May 25, 2001 

This Date's Issues:   5268 • 5269

Johnson's Russia List
#5269
25 May 2001
davidjohnson@erols.com

[Note from David Johnson:
1. AP: Anna Dolgov, Russian Radio Station Surviving. (Ekho Moskvy)
2. AFP: Russia to lift Kursk September 15, warns of operation's dangers.
3. Novye Izvestia: Ivan Krasavin, PRICE-LIST FOR THE UNION OF RIGHT FORCES. The new right-wing party will make all your dreams come true... The Union of Right Forces party will become the Kremlin's tool.
4. Financial Times (UK) letter: Ann Cooper, Journalists attacked with impunity. (re Bershidsky)
5. Bloomberg: Hermitage Capital Management's Bill Browder on UES: Comment.
6. Moscow Times: Valeria Korchagina, Mr. Chubais Goes to Washington.
7. Vedomosti: Vitaly Portnikov, WAR OF THIEVES. The war in Chechnya all about oil and money.
8. gazeta.ru: Welfare Seekers Move Above Arctic Circle. (Norilsk Nickel)
9. Financial Times (UK): Andrew Jack, Is time up for the 'secret state'? Gazprom is Russia's biggest and most important company, accounting for up to 8% of GDP. But it is run by Soviet-era 'red directors' and Moscow is under pressure to bring it under control.
10. NEWSWEEK WEB EXCLUSIVE: Ginaane Brownell, From Russia, With Love. An American volunteers to work in a Stalin-era orphanage—and finds it’s not quite what she expected.
11. Vremya MN: Mikhail Delyagin, CAPITAL FLIGHT REPLACED BY ITS EVACUATION.
12. Moscow Times letter: Patrick Fleming, Business Opportunities.]

*******

#1
Russian Radio Station Surviving
May 25, 2001
By ANNA DOLGOV

MOSCOW (AP) - As Russia's main independent media voices toppled one by one in 
recent months, succumbing to the government-linked Gazprom, one major outpost 
remained standing - and is now fighting for survival. 

From a 14th-floor studio overlooking Moscow's broad Novy Arbat street, where 
black sedans with flashing blue lights whiz government officials between 
their country homes and the Kremlin, the Echo of Moscow radio station brings 
news every 15 minutes. 

It is Russia's premier radio station with a mostly news format, and the only 
major outlet of the crumbled Media-Most empire that still reports critically 
about President Vladimir Putin. 

Last month, natural-gas giant Gazprom conquered much of Media-Most, changing 
the leadership of its flagship station NTV, closing its daily newspaper 
Segodnya, and firing the staff of its news magazine, Itogi. 

Gazprom insisted it was motivated by a wish to protect its investments in the 
financially troubled media, and promised not to interfere with editorial 
policy. But Media-Most and its supporters call it Kremlin punishment for 
critical reporting. 

Abandoned by many of its most prominent journalists, NTV has scaled back 
harrowing reports about the war in Chechnya and no longer broadcasts scathing 
attacks on the government. Gone also are the long, inward-looking reports 
about its own plight that were a focus before the takeover. 

Many fear this kind of transformation also awaits Echo of Moscow, which is 
partly owned by Gazprom. 

``Under the state, Echo of Moscow would simply be different radio,'' its 
chief editor Alexei Venediktov said Thursday. 

Since its creation in 1990, Echo of Moscow has become a symbol of free media 
in Russia. 

It was the only radio station that brought the nation independent reports 
during the attempted hard-line coup against Soviet president Mikhail 
Gorbachev in 1991, managing to stay on the air despite repeated attempts to 
muzzle it. 

The station broadcasts to an estimated audience of 4 million in 67 Russian 
cities and towns. 

That's smaller than the scope of official government stations, but Echo of 
Moscow also reaches into television, with camera crews from the major 
networks filling its studio during live - and lively - interviews with 
political leaders. 

The radio station's guests last year included President Clinton, who fielded 
call-in questions from hundreds of Russians on subjects from nuclear arms to 
his tastes in Mexican food. 

If Echo of Moscow has so far avoided succumbing to outside control, it was 
probably in part because it is profitable, unlike other Media-Most outlets, 
has fewer debts, and has stronger protections for its editor in the company 
charter. 

Hoping to remain independent, Echo of Moscow says it has been in talks with 
Gazprom and with Media-Most founder Vladimir Gusinsky on buying a controlling 
stake in the station. 

Gusinsky has been living in Spain, accused by Russian authorities of 
misrepresenting Media-Most assets to get a loan from Gazprom. A Spanish court 
has rejected Moscow's demands to extradite him. 

Gusinsky has agreed to turn over his 14.5 percent share to the journalists, 
and Gazprom seems willing to sell a 9 percent share of its stock, according 
to Venediktov and Echo of Moscow director Yuri Fedutinov, who are handling 
the negotiations. The two deals would give Echo journalists a controlling 51 
percent interest. 

The journalists already own just over 28 percent of the station's shares. 
Just over 25 percent are owned by companies affiliated with Gazprom, 2 
percent by NTV and 5 percent by the magazine Ogonyok. Another 25 percent of 
shares are held by Gazprom as collateral for old loans to Media-Most, 
Fedutinov said. 

Gazprom has refused to comment on the negotiations or its plans for the 
station. 

If Echo of Moscow is shut down, there is little indication that its listeners 
- who are primarily in and around Moscow - would stage mass protests that 
would worry the government. 

However, some observers say keeping the radio station intact may help mend 
Putin's reputation after international criticism of the NTV takeover. 

Even as some accuse the president of intolerance of the critical press, 
Venediktov said government officials appear eager to preserve the independent 
station. 

``They tell me they listen only to us in their cars, that there is nothing 
else to listen to,'' he said. 

*******

#2
Russia to lift Kursk September 15, warns of operation's dangers

MOSCOW, May 25 (AFP) - 
Russia said Friday the sunken Kursk nuclear submarine would be raised in 
September but admitted there was a danger element because the vessel was 
loaded with functioning torpedoes and cruise missiles.

The military command said the 20,000-tonne vesel, which sank last August in 
still unexplained circumstances killing 118 men, would be lifted off the 
bottom of the Barents Sea in a delicate 10-hour operation on September 15.

However, the top navy brass and senior Kremlin officials admitted for the 
first time there were dangers in the operation because Russia's most modern 
nuclear submarine still carried functioning torpedoes and cruise missiles.

A naval officer told journalists it was possible that at least one torpedo 
might go off during an operation to cut off the forward part of the wreck.

Deputy Prime Minister Ilya Klebanov confirmed the vessel would be raised by a 
multinational consortium led by the Dutch firm Mammoet and brought in to the 
docks of the Russia Northern Fleet five days later.

Klebanov conceded that the operation was risky because the Kursk was operated 
by two nuclear reactors and salvage experts could not give a 100 percent 
guarantee that these would not leak once lifted off the seabed.

"Of course, the weather conditions pose a risk," he told reporters.

The deputy prime minister, leading a government committee responsible for the 
controversial rescue plan, said Russia had accepted responsibility for any 
radiation leaks.

He pledged that the international community would be kept up to date daily on 
radiation levels in areas surrounding the wreck.

But navy commander Vladimir Kuroyedov said perhaps the most dangerous part of 
the operation would occur even before massive steel cords try to lift the 
Kursk off the seabed.

The front section housing the arsenal would be sliced off and left on the 
bottom, Kuroyedov said. Only then would the vessel be lifted.

Pressed for details of the operation, Kuroyedov conceded it was possible that 
at least one of the torpedoes on board might go off when the salvage workers 
used chain saws to try to slice the fortified steel vessel apart.

"Everything is possible, considering that we take into account that we are 
dealing with a submarine loaded with torpedoes," Kuroyedov said.

An official government statement said a Kursk Oskar-II type submarine is 
routinely equipped with 18 torpedoes and 24 cruise missiles which can be 
armed with nuclear warheads.

Russia's navy has repeatedly stressed that there were no nuclear weapons 
aboard the Kursk when the vessel went down following a series of still 
unexplained on-board explosions, in what was one of Russia's worst modern 
military disasters.

*******

#3
Novye Izvestia
May 25, 2001 
PRICE-LIST FOR THE UNION OF RIGHT FORCES
The new right-wing party will make all your dreams come true...
The Union of Right Forces party will become the Kremlin's tool
Author: Ivan Krasavin
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
COMMUNISTS AND LIBERALS WILL BE PERMITTED TO CRITICIZE THE REGIME 
AND EACH OTHER. EACH OF THEM WILL CLAIM TO BE THE ONLY REAL 
OPPOSITION. LET THEM HAVE THEIR FUN. WHAT MATTERS IS THAT THEY WILL BE STOPPED IF THEY SO MUCH AS INDICATE ANY INTENTION TO GO TOO FAR IN THEIR CRITICISM.

The Union of Right Forces will choose its party leader on May 26. 
The amount of media speculation on this topic probably exceeds 
specualtion about the presidential election last year. But the 
inaugural congress of the new party will not actually be as crucial as 
all that. Regardless of who is elected as leader - Boris Nemtsov, 
Yegor Gaidar, Aleksei Kara-Murza, or someone else - the result will be 
the same. This will become an inflexible party, obeying the Kremlin in 
everything, a party with only one principle to remind onlookers of 
democracy (the principle of democratic centralism).

What does the Kremlin want?

Firstly, it has to convince "our friends in the West" that there 
is no dictatorship in Russia, and that opposition parties are forming 
here.

Secondly, it urgently needs trained personnel who know what a 
default is and who have expressed their desire to serve the state in 
some prominent capacity. Otherwise the threat of another default - 
which some analysts have been warning about for the past two months - 
could endanger the president's St. Petersburg team.

The same can be said about the social reforms. They have to be 
implemented, but the Kremlin doesn't have anyone suitable for the job. 
This is the same old story - the Cabinet is ideal in everything but 
its political preferences. These preferences are too centrist to 
implement the reforms which will affect millions of citizens.

Thirdly, the regime needs a docile right wing for domestic 
purposes as well. Let those "young reformers" speak for the democratic 
part of the public. Let the public vent its dissatisfaction through 
them. By the way, these "young reformers" appear more frequently on 
the new NTV network now than they did before the takeover.

It should be noted here that the Union of Right Forces fits the 
so-called three-party system, invented by the presidential 
administration, just perfectly. The point is that system does not 
require independent politicians at all. This is what political 
consultants expect. The left wing will be occupied by the predictable 
Communist Party, the center by the predictable (and enthusiastic) 
Unity and Fatherland, and the right wing by the rearranged Union of 
Right Forces. Communists and liberals will be permitted to criticize 
the regime and each other. Each of them will claim to be the only real 
opposition. Let them have their fun. What matters is that they will be 
stopped if they so much as indicate any intention to go too far in 
their criticism.

In other words, the Kremlin desperately needs a controllable 
right wing. To be more precise, it needs not the Union of Right Forces 
members as such, but their heads and hands. Heads will be counted for 
the West and Russian democrats if and when the regime is ever accused 
of being despotic. Hands are needed to carry out the essential but 
unpopular actions. The people can scarcely hate Chubais and Gaidar 
more than they do already, but this hatred is not going to affect the 
president's 70% approval rating.

In return, the Union of Right Forces will get money - or rather, 
a source of money: the Alpha Group. Pyotr Aven, president of Alpha 
Bank, openly appears alongside Nemtsov at all kinds of political 
meetings. Chubais' position is growing more and more shaky with each 
passing day. In place of Chubais, the right will be given a pro-
Kremlin oligarch.

All this will have to be paid for, sooner or later. All Union of 
Right Forces leaders understand that much. Regardless of who is 
elected leader at the congress, that person will have more reasons to 
regret than to celebrate the election. In the long run, the leader 
will have to pay the price which is not specified anywhere yet, not 
even on the list of the Kremlin's tariffs.

*******

#4
Financial Times (UK)
25 May 2001
LETTERS TO THE EDITOR: Journalists attacked with impunity 

From Ms Ann K. Cooper. 

Sir, I should like to respond to Leonid Bershidsky's article "Two sides to 
every story" (May 23). 

When the Committee to Protect Journalists named the 10 worst enemies of the 
press for 2001, we stated clearly that Vladimir Putin, the Russian president, 
had been named to the list because he has presided over an alarming assault 
on press freedom in Russia. Since Mr Putin has been in power, the Kremlin has 
imposed censorship in Chechnya, orchestrated legal harassment against private 
media outlets, and granted sweeping powers of surveillance to the security 
services. 

Despite Mr Putin's professed goal of imposing the rule of law, CPJ has 
documented numerous violent attacks on journalists that have been carried out 
with impunity across Russia, including the brutal murder of Igor Domnikov, 
the Novaya Gazeta journalist. 

In addition, the Russian government clearly must bear some responsibility for 
the ill treatment of journalists such as Novaya Gazeta's Anna Politkovskaya 
and the US government-funded RFE/RL's Andrei Babitsky, for the simple reason 
that they refused to follow the government's rules that censor what is 
reported within Russia about the conflict in Chechnya. 

Events in April, when the Kremlin-controlled Gazprom corporation took over 
NTV, shut down the prominent Moscow daily Segodnya, and ousted the 
journalists in charge of the country's most prestigious news weekly, Itogi, 
merely underline Putin's established policy of silencing journalists outside 
his control. 

Ann K. Cooper, Executive Director, Committee to Protect Journalists, 330 
Seventh Avenue, New York, NY 10001, US 

*******

#5
Hermitage Capital Management's Bill Browder on UES: Comment
By Guy Faulconbridge

Moscow, May 25 (Bloomberg)
-- Bill Browder, who manages $450 million of assets at Hermitage Capital 
Management in Moscow, made the following comments on the reorganization of 
RAO Unified Energy Systems, Russia's national power utility, and the role of 
UES Chief Executive Anatoly Chubais. Hermitage owns some UES stock.

The Russian government Saturday approved a plan to deregulate the power 
industry by breaking up the 52 percent state-owned power monopoly. It 
rejected an alternative proposal partly prepared by minority shareholders.

UES fell to a one-month low today and is the third-worst performing stock on 
the benchmark RTS index in the past five days, wiping $620 million from its 
market capitalization.

``If you strip out all the complications and all the details of the two 
competing plans it comes down to one thing: do you give Chubais the 
opportunity to sell assets to his friends and oligarchs or do you protect the 
interests of the state and minority shareholders, breaking up UES but 
distributing the assets pro-rata, as they did in Brazil.

``And unfortunately the Russian government gave Chubais the chance to do 
another loans-for-shares scheme, but with our money.''

Chubais ran Russia's state asset sales program in the 1990s, during which 
many of the country's biggest companies were sold to selected businessmen for 
much less than most analysts said they were worth.

*******

#6
Moscow Times
May. 25, 2001. Page 1 
Mr. Chubais Goes to Washington
By Valeria Korchagina 
Staff Writer 

What does Anatoly Chubais, the head of the country's electricity grid, have
in common with U.S. Vice President Dick Cheney, who spent six years putting
up power lines?

When the two men met for 45 minutes in Washington this week, they had a lot
more than energy issues on their minds.

"Naturally, they discussed Russian-American relations," said Chubais'
spokesman Andrei Trapeznikov.

The unofficial visit between the former Russian first deputy prime minister
and the U.S. vice president provided a rare glimpse into the diplomatic
workings of two countries eager to keep lines of communication open at a
time when ties are frayed over spy scandals and President George W. Bush's
insistance on building a national missile defense shield against Russia's
wishes.

The meeting was held at 10:30 a.m. Tuesday and took place immediately after
Chubais delivered a speech assessing Russia's economic and political
situation at the Carnegie Endowment.

"Chubais said after the meeting [with Cheney] that we need to maintain a
continuous dialogue because terminating Russian-American relations is
clearly impossible," Trapeznikov said. 

Chubias said Cheney "showed an understanding of this position," according
to Trapeznikov.

Cheney's press office did not issue any statements about the meeting.

In Moscow, the Foreign Ministry and the State Duma's international
relations committee said they had no comment about the meeting.

But such a high-level meeting could not be held without the approval of
both the Kremlin and the White House.

"Of course the visit, even if it's unofficial, was approved by the
Kremlin," said Yury Korgunyuk, a political analyst with the Indem think
tank. "Nothing is done on this level without an approving nod from above." 

Ties may be strained on both sides, but beneath the surface both
governments are trying to maintain communication through unofficial
messengers, Korgunyuk said. 

"There is a need for talk, even if it is done behind the scenes," he said. 

In the two months prior to Chubais' visit, Foreign Minister Igor Ivanov and
then-Security Council chief Sergei Ivanov met with top U.S. officials on
Capitol Hill. However, as the Vedomosti daily suggested this week, "the new
Russian elite, the Lubyanka elite, do not enjoy much support and trust from
the American politicians." Lubyanka is the location of the Soviet-era KGB
headquarters and current offices of the Federal Security Service.

So the Kremlin sent the more familiar Chubais, the West's fair-headed
poster child of Russian economic reforms in the 1990s. In addition to first
deputy prime minister, Chubais has served as presidential chief of staff,
finance minister and the architect of Russia's privatization program.

Although Chubais is no longer a government official, he has longtime
contacts in the government and the Kremlin that stretch back to the
beginning of his career in St. Petersburg. The Kremlin has often used him
as a negotiator with the West.

"Chubais is a known quantity with the U.S. For better or worse, they know
what he is like," said Roland Nash, chief economist with Renaissance
Capital. "Most bureaucrats, the people behind the front people, may not
necessarily trust him, but they certainly know that he understands what is
going on."

The increased interest may be connected to a planned U.S.-Russia summit in
Slovenia in June during which Bush and Putin will meet for the first time.

"[The American side] is going to want to get to know as much as they can,"
Nash said. "They know that Chubais has his own agenda, but they also know
that he is one of the key people who really has a thorough understanding of
internal Russian politics."

It was unclear what Cheney got out of the meeting. The vice president's
press office did not return calls on Wednesday and Thursday. 

However, Cheney's impressions are sure to reach Bush's ears.

"When you are talking to Dick Cheney, you are talking to me. When Dick
Cheney's talking, it's me talking," Bush was quoted in The New Yorker as
saying in a May 7 profile of the vice president.

"We will never know how he advises the president privately, but most of the
positions Bush has taken so far are consistent with what is known about
Cheney's personal views," Nicholas Lemann wrote in the story.

The official message Chubais brought to the United States contained
assurances that Russia is committed to implementing market reforms and will
not reverse democratic reforms. Chubais said that he supports Putin's
reforms on taxes, pensions, the courts and the armed forces.

"I do believe that this decade — this 10 years of the Russian history — was
the real revolution, with fundamental changes of the most important social
[and] political institutions and values," Chubais told the Carnegie Center
gathering in Washington, according to Radio Liberty. "I believe that what
has been achieved in these 10 years is really fantastic," he said.

The only specific concern Chubais mentioned was the Kremlin's decision to
restore the Soviet national anthem. When asked for more details, he avoided
answering directly and spoke in vague terms, Radio Liberty said.

The irreversibility of Russian reforms has long been questioned by Cheney.
Throughout his political career, Cheney had deep suspicions about the
Soviet Union, The New Yorker said. As defense secretary in the late 1980s,
those suspicions focused on President Mikhail Gorbachev and his efforts to
bring democracy to the Soviet Union.

"The National Security Council was known as the home of the Gorbachevites
in the administration and Cheney's Pentagon as home to the Yeltsinites,"
the report said. "After Boris Yeltsin was elected president of Russia, but
while Gorbachev was still head of the Soviet Union, Cheney invited Yeltsin
to the Pentagon and arranged to have him greeted with a full-dress military
welcome."

Chubais did not get such a favorable welcome in Washington this week as
Yeltsin had 10 years ago, according to some reports.

For example, a request by Chubais to meet with Condoleezza Rice, Bush's
national security adviser, was denied after Rice decided that his
reputation was too questionable for talks at this time, said Yevgeny Volk,
a political analyst at the Heritage Foundation. 

Cheney, however, at least had an official excuse for meeting with Chubais —
the vice president is Bush's adviser on energy issues and Chubais is head
of Russia's national power monopoly Unified Energy Systems.

"I believe that the most interested party was actually Chubais himself.
Meeting Cheney while working on the restructuring of UES could be very
beneficial," Volk said.

The government approved a framework plan to restructure UES last weekend.
Under the eight-year plan, UES's assets will be split into two holding
companies, one composed of the national power grid and the other of
regional power stations. State-owned stakes in the power stations would be
sold off.

But UES needs to attract investors if the revamp is to succeed. 

"If nothing else, Chubais will always be able to use his meeting with
Cheney as an ace to court foreign investors," Volk said. 

Chubais on Thursday attended a business conference hosted by Microsoft
founder Bill Gates in Redmond, Washington. He was due to return to Moscow
on Friday.

*****

#7
Vedomosti
May 25, 2001
WAR OF THIEVES
The war in Chechnya all about oil and money 
Author: Vitaly Portnikov
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
THIS IS THE ESSENCE OF THE WAR IN CHECHNYA. POMPOUS PHRASES, THE 
TRAGIC FATE OF CIVILIANS, ENDLESS DEATHS OF RUSSIAN SOLDIERS - ALL ARE A SMOKE-SCREEN FOR THE TRUE FACE OF THE VICTOR: CORRUPTION. AND THIS PARTICULARLY APPLIES TO BISLAN GANTAMIROV, THE PERENNIAL MAYOR OF GROZNY.

These days, the war in Chechnya is only seen from the point of 
view of the fighting between Russian security structures and Chechen 
guerrilla leaders; the tragic situation of civilians; the power of 
Russian generals and Akhmed Kadyrov by day, and guerrilla control over 
Chechnya by night... Endless debate over the possible ways out of the 
crisis, bombardments, and deaths push into the background the 
essential question of what it's all about. What are Russian soldiers 
and Chechen guerrillas fighting in Chechnya for? For territorial 
integrity and against terrorism, says the Kremlin. For independence 
and the people, say Basayev and Maskhadov. All these are just slogans. 
But those who wish to understand have already understood the true 
content of this war and the motives behind the fighting which has 
lasted for years. Illicit mini-refineries controlled by former Grozny 
mayor Bislan Gantamirov have been destroyed all over Grozny. It was 
one of the largest operations by the Russian security structures in 
Grozny since the city was taken. All the same, the illegal oil trade 
of the guerrillas has survived and remains profitable, probably like 
the illegal oil trade controlled by other members of the government of 
Chechnya, more controllable and loyal than Gantamirov.

It should be noted that the conflict between President Djokhar 
Dudayev and then-mayor of Grozny Gantamirov, one of the leaders of 
radical Muslims, was about the oil trade. Siding with Moscow, 
Gantamirov didn't even bother to conceal the fact that his aim was to 
regain control over certain refineries. Gantamirov's confidence that 
everything in Grozny belonged to him was too much, even for the 
federal officials.

That was how (and why) Gantamirov found himself jailed, to be 
released only on the eve of the second campaign in Chechnya. He was 
released to do business again. The ensuing events made it absolutely 
clear that the perennial mayor of Grozny had not changed in the least. 
He is a law unto himself, as he has always been, particularly since 
the federal government still seems to need him. The federal government 
is only angered by his uncontrollability and outright tyranny. And 
yet, the Kremlin is always ready to forgive a little illicit oil 
trading for those who cooperate with the generals and other members of 
the large army of federal officials.

This is the essence of the war in Chechnya. Pompous phrases, the 
tragic fate of civilians, endless deaths of Russian soldiers - all are 
a smoke-screen for the true face of the victor: corruption. Corruption 
that has ruled Chechnya for years, allowing fighters for independence 
and protectors of territorial integrity alike to line their pockets. 
Fortunes have been made in and from Chechnya, and their owners can go 
on as politicians and businessmen in other Russian regions. Enemies on 
the battlefield do business deals. This is the first such war in 
history: a war of thieves.

*******

#8
gazeta.ru
May 24, 2001
Welfare Seekers Move Above Arctic Circle
By Anton Baranov 

Life in the city of Norilsk, (population in 1993 - 163 000) above the
Arctic Circle on the North Taimyr Peninsula is indeed harsh. On the other
hand, Norilsk is the home of the world’s largest nickel and PGM producer
and therefore the city, unlike the vast majority of Russian cities and
regions, is not suffering from a lack of finances. The relatively high
salaries and welfare programs in Norilsk have led to a wave of migration to
the far Northern city, founded in 1953. 

Last March, the general director of the Norilsk mining and metallurgical
complex Johnson Khagazheyev and the mayor of Norilsk Oleg Budarin requested
the Emergencies Minister Sergey Shoigu to react to the calls from the
region’s residents to restrict entrance to the Taimyr region. In their
joint letter, the two officials said they hope that the government would act. 

The freedom of movement in Russia is guaranteed by the Constitution, thus
to close a region upon the request of its residents is not theoretically
possible. Some regional leaders, however, violate the constitution. For
example, Moscow mayor Yuri Luzhkov has imposed an extremely strict system
of registration for outsiders wishing to remain in the capital more than
three days. 

The Taimyr officials have chosen not to follow Luzhkov’s example, probably
afraid that such a move would be interpreted as open defiance of Vladimir
Putin’s order that all regions harmonize their regional constitutions and
legislation with the Federal Constitution and federal laws. Thus they have
chosen instead to appeal directly to the government. 

In their above-mentioned joint letter, Budarin and Khagazheyev claim that
since the previously closed region was opened in 1990, the region’s life
support infrastructures have become vulnerable to sabotage and terrorist
acts, which would be especially hazardous given the region’s harsh polar
environment and warn that any such act could lead to a catastrophe “of
regional and federal scale”. 

The government has not yet replied to the letter thus the Taimyr
authorities have decided to turn to the State Duma. A source in the Russian
parliament told Gazeta.Ru that the Taimyr governor Aleksandr Khloponin, who
used to be the head of the Norilsk Nickel metals giant, intends to lobby
the idea to close the region to newcomers. The source said that Khloponin
would soon submit a draft law to the Duma on closing the region and that
preparation for the drafts parliamentary hearings have already begun in the
Committee for Issues Concerning the Northern Territories. 

This information was also indirectly confirmed by the committee’s
chairwoman Valentina Pivnenko, who said, “the issues need careful
legislative consideration.” 

However it is pretty obvious that the bid by both the former and the
current head of Norilsk Nickel to close the Taimyr Region has nothing to do
with the threat of terrorism. A source in Norilsk Nickel told Gazeta.Ru
that the real reason is that too many people are moving to the region to
seek a better life. People are attracted by the large amount of funds the
metals giant is allocating for the development of social facilities and
welfare. As an example, the company’s representative said that when a
Norilsk family puts their child into a kindergarten they receive an
allowance payment of 9 thousand rubles (over $300), which is not simply
uncommon in Russia – it is unprecedented. 

The company is reported to have spent about 8 billion ($275 million) rubles
on social projects and welfare in 2000. The source said that along with
obvious advantages, the policy has led to serious drawbacks: “Pensioners
and people with poor health are coming to Norilsk from all over Russia”. 

Until the draft law is considered by the State Duma, Khloponin has decided
to introduce a simpler method to protect the region from welfare-seeking
newcomers. The governor has proposed that universal subsidies for housing
and communal services be abolished. Khloponin says the measure will deter
migrants seeking “Northern Subsidies”. In order to protect Taimyr’s
residents, the governor has put forward a bill on subsidies for the
region’s poor, according to which newcomers would not be entitled to
welfare payments. 

Khloponin says that specialists who move to the region to work do not need
such subsidies, as “the level of salaries at the (metal) complex is
sufficient”. That is certainly so, therefore it is very likely that the
region’s population will support their leader’s protective measures. 

*******

#9
Financial Times (UK)
25 May 2001
Is time up for the 'secret state'?: Gazprom is Russia's biggest and most 
important company, accounting for up to 8% of GDP. But it is run by 
Soviet-era 'red directors' and Moscow is under pressure to bring it under 
control
By ANDREW JACK

Next Wednesday, some of the most powerful men in Russia will make their way 
to a lofty blue-glass office complex in the Moscow suburbs. There, they will 
discuss the future management of Gazprom, the country's biggest and most 
important company. 

Gazprom controls one-quarter of the world's known gas reserves, and accounts 
for one-fifth of Russia's export revenues and taxes, and up to 8 per cent of 
gross domestic product. 

It is a state within a state, operating independently and even sometimes in 
opposition to government - which owns 38 per cent of the company - not to 
mention against the interests of increasingly vocal minority shareholders. It 
is run by Soviet-era "red directors" and plagued by allegations of 
mismanagement. 

At the last annual general meeting a year ago, the first step towards reform 
was taken with radical changes in the composition of the board. Now, as the 
directors prepare to meet ahead of the AGM on June 29, the outcome of these 
changes is being closely watched as a sign of the willingness and ability of 
President Vladimir Putin's administration to implement reform. 

Last year, there had been speculation that Rem Vyakhirev, Gazprom's 
diminutive, ruddy-cheeked chief executive, would be ousted. Among the 
possible replacements was Victor Chernomyrdin, who carved Gazprom out of the 
old Soviet gas ministry before handing it over to his protege Mr Vyakhirev in 
1992 when he was appointed prime minister. 

But when he emerged from the AGM, on June 30 last year, the grey-haired Mr 
Chernomyrdin, usually renowned for his tortuous language, made a brief 
statement. "I will not be part of the board of directors, I have made that 
decision myself," he said. 

Mr Vyakhirev survived, stressing his intention to remain until his contract 
expires on May 31. But his position had been substantially weakened. The 
Kremlin took back the long-standing proxy it had given to Gazprom's 
executives, allowing them to use its votes. Instead, it appointed five board 
members firmly linked to the new team in the Kremlin. 

These included the fresh-faced Dmitri Medvedev, a 35-year-old lawyer who took 
Mr Chernomyrdin's place as non-executive head of the board. Mr Medvedev had 
no real experience of the corporate world - let alone the gas industry - but 
he was a long-standing Putin ally. 

The real shock for Gazprom's management came from elsewhere, however. For the 
first time, it lost control of the 11-member board. Four of its own 
executives were elected as planned. In line with a government request, so was 
Burckhard Bergmann of Ruhrgas, the German group that owns 5 per cent and has 
long-term commercial contracts with the company. 

However, in spite of blocking efforts by Gazprom, another far more outspoken 
external director was also elected with nearly 10 per cent of the votes. 
Boris Fyodorov, an old enemy of the company and head of UFG, a brokerage 
representing many investors, tilted the balance on the board seven- four in 
favour of outsiders, creating a dominant coalition between minority investors 
and the state. 

That signalled the end of an era. For much of the 1990s, Mr Chernomyrdin as 
prime minister was able to give Gazprom special status. He exempted it from 
many taxes and shielded it from competition - in exchange for supplying 
domestic gas at heavily subsidised prices. 

But by 1997, with a reformist liberal cabinet in place under him, this 
relationship was already being undermined. Mr Fyodorov, while briefly tax 
minister in 1998, launched an aggressive campaign against Gazprom, getting 
officials around Russia to probe its operations and setting up a 15-strong 
co-ordinating team in Moscow to squeeze revenues from the company. 

"Gazprom made up 20 per cent of the money coming into the coffers of the 
state. You cannot ignore such a thing, especially when you know that it 
should have been two times more," he says. When Mr Fyodorov was fired, 
Gazprom moved swiftly to neutralise his tax team by hiring them into its own 
ranks. 

"Vyakhirev did a fantastic job, keeping the company together in a very 
difficult environment of corruption and non-payment, supporting Russian 
industry and maintaining gas supplies without any interruption," says one 
businessman who knows him well. 

"No-one else could have done it. But there was no accountability. They were 
investing in anything but the core business of gas." 

Gazprom is a closed world obsessed by status and hierarchy, and disdainful of 
outsiders. It is dominated by the macho gazzoviki, life-long gas workers, 
including Mr Vyakhirev and Mr Chernomyrdin, who speak an earthy slang. They 
are united by years of working and drinking together in production plants in 
some of Russia's most remote and inhospitable regions. 

"You can't believe how much they drank," says one insider. "Life was simpler 
in Siberia. They knew what was expected of them." 

Such a culture fostered a workforce highly regarded for technical competence, 
but more obsessed with output than with profits. 

Enriched by gas sales that topped Dollars 19bn last year, executives built a 
sprawling empire. There is a network of luxury hotels across Russia; a 
complex of holiday homes and resorts around the Black Sea town of Sochi; 
mining and metallurgy operations; a mineral water company; even a 
telecommunications satellite. 

There are stakes in dozens of financial institutions including Gazprombank, 
National Reserve Bank, Inkom, Olympisky and Promstroibank. 

Gazprom made huge loans on uncommercial terms to unrelated businesses, with 
little chance of repayment. Since 1996, it invested, lent or guaranteed 
credits of nearly Dollars 1bn to Media Most, the holding company of Vladimir 
Gusinsky, the influential business oligarch and media tycoon. Insiders say 
the motive was the desire for a powerful media ally, rather than any serious 
business strategy. 

In Hungary, through the bank AEB, Gazprom appears to have been behind share 
purchases in Borsodchem and TVK, two local petrochemical groups. 

In Russia it imports goods via a network of companies including Interprocom, 
in which the ultimate shareholders are family members of top current or 
former Gazprom executives, including one of Mr Chernomyrdin's sons, Vitaly. 
The same company also owns Gazprom assets, including a stake in its telecoms 
business. 

Similar family structures dominate the shareholding of Stroitransgaz, a 
pipeline construction company with which Gazprom has carried out more than 
Dollars 1bn of business a year, although it is not listed as a "related 
party" in the internationally-audited accounts. Mr Chernomyrdin's two sons, 
Mr Vyakhirev's daughter and Arngolt Bekker, a Gazprom board member and head 
of Stroitransgaz, all hold stakes (as do Mr Bekker's three children). 

But no entity in the orbit of Gazprom has raised more concerns than Itera, a 
gas producer based in Jacksonville, Florida, which does most of its business 
in the former Soviet Union. 

The company, run by Igor Makarov, a former Olympic cycling champion, has 
taken over Gazprom markets in the Commonwealth of Independent States, such as 
Turkmenistan, Georgia and Ukraine. Itera also became a producer in Russia and 
acted as an intermediary, acquiring gas bartered by Gazprom in lieu of tax 
bills with the regional authorities in Yamalo Nenets, in Russia's far north, 
which it could then resell at a higher price. 

Both companies deny any wrongdoing, or even that Gazprom or its executives 
have any stake in Itera (though they admit the existence of a document, which 
they say was drawn up in error and which shows Gazprom as a shareholder in 
one of Itera's parent companies). 

Analysts question why Gazprom's gas production levels have been declining 
while Itera's have grown sharply, now making it the world's seventh largest 
producer by reserves. 

"The most striking question about how the company is managed is that at a 
time when gas from the Russian oil companies and Itera is rising, Gazprom's 
production has been declining," says Erik Wigertz, of the brokerage Brunswick 
Warburg. From a peak of 640bn cu m in 1991, Gazprom's annual production now 
stands at about 520bn cu m. 

Gazprom's fiercest critics allege that asset-stripping and transfer pricing 
costs up to Dollars 3bn a year. That is a serious leakage in a company with 
annual capital expenditures of Dollars 2bn. Currently, high commodity prices 
have helped keep it afloat, but in periods when energy prices were lower it 
has been forced to borrow internationally simply to pay its tax bills and 
operating expenses. Today, it has Dollars 10bn in debt - much of it 
collateralised, creating difficulties in raising new finance. 

Mr Fyodorov has done much to bring public attention to these issues over the 
past year, in the process putting pressure on the government. More 
discreetly, Mr Bergmann has done the same. The state and minority 
shareholders have between them begun to press for management reform. 

The federal audit chamber - headed by Sergei Stephasin, a Putin ally - 
launched inquiries into Gazprom and Itera. The government, meanwhile, banned 
the Itera tax-offset arrangement in Yamalo Nenets. It supported initiatives 
to require board approval for significant asset transfers, and to launch an 
investigation into links with Itera. 

The government also delayed Gazprom's plan to subscribe more than Dollars 1bn 
to a rights issue at the petrochemicals group Sibur in order to maintain 
control, amid concerns over a lack of clarity. It has begun work on reforming 
the "ring-fence", which in theory creates a barrier between Gazprom's 
domestic shares reserved for Russians, and American Depositary Shares for 
foreign investors. 

Other decisions over the past few months have appeared less tough. The 
government backed Gazprom's management in calling on PwC, the existing 
auditor, to carry out the Itera investigation, in spite of concerns over a 
conflict of interest. It has stood by as court orders which Mr Fyodorov 
believes were engineered by Gazprom have been instigated to threaten his 
chance of re-election. 

So far, it has also kept quiet on the most fundamental reform: of the 
regulatory environment within which the company operates. Gazprom remains a 
near-monopoly. It controls Russia's gas pipeline network, allowing it to all 
but exclude rival producers such as the oil companies. It has reinforced its 
dominance by acquiring regional gas distribution groups. Domestic price 
subsidies also remain. 

Where Gazprom's management has had market incentives, it has responded 
accordingly. It has successfully developed gas export markets and 
cross-border pipelines through which to supply them, providing it with 
three-quarters of its revenues. But the distorted Russian market - subject to 
manipulation and corruption - has stagnated. 

The state's hesitation over more fundamental reform may be, in part, a reward 
for the fact that Gazprom has been keen to demonstrate its loyalty to the new 
Kremlin. It has taken over Mr Gusinsky's media assets, for example, which had 
become increasingly anti-government in their output. 

At least as important has been the lack of suitably qualified managers to 
replace the Vyakhirev team, and the desire to avoid damaging conflict. The 
challenge of reforming Gazprom is huge, and at a time when the Putin 
administration is tackling so many other issues, his team is cautious about 
picking too many fights at once. 

As one foreigner close to Gazprom says: "The government will lose credibility 
if it does not act now. Mr Vyakhirev was the right man at the right time, but 
that has passed. 

"If they don't get on with reform, they can cancel all conferences on 
investment in Russia." 

*******

#10
NEWSWEEK WEB EXCLUSIVE 
May 23, 2001
From Russia, With Love 
An American volunteers to work in a Stalin-era orphanage—and finds it’s not
quite what she expected 
By Ginanne Brownell

My expectations were low. Even before leaving the United States, I was
convinced that my four-week volunteer stint in a Russian orphanage would be
one of the most depressing months of my life. I pictured children chained
to beds, half-starving, staring up with blank looks in their eyes, their
souls long since dead. I was wrong. 

THERE ARE 11 ORPHANAGES here in Yaroslavl, an industrial city of 600,000
situated four hours northeast of Moscow. And far from being Dickensian
nightmares, these institutions are places where children exude love, where
their laughter echoes throughout the hallways. Whatever love and happiness
I try to give them, I receive back tenfold. “I am not sure who gets more
out of this, the kids or me,” says Nate Castro, a 25-year-old business
developer who also volunteered—with his grandfather—to do a stint in this
riverside city.

All of us are part of the third group of volunteers to come here on a
program organized by Cross-Cultural Solutions (CCS), a New Rochelle,
N.Y.-based nonprofit that also organizes volunteer vacations in Peru,
India, China and Ghana. We pay our living and travel expenses and work
directly with communities that need our help. So far, it’s been a rewarding
experience.

Each day when we arrive after school gets out, the children greet
us in the foyer, shouting “hello” in strongly-accented English. They grab
our hands, grin from ear to ear and walk us upstairs to the room we use.
Our daily activities vary: sometimes we organize games, paint, or make
beaded jewelry. For kids who have few possessions, they are very generous.
At the end of each day, I have at least three items which kids have made
specifically for me. 

One 8-year-old girl with brown doe eyes and a raggedy blue sweater
painted me a picture with the inscription underneath, “For you to remember
me.” As the youngest volunteer in my group, I am constantly surrounded by
at least 10 giggly girls, asking me all sorts of questions via my vivacious
translators, Lena and Kristina. Vica, with long dirty-blond hair and
slightly crossed eyes, asks who I think is cuter—Eminem or Leonardo DiCaprio? 

Lida, who looks like a miniature version of U2’s Bono, asks if it is
true that in Hollywood, Jean-Claude Van Damme really walks down the street
just like everyone else? And Katya, who with her high cheekbones and svelte
figure is a supermodel in the making, wants to know if there are still
cowboys in Texas.

The conditions of the orphanages vary. My home—set up by Joseph Stalin
to house children orphaned by World War II—is considered one of the best in
the region. By Western standards, it’s decrepit: the bathrooms stink of
urine, and the kids use newspaper for toilet paper. Hallways remain unlit
during the day, and the stairs are in need of major repair work.

But on the walls there are brightly painted scenes from Pushkin tales
and spacious rooms for the children. There’s a positive atmosphere, too. On
our first day here, we were given a tour of the institution—officially
known as the Fine Arts and Music Home—by one of the music teachers. All of
us were inspired when we heard that she herself had been raised here as a
war orphan, came back to teach here after attending a music conservatory
and moved back into the orphanage after her retirement.

Not surprisingly, music plays an important role here. All the
children, who range in age from 7 to 18, are expected to sing or play a
musical instrument. There are weekly group and individual lessons, and I
was thrilled when the children from my orphanage won in the
group-performance category at the Children’s Music and Dance Festival held
here earlier this month.

Some homes, of course, are worse off. Two of our volunteer group, for
example, were assigned to home where 25 orphans are crammed in three rooms
and have no bathing facility. The children were moved there while their
former—and bigger—home was being renovated, but the money for the project
ran out, and the old orphanage now stands empty while it waits for a
$30,000 injection of funds to finish the project. Just this week, the home
found out that they may have to disperse the children to other orphanages,
breaking up the closest thing these kids have to a family life. Despite
this, however, the children and staff are trying to remain upbeat.

And what about the volunteers? The 18 of us an eclectic bunch, to say
the least: There are the two widowed sisters from England, Jane Austen-like
characters who have more energy than all of than rest of us put together;
an 18-year-old University of Virginia sophomore who’s traveling alone; two
retired Florida doctors who have spent the last 15 years traveling the
world with the Peace Corps, and a thirtysomething Ohio woman who quit her
job in marketing while she reassesses her career.

What we have in common is a desire to experience the real Russia. And
we’re all astonished by how well-adapted the orphanage children seem. “I
expected to see a lot of sadness in these kids,” says Laura Stevens, a
31-year-old volunteer from Bellbrook, Ohio. “I was surprised to see the
sparkle in their eyes.”

Michele Frey, a 48 year-old juvenile counselor from Austell, Ga., is
also surprised by the good spirits of the children. “In the States, I work
with children who have such a strong intensity of anger and
aggressiveness,” she says. “I expected these kids to be more like [that].
There seems to be no power struggle between adults and children [here],
which may be a reason.” 

There are other differences, too. Russia is a bureaucratic place, and
every time we take a trip we have to register with officials and hand in
our passports when we check into a hotel, hostel or bed-and-breakfast.
Nadia Savelieva, the Russian director of CCS, says that registering
volunteers has become increasingly difficult. “I am really worried,” she
told me. “Each time I go to register a new group of volunteers, I meet more
resistance than the last time.”

Still, Savalieva believes the program is bringing definite benefits to
both sides. “CCS is a great way to prove again that there is a common bond
between our countries and to show that we are not enemies, but friends.”

CCS founder Steve Rosenthal has a similar view. “These orphanages are
really easy for someone [who wants] to come in and make a difference in a
short amount of time,” he says. Not just for the children, but for the
volunteers as well. 

******

#11 
Vremya MN
May 25, 2001
[translation from RIA Novosti for personal use only]
CAPITAL FLIGHT REPLACED BY ITS EVACUATION
By Mikhail DELYAGIN, Doctor of Science (Economics), director 
of the Institute of Globalisation Problems 

The impressively high rating of Vladimir Putin is fully 
backed by numerous manifestations of the sincere popular trust. 
Today, against the background of relative well-being prompted 
by the favourable situation on the world markets, he is a truly 
people's President. 

The fact that the victors are not judged because they do 
the judging is far from being the main reason for that. Nor is 
it the issue of the notorious administrative resource only.
The main reason for the President's popularity is that the 
image of Putin with all his merits and weak points on the whole 
corresponds to the requirements of the country that has grown 
tired of the rampage of democracy under Yeltsin and is longing 
for Brezhnev's "civil contract" society and the thousand-year 
tradition called order. 

It is the image of Putin that, along with the two 
television channels, the common language, rouble and nostalgia, 
has become one of the key factors uniting disintegrating 
territories into a single country and the disengaged 
population, largely thrown back to subsistence economy, into a 
single people. 

Against this background, of great importance is the 
position of the economic intellectual elite of Russia, which 
today demonstrates something opposite and something quite 
untypical of it - its persisting disbelief in the prospects of 
the incumbent authorities. 

At the beginning of the year, the reformers that had urged 
in the past seven years investments (first of all, foreign 
investments into Russia) began to speak about something 
different - about the excess amount of foreign currency and the 
need of capital outflow. To a various degree and for various 
reasons (be it capital outflow liberalisation, the obligatory 
accession to the WTO, or the undesirable reduction of foreign 
debt payments) they were supported by almost all the economic 
elite. Its members, each in his own way, speak for measures 
contributing to the flow of capital out of Russia and the 
reduction of its investment potential. 

The killing effect of these approaches for the country, 
which is on the threshold of a cyclically inevitable fall of 
world energy prices, the debt crisis of 2003 and the investment 
crisis of 2004-2005 is clear. However, neither the competence 
nor the good intentions of the economic elite as a whole cause 
any doubts. 

Its position comes from the tough choice: since the 
country cannot absorb the entire inflow of foreign currency, 
the state needs to interfere in the process. 

As it would seem, it is necessary to help the economy 
absorb earned foreign currency by way of increasing demand for 
money through the solution of structural problems that have 
long been due: property protection, bankruptcy 
de-criminalisation, restriction of arbitrariness of natural 
monopolies, the development of distressed regions and the 
provision of the subsistence minimum. In the economy of 
expectations, the very commencement of the solution of these 
problems will yield results. However, the actions by the 
economic elite evidence a different conclusion: the state must 
push foreign currency out of the country. In these conditions, 
the term "capital flight" is getting outdated. Instead, it is 
time to speak about capital evacuation. This choice signifies 
the absence of the elite's confidence in the possibility of the 
economy to absorb foreign currency with the assistance of the 
state, and the ability of the latter to resolve key structural 
problems. 

It is not difficult to understand it: the ignorance of 
strategic threats, the imitation of the Brezhnev regime, the 
immersion in self-contemplation (with the only difference being 
that instead of the monks contemplating their navel, the 
current power contemplates idly as well its own rating based on 
the favourable foreign market situation) cannot cause optimism. 
The slogan "every man for himself," which is actually 
manifested in the calls for capital outflow, means the vote of 
no-confidence in the state spontaneously passed by its closest 
partners and its potential support - the economic elite. 

Today Putin is the state in Russia. Bringing in a verdict 
for the state means bringing in a verdict for Putin. Until the 
verdict begins to be enforced by the change of economic policy, 
the President needs to turn his face to the economy.
The issue of the destiny of Russia is now being resolved not in 
Chechnya or Yakutia but already in the sphere of the provision 
of internal demand for money. If this is not understood, the 
rightness of liberal evacuators will prove its case. 

******

#12
Moscow Times
May 25, 2001
Letter
Business Opportunities

Editor,
As an American involved in industrial-development issues in Russia since
1994, I am continually amazed at the indifference of Russian plant managers
at the prospects of significant contracts to produce goods for the West. 

I lived in St. Petersburg about 70 percent of the time from 1994 to 1999
and now live in Russia at least three months a year. 

My company, IDMA Inc., was chartered to facilitate contracts between
Russian manufacturing enterprises and Western enterprises. During 2000, I
submitted proposals worth more than $500 million to Russian manufacturing
plants for the manufacturing of long-term serial production of metal goods
(steel and iron castings and forgings, machine-tool processing, etc.). I
never once received a single bid. During 2001, I submitted more than $300
million to date with only one reply that was competitive, but not the
lowest bid.

The contracts I have submitted have been between $2 million and $125 million.

During the first two weeks of May 2001, Houston, Texas, hosted the Offshore
(Oil) Technology Conference. More than 250,000 attendees from around the
world were present, including some Russian enterprises. During the course
of the conference, I spoke with more than 300 of the 1,200 exhibitors.

I noticed that every country represented was aggressively soliciting
business to manufacturer goods as described above, except for the Russian
delegation, which only seemed to be interested in "how much money can you
spend to entertain me?" There was no desire to discuss business before,
during or after such extravagant entertainment. The only exception to this
that I saw was the delegation of a metallurgical plant from south of
Moscow. These two young men were very aggressively and politely seeking any
and all the business they could find.

I will be in St. Petersburg during the upcoming summer months. I will have
more than $50 million in request-for-quotation tenders with all drawings,
specifications, etc. I hope that some of your readers are hungry for
profitable trade with the West and are willing to conform to the terms to
which all other international firms bidding on the tenders eagerly conform.

Those plants in the Russian Federation that have metallurgical capabilities
and are interested in long-term contracts for serial production of goods
should try to contact me. I know that we can find a way for them to win
some of these tenders.

I have visited much of Russia — from St. Petersburg to Vladivostok –—and I
know it is a beautiful country. The Russian people deserve their share of
the prosperity that will come from strong, profitable industrial development. 

The high level of academic achievement and the trade skills developed
during the Soviet times are being squandered. It is time that some good
times returned to Russia.

Patrick Fleming
Houston, Texas
p.a.fleming@worldnet.att.net

******

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