. While world experts and sober Russian analysts warned long before the August 1998 financial and economic disaster that the financial crisis, which had begun in Asia, would inevitably hit Russia as well, our liberal economists rejected such forecasts. What some of them offer today causes bewilderment, to put it mildly. Generally speaking, radical liberals as the reformers of such a large and complex country as Russia with its largely state economy is nonsense. A market economy can become liberal only at a high level of development, when it becomes self-regulatory. At the same time, the attempts to build the edifice of the market economy from the upper floors rather than from the foundation destroy both the economy and the entire social system. This is what we can witness today actually everywhere. Precisely this fact and not anything else should be seen as the main reason for all our misfortunes in recent years - from non-payments, barter operations, delayed wages, the explosions of ammunition depots, the frequent crash of aircraft and helicopters to the sharp decline in public morality, the surge in crime, corruption, the sharp increase in the number of homeless children and mass army desertion. This is also the reason, if you want, for the US military presence in the CIS republics. In practice, the US is realizing the programme, about which former US Secretary of State Madeleine Albright told about in her time: the task of the USA is to govern the consequences of the disintegration of the Soviet empire. Let me express some considerations, including proceeding from the experience of other countries. It is extremely important to part as soon as possible with the illusions that as we create a favourable investment climate, direct foreign investments will almost flood Russia. In the foreseeable future this will hardly happen due to economic, political and partly everyday and psychological reasons. In recent years investments have largely been committed to highly developed countries with the highly developed infrastructure and, first of all, to the USA. First and foremost, these investments go to advanced, science-intensive technologies (telecommunications, information technology, biotechnology, etc.) where, apart from other things, it has become possible to secure quick returns on invested capital. The West, and especially the USA, which guards everywhere and above all its national interests, will not help the revival of Russia as an economically strong state. This is at least because Russia is the sole country in the world which has a nuclear missile potential that is capable of destroying any potential aggressor. On top of that, the rampage of corruption does not contribute to Russia's image. The international scandal about the corruption in the higher echelons of power, including the family of President Boris Yeltsin, has also contributed to creating the negative image of new Russia. Let us say sincerely: so far we have not done anything to testify that we have parted once and for all with the "family business" in the top echelons. Apart from that, we have failed to launch a true struggle against corruption and crime. There have been only talks on that score so far. So, what capital would like to flow in our country in such conditions? In general, we should not overestimate the role of foreign borrowings. According to the estimates of serious economists, foreign investments normally do not exceed 10 per cent of domestic investments. And what are our possibilities for large-scale private investments in industry? They are minimal! The bulk of capital has fled the country and works for the development of the economy of Western countries while the remaining capital flows and will continue to flow into the raw material sectors. It follows from the above that we can't do without state investments, if we do not want to finally ruin our industry, to say nothing of science-intensive industries. It is not my business to give recommendations to authorities on where to find money for investments. Let me only say how some other countries addressed this issue. First of all, they used the savings of the population for this purpose. Secondly, Russia was the only country that allowed such a mass capital flight. All the attempts to justify this somehow are either incompetent or naive or mercenary-minded. Thirdly, a part of the rent for the use of natural resources goes to the development fund. Natural resources are always considered everywhere as the asset of the nation rather than someone's property. Fourthly, the money seized from high-profile embezzlers of public funds and corrupt officials, who are not treated excessively considerately anywhere in the world for some private or personal reasons, also go to the same fund. The rule that even a high-placed thief must be in prison is strictly complied with. Finally, wise leaders wisely approach the issue of the foreign debt service so that its payment does not impede development and does not provoke a social explosion. Apart from that, actually everywhere the state actively and persistently protects its economy from unfair competition. Today much has been said about the development of small and medium- sized business. Indeed, this business plays a large role in many, if not in most, countries of the world. It should be specified, however, that, first of all, only large financial and industrial groups can make a breakthrough into the new quality of the economy. Apart from that, in all the successfully developing transition economies the state created the most favourable conditions for their operation. This applies not to raw materials monopolies but to the producers of industrial and especially high-tech products. In conclusion I would like to say the following. I believe after all that the President and the government are guided in their work not so much by the advice of radical liberals as by their own understanding of the country's problems, proceeding from common sense and the interests of Russians and Russia. ******* #8 Financial Times (UK) 27 March 2002 Putin's bid to join WTO splits business community By Robert Cottrell and Stefan Wagstyl Russian President Vladimir Putin's bid to take his country into the World Trade Organisation as early as next year has split the country's business community. While few business leaders dare to openly criticise the president, a strong lobby has formed seeking to delay accession to give Russian industry more time to prepare for international competition. The Russian Union of Industrialists and Entrepreneurs, which represents most big business leaders or oligarchs, has officially come out in favour of rapid accession. It argues membership would increase foreign investment, trade and growth. Alexey Mordashov, chairman of the union's WTO committee, says "Russia should join the WTO as fast as possible" as long as the conditions are right. But Mr Mordashov, who also heads the Severstal steel group, admits that a significant number of his union's members argue that Russia is not yet ready for membership. The sceptics are led by Oleg Deripaska, boss of the Siberian Aluminium and Russian Aluminium groups, who also controls GAZ, the country's second-largest carmaker, and several bus factories. He seems most interested in protecting his vehicle manufacturing interests. Other industries with strong lobbies include aerospace, furniture-making, financial services, telecommunications and agriculture. Konstantin Remchukov, a Russian MP and adviser to Mr Deripaska, says the government worries too much about WTO accession as an end in itself and too little about developing an industrial policy. "WTO entry has been wrongly positioned on the agenda as the number one issue. It should be on the agenda but at number 26 or 27," he said. The argument is hotting up as international negotiations about Russia's entry gather pace. Russia, which originally applied to join the WTO's predecessor - Gatt - in 1995, accelerated its efforts last year at the behest of Mr Putin. He sees membership as a further step towards Russian integration into the world economy. Russia's official policy is to be "ready" for WTO membership in 2003. "There is no official deadline for accession," says Andrei Kushnirenko, head of tariff policy at Russia's Ministry of Economic Development and Trade. But the matter could be settled at the WTO ministerial meeting in September-October 2003, he says. Negotiations will enter a new phase next month, Russian officials say, with the presentation draft report listing the market-opening measures that WTO members want Russia to implement as preconditions for entry. In advance of these talks, the Russian motor industry has persuaded the government to raise duties on older imported second-hand cars, which compete on price with new cars produced in Russia. Analysts say that this proposed increase in the level of protection could prompt Russia's trading partners to demand concessions in other sectors. Among the toughest battles will be over agriculture. The US and EU see Russia as an important export market. But Russia wants to develop its own farms. It is telling its WTO partners it wants the right to subsidise agriculture heavily, as it used to do in Soviet times. That means entry terms allowing annual farm subsidies of up to $13.8bn (£9.7bn, E15.6bn) even though actual aid last year amounted to less than $1.5bn. Mr Kushnirenko says "it would be difficult for us to explain to our farm workers why we were waiving the right" to subsidise. But others say Russia has set the figure high so it can be negotiated down in exchange for favourable concessions elsewhere. Russian officials are also considering maintaining restrictions on foreign companies' access to financial services, especially insurance, on the grounds that these activities are still in their infancy. The accession talks cover general topics such as the harmonisation of Russian standards to world norms. Alexei Portanski, director of the government-linked WTO information office, says Russia is ready to discuss all standard WTO conditions. But he says it is resisting attempts by trade partners to broaden the negotiations to include issues not covered by WTO rules - such as Russia's low energy prices. The sceptics say the government is not ready to make WTO-related decisions, having commissioned an independent report on the potential gains and losses from WTO membership only a month ago. Last week's decision on car tariffs may indicate that the government is more willing than before to consider the possible disadvantages of accession. Another sign is the recent appointment as an adviser to Mikhail Kasyanov, the prime minister, of Mikhail Delyagin, a leading conservative economist. He got the job shortly after saying it would be a "huge mistake" for Russia to join the WTO in 2003. ******* #9 Moscow Times March 27, 2002 Central Bank Still Basking in Communism By Yulia Latynina In Russia, "independence" is usually understood as the right to act with impunity and "control" as state intervention. These peculiarities of our national perception of reality were fully in evidence during the recent skirmish over the independence of the Central Bank, which led in the end to Viktor Gerashchenko's departure. The government wanted to monitor the Central Bank's expenditures. The bank, in turn, argued that if a National Banking Council were to know exactly how much it spends on paper clips, this would spell the end of its independence. It should be noted that the Central Bank is the only organization in this country that still lives under communism. It prints all the money it spends. And life is good under communism. The Central Bank employs between 80,000 and 90,000 people, making it the largest national bank per capita in the world. The chairman (during Sergei Dubinin's tenure, at least) earned twice as much as his U.S. colleague, Federal Reserve Chairman Alan Greenspan. The bank spends up to $700 million each year on computer equipment and a number of expenditures are kept off the books. Russia's monetary base amounts to 900 billion rubles. The Central Bank spends 60 billion rubles per year, and yet bank officials are perplexed by the falling value of the ruble. The pathological professional integrity of Sergei Ignatyev, who as first deputy finance minister was buying his cigarettes wholesale to save money, could help bolster the exchange rate -- but only if he sacks half of his staff. Another dispute has arisen over Vneshtorgbank. The Central Bank wanted to keep it under its wing, while the government wanted the bank for itself -- and for free. Central Bank control of Sberbank and Vneshtorgbank means that Russia has, in effect, a three-tier banking system. Where most countries have a central bank and commercial banks, Russia has the Central Bank, commercial banks and Sberbank. Everyone puts their money into Sberbank because they know that if push comes to shove the Central Bank will simply print more rubles in order to pay off its depositors. Sberbank and Vneshtorgbank have failed as commercial banks; by extending loans to Gazprom to the tune of $1.5 billion in the last month and a half, both banks have demonstrated that the state is using them to launder government credits. It's clear that the Central Bank should not own Sberbank or Vneshtorgbank. They choke the banking system as burdocks in the garden choke the radishes. But it's also clear that if ownership of the burdocks are given to the government, the radishes will be wiped out. No one has suggested breaking up the Central Bank monopoly by separating its functions of supervising the banking sector and defending the ruble exchange rate, for example. True, most central banks around the world combine these functions, but what is permissible in a civilized country can be very dangerous in a corrupt country like Russia. As you may recall, the Central Bank received $3.8 billion from the IMF in August 1998. The money was earmarked for propping up the ruble, but was immediately dispensed to various banks in the form of stabilization loans. Those banks then transferred the money overseas, the ruble collapsed, and our foreign debt rose accordingly. The Central Bank is a gigantic monopoly. Control of that monopoly was the central issue in the recent dispute between the Central Bank and the Kremlin. But the monopoly doesn't so much need to be controlled as it needs to be broken up. Yulia Latynina is a journalist with ORT. ******* #10 Russia: Boost In Oil Production Grabs World's Attention, But Can It Be Sustained? By Jeremy Bransten According to just-released statistics from the Paris-based International Energy Agency, Russia has overtaken Saudi Arabia as the world's number one oil producer. What is behind Russia's return to the top and is Moscow's leadership in this all-important sector sustainable? Prague, 26 March 2002 (RFE/RL) -- After years of falling production, last week's statistics showing that Russia bypassed Saudi Arabia as the world's leading oil producer -- at least for the month of February -- was headline-grabbing news. According to figures supplied by the Paris-based International Energy Agency (IEA), Russia pumped 7.3 million barrels of oil per day last month compared to Saudi Arabia's 7.2 million barrels. The last time Moscow found itself in that position was in the 1980s. What is behind the Russian surge and will the trend continue? Oil industry analysts say increased Russian production is primarily due to the use of more sophisticated technology at existing drill sites -- boosting yields, in some cases dramatically. But as Isabel Murray of the IEA tells RFE/RL, there are doubts about whether these temporary gains can be maintained. "Technology improves every year, and there's more recovery in fields -- there's definitely a trend upwards all around the world. But is that going to be sustainable in the long run? You know, those fields only have so much oil in them." Julian Lee is senior energy analyst at the London-based Centre for Global Energy Studies. He says that for Russia's increased production to be maintained in the medium and long term, there is no alternative to drilling new wells. He draws a parallel between Russia's current production increase and what occurred in the British oil industry several years ago. "I think what we see happening in Russia is in some cases the application of some of the sorts of technology that we saw applied to North Sea fields in the mid-1990s. And what that tends to do is to dramatically increase the productivity rate of the wells themselves and the fields that these are applied to. But these gains in the North Sea certainly have been relatively short-lived -- maybe making a substantial impact for two to three years and then production beginning to decline again thereafter. So I think for the increase in Russian production to be sustainable, we need to see much more drilling in Russia. We need to see new fields developed and brought into production. At the moment, I think these increases have come largely from the reworking of old fields." Lee disputes the production figures presented by the IEA and notes that despite undeniable increases in Russian oil production, ranking Moscow's output ahead of Saudi Arabia's is misleading. "The problem is that the production figure for Saudi Arabia is for crude oil, whereas the production figure for Russia is for both crude oil and condensate. And condensate is the heavier liquid fraction that comes with the production of natural gas. Now, in addition to its 7.2 million barrels a day of crude, Saudi Arabia is currently producing something like 600,000 barrels a day of natural gas liquids and condensates. And in order to make a genuine comparison between Saudi Arabia and Russia, that needs to be added back into the Saudi production figure, which would take it up to about 7.8 or 7.9 million barrels a day. So Saudi Arabia, on a truly comparable basis, is still producing more than Russia." Numbers aside, the important issue is the direction that Russia's oil industry will take over the next few years. Oil and gas account for 40 percent of Russia's exports and 13 percent of the nation's gross domestic product, making the continued growth of the sector vital to Russia's economy. Isabel Murray of the IEA says the financial crisis in Russia in 1998 played a big role in today's production boosts -- by making it much cheaper, especially for foreign companies working in Russia, to invest in better drilling equipment. But little has been done to create a stable business climate that will attract the outside investment needed to effectively develop Russia's oil industry over the long term. "After the crisis in '98 -- August '98, the financial crisis -- the ruble devalued about four times, and most of the costs of oil companies in Russia are ruble-based. So that really stimulated a lot in terms of reducing costs without really much effort. I think before that, though, during the time when oil prices were quite low, in the early 1998 period, lots of oil companies were really trying to streamline costs and that was a very positive exercise, I think, in terms of the need to reduce costs. Then the ruble devaluation made a huge bonus for all the oil companies and reduced costs dramatically, so Russia, all of a sudden, looks very attractive in terms of ruble-based costs. But you also need, I think, for more capital-intensive projects, you need a stable investment environment. It's not just these one-off blips of ruble devaluation that's going to bring in the long-term investors. You need something that's going to be a guarantee over the life of the project -- and those are 10-, 20-year projects." Investment will also have to go into expanding Russia's export capability, as Moscow currently exports less than half of the oil it produces -- partially due to the limited capacity offered by the state pipeline monopoly Transneft. Julian Lee of the Centre for Global Energy Studies says changes to Russia's tax legislation will be necessary to allow current production-sharing laws to go into effect and attract more foreign investment. A production-sharing agreement -- or PSA, as it is known in the industry -- allows an oil company to develop fields and produce oil according to detailed arrangements agreed between the oil company and the host government. Some of the oil production is taken as royalty by the government, some is classified as "cost-recovery oil" and taken by the oil company to recover its costs, and the balance is classified as "profit oil" and divided between the host government and the oil company on an agreed basis. "If we are going to see substantial foreign investment in Russia, in the oil industry, then I think we do need some changes to the tax laws. We have the production-sharing law that has been in place for some years now, but the enabling legislation that brings other tax laws into line with the PSAs has not yet gone through. And I think that has been a barrier to Western investment. But I think, equally, the attitude of the Russian oil industry itself, which I think is still not yet convinced that its wants foreign investment, is something that is also going to have to be overcome." The increased attention shown to Russia by members of the OPEC oil-exporting cartel is evidence of Moscow's resurgent importance on world markets. OPEC expended much effort to woo Moscow into announcing temporary curbs of 150,000 barrels per day on crude exports. If Russia plays its cards right, it will been in a position in future years to strengthen its negotiating position in relation to the cartel. ******** #11 Masyanya Cartoon Website Political Propaganda Claim Almost Leads To Its Closure Rossiyskaya Gazeta 22 March 2002 Report by Pavel Dulman: "Masyanya Takes Offense at Politicians" The current darling of the Russian Internet -- the happy layabout, reveler, and general cutie Masyanya -- will very possibly soon cease to exist. This may happen because of unscrupulous journalists from a St. Petersburg newspaper. The scandal occurred as a result of a column about St. Petersburg Governor Vladimir Yakovlev, Presidential Plenipotentiary Representative in the Northwestern Federal District Viktor Cherkesov, and his wife published in yesterday's [21 March] issue of a newspaper that is fairly well known in St. Petersburg. Masyanya got into trouble by association. The column presented Viktor Cherkesov's wife as a major St. Petersburg media magnate and organizer of a media war against the governor. And Masyanya as one of the means of pressure on the city administration. For example, the assumption was made in an uncompromising tone that the latest cartoon -- "St. Petersburg Excursion," that was pretty unflattering to the St. Petersburg leaders -- was made on the direct orders of Cherkesov and was intended to discredit the authorities. Viktor Cherkesov's press service described the information in the column as "arrant nonsense." "There are people working at this publication who simply do not know what they are talking about," head of Viktor Cherkesov's press service Aleksey Butsaylo stated to Rossiyskaya Gazeta. There was a similar reaction to the unfortunate column at the Smolnyy [St. Petersburg City Hall]. "We prefer not to comment on rubbish," Aleksandr Afanasyev, head of St. Petersburg administration press service, told Rossiyskaya Gazeta. "And the assumption that this is a politically divisive act is definitely nonsense." The party with the greatest interest -- Oleg Kuvayev -- was curt and emotional: "Well I never thought we'd see the day.... Judging by the fact that this slander was even repeated on Independent Television, this is simply an attempt to close us down.... Heck, everyone can insult an artist...." He left this message for Masyanya fans on the homepage of his website. In a letter to Rossiyskaya Gazeta he remarked that "he would close the project were it not for his obligations to advertisers." ******* #12 Former 'Oligarchs' Still Involved in Russian Media Contest Rossiyskaya Gazeta 22 March 2002 Report by Vladimir Lakshinskiy: "Down to Two Again" Former oligarchs are trying to ignite a new information war over TV-6. The "divide and rule" principle can probably be seen as a record-holder in terms of longevity in world politics and, it seems, in terms of effectiveness in the short-term waveband. If we follow carefully the meanderings of Russian politics in recent years it is easy to see that the majority of "rumbles" between oligarchs fit perfectly into this pattern. Of course, recently we have had to leave such "devices" behind, if only because the political situation in contemporary Russia is gravitating toward relative stabilization, and hence to a stretching of political processes in terms of time. A short-term effect no longer brings sufficient dividends. Nevertheless, the people who until quite recently were known as oligarchs evidently find it hard to renounce tried and tested ways, and it doesn't matter that Russian reality now excites them considerably less. We are talking, of course, about "disgraced media magnates" Berezovskiy and Gusinskiy. No one can seriously have believed that they had finally abandoned the big-time Russian "media politics" connected with the battle for Channel Six. There are people involved in that battle who are linked to the former oligarchs by cooperation over many years. The battle is bringing at least one of them -- Berezovskiy -- quite palpable political dividends. Finally, direct representatives of the oligarchs are taking part in the battle, namely Ultrakomtrast ZAO [Closed Joint-Stock Company], which is organized by former NTV staffers and "Kiselev team" members at TV-6 Pavel Korchagin and Andrey Norkin with the support of TPG Aurora, and according to some reports the latter is backed by Gusinskiy. As of today there are two main claimants to "button six": The "TV-VI" NVK [Independent Broadcasting Corporation] ZAO (Merezhko-Moskvin-Kucher, with the backing of Lukoil-Garant NPF [Independent Pension Fund]); and the noncommercial "Media-Sotsium" partnership (Primakov and Ye. Kiselev, with the backing of a number of well-known business people). These are the teams whose actions are of greatest interest in the run-up to the competition. And it is between these teams that a quite serious information war could erupt. The point is that Media-Sotsium representatives have recently been making attempts to set up contacts with leading TV-VI staffers with the aim of persuading them to leave the television company and so undermining the TV-VI NVK ZAO's participation in the upcoming competition for the right to broadcast on the sixth channel. By all accounts a key figure in these contacts is Aleksandr Levin, who had several meetings last week with one of the TV-VI NVK chiefs. Aleksandr was born in 1960 in Moscow. He graduated from the All-Union State Cinematography Institute film production department as a specialist film director. He worked as a director at the Tsentrnauchfilm studios. In 1993 he became general director of the DiXi cinema association and produced a number of projects on federal television stations: "Natsionalnyy Interes" [The National Interest"] for RTR, "Protsess" [The Trial] for ORT, and "Kukly", "Itogi" and "Glas Naroda" [The People's Voice"] for NTV. From April 1999 he was head of production at the NTV television company. From May 2001 he was in charge of production at "MNVK" [Moscow Independent Broadcasting Corporation] ZAO (TV-6). He is currently general director of "Shestoy Kanal" [Channel Six] ZAO. Clearly Levin has not just come in "off the street". He is general director of Shestoy Kanal ZAO, a key participant in sixth-channel contender Media-Sotsium. Regardless of whether Levin is acting on his own initiative, on the instructions of Shestoy Kanal ZAO or in the interests of third parties, therefore, it is the noncommercial partnership that is responsible for his actions. If the Kiselev team's real task is actually to try to eliminate the TV-VI team from the competition (remember the clumsy attempts to put pressure on Merezhko and Moskvin through publications, telephone calls and, finally, the incomprehensible story about stolen documents), then Yevgeniy Primakov is going to find himself in quite a difficult situation. Hitherto he has been known as a principled opponent of "information warfare" and the use of "dirty tricks" in mass media operations. It would also be interesting to know what the organizers of the telephoned comments were reckoning to achieve and what Levin's current actions are aimed at. At prompting retaliation from the Lukoil structures? Information warfare between the main claimants to the sixth channel is, after all, primarily to the advantage of the third claimant. Which means Gusinskiy and Berezovskiy, the former direct bosses of Levin and his friends from the Kiselev team. Why necessarily former, however? Levin still remains one of the leaders of NTV International, which belongs to Gusinskiy, and in recent weeks he has made frequent visits to a number of Western countries, including Switzerland, where Gusinskiy is now said to be resident. At the start of the year Gusinskiy was already wanting to buy up the Kiselev team, previously sold to Berezovskiy, via the TPG Aurora company's purchase of shares in MNVK ZAO (TV-6). But the deal fell through because of the court ruling on the television company's liquidation. Now he is making a renewed attempt. Since the public conflict was provoked between Media-Sotsium and TV-6 the competition commission is left with no option but to vote for the last outwardly decent team -- Korchagin and Norkin and their and their "major Western investor", which will obviously include Kiselev and the remnants of his team. "I've parted company with Kokh, I've parted company with Alekperov, and I'm also parting company with you, Primakov...". ******* #13 EFinancialnews.com March 25, 2002 Letter from Moscow By Gerard O'Dwyer The quaint Soviet era maxim that 'Moscow is the mirror of the Russian soul' has special relevance as spring hits a capital in profound and unstoppable change. The Russian economy may still be as mercurial as ever, yet there is a fresh bounce in Moscow's step. For the first time in modern memory, and lip service apart, Russia's largest cash-heavy corporations are hungry for cross-border expansion. Emerging from the mists of this new era of confidence are corporations such as Yukos, Russia's second-largest petroleum enterprise, and Mobile TeleSystems (MTS), the stock market's darling. Yukos signalled its international intentions by bidding to take over cash-starved Kvaerner Group's European Hydrocarbons and Process Technology business last autumn. While Yukos may be the company all analysts love to praise, it lacks the golden boy status of MTS, the Moscow-based mobile telecoms group 51% owned by Deutsche Telekom. MTS has become synonymous with the 'new Russia', a forward-looking, competently managed and progressive entity with an unbending focus on growth through strategic acquisitions. On March 19, MTS issued an additional $50m (€56.5m) Eurobond through Mobile TeleSystems Finance, its wholly owned Luxembourg-based subsidiary, bringing the three-year Eurobond total scheduled to mature in December to $300m. With an annual coupon yield of 10.95%, the notes, listed on the Luxembourg Stock Exchange, were issued at a price of 101.616% and carry a yield to maturity of 10.248%. Alexey Buyanov, MTS's vice-president for investments and securities, was unsurprisingly sanguine in his analysis. 'Our initial $250m Eurobond issue in December was an outstanding success. That inspired MTS to place a further $50m in Eurobonds in a favourable market,' he said. MTS is expected to return to the Eurobond debt market later in the year to raise capital to fund ongoing GSM network projects. A large part of the proceeds from MTS's December issue was used to finance the 51% acquisition of Kuban GSM, Russia's fourth-largest cellular operator, in a move that opened up Southern Russia and the Black Sea region to the group. That majority equity stake cost MTS $140m. Additionally, MTS has first refusal on outstanding shares in Kuban GSM, Russia's largest cellular operator outside Moscow and St Petersburg. If nothing else, the acquisition of Kuban GSM sets out MTS's stall in expanding out of its Moscow home-base to Russia's largely untapped provinces, bringing the company into direct competition with Russia's three leading mobile operators, Vimpelcom, Sonera, and MegaFon. MTS's ascending star is such that the market moved to applaud the price paid by MTS for Kuban GSM, even though the deal valued the target mobile operator's subscribers at $375 apiece. By contrast, earlier sales of cellular companies in the same region, valued their subscribers at $300 apiece. 'Internationalisation' is the latest buzz-word to surface from MTS. CFO Alexei Buyanov characterises the mood at MTS as one of 'growing international ambitions'. Analysts believe MTS will move on Europe, but not any time soon. The smart money is on it building its empire in Russia, and in former Soviet states. Underpinning investor confidence in MTS is the happy camper value in shareholders Deutsche Telekom and AFK Sistema, which co-founded MTS in 1993 and each hold 42-43% of the shares. Neither company has shown any interest in divesting or diluting its holdings. Keep a watchful eye on MTS. Its star may not be visible in the West, but one day, its trail may take it to a sky near you. ******* #14 Ekspert March 26, 2002 Innovation Revolution The government, the scientific community and hi-tech businesses attempt to turn Russia into an intellectual superpower By Dan Medovnikov (therussianissues.com) What happened in the Kremlin last Wednesday could only be described as a triumph of technocracy. The president's Council for Science and High Technology, the Presidium of the State Council and the Security Council led by Vladimir Putin arrived at the conclusion that science and technology are among Russia's top priorities. Speaker after speaker emphasized the point that innovation was the only way open to Russia and that it must take that path without delay. In what might have been seen as a revival of long-forgotten slogans, they called for measures to make science the country's main productive force and make sure that scientists and developers enjoy an adequate social status (the calls date back to 1914 when the outstanding Russian scientist, Vladimir Vernadsky, founded a commission "for the study of Russia's natural productive forces." The Bolsheviks carried on the commission's work). An outsider might have been under the impression that the political and business elite were demonstrating full support for the country's scientific community, notably the Academy of Sciences, to spend more on the study of natural phenomena so that they could later be changed into the cold, hard cash of hi-tech business. According to statistics, it is hi-tech businesses that account for the lion's share of GDP growth in developed countries. However, that impression would have been correct only in part. The reform in science and technology is to be completed within a relatively short time, about eight years. The drafting of guidelines ran into problems. It encountered resistance from the more conservative section of the academic lobby who can't stomach even the word "innovation" and also from the Ministry of Finance bureaucrats who insisted that the four percent budgetary appropriations were too much of a good thing (although the law "On State Policy on Science and Technology" provides for four percent, appropriations for this sphere have been five times as low). The final draft that came under discussion on Wednesday could be seen as a fair compromise between academics, politicians and those who advocate the interests of the innovation community in the state. One of the provisions makes it clear that "the formation of a national innovation system" will be one of the government's main priorities in the next few years. According to Minister of Industry, Science and Technology Ilya Klebanov, "the establishment of the correct balance for distributing the state's resources between various phases of the innovation cycle" is called for. He made his point even clearer when he said that "government support for fundamental and applied research in the absence of a developed industry and of a marketing system for hi-tech products results in subsidizing other countries' economies at our expense. Today, Russian industry is under intense pressure from international corporations aiming to oust our scientific and technological products from the Russian, as well as international, market by supporting their own innovation systems." Like any other innovation system, the Russian system implies the establishment of a single infrastructure, including both state-run and private organizations (technical parks, innovation and technological centers, guaranty and venture funds, investment banks, etc). In this situation, the government will seek to form a favorable economic and legal environment by "stimulating extra-budgetary financing and creating the necessary conditions for venture investment in science-intensive sectors." Of course, such bureaucratic formulas make it difficult to understand the real mechanisms stimulating the establishment of an effective innovation system within a short period of time, but at least the objective has been set. President Vladimir Putin made another important point. He said he was confident that Russia needed "a market-oriented innovation model for organizing science" that would reflect "the meaning of the science reform," especially in the academic sphere. The guidelines provide for the wholesale inventory of state-run research institutions and also a reform of the Russian Academy of Sciences, which will "release some federal property." As plans stand now, inefficient research institutes and laboratories will be closed, with the money thus released being used to support small innovation businesses. The guidelines also set out a procedure entitling Russian manufacturers and "other investors" to state-owned intellectual property. You gets the impression that the country is in for a new wave of privatization, this time privatization of the "intellectual" component of the economy. In addition, customs duties on imported scientific equipment will be lowered, and research institutes will receive tax concessions. One line in the guidelines is entirely revolutionary: it calls for federal and regional budgets to fund "the training of specialists in innovation management." And, finally, the guidelines say the government will give approximately ten innovation projects the status "of national importance." Which areas of scientific and technological progress they will be covered is easy to see. They include power generation (including alternative sources of power), energy conservation, biotechnology, medicine, new materials, chemical technologies, electronics, ecology and possibly transport and space. Ilya Klebanov revealed that a special team of experts was considering more than 200 projects laying claim to the "of national importance" status. They have to conform to stringent conditions: within three years they are supposed to yield a profit exceeding the initial investment by five times, and projects that have no chance of achieving that target will be rejected out of hand. Ekspert has learned that the projects submitted for consideration include such well-known innovations as new-generation catalysts making it possible to increase the cost of petrochemical products by three to four times by refining crude more thoroughly. There are also promising projects for a powerful gas turbine, genetically modified plants, synthetic crystal dielectrics and many more (dielectrics, incidentally, have been exported to the tune of $100 million a year). Seventy-five percent of the annual increment of budgetary appropriations are to be channeled into the Ministry of Industry and Science's "strategic" projects. The corresponding figure for fundamental research will be only 25%. In any case, the innovation revolution has come to pass, at least in the heads of key officials, including the president. *******