#4 - JRL 7299
Novoe Vremya
August 24, 2003
THE OLIGARCH FILE
The YUKOS affair and the consequences for Russia's future
Author: indicated in the text
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
WHAT WILL BE THE OUTCOME OF THE ATTACK ON YUKOS BY THE PROSECUTOR GENERAL'S OFFICE? WHAT KIND OF THREATS TO THE NATION ARE POSED BY A DRAWN-OUT CONFLICT BETWEEN BUSINESS AND GOVERNMENT? RUSSIA'S LEADING POLITICAL ANALYSTS SHARE THEIR VIEWS IN A DISCUSSION ORGANIZED BY THE LIBERAL MISSION FOUNDATION.
SERGEI KARAGANOV, DEPUTY DIRECTOR OF THE EUROPE INSTITUTE, CHAIRMAN OF THE FOREIGN AND DEFENSE POLICY COUNCIL
There are four overlapping processes underway here. An attempt to restrict the power of big business. An attempt to redistribute property in favor of the new factions which failed to gain control of such property in competitive battle by any methods other than forcible and illegal ones. This process cannot be stopped now; it is a long- term process. Finally, there is a battle underway for the president's policy program in the elections of 2004. Until now, it was generally believed that his program would involve further modernization and economic deregulation; at a new level, of course. But it seems that a different option for the nation's development is being proposed covertly: based on partial nationalization of property, a partial mobilization economy, and partial expropriation of a significant proportion of tycoons, not permitting them to grow any stronger in the process of transnationalization.
What lies ahead? We can expect a drawn-out process; unless it is reversed, it will hurt the Russian economy and make politics more turbulent for a long time to come. I have no answer to the question of what the outcome will be. Obviously, however, it will lead to a freeze in economic growth, since sensible people will do all they can to get their money into banks or send it abroad. The same thing is happening in the outside world, where the investment process has begun; correspondingly, all the old capital flight trends will be resumed. Meanwhile, the political battle will take extremely obscure, confusing, and vicious forms - in an empty space, since attempts are now being made to break up the scenario for overall growth, which used to be fairly obvious.
What should be done in this situation? As much light as possible must be shed on these events, since no one has yet attempted to do so. Russia's political elite must discuss these events as broadly as possible. The ruling class - above all, the president - must be offered a clear choice. Until recently, the president has supported the modernization option for the nation's development; but now he has moved aside, and due to personal reasons or some other reasons, it appears he has decided to observe and see what happens.
The situation is also alarming because not all of the bourgeoisie, but only a small part of it, is currently supporting the modernization option. A substantial part of the new bourgeoisie is watching with delight as the tycoons are expropriated, believing that those who have stolen $15 million are honest, while those who have stolen $15 billion are dishonest. These people simply don't understand that $15 million in Tambov means much more than $15 billion in Moscow. As everyone knows, this is a trait typical of Russians: it includes being completely irresponsible in terms of the nation's future, and completely unwilling to look three moves ahead.
Nevertheless, I believe the situation is not that bad; simply because the group that is attempting to reverse the nation's direction or take it sideways doesn't possess very great intellectual resources.
LILIA SHEVTSOVA, POLITICAL SCIENTIST, SENIOR ANALYST AT THE CARNEGIE CENTER IN MOSCOW
I get the impression that the president must be concerned with finding a way out of the situation which has arisen. Sooner or later, Putin will try to find a compromise and formulate a new political pact between the major influence groups. Here's why.
Putin must be aware that he cannot let any of the influence groups become too strong, and that applies to his own Praetorian Guard as well. Allowing any of the forces involved to gain the upper hand would mean the president becoming hostage to it.
So the reasoning of political survival for the office of president, which is based on a clandestine balance between several influence groups, must make Putin seek a way to reconcile their interests - or at least to stop the campaign of force.
However, regardless of how or when this may happen, another question arises, one I find very important. Does the attack on a business tycoon by the security and law enforcement people represent a disruption in the current rationale of governance, indicating that it's dysfunctional - or can these events be fitted into the framework of the present system? I believe we are dealing with something systematic; the "iron logic" of the political system which has arisen in Russia. These events were predictable; and the current attack on big business by the bureaucracy, or its advance guard - the security and law enforcement people - is by no means the last. Here are my arguments.
The current events were pre-ordained by the nature of the transfer of power in 1999. The ruling clan, dominated by oligarchic elements, was unable to secure its positions by itself; in order to reproduce the ruling corporation it was forced to bring in a person who may have been close to the Kremlin, but was still a member of a different clan: the security and law enforcement clan. The people who came in with Putin were strongly inclined towards the mentality of their profession, and they had political ambitions. These people gained access to limitless political and administrative resources, but they never did get control of the levers of finacial and economic influence. When there's asymmetry in resources, a battle is inevitable; this is a truism. It is now destabilizing the entire political playing field to a significant degree, and could have strategic consequences for the nation.
Note that the influence groups which provide the support for the current regime were bound to clash; not only because they are different, but because most of their members are alike. In true Soviet fashion, they all aim to monopolize the resources of governance; they are not prepared to share, cooperate, or coordinate interests with anybody. What's happening now confirms that Russia's system of governance is not consolidated, and is incapable of consolidating, since it is based on fundamentally dissimilar elements of different rules of the game. The fact that the system of governance is precarious and fragmented works to the leader's advantage, objectively, since these conditions give rise to his role as arbiter.
The "Kremlin versus YUKOS war" has confirmed that there is a crisis in relations between business and government. It doesn't matter to what extent either side is aware of that crisis. At one time, Putin and big business concluded a kind of unwritten agreement, the essence of which was defined by Putin, simply and innocuously, as "equidistance". This was a signal to the oligarchs: "Do as you please in the economy, but stay out of politics." However, this pact couldn't possibly work; if only because big business, with its vast economic resources, automatically becomes a factor in politics. It's practically impossible to restrain it without using force. Big business is bound to seek points where its influence may be used, and ways of promoting its own interests - which are self-centered, of course, as such interests are in any country.
For some time, we have observed how big business is seeking ways of political expression in the regions, including by means of direct involvement in government. Sponsoring parties and buying places on electoral lists - that process has been underway for a while. It's a natural development within the framework of our system, programmed into it. Since there are no principles and rules of the game, institutionalized and approved by all our society, by which big business could legally promote and protect its political interests, then big business will do this in clandestine methods. And those methods will inevitably corrupt state officials and offer more scope for action to semi-legal and criminal processes. But big business is not to blame for that - it's been confined to this framework by the system and the regime!
There is clearly a crisis in relations between business and society. A significant part of the public takes no interest at all in what's going on between the Kremlin and the oligarchs; and even those who do take an interest support reprivatization. This means that big business in Russia still hasn't found a way of integrating itself into society or gaining legitimacy in the eyes of the people. Obviously, this is a problem not only for the regime, but for big business itself. It's interesting that some of our oligarchs, including Mikhail Khodorkovsky himself, have managed to find legitimacy in the eyes of the West, finding ways of incorporating themselves into Western structures. But they still haven't managed to do this in Russia. However, it should be noted that when Khodorkovsky made some cautious attempts to build bridges with civil society in Russia - helping democratic political parties, getting involved in resolving Russia's social problems - this immediately drew a negative response from the bureaucracy, and Khodorkovsky got a slap on the wrist. The reason is clear: bureaucrats prefer to keep the existing rules for relations with business in place, shadowy and illegitimate as they are, because this gives the bureaucracy some control over business. In short, I get the impression that forces close to the regime have no interest in changing the situation that's regulated by the laws of the wolf- pack...
Finally - like Sergei Karaganov, I still don't know any specific ways of getting out of this situation. Theoretically, however, two paths are quite clear.
First path: Putin will try to smooth over the problem, ordering his security and law enforcement people to cool off and confirming the "equidistance" principle for big business. This is a way of returning to a certain balance that has been in place throughout Putin's first term in office. However, it's already clear that a complete return to that situation is impossible. Having gained a sense of their own strength, the security and law enforcement structures are bound to try entrenching their new positions. The oligarch clans, in turn, may launch a counter-attack - and then we'll have revolutionary shake-ups again, but in a harsher form this time... Unless the structure of the system is changed, such upheavals will continue to take place - after all, it's a confrontation between different principles in our system of governance, which generates instability.
Second path: Putin will make use of current events to consider a completely different way of fighting for the presidency and a new strategy for his election campaign. Putin could declare that he is proposing a national consensus program, including a new formula for regulating relations between government, business, the bureaucracy, and the citizenry. Essentially, this would be a different model of legitimacy for Putin's own rule - one not based on various clan corporations like the "old Family" or "new Family" which require Putin to enter into a system of clandestine commitments to them. Putin would be choosing to be free of the clans and engage in a dialogue with the public, a real contract with the citizenry. With his 73% approval rating, he might well take this risk and try to gain real democratic legitimacy.
Will Putin take this path? If Putin prefers to make compromises with the clans around the Kremlin, whichever clans they are, he will be choosing a formula of legitimacy for his next term in office that is very little different from the formula he is using now.
GEORGI SATAROV, PRESIDENT OF THE INDEM FOUNDATION
First of all, the YUKOS affair has shown that Russia has no president. It hasn't had once since 2000, but these events have exposed the absence for all to see. It should now be considered a given in politics. Thus, when we talk about finding a way out of the situation, or of what should be done, Putin is the very last person concerned. It might involve the security and law enforcement people, and ourselves, and big business, and others; but Putin is a fifth-rate factor, a reproduction, no more than that.
Now let's look at the actual events. The point here is that the factions around Putin know that Russia has no president. For some time, it was advantageous for them to pretend there was a president. They would clash over something or other, then reach agreement and pretend that the president had reconciled them. Each of the factions would like to see the president as its own puppet. But Putin didn't want that. So he found his own solution: never make decisions, never get involved with anyone, never take sides. He has avoided becoming a puppet - at the price of refusing to be a president. Had he chosen to be a president, he would have had to take sides, find supporters, make serious decisions. He hasn't done any of that, and he has never become a president.
Each of the groups fighting for influence over Putin considered the 2000 election a victory for itself. Some said it was a victory for the liberals from St. Petersburg. Others said it was a victory for Yeltsin's Family. But now it turns out that it wasn't a victory for anyone. This has led to immense disillusionment among the groups, and a search for further solutions. The only point on which there is consensus - among the business community as well - is that the problem will not be resolved in 2004, and that they will endure the situation for some time; they have to tolerate each other's existence, but no one must be allowed to gain the upper hand.
There is one key point: 2008, the time for the conclusive showdown. Preparations for 2008 are already underway. Clearly, one of the security and law enforcement people is promoting his old classmate. Clearly, they will have to fight over resources in the lead-up to 2008. But their resources take different forms; the resources of some need to be restricted, and the resources of others need to be expanded.
The question can be put very simply: why has all this happened now, rather than at any other time. The answer is also simple: the strike has been directed at the YUKOS-Sibneft merger. It's not only a matter of money or the number of oil wells under their control. The point is that big business controls the regions; it controls them much better than the administration or the Prosecutor General's Office. Large companies buy regional leaders, and they buy the courts in the regions where they do business. Now imagine what would happen if two or three oligarchic groups, controlling certain territories, joined forces. What would it mean to have such control in the regions during a federal election campaign? That is much more substantial than federal administrative resources.
Besides all that, of course, there is also the clandestine battle between directions for development. It's a matter of different ideologies - different species, so to speak.
PAVEL TEPLUKHIN, PRESIDENT OF TROIKA-DIALOG
It seems to me that the process now underway was actually begun in late December 2002 and January this year. I agree with Georgi Satarov: we have Yeltsin's Family, we have the people from St. Petersburg, and we have a president who wishes to remain above the fray. But that's not always possible, since at any moment one of the factions could gain the upper hand and view Putin not as someone standing over them, but as a counter-agent, addressing him as an equal. Then the triangle formed by the Family, the people from St. Petersburg, and the president would no longer work. It tilted substantially at the start of this year, when the Family became much stronger. If you recall, several events took place one after another.
First event: contrary to earlier plans, VneshekonomBank was not shut down. Instead, the Family gained full control of it. All Russia's arms exports go through VneshekonomBank. This is a fairly substantial flow of money, up to $3 billion a year: now controlled not by the parliament, and not even by the government, but according to a special procedure, including through VneshekonomBank.
Second event: the money used for pension payments was handed over to VneshekonomBank. These sums are also substantial. And it was done very skillfully. While everyone was away on vacation in January, a government resolution was signed - without the usual coordination, and contrary to a Duma bill on the independent status of a state-owned management company. This resolution transferred all pension money to Vneshekonombank - that's around $2 billion a year.
Third event: the Pension Fund, at its own initiative, was given the heavy burden of responsibility for mandatory health insurance for pensioners. You will understand that large sums of money are involved here, comparable to mandatory pension insurance.
These three events gave the Family financial channels estimated at around $10 billion a year. By Russian standards, this is a fairly powerful resource. It's especially alarming for Putin at a time when parliamentary and presidential elections are approaching.
Of course, everyone was also disconcerted when Roman Abramovich decided to convert some assets into cash. He sold Sibneft, then handed over his stake in Russian Aluminum to Oleg Deripaska in exchange for $1.5-2 billion. It's hard to work out why anyone would need so much cash, which it's impossible to use in Russia lawfully. There's nothing to spend $4-5 billion on in Russia. However, it is possible to buy the Chelsea football club with the small change. I think this would have alarmed the president as well.
Obviously, the Family is plotting something. What this may be is as yet unclear. In consequence, however, the president gave his tacit consent or directive for the St. Petersburg group to do whatever they could to build up their strength. And they're not very imaginative. Things didn't work out with Gazprom; it's so rotten that no more can be extracted from it. That would require rebuilding the whole system, and there's insufficient will to do so. Rem Vyakhirev may be gone, but his team continues to run Gazprom. So the St. Petersburg group decided to take what they could from someone who has a lot of money. And they picked Khodorkovsky... Too much of a tall poppy, poor guy. And it's not like they had anything against him personally. It was simply easier to find fault with him: he has political ambitions, he has visited America, he was talking to the Americans about the future of Russia's political system, for some reason... What's more, a heap of police files can be found for any oligarch - cases still open or cases closed without being fully solved.
Why was Platon Lebedev arrested? Because he's the official head of YUKOS, not Khodorkovsky. Lebedev is the general director of a company that holds a 60% stake in YUKOS. Lebedev's signature is required when assets are sold; Khodorkovsky is a beneficiary, but legally he has no right to manage anything.
It's entirely possible that Khodorkovsky managed to reach an agreement with Exxon Mobil on selling a stake in YUKOS. That would mean extra risk for the nation - since if YUKOS was sold to Exxon Mobil, as events suggested, then along with British Petroleum's acquisition of TNK, that would mean 40% of Russia's oil being under foreign control. And this is not at all to the advantage of the guys who are preparing for elections now; foreigners won't give them any money for the elections. So who would fund their campaign? So something had to be done to scuttle the deal. This explains why Khodorkovsky rather than Deripaska was chosen as the target.
Evidently, the same methods will continue to be used, since no new ones can be invented. It won't stop at YUKOS. The next target could be Deripaska, and probably Mordashov. Some of the oligarchs are already trying to buy their way out of this, but I don't know if they'll be able to do it in time. And much can be gained from Norilsk Nickel as well, so that will also be a target.
The president has to shore up the St. Petersburg group, otherwise the triangle will fall apart, leaving him facing the Family on his own, as he did at the start; and he would lose. He really doesn't have any resources other than popular support, which isn't worth much. The mood of the nation can be changed fairly quickly with $3 billion. The president understands this, and fears it. However, I don't mean to say that a victory for the Family would be that much of a disaster for Russia.
YURI LEVADA, PRESIDENT OF THE NATIONAL PUBLIC OPINION RESEARCH CENTER (VTSIOM)
Since my field is sociology, I won't discuss the deeper economic processes behind the YUKOS affair. But I'm not convinced that the underlying reasons are economic at all.
The key question, in my view, is whose interests are served by what is happening right now, five months before the parliamentary elections and eight or nine months before the presidential elections. Until now, a fairly routine process was underway, with what appeared to be an entirely predictable outcome. Everyone said that the results of the parliamentary and presidential elections were a foregone conclusion, and nothing unusual was expected. There was some concern about whether the artificial flower of Unity would manage to grow into a big baobab tree, or whether it would remain a potted plant. There was some movement due to this, some agitation among many bureaucrats, and the VTsIOM polling agency heard their voices: why are VTsIOM poll results so unkind to United Russia, and who bribed us to be so unkind?
But then there was an explosion, with some fairly complicated consequences extending beyond opinions of YUKOS, Khodorkovsky, or the Family.
The consequences of these events are already becoming clear. As a result of what's happened over the past two years, we find ourselves even more on the periphery than we were before. Following September 2001, Russia was in a position to facilitate integration into the community of civilized nations. But then we ourselves started signalling that we might go in the opposite direction. And the preconditions for these events were laid down some time ago. Clearly, this conflict had been brewing for a while. It wasn't by chance that Putin snapped at Khodorkovsky during a meeting with the bureau of the Russian Union of Industrialists and Entrepreneurs, a month before the YUKOS affair began: you know, we'll find out how you got so rich.
I agree with Georgi Satarov that we're dealing with preparations for 2008, for the post-Putin era. Nobody's really interested in what happens during the elections of 2003-04. What's important is what happens in 2008, in the next political cycle. Preparations have already begun.
(Translated by Arina Yevtikhova)
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