Russia Report: May 26, 2004

Question: What event of last July continues to have reverberations in Russian political life? A) The arrest of Menatep Chairman Platon Lebedev; B) The ending of the transition period for full implementation of the law on political parties; C) Oligarch and Chukotka Autonomous Okrug Governor Roman Abramovich's purchase of Britain's Chelsea soccer club for $233 million; or D) All of the above.

The correct answer is D. But if you answered C, then you will not be surprised to learn that avowed economic liberal and Economic Development and Trade Minister German Gref only last week condemned the purchase of Chelsea by Abramovich, who formerly headed the Russian oil major Sibneft and is the country's second-richest citizen. Gref told reporters on 21 May that "if people have such capital, then their moral obligation is to invest in their own country and to create jobs here," RBK reported.

Audit Chamber Chairman Sergei Stepashin was much quicker to condemn Abramovich's purchase publicly, and this week and last Stepashin and his lead auditor investigating Abramovich's management of Chukotka's finances revealed the findings of their three-month audit. Auditor Sergei Ryabukhin announced on 21 May that the okrug is bankrupt. According to Ryabukhin, the region's debt exceeded 9.3 billion rubles ($320 million) as of 1 January, while revenues amounted to only 3.9 billion rubles in 2003, "Gazeta" reported on 24 May. The audit found that illegal expenditures amounted to 1.09 billion rubles in 2003 and 23.5 million rubles in 2004, ITAR-TASS reported. It also found that the okrug administration illegally raised the salaries of local officials and public-sector employees during 2003, and as a result wages for local bureaucrats exceeded those of their federal counterparts by more than 5.6 million rubles.

Responding to the findings, Stepashin called on Abramovich to step down. "Looking at the results of the audit, I can say that Abramovich has let the president down badly," Stepashin told Interfax on 23 May. In an interview the previous day with "Rossiiskaya gazeta," Stepashin compared Chukotka's financial violations unfavorably with Chechnya's. He said auditors found that Chechnya had misspent almost 800 million rubles, but noted that Chechnya is experiencing war. Chukotka, on the other hand, has a population of only 52,000. He also noted that Ingushetia had fewer violations of financial discipline than Chukotka even though that republic had to cope with an influx of refugees across its borders. However, by 25 May, in an interview with the same newspaper, Stepashin had tempered his criticism of Abramovich. Stepashin said that he did not understand why this particular investigation has produced such a storm of publicity, especially since the chamber has uncovered far greater violations in Chechnya.

Stepashin had tried and failed to come up with enough evidence to launch a criminal case against Abramovich, "Kommersant-Daily" concluded on 22 May. As a result, Stepashin faced a choice -- avoid losing face or risk severely defaming his political opponent, "Nezavisimaya gazeta" commented on 20 May. (Both newspapers are owned by Abramovich's former business partner Boris Berezovskii.) According to "Nezavisimaya gazeta," of the more than 1 billion rubles that were illegally spent in 2003, only around 200 million rubles can be held against Abramovich and his subordinates. According to "Gazeta" on 24 May, the okrug's debts started mounting years before Abramovich took office. For example, the region took out a credit worth $190 million in 1994-95.

According to "Izvestiya" on 20 March, an audit conducted by the Audit Chamber in the late 1990s revealed substantial financial improprieties in the operation of a Chukotka Development Fund set up by Abramovich's predecessor in Chukotka, Aleksandr Nazarov. Documents were transferred to the Prosecutor-General's Office but no criminal case ever materialized. Nazarov subsequently went to work for the Audit Chamber, and "Izvestiya" commented it might be time to toughen the law on the appointment of auditors, as it is currently easy to appoint people who have a "dubious credit history."

Asked why Stepashin appeared to be trying to scare Abramovich, Vyacheslav Nikonov, president of the Politika Foundation, told "Kommersant-Daily" on 21 May that Stepashin has "personal grievances" against Abramovich. "He has voiced them on several occasions both with regard to the purchase of the Chelsea soccer team and the fact that Sibneft pays the least amount of taxes of all of Russia's oil companies," Nikonov said. "But this does not mean that storm clouds are gathering over Abramovich. In the regime's view, he is behaving positively. And if Sibneft pays more tax, there will be no complaints." Arkadii Murashev, president of the Association of Mortgage Banks, had an alternative explanation for the animosity between Stepashin and Abramovich: "Perhaps Stepashin is simply an Arsenal fan." (Julie A. Corwin)

Investors' fears that the privatizations of the 1990s might be reversed and private property renationalized have ebbed and flowed during President Putin's first term. Last week, one effort to reverse a privatization from the 1990s appeared to hit the rocks, when shareholders in the Sayano-Sushenskii hydroelectric power plant voted on 21 May to reregister it in Krasnoyarsk Krai. Industry analysts suggest that by this move, electricity monopoly Unified Energy Systems (EES), which owns 79 percent of Sayano-Sushensk, has effectively undercut the republican government's effort and will eventually win the battle over ownership of the plant.

Khakasia's government had filed a lawsuit seeking to reverse the 1993 privatization of the facility, and in March, a Siberian Federal District court ruled in the republic's favor. The republican administration then wrote to the federal government asking them to launch procedures to return the facility to government control. However, Economic Trade and Development Minister German Gref resisted, and in early May he asked the government to appeal the Siberian court decision. Soon after, EES Chairman Anatolii Chubais announced plans to reregister the plant in neighboring Krasnoyarsk Krai. The plant borders both Khakasia and Krasnoyarsk.

This announcement triggered mild panic in Khakasia, where it contributes 18 percent of the republic's annual budget revenue or about 500 million rubles a year. The republican legislature adopted on 12 May a resolution asking President Putin to intervene in the dispute. Khakasia President Aleksei Lebed, for his part, countered by offering to drop the republic's legal action challenging the dam's privatization in exchange for EES agreeing to extend reduced electricity rates to the republic.

EES refused, and on 17 May, four foreign investors and member of the EES board of directors and executive director of Voskokenergo Seppo Remes sent their own appeal to President Putin, asking him not to allow the nationalization of the plant. The investors charged that Russian Aluminum, which consumes 70 percent of the plant's electricity, was trying to get electricity for nothing, according to "Vedomosti" on 24 May. "Izvestiya" reported on 25 May that according to its unidentified sources, Russian Aluminum was hoping to receive a guarantee from republican authorities of receiving electricity at cost -- roughly 3 cents per kilowatt-hour -- for the next 20 years. The plant had already been selling energy to Khakasia for 3.8 kopeks a kilowatt-hour, compared to the national average of 61 kopeks per kilowatt-hour and 34.5 kopeks per kilowatt-hour in Krasnoyarsk Krai, RBK reported on 24 May.

"Kommersant-Daily" on 22 May equated the shareholders' decision to reregister the plant with the opening of war between EES and Khakasia republican authorities, who are allied with Base Element head Oleg Deripaska. Deripaska owns 50 percent of Russian Aluminum. Reacting to news of the shareholders' decision, Yurii Shpigalskii, deputy chairman of the republican legislator, promised that the struggle isn't over, and the republic will "absolutely" take a series of countermeasures.

The federal government, or at least the Ministry for Economic Development and Trade, appears to be pretending to be neutral in the struggle. Andrei Sharonov, deputy minister for economic development and trade, wrote a letter to the Khakasian government on 21 May saying that the ministry does not consider it possible to interfere in matters concerning the shareholders' competence, "Kommersant" and "Gazeta" reported on 24 May. However, he added that if a later court decision is made overturning the privatization of the plant, then a shareholder decision to reregister the plant will lose any sense. He added that he hopes that a deprivatization does not occur, since it would negatively affect the political and investment climate in Russia.

According to RBK, industry analysts do not doubt that EES will eventually emerge triumphant. And EES officials themselves voice confidence in their public statements. Andrei Trapeznikov, a member of EES's administration, told "Izvestiya" that "over the last six years, the Siberian Federal District court adopted 12 decisions on deprivatizing various enterprises, and 11 of these were overturned by the Higher Arbitration Court." Meanwhile, Khakasia President Lebed has been in the hospital, where he underwent an operation on his leg. His press service is refusing to divulge any information about his health but promises that he will return from his planned leave on 27 May. (Julie A. Corwin)

The following lists members of the Russian government as of 20 May, according to RosBalt.

Deputy Prime Minister Aleksandr Zhukov
Director of the Government Apparatus (with the rank of minister) Dmitrii Kozak
Foreign Affairs Minister Sergei Lavrov
Defense Minister Sergei Ivanov
Interior Minister Rashid Nurgaliev
Finance Minister Aleksei Kudrin
Minister for Industry and Energy Viktor Khristenko
Minister for Economic Development and Trade German Gref
Minister for Civil Defense and Emergency Situations Sergei Shoigu
Minister for Health and Social Development Mikhail Zurabov
Minister for Education and Science Andrei Fursenko
Minister for Natural Resources Yurii Trutnev
Transportation Minister Igor Levitin
Minister for Information Technologies and Communications Leonid Reiman
Agriculture Minister Aleksei Gordeev
Justice Minister Yurii Chaika
Minister for Culture and Mass Communications Aleksandr Sokolov

OUT: President Putin signed a decree on 25 May dismissing Army General Vladimir Matyukhin from his post as first deputy defense minister, RosBalt reported. Matyukhin had served in the post since March 2003. He previously headed the FAPSI agency.

IN: President Putin appointed former Communications Minister Leonid Reiman as minister for information technologies and communications on 20 May. Putin also decreed that the Ministry for Transportation and Communications be split into the Ministry for Information Technologies and Communication and the Ministry for Transportation.

OUT: Prime Minister Mikhail Fradkov dismissed more deputy ministers on 20 May, RBK reported. Included in the firings were Deputy Transportation Minister Chingiz Izmailov, Deputy Labor and Social Development Minister Yevgenii Gontmakher, Deputy Agriculture Minister Nikolai Dolgushkin, and Deputy Minister for Industry, Science, and Technology Valerii Goloshchapov.

24-27 May: Russian Air Force Commander Vladimir Mikhailov will visit France

27-29 May: Egyptian President Hosni Mubarek will visit Russia

27-29 May: Russian Orthodox Church officials will attend conference on Muslim-Christian dialogue in Qatar

27-29 May: First conference of Russia Business in Georgia to be held in Tbilisi

28 May: The Naro-Fominskii court in Moscow will reopen hearings in the trial of Tamara Rokhlina, who is accused of the 1998 murder of her husband, State Duma Deputy Lev Rokhlin

28 May: Moscow's Meshchanskii Raion Court will hold preliminary hearings in the case against former Yukos head Mikhail Khodorkovskii

28 May: State Duma will consider law on public meetings and demonstration in its second reading

28-29 May: Moscow Mayor Yurii Luzhkov will visit Riga, Latvia

30 May: Date by which prosecutors must either complete their criminal investigation of former Yukos head Khodorkovskii or ask a Moscow court to extend his period of pretrial detention

30 May: Passenger train route between Moscow and Grozny will begin operations

31 May-6 June: Eurasian Business Summit will take place in Evian, France

June: Shanghai Cooperation Organization will meet in Tashkent

June: Foreign Minister Sergei Lavrov to attend Organization of the Islamic Conference ministerial meeting in Istanbul

1 June: State Duma will hold hearings on possible ratification of the CFE treaty

1 June: New deadline for exchanging Soviet-era passports for new Russian passports

1 June: The armed forces will begin forming a permanent peacekeeping brigade based in the Volga-Urals Military District

1 June: The presentation of the seventh volume of the Orthodox encyclopedia will be held in Vatican City

2 June: State Duma will consider law on referendums in its first reading

2 June: Prime Minister Fradkov invited to speak to the Duma on the topic of wage arrears

2 June: Foreign Minister Lavrov will visit Oslo

3 June: Communist Party will hold congress to hear reports and elect leadership positions

5 June: President Putin will meet Belarusian President Alyaksandr Lukashenka in Sochi

7 June: President Putin will visit Mexico

7 June: The trial for the murder of State Duma Deputy Galina Staravoitova will resume in St. Petersburg

8-10 June: G-8 summit will be held in Sea Island, Georgia

8-9 June: Prime Minister Fradkov will participate in a session of the Council of Ministers of the government of the Union of Belarus and Russia

15-19 June: Eighth annual St. Petersburg International Economic Forum will be held

19 June: Date by which prosecutors must either complete their criminal investigation of former Yukos economic security head Aleksei Pichugin or ask a Moscow court to extend his period of pretrial detention

Late June: Supreme Shaman of Siberia Toizin Bergenov will visit Moscow in order to conduct a ritual purging of the State Duma building of evil spirits, Interfax reported on 6 May

20 June: Former Beatle Sir Paul McCartney will perform a concert in St. Petersburg's Palace Square

20 June: Union of Rightist Forces will hold party congress

25 June: Gazprom will hold a shareholders meeting

27 June: International Atomic Energy Agency Director-General Muhammad el-Baradei will visit Russia.

28-29 June: President Putin expected to attend NATO summit in Istanbul

early July: British Foreign Secretary Jack Straw will visit Russia

July: Russia and the United States will hold bilateral negotiations on Russian entry to the World Trade Organization

1 July: First anniversary of the creation of Federal Antinarcotics Agency

2 July: End of State Duma's spring session

4 July: Vladivostok will hold mayoral election

1 August: Deadline for the Finance Ministry to present a draft 2005 budget to the government

26 August: Deadline for the government to introduce draft 2005 budget to the State Duma

29 August: Presidential elections will be held in Chechnya

September: St. Petersburg's Hermitage Museum plans to open the Hermitage Center, which will exhibit works from the Hermitage's collection, in the city of Kazan

15-18 September: The third international Conference of Mayors of World Cities will be held in Moscow

October: President Putin will visit China

31 October: Presidential elections in Ukraine

November: Gubernatorial election in Pskov Oblast

22 November: President Putin to visit Brazil

December: A draft law on toll roads will be submitted to the Russian government, according to the Federal Highways Agency's Construction Department on 6 April

December: Gubernatorial elections in Bryansk, Kamchatka, Ulyanovsk, and Ivanovo oblasts.