Johnson's Russia List #6159 27 March 2002 davidjohnson@erols.com A CDI Project www.cdi.org [Note from David Johnson: 1. The Electronic Telegraph (UK): Marcus Warren, Russian troops in Chechnya revolt. 2. Reuters: Ex-spy chief, TV rebels bid for Russian TV licence. 3. USA Today: Bill Nichols, After 2 years at the top, Russia's Putin still an enigma. His economic prowess is praised, but critics question his commitment to democracy. 4. Dow Jones/AP: Russia To Mull Punishments For Using The Language Badly. 5. Russia Business List: Tom Adshead on political events. 6. Nezavisimaya Gazeta: Vladimir Kuchin, DUAL AUTHORITY IN FOREIGN POLICY. The economy is still the key factor in national strategy. 7. RFE/RL: Michael Lelyveld, Caspian: On And Off Summit Appears To Be On Again. 8. Reuters: Ukraine election casts spotlight on media battle. 9. Wall Street Journal: Adrian Karatnycky, Ukraine's Next Step. 10. Itogi: Leonid Radzikhovsky, Linked by Geography. The realistic America for Ukraine, as for the other countries of the CIS, remains Russia. 11. Reuters: Russia woos Southeast Asia with weapons, technology. 12. New York Times: Sabrina Tavernise, U.S. Grant to Gazprom Partner Is Questioned. (Itera) 13. Moscow Times: Victoria Lavrentieva, Investors: Russia Worth Work.] ******* #1 The Electronic Telegraph (UK) 27 March 2002 Russian troops in Chechnya revolt By Marcus Warren in Moscow A WAVE of revolt is sweeping through Russia's military elite as troops refuse to act as "cannon fodder" in the continuing war in Chechnya. Outraged by poor pay, incompetent commanders and antiquated equipment, a growing number of soldiers from specially trained Interior Ministry units are threatening to disobey orders to serve in the rebel republic. In the latest case of open insubordination, members of an elite paramilitary squad from the northern city of Cherepovets have given their superiors until next week to heed their demands. An ultimatum to their commanders, published across a whole page of Komsomolskaya Pravda, a national newspaper, yesterday, ridiculed Moscow bureaucrats for claiming that there is no war under way in Chechnya, just a "counter-terrorist operation". Their protest came to light on the same day that Russia released figures showing that 3,220 soldiers have been killed and nearly 9,000 injured in two and a half years of fighting in Chechnya. The Cherepovets soldiers' defiance is only the most recent example of a collapse in morale among Interior Ministry troops - professionals, unlike the conscripts serving in the army - ordered to deploy to the North Caucasus. Units from Syktykvar, Kaliningrad, Murmansk and Vologda, all cities in Russia's north or north west, have all protested at the length and conditions of their tours of duty in Chechnya so far this year. Among their grievances are efforts by their commanders to cut their bonuses for being involved in combat. The Cherepovets ultimatum goes further, heaping scorn on "Moscow clerks", the officers commanding operations in the region and corrupt pro-Russian Chechen officials. Troops posted to Chechnya had to take their food, water and bedding with them as supplies were "pitiful", the Cherepovets unit said. Russia maintains an 80,000-strong force in Chechnya to assert its authority over the war zone but a shortage of combat-ready units has put severe strain on the military. ******* #2 Ex-spy chief, TV rebels bid for Russian TV licence By Andrei Shukshin MOSCOW, March 27 (Reuters) - A government commission met on Wednesday to decide whether to let the team of Russia's last independent nationwide television channel reclaim the station, although this time under the supervision of a former spy master. Thirteen contenders, including a group headed by former Soviet President Mikhail Gorbachev, are competing for the right to use the frequency on which TV6 television broadcast. Authorities took the station off air in January in a dramatic midnight blackout that raised concern over President Vladimir Putin's tolerance of dissent. The government dismissed charges it was trying to silence a vocal critic, citing instead a court decision to wind up TV6. Its closure gave the Kremlin a monopoly of the country's airwaves for the first time since the Soviet era. The Media Ministry called a tender for March 27 to choose a company to broadcast on the frequency which is temporarily occupied by a sports channel. Rival bidders said they expected an impartial hearing as they arrived at the ministry's downtown Moscow headquarters early on Wednesday for the all-day session. "If I didn't believe that it would be fair I wouldn't be here," said Alexander Gurnov, a former presenter with state-run RTR television. The broadcasting commission is due to announce its decision late in the afternoon. Stiff competition emerged for the licence but the TV6 team appeared to have secured poll position after allying themselves with Yevgeny Primakov, a former prime minister and spy master with excellent Kremlin connections. Local media said Primakov, a strong believer in the guiding role of the state, was part of a Kremlin solution to its dilemma about how to calm concerns about media freedoms in Russia while keeping an eye on TV6's fiercely independent journalists. The paring of Yevgeny Kiselyov, the managing director and star news show host of TV6, with Primakov in a supervisory role, is seen as a marriage of convenience between a outspoken journalist and man whose background makes him ill at ease with the media. The duo are expected to tap a consortium of big Russian companies led by the head of power monopoly UES Anatoly Chubais and aluminium magnate Oleg Deripaska, for funds. MEDIA CASUALTIES The closure of TV6 was the second big blow to befall its journalists in less than a year. Last April they deserted en masse their NTV channel after it was taken over by state-dominated natural monopoly Gazprom in a boardroom coup. NTV's takeover was condemned worldwide as a Kremlin assault on freedom of speech in Russia, but Putin said the channel was never independent and served the narrow interests of its owner, the once powerful businessman Vladimir Gusinsky. Many of the journalists, who won fame in mid-1990s for their hard-hitting coverage of the Chechen war, migrated to TV6 where they transformed the then teenage entertainment outlet into a serious political channel. But TV6 belonged to another tycoon who had fallen foul of the Kremlin, Boris Berezovsky. In January, a court ruled that the station be shut down on complaints by a minority shareholder it had not set straight charter capital irregularities. Many, including in the U.S. administration, saw the hand of the Kremlin behind the move, but officials insisted the dispute was purely commercial. Berezovsky's TV6 managers said on Tuesday liquidating the company would take months and broadcasting on the frequency was unlikely to resume before September. ******* #3 USA Today March 27, 2002 After 2 years at the top, Russia's Putin still an enigma. His economic prowess is praised, but critics question his commitment to democracy By Bill Nichols cover story MOSCOW -- Several weeks after the Sept. 11 terrorist attacks on the United States, Russian President Vladimir Putin confronted a historic choice. His top advisers pushed him to extract concessions from Washington in exchange for Russia's help in the U.S. war on terrorism, officials close to Putin say. His response was startling: No. Instead, the Russian president would offer unconditional cooperation to strengthen bonds with the West. ''He said to this crowd, 'This is not about price lists. This is not about bargaining. This is about something else,' '' says Grigory Yavlinsky, a leader in the Russian Duma, the lower chamber of Parliament. The ''something else'' Putin seeks is a new Russia, a Russia that is regarded as a full partner by the same Western nations that were mortal enemies of the Soviet Union. That this former KGB officer -- who marked the second anniversary of his election on Tuesday -- would try to build such a Russia has shocked diplomats around the world, turned traditional East-West relations upside-down and left global leaders wondering what Putin will do next. Perhaps nothing surprises Westerners more than Putin's success in turning around his nation's economy, particularly in Moscow, where a once drab and listless communist capital has come alive with glittering streets and vibrant commerce: sushi bars, store windows displaying trendy designer clothes, Manhattan-like traffic jams. Russia was on the verge of economic ruin and political anarchy during Boris Yeltsin's last years as president. Now, Putin wants his rejuvenated nation to be at the table with other Western nations. Western leaders, however, aren't sure whether to trust Putin. Many still question whether he is committed to a Russia that embraces capitalism and democracy. Russia's new prosperity, for example, is limited to Moscow and a few other large cities. Critics at home and abroad say Putin's record is poor on civil liberties, such as press freedom. Rights groups say Russian troops continue to commit atrocities in the breakaway republic of Chechnya. Senior U.S. officials here say they question whether Putin believes in democracy at all. Some Russians have the same doubts and question whether he is merely building a new authoritarian system. ''(Putin) has started to restore what we had before, but in an even uglier way,'' says Tatiana Chubrikova, 52, a translator for the United Nations High Commission for Refugees. ''He thinks he knows what is good for everyone and then tries to impose it.'' Many Russians, long accustomed to living under a schizophrenic communist system that delivered far less than it promised, say the inscrutable Putin is another enigma for them to unravel. Officials close to the former spymaster say a normal day might find him talking to President Bush, British Prime Minister Tony Blair and a group of his former KGB cronies -- and giving equal weight to each conversation. 'Very far away' ''Putin's very far away from us,'' says Eugin Dashkin, 52, a department manager in a sugar production company. ''It's very difficult to tell the difference between his deeds and his words. It's difficult to feel if it's real or not.'' Few Muscovites doubt that the economic turnaround is real. The economy has improved steadily since Putin, 49, became interim president when Yeltsin retired on New Year's Eve, 1999. Putin was elected three months later. It helps that Russia is getting higher prices for oil, its largest export. But that is not the sole reason for the stronger economy. Manufacturing, for example, is on the upswing, too. The recovery is all the more remarkable considering that the economy almost collapsed during the ruble crisis of 1998, when the value of the Russian currency plummeted relative to Western currencies. Banks went under and the nation had to default on its crushing foreign debt. The economy grew 8% in 2000 and 5.5% more last year, and Russia is on schedule to pay this year's portion of its $130 billion foreign debt without international aid. Conservatives worldwide laud Russia's new 13% single-rate ''flat'' income tax, an idea long promoted without success in Washington. Moscow's air of prosperity ends at the city limits, however. Much of Russia, although slowly moving toward a market economy, is still racked by poverty, crime and a lingering communist mentality. Russian courts barely function, despite a judicial reform project launched by Putin. Low salaries and ancient equipment plague a military that can't afford barracks for 93,000 officers. They must house themselves. U.S. firms based there continue to be plagued by crime and legal shenanigans. Even after several years of recovery, the Russian economy has a long way to go: According to government statistics, unemployment is about 10%, and 35% of the country's 145 million people live in poverty, which is defined as personal income of less than $40 a month. But compared with the desperation Russians experienced in 1998, when the ruble lost 80% of its value, living conditions are dramatically improved -- at least in major cities such as Moscow. Densely packed ramshackle kiosks built by residents to sell meager possessions or crops for cash have been replaced by five-star hotels, tony restaurants and chic shoppers in leather pants. ''Most people still have a 'you have to prove it to me attitude,' '' says Peter Pettibone, an American lawyer based in Moscow who for 30 years has been a leader in promoting U.S.-Russia business relations. ''But I think most people agree that this is the most stable period we've ever had here.'' Hope for the future Many ordinary Russians, even those who haven't seen Putin's reforms improve their lives, say he gives them hope for the future. ''Things have been less antagonistic. And then, most people couldn't stand Yeltsin,'' says Irina Sorokina, 65, a retired geologist. Most Russians felt Yeltsin's drunken antics were a national embarrassment. Even so, Putin's efforts to restore order to Russian society after the instability and uncertainty of the Yeltsin years have produced a disturbing side effect: a crackdown on basic rights, such as freedom of the press, critics say. Russia's two major independent TV networks -- TV-6 and NTV -- were shut down a few months ago. Russian officials insist the stations fell prey to financial pressures, but Putin's critics say he moved to silence criticism of his regime. In Russia, ''there is simply no democracy or what you might call quasi-democracy,'' Yavlinsky says. ''It's a Potemkin village.'' Many are willing to live with Putin's authoritarian style, however, because of the order and dignity he has brought to the presidency. His political prowess has marginalized the Communist Party at the national level and turned it into a political relic. U.S. officials marvel at his diplomatic pragmatism, demonstrated by a willingness to aid Washington's war on terrorism by giving his blessing for U.S. troops to go into former Soviet republics in Central Asia. Since Sept. 11, Putin has answered virtually every request from Bush. He was the first world leader to call the U.S. president after the attacks. He has granted Washington significant intelligence support for the war in Afghanistan. He issued only a meek protest when Bush announced that the United States would pull out of the 1972 Anti-Ballistic Missile Treaty because it bans a national missile defense, which Bush wants to develop. Russian officials had urged Bush not to withdraw from the U.S.-Soviet accord, and his action remains deeply unpopular here. Putin also muted Russia's opposition to NATO expansion into former Soviet states, and he closed bases in Vietnam and Cuba. ''Putin is showing much greater capability than a lot of people in this country, including his own military and security services, to look at things objectively and judge the possible benefit for Russia,'' says a senior U.S. diplomat who requested anonymity. ''That's why he overruled the bulk of his advisers and most of the politicians he consulted in September.'' He still has critics Putin's critics, however, say that while he makes nice with the West, the Russian military remains bogged down in a civil war in Chechnya that Putin and Yeltsin launched in 1999 to rein in the breakaway republic. Human rights activists around the world bitterly complain about abuses allegedly inflicted by Russian soldiers on civilians in Chechnya. Russian human rights leader Oleg Orlov visited Chechnya late last month and videotaped scenes of Russian soldiers looting and burning Chechen homes. Orlov claims evidence of even worse cases. ''People are being killed through summary executions. Detainees are being taken to temporary camps, where they are badly beaten and tortured. Some of the detainees simply disappear.'' Russian officials say this complex portrait of Putin offers uncertain guidance on how he might govern in the years ahead. Politicians close to him say he sometimes seems to have one foot in the past and one in the future. ''He's absolutely Westernized as far as foreign policy is concerned and absolutely Byzantine as far as domestic policy is concerned,'' says Boris Nemtsov, leader of the Duma's Union of Right Forces, a centrist party. ''Putin is quite a complicated story. It's not American black and white.'' Yet Nemtsov and other political insiders believe Putin's post-Sept. 11 moves are essential to Russia's future. They say Western encouragement of the Russian president's diplomatic overtures is crucial if his country is to truly transform itself into a democracy. ''Putin is a very lonely person,'' Yavlinsky says. ''He's in the same position that (Soviet President Mikhail) Gorbachev was, where he was so far ahead of his so-called elite. . . . Sometimes, I have the feeling that he is almost isolated.'' Putin has gotten benefits from moving closer to the West: help in combating Islamic terrorism in nearby Central Asia and fewer U.S. complaints about human rights abuses in Chechnya. The Bush administration has redefined the civil war as partly a fight against terrorists linked to Osama bin Laden's al-Qaeda network. But Putin needs more rewards from the West, officials here argue, to build sufficient political support for continuing the courtship. Some here contend that Washington should push for Russia to join NATO or devise a post-Cold War security system in which Russia is a full partner. That's unlikely, but lesser measures are possible. When Bush and Putin meet here and in St. Petersburg in May, Putin will be under enormous political pressure to sign a nuclear pact in which the two countries would agree to reduce their arsenals from a current level of 6,000 warheads each to between 2,200 and 1,500 a piece. During his visit, Bush will find a Russia in which anti-American feelings still churn. But many Russians see collaboration with the West as a path to a more stable and prosperous Russia. Dozens of interviews here reveal a striking sense of hope about Putin, particularly among young people. ''I know that I cannot make a difference for my country,'' says college student Natasha Umnova, 19. ''All I can do is to work as hard as I can to try to make a difference in my own life, to be a good person, to make something of my life. And I will do that as best I can.'' And Putin, Umnova says, is trying his best, too. ''He fills me with hope . . . it has only been two years. Perhaps he will do something great for this country.'' ******* #4 Russia To Mull Punishments For Using The Language Badly March 27, 2002 DOW JONES NEWSWIRES MOSCOW (AP)--A government Council on the Russian Language intends to consider a bill that will contain "punitive measures" for the improper use of the Russian language, a news agency reported Wednesday. The punishments would be part of a bill on the status of Russian as the country's state language that is expected to be discussed in May, Education Minster Vladimir Filipov said Wednesday, the Interfax news agency said. Filipov said that many mass media companies have cut back on proofreaders to save costs, which has had a negative impact on the use of Russian, Interfax reported. The "punitive measures," which were not outlined, would be similar to laws in France that govern the use of the French language, Filipov was quoted as saying. Russian has a difficult system of phonetics and grammar and complex spelling rules. ****** #5 Russia Business List #288 Wednesday, March 27, 2002 From: Ben Aris 1. Tom Adshead on political events Troika Wednesday, March 27, 2002 Putin will celebrate the second anniversary of his election to the presidency of Russia in Baikal, skiing. The main event of last week was the move to fire Duma Speaker Gennady Seleznyov , of which more later. The Borodin affair seems to be closed and there are yet more rumors of changes in the government. It does actually look as though Putin¹s vacation is a real vacation and not a tactical one. The president is probably working on his state of the union¹ address and may be thinking about a few personnel changes in the government. Like all the changes in the last ten months or so, these will mostly be at the margins and key effective personnel will not be shifted. The rumor mill points the finger at the ³social² bloc, Alexander Pochinok and Valentina Matvienko, but this looks like a routine rumor and we are not holding our breath. We are not expecting great things from the state of the union¹ address , either. It has been delayed, as it always is, and there is apparently a lot of fighting in the Kremlin about it, but then that always happens, too. Putin will reaffirm his commitment to cleaning up government and the importance of liberal economic reform as a means to do this, but he did this last year and we have not made a lot of progress since. If there is progress, it has been incremental rather than revolutionary and much of it has taken place behind closed doors. So we think that the address will contain the same well meant commitments and will be read to a group of senior government and Duma figures, most of whom spend their time trying to work out how to stop Putin carrying out those commitments. At some point, Putin will have to do something about this, but he probably does not have sufficient political strength for this right now. It looks like Borodin is going to get away completely scot free . He had refused to pay the fine imposed on him by a Swiss prosecutor and the prosecutor was going to take the money out of a bail paid by the Russia Belarus Union. This would have laid Borodin open to the charge that he had misappropriated state funds for personal use. We are not sure that he has a problem with this, but believe it or not, this is a crime in Russia. In the current political environment in Russia, this is like handing several weapons to your enemies and presumably Borodin wants to avoid this. So a ³private person² has been found to pay the fine and news reports suggest that it is one of Borodin¹s fellow accused, who wants the case to go away. Given that tens of millions of dollars appear to have been stolen out of the Russian state budget, this ³private person² is getting away with things cheap, at 300, 000 Swiss francs. It would cost much more than that to buy a Russian prosecutor . The biggest political noise last week came around Duma Speaker Gennady Seleznyov . First, the centrist parties led a move to remove his vote on the Duma council. The council sets the agenda for the Duma¹s full sessions and is very powerful. It has representatives from all the main parties, but Seleznyov¹s vote means that the communists have two votes. The centrists do not like this and decided to change matters. They had Seleznyov forced on them after the elections in 1999 , because they were too fragmented to mount a serious opposition. They had to content themselves with an unholy alliance with the communists which enabled these two groups to take over all of the Duma committees. This led to a howl of protest from the liberals, who had counted on getting a couple of committees, in line with their overall representation in the Duma. Now the centrists are much more united and can outpunch the communists and their allies in the Agrarian Party by around 43%to 30%. So they decided to make a first move against Seleznyov, to reduce his power to set the Duma¹s agenda. This went through, while Seleznyov was on an official visit to Spain, and no one paid it much attention. In the final analysis, the agenda could always be changed by an open vote in full session, so the situation did not change that much. However, the centrists showed that this was just a sighting shot and in the middle of the week asked the Duma¹s protocol committee to start drawing up a motion of no confidence in the speaker. Seleznyov, still in Spain, seemed to have been blindsided. In fact, he has reacted to the affair with significant dignity. Over the weekend, he said that he would not leave the Communist Party in order to hold on to the speakership. This was a surprise, since he is not a diehard communist by any means. In fact, he had been moving closer and closer to the Kremlin over the last few years and had even set up his own fraction in the Duma. This fraction had seemed designed to entice some leftists away from the communists into a pro Kremlin group, which would have marginalized the communists even more than they are today. The fact that Seleznyov was so close to the Kremlin made the move by the centrists a the more perplexing . They do not do anything without orders from the presidential administration. It was therefore bizarre for them to move against Seleznyov, who had as much pull with the administration as they do. To us it looks as though the move to replace Seleznyov, which will probably be successful, is a reflection of the personal ambitions of the relatively unknown politicians who run the centrist parties in the Duma . They have seen one of their number, Boris Gryzlov, promoted to the post of internal affairs minister and no doubt would like to make the same type of career leap themselves. They are mostly nonentities from the provinces and coming to Moscow is a big break for them. No doubt they want to show their masters in the Kremlin that they are more than just drones who organize votes whenever the administration needs it. Also, each of them wants to lift himself up above the others, because as far as the public is concerned, most of these centrists are just drones who organize votes whenever the administration needs it. The move against Seleznyov may also reflect a shift of power inside the Kremlin . The speaker is closer to the Family side of things and as they weaken, they may not be able to defend him. Or they may have decided to abandon him, in order to have the Duma be even more compliant than before. One thing is for sure: this does not really change the political scene in Russia. The Yeltsin era saw a perpetual struggle between the Duma and the government, because the former was dominated by communists, including Seleznyov. The electorate voted a much more centrist Duma in 1999, and the subsequent weakness of the communists has been as big a factor in Russian political life as the figure of Putin himself. Seleznyov¹s removal does not realy change anything, but one communist fewer cannot hurt. ******* #6 Nezavisimaya Gazeta March 27, 2002 DUAL AUTHORITY IN FOREIGN POLICY The economy is still the key factor in national strategy Author: Vladimir Kuchin [from WPS Monitoring Agency, www.wps.ru/e_index.html] DUAL AUTHORITY IN FOREIGN POLICY PERSISTS. HOWEVER, RECENTLY THE RUSSIAN ELITE SEEMS TO HAVE ADMITTED THAT STABLE DOMESTIC DEVELOPMENT TAKES PRIORITY OVER WAVERING BETWEEN THE FOREIGN POLICIES OF OTHER STATES. Over the past few months, a strange situation has been taking shape in Russia's foreign policy. On the one hand, we can clearly see a Kremlin agenda for long-term cooperation with the West: outlined in hints as far back as last summer, publicly proclaimed after the terrorist attacks of September 11, and systemically shaped during President Putin's visit to Washington and meetings with European leaders. On the whole, the new policy is being maintained logically enough, despite a series of serious trials it has undergone since it was announced. Russian leaders did not actually raise an outcry over Washington's decision to withdraw from the ABM Treaty, even though they did not change their assessment of this move, considering it an error. The Kremlin's reaction to agreements between a number of Western states and states of Central Asia regarding a possibility of their future military and economic cooperation was rather quiet. Evident discord with some of the clauses of new Bush's military doctrine aimed at counteracting the "axis of evil" was formulated in a firm, but civilized manner. Differences over the Chechnya problem can be described with the formula of "agree to disagree." In a word, a certain algorithm of interaction among elements of consensus in positions, differences, search for compromises, which are, on the whole, typical of the relations within the framework of the Western world, is being formed. Simultaneously, another trend is growing stronger along with this policy among the Russian political elite, as if independently of it. The Duma speaker and commander of the Federal Border Guard Service are demanding that the Americans should leave "our zone of influence" in Central Asia. Some analysts, officially known as liberals, are raising the alarm - warning against making "unjustified concessions" on nuclear arms cuts. A part of the elite has been speaking in support of Saddam Hussein again. It is noteworthy that both members of pro-presidential parties in the Duma and state officials from the foreign policy and security blocs support the new policy, by default or through lip-service. Either perplexity or ill-concealed opposition is clearly seen behind that. Taking into account that nowadays the government controls the overwhelming part of the media, the anti-Western tone in the media, which is increasing at present, only confirms this assumption. To cut it short, a picture of a certain dual power is taking shape in the sphere of international activities. At least in form it resembles a situation of 1993-1994, when a "realistically patriotic" opposition to the "naive" and, as it turned out later, "treacherous" foreign policy for integration into the Western community had formed in the depths of the Russian elite on the sly. Quite possibly this comparison is far-fetched and does not sound correctly taking into account the new situation in the country. On the other hand, however, the elite and its psychology does not change that much radically, especially when it has to do with "mightiness" of our power or lobbying their selfish or narrow professional interests by individual members of the elite. Moreover, as contrasted to almost slavish obedience for strengthening the hierarchy of power in the domestic affairs, its bravery in the badly disguised counteraction to the Kremlin's new foreign strategy suggests an idea that the elite has well-grounded hopes for convincing the country, and then the president once again of the "naivety" of the current trend for normalizing relations with the West. Quite naturally, traitors will be found later. The cynics even ask themselves the question: does the matter concern agreed division of labor in the international affairs between the "kind" president and the "evil" elite? Many conjectures about the persons whose "new brains" had prepared the change in the Kremlin's foreign policy have appeared of recent. However, this quest deviates from analyzing a more fundamental reason for explaining seemingly unexpected and hard-to-explain, at the first glance, president's decision. As it seems, realization of the fact that the country's economy is the key factor of the national strategy of survival and the foreign policy is, in essence, a resource utilized to service the domestic policy, has become the original reason for a recent sweeping change in the foreign policy. It might be alleged exaggeratedly that, for instance, tasks of combating the problems of homeless children or providing housing for officers become priorities for the next decade, whereas the choice of our position in relation to, for instance, NATO expansion should be determined by the appropriateness of these issues in the cause of resolving the former priority tasks. In practice this link is naturally more temporary, but the fundamental principle, no matter how "selfish" or simplified it might seem, must be exactly like this. During hostile aggression, Russia should do its best to repulse an external threat; but if a disaster situation develops within Russia, its interaction with the rest of the world must be subordinate to the task of counteracting the domestic threat. This is stagnation: but is the only possible course to revive real, rather than transient, power for Russia in the world; and is the only criterion of effectiveness for any policy in international affairs. If the question is posed like that in the discussion of the link between domestic and foreign policy and the specific content of the latter, the president's new agenda has a good chance of success. However, the tradition of fighting for Russia's power "to the last Russian" is fairly stable. Dual authority in foreign policy still persists. (Translated by Andrei Ryabochkin) ******* #7 Caspian: On And Off Summit Appears To Be On Again By Michael Lelyveld The presidents of Russia and Iran have agreed to meet at a Caspian Sea summit in Turkmenistan next month after more than a year of delay. Hopes seem to be rising for a general document that the five shoreline nations can sign, but there is no end in sight to specific disputes. Boston, 26 March 2002 (RFE/RL) -- A Caspian Sea summit, which has been repeatedly put off, has been put on again after Iranian President Mohammed Khatami agreed to attend a five-nation meeting in Ashgabat on 23 April. The maneuvers around a summit date have been going on since last month, when Russia's Caspian envoy Viktor Kalyuzhny declared that a working group of deputy foreign ministers "has reached the limit of its possibilities." Only the presidents of the Caspian nations can restore momentum to the talks on a legal division of resources, which have dragged on for over a decade, Kalyuzhny said. The deadlock over how to divide the Caspian among the shoreline states has left Iran increasingly alone as a consensus has spread among the CIS nations of Russia, Kazakhstan, Azerbaijan, and Turkmenistan on Moscow's division formula. Iran has stalled a summit for over a year while insisting on its own approach and seeking support from Turkmenistan to avoid total isolation. It might seem appropriate, then, that Iran announced Khatami's acceptance of a summit invitation from Turkmenistan President Saparmurat Niyazov first on 16 March, days before statements that any other leaders would attend. Russian President Vladimir Putin declared his acceptance a week later on 23 March, the RIA-Novosti news agency said. The process leading up to the summit has been curious, however. Iran's Caspian representative Mehdi Safari paved the way during meetings in Turkmenistan on 12 March. But the immediate announcement after Safari's talks was that Khatami would embark on a series of visits to Central Asian countries in April. It now seems that the two-day summit will be only one of his stops on a Central Asian tour. Safari said Khatami plans to visit Kazakhstan, Turkmenistan, Uzbekistan, Kyrgyzstan, and Tajikistan "to seek ways of further strengthening and developing mutual relations with these countries," the Iranian official news agency IRNA reported. It is unclear whether the tour is meant to downplay Iran's concern with a Caspian solution as an issue critical to Tehran. So far, Khatami's travel plan has attracted little attention in Kazakhstan, where media coverage has been negative since Iran objected to Astana's accord with Azerbaijan on the division formula at a CIS summit in Moscow last November. Iran called the agreement illegal and repeated its protest in a recent letter to UN Secretary-General Kofi Annan. Relations since then have seemed less than warm. Last week, Kazakhstan commercial television suggested that the new government of Prime Minister Imangaliy Tasmaghambetov had taken offense at what it called an "unexpected congratulation" from Iran, more than two months after his inauguration. The report transcribed by the BBC said, "The decision by Tehran to be the last to send congratulations, moreover, in two and a half months, is regarded as another sign of a considerable complication in the relations between the two countries." It then noted the friction over the Caspian pact. Iran's differences with the CIS countries have remained largely constant for the past year. Russia's formula calls for splitting the seabed into national sectors while keeping the waters in common. Kalyuzhny suggested recently that a 10-mile national coastal zone for fishing could be extended, if it did destroy the common-water principle. Iran argues instead for either common control over the entire Caspian or a 20 percent share, which is more than the 13 percent covered by its coast. As recently as 14 March , the government-sponsored paper "Iran Daily" reported no change in the position. The English-language daily quoted a member of a parliamentary energy commission as saying that Iran had already calculated its share of Caspian resources at 33 billion barrels of oil. The member, Hossein Afarideh, also urged the Oil Ministry to proceed with activities "even in some of the disputed areas." The statement was a reminder of a dangerous incident last July, when an Iranian gunboat confronted two Azerbaijani research ships in disputed waters under contract to Britain's BP oil company. The continuing rifts raise the question of what a summit, even after a year of delays, can accomplish. Kalyuzhny's hope is that it will at least produce a document setting out the various positions and "key principles of the sea's new status," Interfax reported last month. This may be expected to include a symbolic but unenforceable declaration that the Caspian is to be an area of peace and friendship. Much of the work on the document is reportedly done. Kalyuzhny is also seeking a pact on protecting the Caspian's biological resources. Such non-controversial accords may be confidence-builders that will produce some positive coverage. But the diplomatic niceties could also be seen as a step back toward irrelevance if they fail to address the real-world disputes on nearly all sides. Iran's tension with Azerbaijan and Kazakhstan is matched by five years of discord between Azerbaijan and Turkmenistan over their overlapping oil-field claims. In addition, Iran rarely acknowledges that its biggest difference is with Russia over the entire division formula, preferring instead to lodge proxy protests against neighbors like Kazakhstan and Azerbaijan. Earlier this month, the Iranian paper "Entekhab" broached the subject, saying that Russia's position "is totally against the views of Iran and Turkmenistan" and "is pushing the region into further tension." Unless the presidents can deal with such conflicts, their task next month may be to prove that summits matter at all. ******* #8 Ukraine election casts spotlight on media battle By Elizabeth Piper KIEV, March 27 (Reuters) - Strange phone calls, regular visits from the tax police and a court battle with the communications ministry -- it's all in a day's work for radio broadcaster Sergei Sholokh at election time in Ukraine. Sholokh, who heads one of Ukraine's few independent radio stations, says he is eager for Sunday's parliamentary poll to be over so that he can sort out his studio, all but bankrupt since the tax men took what he calls an overzealous interest. "There's less than a week to go to the election, then hopefully it will cool down," Sholokh said in the small basement studio of Radio Continent. He recalled with a laugh that his first visit from the tax police was in 1998 -- date of Ukraine's last parliamentary election. "Why do they bother with all this pressure? It only causes more of a fuss. And it happens every time there's an election," he said, tapping his feet to jazz music broadcast by his station. Complaints by journalists to Western groups ahead of the election have again cast the spotlight on media freedom in former Soviet Ukraine, already in doubt after the murder of Georgiy Gongadze, a reporter critical of the authorities. His headless corpse was discovered almost two years ago, leading to Ukraine's biggest political scandal in a decade when tapes were published in which a voice alleged to be similar to President Leonid Kuchma's discusses Gongadze's kidnapping. Kuchma has denied any involvement. European rights watchdogs and U.S. officials have voiced concern, with some saying election campaigning has been marked by intimidation, harassment and coercion -- something which many Ukrainian journalists say they have got used to. "Everybody is in somebody's pay, whether the powers-that-be or businessmen," said Sholokh, whose radio station carries programmes from Western networks and is in the middle of a lengthy court case over his frequency that was sold by Ukraine's broadcasting controller in mid-contract. "I just want to work honestly in my country, and see my country develop," he says, vowing to weather the crank telephone calls and frequent visits by technicians assigned to "check the signal." LITTLE CHANGED Commentators say even after 10 years of independence, Ukraine is a long way from gaining freedom of speech. "It is surprising how little has changed in 10 years of independence," said Volodymyr Skachko, a journalist who has worked in Ukraine for 13 years and now freelances only for the German and Russian press. "The tragedy of Ukraine's media is that no one demands an objective, independent information provider. It is not needed, by the political elite, by the opposition or by the population." He agreed with Western observers' comments that pro-Kuchma forces had too much influence over television coverage in the run up to the election. But he said every powerful businessman also had his interests voiced in newspapers as well. "An oligarch (powerful businessman) is someone who has a gold chain, a red jacket, a crew cut and a newspaper. It's a joke, but there is a lot of truth in that joke," Skachko said, banging his fist on the table in his two room flat to underline his point. "Everyone wants to have his voice heard, every businessman wants to have some influence." Ukraine has a superficially pluralistic media ownership which masks the authorities' attempts to dampen dissent and owners' lack of interest in objective reporting, he said. Even Kuchma, recently tagged as one of the world's biggest "enemies of the press" by the New York-based Committee to Protect Journalists, has complained there is no free press in Ukraine. "There is no independent press in Ukraine. They, the media, all belong to somebody. They, reporters, just implement the orders from their owners," he told a recent meeting of regional reporters. Commentators say Kuchma's comment may be a prelude to his seeking even more control of the Ukraine media. MEDIA PIE Skachko said the authorities already had a slice of the media pie, but without supportive businessmen they would be left only with crumbs. And the waning support of pro-presidential parties in this election has scared the leadership. "If there was a guaranteed freedom of speech, then the authorities would only have one television channel. They would lose the fight on the press sphere," Skachko said. "The media in Ukraine strictly adheres to the old mentality, the old aims of our Uncle Lenin," he said, referring to the founder of the Soviet state, Vladimir Lenin For those who will not adhere to the line, many say the penalties are high. Olena Prytula, editor of the Web site Ukrainska Pravda, which was previously run by Gongadze, has campaigned vigorously to find out who killed the reporter. She has campaigned for the West to support an investigation into his murder, but worries the case could soon be closed. "I do not have any illusions that the case will be investigated. I do not believe there will be an objective and transparent investigation," she said, adding that Ukrainian reporters had stopped talking and reporting about it. "Reporters gave up. Everyone is saving themselves, their own families and they are using excuses that he or she needs money to support family and survive." Sholokh and Skachko agree that journalists are being bought in Ukraine to become mouthpieces for the new elite. But both say there is hope. "It is very easy to buy journalists and buy the press...but that does not mean that all Ukrainian journalists are for sale," Skachko said. "There are some who stick to objective reporting. They are like grass growing between pavement slabs. Hopefully everything will be green in years to come." ******* #9 Wall Street Journal March 27, 2002 COMMENTARY Ukraine's Next Step By ADRIAN KARATNYCKY Mr. Karatnycky is president of Freedom House. Ukrainians are going to the polls Sunday in the most boisterous and significant elections since they opted for independence in 1991. The two-month campaign for a new parliament has seen hundreds of election violations, including physical assaults on candidates, suspicious auto accidents involving party leaders, pressure on workers to vote for pro-government parties, dirty tricks, efforts to exclude opposition candidates from the airwaves and illegal use of government resources and institutions for campaigning, most of which are being orchestrated by allies of the country's scandal-ridden President Leonid Kuchma. As significantly, there is massive involvement by Russian campaign advisers, headed by a close associate of President Vladimir Putin, making it clear that Moscow seeks to influence Ukraine's elections by assisting parties eager for a close alliance with Moscow. Mr. Putin, who has given high priority to enhancing Russian-Ukrainian relations this year, traveled to the port city of Odessa on March 17 in what many see as a last-ditch bid to boost the sagging popularity of parties linked to President Kuchma. While Mr. Putin puts a friendly face on relations with Ukraine, some of his former image-makers are engaged in a campaign of rumors and dirty tricks that have targeted pro-Western reformers. They have concocted and spread a myth about something called the "Brzezinski plan," an effort allegedly orchestrated by the former U.S. national security adviser to destabilize Ukraine and ensure the triumph of pro-American and anti-Russian politicians. A Russian-Style Campaign Anti-American themes are ubiquitous on Ukrainian airwaves. A few days ago, the leader of a splinter party in the pocket of pro-Kuchma oligarchs accused a group of respected political scientists of links to U.S. military intelligence. Their transgression was the release of a poll that showed reformers making broad gains. On March 14, a television station co-owned by President Kuchma's son-in-law accused reformist Viktor Yushchenko's front-running Our Ukraine bloc of being financed with U.S. money. And on March 18, President Putin's chief of staff, Alexander Voloshin, declared that Russia works closely with two pro-Kuchma parties and the Communists, while criticizing Our Ukraine for "openly anti-Russian positions." Russian campaign consultants, who have earned a reputation for dirty tricks and last-minute use of kompromat (compromising materials, usually of sexual or financial misconduct), are beginning to influence the campaign. Dirty tricks are employed daily against reform parties, including suspicious "blackouts" at conference halls, cancellations of debates, and local power outages during candidate appearances on television. More ominously, Julia Tymoshenko, a former energy magnate who served as a deputy prime minister and drastically reduced corruption in the energy sector, was the victim of an auto accident in late January. On the very day a court ruled that an ongoing criminal investigation could not prevent her from campaigning around the country, a car laden with heavy food crates plowed into the passenger side of her Mercedes. Ms. Tymoshenko received a severe concussion, suffered from an intracranial hemorrhage and sustained neck injuries. Two factors make the stakes high in this race. Incumbent President Kuchma has a little over two and a half years left in office and the jockeying for succession has begun. Moreover, the succession is complicated by the fact that Mr. Kuchma is mired in serious allegations of corruption and criminality that implicate him and his closest advisors. In November 2000, tapes alleged to be President Kuchma's conversations were spirited out of the country by a former member of the president's guard. They reveal a president at the center of vast criminal enterprise in which he instructed that reporters and political opponents be intimidated, listened to reports of arson against the homes of his critics, colluded in cover-ups of financial irregularities, and received offers of huge bribes from political cronies. While the authenticity of the tapes has yet to be established in a transparent process (the president has vetoed legislation that would give Ukraine's parliament strong investigative powers), most Ukrainians believe the substance of the allegations is true: that their president is part of a highly corrupt system of power. Initially, Mr. Kuchma's troubles appeared to be confined to domestic transgressions (including alleged links to the murder of journalist Georgy Gongadze). But in mid-March, the head of a parliamentary commission investigating Mr. Kuchma charged that on one tape the president discusses the sale of $100 million of sophisticated antiaircraft weaponry to Iraq. The other man in the conversation -- Valery Malev, the head of the country's arms export agency -- died several days before the sensational revelations were made public when his car crashed into an oncoming heavily-laden truck. Allegations of illegal Ukrainian arms sales to Iraq are now being investigated by the Bush administration. If corroborated, they would make Ukraine an international pariah state and fuel efforts by even President Kuchma's stalwarts to nudge him toward an early retirement. Well before the newest allegations, some of the president's closest allies were putting out feelers about securing guarantees of immunity from prosecution to ensure a smooth transition to a post-Kuchma era. Yushchenko Rising The nature of any immunity from prosecution will depend on the balance of forces in parliament, a matter of no small interest to the incumbent president and his allies. As importantly, the leading political force in parliament will be best positioned for the eventual struggle to succeed him. All this makes the upcoming election of overarching importance for this nation of 50 million that is a crucial lynchpin of stability in eastern and central Europe and the object of Russia's hegemonic ambitions. Surprisingly, polls indicate that despite a deck stacked against reformers, Ukraine's voters appear eager embrace democracy, clean government, and serious economic reform. According to the latest polls -- and barring massive vote fraud -- Our Ukraine leads with around 30% of the vote. Despite the vast weight of the administrative apparatus and media arrayed against him, the bloc's leader, Mr. Yushchenko, is remembered by voters as the man who helped turn around a nearly moribund economy. A further 7-8% is likely to go to radical opponents of Mr. Kuchma. The retrograde Communists are likely to capture up to 25% and parties allied with Mr. Kuchma around 20%, while a nominally pro-Kuchma social democratic party controlled by economic oligarchs may muster a further 8-10%. The balance of seats will likely go to independents and parties dominated by members of Ukraine's business elite. This means Ukraine's next Rada (parliament) could well have the largest pro-reform bloc in Ukraine's history and Mr. Yushchenko could emerge as the front-runner to succeed President Kuchma in the next presidential vote. While the election may see serious voter fraud, it's unlikely that anger over irregularities will trigger mass protests or that President Kuchma will become the Ukrainian version of Slobodan Milosevic. On the other hand, suggests one reform analyst, Ukraine's increasingly active civil society is strong enough to ensure that Mr. Kuchma doesn't become Ukraine's version of Robert Mugabe. ******* #10 Itogi, 25.03.002 18:33 (Reprinted in Ukrainska Pravda) http://www.pravda.com.ua/?20325-6-new Linked by Geography The realistic America for Ukraine, as for the other countries of the CIS, remains Russia. Leonid Radzikhovsky The most important event of March in foreign politics for Russia is the elections in Ukraine. Moscow is emphasizing this in all kinds of ways, even adding a soundtrack to the list of Ukrainian parties with which Russia sympathizes: the pro-presidential bloc "For a United Ukraine," the Ukrainian Communist Party, and the Social-Democrats. The opponents are also designated: the rightists of Viktor Yushchenko. Moscow's calculation is correct. Some, of course, might shout about interference in internal affairs, but for the majority of voters and for the Ukrainian elite the more important thing is not these shouts, but the opinion of Moscow. And, doubtlessly, this opinion plays an enormous role. However, all of these calculations are already today definitively showing that it is precisely the three parties friendly to Moscow that together will take the majority of places in the Rada. True, they do not form any kind of united block, but rather the opposite. And they will continue to mercilessly fight with each other. But at least in relation to Russia, they will all preserve their loyalty to a known degree. It is curious, of course, that the rightist-liberal leadership of Russia is supporting the Ukrainian left against the Ukrainian right- liberals. Incidentally, the same situation obtains in relation to many other countries of the CIS. But this is simple to explain: the still not overcome syndrome of 1991. At that time the bourgeoisie parties in the surrounding republics of the USSR were spelled with a hyphen. And the were correctly spelled: they were the parties that were anti-Soviet on all fronts. That is, they stood equally against the Soviet social- economic system, against the united USSR state itself, and for national independence. It is precisely this last point of their program that was most understandable, as behind it stood the history and blood of various "forest brotherhoods," "Banderists," "basmachis" and other "dashniki". Neither the voters of these parties nor their leaders themselves knew what liberalism was, and they did not want to know. But they knew very well (and most importantly, they could feel) what the collapse of Empire meant. This was a gut-level feeling: here there merged the ethnic sense of insult and the sacred belief that once we stop feeding Moscow, and we will feast in freedom! Residents of Russia dreamed in a similar way - that as soon as we stop feeding these ethnics, we'll also feast! Life showed who was correct (or, more exactly, who was less wrong). If one compares the standard of living in the Republics of the USSR and the CIS, then the ratio has sharply changed. Citizens of the Russian Soviet Republic traditionally lived more poorly than residents of the Transcaucasus or the breadbasket of Ukraine, and with our little Euro- Baltics there was nothing to compare We know that after the collapse of the USSR everything turned around: however poorly we in Russia lived, our standard of life was much higher than in Georgia (not to speak even of fear), and than in Ukraine. Thus Russia lost less from the collapse of the USSR than the other republics. This is not surprising: USSR or no USSR, all of the oil, gas, diamonds, forests and aluminum remained with us! Such is geography and geology. In this same way geography dictates another law: countries on the periphery under any degree of political independence and in any relationship with Russia are simply destined to live at the expense of the transit of gas, oil and metal from Russia to the West, and of manufactured goods from the West to Russia. Thus lives the brotherly Belarus, the eternally cautious Baltics, and the complex (the mysterious Slavic soul!) Ukraine. And their exports (as from all countries of the CIS) go primarily to Russia. That is, their dollars have nowhere to go, and are "printed" for Russia. Incidentally, this also applies to many other countries of the former socialist camp, such as to Poland. Yes, what geography binds no politicians can unbind. This also fully applies to all of the political parties of the CIS countries. Of course, the leftist parties, which in reality are not at all leftist in the European sense of the word, but simply parties of Soviet fundamentalists, parties of "old songs about the most important thing," naturally favor strengthening ties with Russia. The fact that Russia is capitalist does not bother their typical voter. He does not know or understand such finer points. The main thing is - with Russia! The rightist parties, however, which throughout the CIS have remained not so much bourgeoisie as nationalist, in reality cannot contrast relations with Russia to anything. The Good America is in their dreams. But Russia is next door. Of course, Yushchenko has a pro-American orientation. And here is the bad luck: America does not have a pro- Yushchenko orientation. America and Ukraine are not economically linked in the slightest! Yushchenko's supporters are not able to speak "American," but they all know Russian! A Ukrainian president, let alone a minister or an artist, will never be received in America on the same leve; as he would be received in Moscow. So whoever leads in the Rada, be it Yushchenko, Simonenko or somebody else, neither the georgraphy, nor the economy, nor the culture of Ukraine will be able to change this. But while they do not change, the most important thing will also not change: the real America for Ukraine - as for the other countries of the CIS countries - remains Russia. (Trans. by Timothy Blauvelt) ******* #11 ANALYSIS-Russia woos Southeast Asia with weapons, technology By Dan Eaton BANGKOK, March 27 (Reuters) - Russia is seeking closer ties with Southeast Asia as its old spheres of influence crumble, wooing countries in the region with high-tech gadgetry ranging from nuclear reactors to missiles and fighter jets. Regional economies are emerging from the crisis of the late 1990s and mothballed weapons procurement programmes are being dusted off at a time when Russia is losing ground in Central Asia as the U.S.-led war in Afghanistan grinds on. "The economic boom may be over, but there is a slow recovery underway in the region and military programs that were suspended or scaled back are now starting to surface again. Of course Russia is interested," said Robert Karniol, Asia Pacific editor of Jane's Defence Weekly. Late last month, Vladimir Artyakov, the director-general of Russia's state arms-exporter Rosoboroneksport, said while attending the Asian Aerospace 2002 exhibition in Singapore that the arms market in Southeast Asia was estimated to be worth $20 billion over the next decade. He told Russia's ITAR-TASS news agency Moscow was looking to expand its lethal exports to the region. Russian Prime Minister Mikhail Kasyanov is currently touring old communist ally Vietnam to promote a strategic partnership which will include cooperation in nuclear energy, as well as arms sales to Hanoi's mainly Soviet-equipped military. NUCLEAR REACTOR Russia's LOMO Corp is due to deliver 50 portable SA-18 surface-to-air missiles to Vietnam this year under a $64 million contract, according to Russia's Interfax news agency. Military-run Myanmar recently took delivery of a dozen Russian MiG-29 fighter jets, and in January confirmed for the first time that it was negotiating to build its first nuclear reactor with Russian help. The Malaysian air force is also mulling the purchase of a squadron of general-purpose fighter planes. Russia's Sukhoi Corporation, offering state-of-the-art Su-30MK fighters, is seen as a strong contender, say analysts. Moscow is also pursuing Singapore, traditionally a client of U.S. and European arms makers, to buy Sukhoi jets to replace its ageing McDonnell Douglass A-4 Skyhawks. During Southeast Asia's economic boom in the mid-1990s, Russia made several breakthroughs selling arms to the region, including the sale of MiG-29 fighters to Malaysia, surface-to-air missiles to Singapore and Mi-17 helicopters to Myanmar. Moscow also tried unsuccessfully to break into the market in Thailand with advanced fighters and kilo class submarines. Russia's interest in Southeast Asia is largely commercially driven, say analysts, but it is not without a strategic dimension as the country seeks to find new direction in the wake of its fall from superpower status and the end of the Cold War. That search has taken on a new urgency post September 11. TIGHT BUDGETS The U.S.-led war in Afghanistan has resulted in a Western military buildup in Central Asia which Russia has traditionally jealously guarded as its own backyard. "There is another a strategic aspect to all of this...it has to do with domestic issues," said Karniol. "The Russian armed forces have been going through a very tough time for the last decade and budgets have been very tight. Moscow has this vast defence industry staffed by highly skilled people that has to be sustained." For the next 10 years, while Russia rebuilds its military, the country's desperate defence establishment will therefore have to focus on exports. That plays into the hands of some Southeast Asian nations denied technology and weapons by Western countries concerned over political reform and human rights. Many of the poorer countries in the region are also seeking to pay for military hardware through barter deals. "Russia is much more flexible on price and terms," said one Bangkok-based diplomat on condition of anonymity. "With respect to human rights, they are also somewhat less concerned." A good example is Moscow's sale of fighter jets to Myanmar, and its agreement to supply the impoverished military-ruled nation with a nuclear research reactor in return for timber and agricultural products. As Russian ambassador to Myanmar Gleb Ivashentsov explained to Reuters in an interview last year: "Do not demonise Myanmar. They should not be denied the right to develop their own Atomic energy. The general situation (in Myanmar) is very much misrepresented in the media. You do not see people in distress." ******* #12 New York Times March 27, 2002 U.S. Grant to Gazprom Partner Is Questioned By SABRINA TAVERNISE MOSCOW, March 26 — Why was the United States government subsidizing Itera Holding, a mysterious company in Jacksonville, Fla., at the center of accusations of corruption swirling around Gazprom, the Russian gas giant? That is what minority shareholders in Gazprom demanded to know about an $868,000 grant announced by the United States Trade and Development Agency in late February. The agency provides grants to American companies to help them gain contracts overseas. The grant was intended to pay for an American engineering company to conduct a feasibility study of a gas field in northern Russia that Itera owns with Gazprom. But Gazprom shareholders complained that the grant gave a stamp of approval from the American government to a company they say has benefited improperly from asset-stripping at Gazprom, a charge that Itera denies. The Trade and Development Agency suspended the grant last week, apparently because of the complaints. Leocadia Zak, the agency's general counsel, said that additional information was needed before the money could be disbursed. Itera Holding started in the mid-1990's as a small gas trading company and rapidly grew into the No. 2 gas producer in Russia, behind Gazprom. But the transactions with Gazprom that brought about that growth are shrouded in mystery. Gazprom extended more than $600 million in loan guarantees to Itera, and some analysts and shareholders have said that they think Gazprom managers secretly enriched themselves or their relatives by transferring Gazprom assets to Itera. The managers who ran Gazprom through the 1990's were removed last year by the Russian president, Vladimir V. Putin, who said that enormous sums of money had leaked out of the company. The Russian government is Gazprom's largest shareholder with 38 percent. Since then, Gazprom's new management has been struggling to regain control of lost assets, generally by exercising buyback options or forcing bankruptcy proceedings for affiliated companies like Sibur and Purgaz. Itera and former managers of Gazprom said that there were no improper links between the two companies or their executives. At the heart of the controversy is the question of who owns the Achimovskoye gas field, with estimated reserves of 354 billion cubic meters of gas. An Itera spokesman, Nikolai Semanenko, said that Itera and Gazprom, after creating a joint venture in 2000, applied to the Russian government for the development rights, and that Itera had invested in the field since then. But a study last year by the accounting firm PricewaterhouseCoopers found that Gazprom had sole ownership rights to the field that dated from before the joint venture, raising questions about how Itera gained its 49 percent interest. An American official involved in the process said the grant to Itera "made sense because of U.S. exports — we want to give U.S. firms a leg up in the development of this field — and because Itera has become a major player in Eurasian gas." The American engineering company that was to conduct the study on the gas field, BSI Industries of Columbus, Ohio, is owned and run principally by Vladimir Gokun, 56, a Russian-born American citizen, who had worked in the Soviet gas industry designing transport systems. Mr. Gokun said he met Itera's chief executive, Igor Makarov, at a conference in Houston in 1994. Mr. Gokun said the grant would give American companies, which sold gas turbines to the Soviet Union before the 1979 invasion of Afghanistan and subsequent embargo, an opportunity to return to the market. But Ian Hague, a partner at Firebird Management, an equity fund in New York that holds Gazprom shares, called the grant "an endorsement of what we minority shareholders regard as something that could turn out to be a criminal organization," referring to Itera. Mr. Semanenko dismissed the criticism. "Itera and Gazprom are two independent companies with no relation to each other," he said. Referring to critics, he said, "They've talked about a connection a million times, but not once has anything been proven." James Fenker, strategist at Troika Dialog, an investment bank in Moscow, said: "It was a closed deal between former Gazprom management and Itera. It just doesn't seem like something the U.S. government should be involved in." ******** #13 Moscow Times March 27, 2002 Investors: Russia Worth Work By Victoria Lavrentieva Staff Writer Russia is still a country in transition with much room for improvement, but for those who dare to do business here, returns on equity investments remain among the highest in the world. That was a main theme that emerged at the Economist Intelligence Unit's third annual investors' conference, which opened in Moscow on Tuesday. "In the mid-'90s, people were making a lot of money in Russia for not doing very much. Now, they are making a lot of money, too, but are working damned hard for it," Daniel Thorniley, senior vice president with the Economist Group, told the conference. Investors already committed to Russia know what the rewards are. According to the EIU's estimates, the average return for pharmaceutical companies in Russia over the past 12 months reached 50 percent to 65 percent. The booming consumer sector also led in terms of earnings with 40 percent to 60 percent returns on equity last year. Returns for chemical companies were lower at 35 percent, while IT companies were at 20 percent to 28 percent. "Every company that has a representative office in Russia is thinking now about launching distribution. Those who have distribution want to open a subsidiary, while subsidiaries think about starting their own manufacturing," Thorniley said. Thorniley estimated that Russia is four years behind Poland in terms of the level of competition and two to three years behind Hungary and the Czech Republic. But while business opportunities in those countries are already quite limited, in Russia, with its 89 regions and population of almost 150 million, the potential is still enormous. "I can double my business if I really take on the Polish market, but I can quadruple it if I really take on the Russian market," Thorniley said, quoting an EIU client. But those already doing business in Russia say it is not easy to use this potential to its fullest extent because there are many things that must be improved first. Oleg Deripaska, head of Siberian Aluminum and one of Russia's most influential businessmen, said the long-term development of Russia depends to a large extent on further structural reforms and capital investment into processing industries. "Economic growth can be sustained only if we attract investments to modernize the production facilities," he said. "In order for that to happen, the Russian government and companies themselves need to make core industries more attractive to investors." According to Sergei Bayev, head of the investment policy department with the Ministry of Economic Development and Trade, the Russian government estimates that the annual investment needed to finance the infrastructure projects is $100 billion. "The transport network in Russia cannot be compared to any developed country, the railroads are in a very poor shape and many airports can't accept international planes," Bayev said. To fill this gap, the government should stimulate the demand for priority industries, such as aviation and machine-building, he said. "We are now financing many Russian leasing companies to meet these needs," Bayev said. Among other priorities mentioned by conference participants were the reform of natural monopolies, development of capital markets and pension and insurance reform. Most of the participants agreed there is no need to rush World Trade Organization membership. "Russia is still a country in transition, and its institutions remain weak," Thorniley said. Yet the EIU's outlook for Russia in 2002 is quite optimistic. Thorniley expects GDP to reach 4 percent, which is in line with government forecasts. Inflation will reach 15 percent by the end of the year, while the ruble will finish 2002 at 33.8 to one dollar, he said. *******