Security Watch: October 14, 2003

RUSSO-GERMAN SUMMIT OPENS IN YEKATERINBURG... President Vladimir Putin and German Chancellor Gerhard Schroeder arrived in Yekaterinburg on 8 October for their annual summit meeting, Western and Russian media reported. The two leaders are expected to discuss trade and economic cooperation, as well as foreign-policy coordination. Foreign Minister Igor Ivanov and German Foreign Minister Joschka Fischer, as well as other key ministers, are also participating in the talks. Putin and Schroeder are expected to visit the site where Tsar Nicholas II and his family were executed by the Bolsheviks in 1918. Putin arrived in Yekaterinburg from St. Petersburg, where he spent his birthday (7 October) with friends.

...AS BOTH LEADERS STRESS CLOSE POLITICAL AND ECONOMIC TIES... Putin and Schroeder continued their summit in Yekaterinburg on 9 October, Russian and international media reported. The two men were expected to sign several economic and trade agreements, including one on the construction of the North Baltic natural-gas pipeline, which will cross the Baltic seabed from Western Siberia to Germany. The project would allow Russia to ship gas to Europe without crossing Belarus and Ukraine. Speaking to journalists on 8 October, Schroeder said there are no political differences between Russia and Germany and so both sides are focused on economic and trade relations, RIA-Novosti reported. Putin commented that Schroeder's words do not mean that there are no problems between the countries, but emphasized that good personal relations enable the leaders to resolve them effectively. Putin added that Germany is Russia's main trading partner and that annual trade volume between the two countries is worth 24 billion euros ($28.4 billion).

...IN ATMOSPHERE OF COMPLETE SECRECY. The Russo-German summit in Yekaterinburg is being held under almost complete secrecy, with minimal information being released to the media, uralpolit.ru and other Russian media reported on 9 October. After the final round of talks began at the residence of Sverdlovsk Oblast Governor Eduard Rossel, the presidential security service ended television broadcasts and ordered journalists to leave the hall. This order was a surprise to the presidential press service, which tried to allow the resumption of coverage but was told not to interfere with a decision that had been made by the presidential administration. Earlier, a spokesman for the Foreign Ministry had complained that "preliminary leaks" forced the government to change the venues of the talks.

ENVOY SAYS RUSSIA NEEDS FOREIGN LABORERS. Speaking in Beijing on 9 October following talks with Chinese First Deputy Foreign Minister Dai Bingguo, presidential envoy to the Far East Federal District Konstantin Pulikovskii said that Russia needs qualified laborers -- including from China -- because of the rapid depopulation process being experienced by Russia's eastern regions, RIA-Novosti and Vostok-Media reported. Pulikovskii said the Russian Far East has lost more than 1 million people in recent years and they must be replaced by new migrants. "Nezavisimaya gazeta" on 10 October wrote that Chinese immigrants might not pose a threat but could provide cheap labor needed to help achieve President Putin's stated goal of doubling the country's gross domestic product in 10 years. The paper argued that this labor source is particularly important because the potential inflow of people from the former Soviet republics will soon be exhausted.

RUSSIA MIGHT LAUNCH PREEMPTIVE STRIKE AS LONG AS OTHER COUNTRIES DO... Speaking to reporters in Yekaterinburg on 9 October after the completion of the Russo-German summit, President Putin stressed that Russia's newly adopted military-modernization doctrine (see "RFE/RL Foreign Policy and Security Watch," 8 October 2003) means that Moscow reserves the right to carry out preemptive military strikes abroad if it deems it necessary to do so, Russian media reported. "We do not like this, but we retain the right to launch a preemptive strike, if this practice continues to be used around the world [by others]," Putin said.

...BUT RENOUNCES FIRST USE OF NUCLEAR WEAPONS. In a press conference at the U.S. city of Colorado Springs where he was attending a two-day meeting of NATO defense ministers, Defense Minister Sergei Ivanov said on 9 October that Russia's policy on preemptive military strikes does not mean that Moscow has adopted a similar policy on the first-use of nuclear weapons, Interfax and RIA-Novosti reported. "Russia's doctrine differs from the American [doctrine]," Ivanov said. "Under no circumstances would Russia be the first to strike with nuclear weapons."

MOSCOW STRESSES POSSIBILITY OF USING MILITARY FORCE IN THE CIS. At the same 9 October press conference, Defense Minister Ivanov said that Russia retains the right to use military force on the territory of the former Soviet republics, lenta.ru and other Russian media reported. "The CIS is a very crucial sphere for our security," Ivanov said. "Ten million of our compatriots live there, and we are supplying energy to them at prices below international levels. We are not going to renounce the right to use military power there in situations where all other means have been exhausted." He added that Russia intends to boost its military presence in the CIS, especially in Central Asia, and will insist upon the ultimate withdrawal of military bases established there by the U.S.-led international antiterrorism coalition. He noted that Moscow only agreed to the presence of such bases for the period necessary to stabilize Afghanistan and to achieve the goals set forth by the coalition.

DEFENSE MINISTER MEETS WITH NATO COUNTERPARTS. Sergei Ivanov arrived in the United States on 8 October to participate in the annual informal meeting of NATO defense ministers held on 9-10 October in Colorado Springs, RIA-Novosti and other Russian media reported. Speaking to journalists, Ivanov said he will discuss Russian-NATO relations "in the context of [NATO] expansion," as well as joint efforts in developing non-strategic antimissile defenses. "Naturally, we will also discuss problems of international security, combating terrorism, and the situations in Iraq, Iran, Afghanistan, North Korea, and the Middle East," Ivanov said.

PUTIN SAYS NO ONE CAN TWIST RUSSIA'S ARM... Speaking to a gathering of Russian and German businesspeople in Yekaterinburg, President Putin called on Germany to help Russia to join the World Trade Organization (WTO), polit.ru reported on 9 October. He noted that Russia's accession is complicated by WTO demands that Moscow boost domestic energy prices to international levels. The European Union has also called upon Russia to do this, Putin said. However, this measure would destabilize the Russian economy, he argued. "They tried to twist Russia's arm, but nothing came of this," Putin said, according to RosBalt on 9 October. "Russia has strong arms now."

...AND SAYS IT WILL KEEP CONTROL OF CIS PIPELINES... Speaking at a joint press conference with German Chancellor Schroeder in Yekaterinburg on 9 October, Putin said that Russia will not relinquish control over the pipeline infrastructure on the territory of the former Soviet republics, polit.ru and other Russian media reported. The gas-pipeline system was built by the Soviet Union, he said, and only Russia is in a position to keep it in working order, "even those parts of the system that are beyond Russia's borders." Putin said that it would only be possible to provide cheap Russian energy resources to the European Union if Moscow is able to keep the pipeline system in Turkmenistan, Kazakhstan, and Uzbekistan functioning with Russian technical supervision. He added that Russia will maintain state control over the pipeline network and over Gazprom. "We will not split up Gazprom, and the European Energy Commission should have no illusions about that," Putin said. "In the area of natural gas, they will deal with the state."

...AS MOSCOW COULD SHIFT FROM DOLLAR TO EURO. Russia is considering quoting its oil prices in euros instead of U.S. dollars, "The Moscow Times" and Reuters reported on 9 October, citing unidentified German business sources at the Yekaterinburg summit. Putin first suggested this measure in 1999, and European Union leaders recently said that Russia's doing so could boost the euro and establish an equilibrium between the two currencies, "The Moscow Times" reported. The Energy Ministry declined to comment on the reports, but said that talks with the EU on this matter are continuing. Putin noted with satisfaction on 8 October that the Moody's international ratings agency had boosted Russia's rating to "investment grade" for the first time ever. The ratings hike caused Russia's stock market to hit an historic high that day, "The Moscow Times" reported on 9 October.

PARLIAMENTARIANS URGE YUKOS TO CONSULT WITH GOVERNMENT BEFORE MAKING MAJOR MOVE... If Yukos decides to sell some of its shares to U.S. oil giant ExxonMobil (see "RFE/RL Foreign Policy and Security Watch," 8 October 2003), it should first consult with the government and the legislature, Duma Budget Committee Chairman Valerii Draganov (Unity-Unified Russia) told polit.ru on 7 October. There has been speculation in the media recently that Yukos is considering selling a 40 percent stake to ExxonMobil. Draganov's comments echo remarks by President Putin in an interview with "The New York Times" on 5 October. Draganov said that such consultations would be in Yukos's interests, since the company will still need Russian state protection on international markets. Union of Rightist Forces (SPS) leader Boris Nemtsov said he would welcome such a deal, which would help improve Russia's investment climate, as well as the capitalization and competitiveness of the Russian economy, the website reported. He noted that it is accepted practice around the world to consult with the government before concluding such a major deal.

...AS GOVERNMENT SAYS IT HAS NO OBJECTIONS. An unidentified source within the government told RIA-Novosti on 7 October that Prime Minister Mikhail Kasyanov's government has no objections to a possible deal between Yukos and ExxonMobil. "There are no legal obstacles whatsoever to such a deal," the source was quoted as saying. He added that Yukos informed the government about its talks with ExxonMobil, as did ExxonMobil Chairman Roy Raymond, who met with Kasyanov in Moscow on 4 October.

PROSECUTORS LAUNCH YET ANOTHER WAVE OF SEARCHES AT YUKOS... Investigators from the Prosecutor-General's Office on 9 October searched several offices belonging to oil giant Yukos and affiliated companies, ORT and RTR reported. Investigators searched the office of the Yukos security service and the offices of company manager Mikhail Brudno and Vladimir Moiseev, who oversees Yukos's foreign financial operations. They also searched the office of Yukos company lawyer Anton Drel. Prosecutor-General's Office official Irina Aleshina told journalists the searches were conducted on the basis of information gathered in previous searches and were connected to the probe into suspicions that Yukos used its offshore companies to evade millions of dollars in taxes.

...AMID SPECULATION THAT PRESSURE IS TIED TO POSSIBLE EXXON DEAL. Many observers are connecting the renewed legal pressure against Yukos with the Kremlin's alleged irritation over reports that the company is in talks to sell a 40 percent stake to U.S. oil giant ExxonMobil, newsru.com wrote on 9 October. An unidentified German journalist covering the summit in Yekaterinburg told RFE/RL's Russian Service that journalists there believe it is pointless to ask Putin about Yukos. "He always gives polished and correct answers, but continues pushing developments as he wants to," the journalist said.

YUKOS BILLIONAIRE HAS REQUESTED ISRAELI CITIZENSHIP... Leonid Nevzlin, who until recently was deputy board chairman of embattled oil giant Yukos and who is now rector of the Russian State Humanitarian University, has asked Israeli Interior Minister Avraam Poraz to grant him Israeli citizenship, mignews.com and jnews.co.il reported on 9 October. Although Nevzlin left the Yukos board this spring, he owns 8 percent of the company, with a fortune estimated at $1.1 billion, jnews.co.il reported. Nevzlin and Yukos head Mikhail Khodorkovskii were summoned for questioning by prosecutors investigating Yukos on 4 July (see "RFE/RL Newsline," 7 July 2003).

...AS YUKOS HEAD SAYS AGAIN THAT HE WILL STAY IN RUSSIA. Speaking to reporters in Washington on 9 October, Yukos head Khodorkovskii said that he intends to stay in Russia to conduct business, support civil society, and protect himself against "illegal actions by law enforcement organs," RIA-Novosti reported. He also said that Yukos is legally lobbying its interests in the State Duma, but is not involved in politics. He said that he has no personal political ambitions, noting that "70 percent of the population actively dislikes the oligarchs and another 20 percent has a somewhat negative view of them" (for more on the Yukos affair, see End Note below).

MOSCOW ANGERED AS BRITAIN GRANTS ASYLUM TO FORMER OLIGARCH'S ASSOCIATE. The Foreign Ministry reacted bitterly to a 7 October decision by the London Magistrates Court to grant political asylum to Yurii Dubov, a business associate of former oligarch Boris Berezovskii, RTR and Ekho Moskvy reported on 8 October. Both Dubov and Berezovskii, who was granted political asylum in Great Britain on 10 September (see "RFE/RL Newsline," 11 September 2003), are wanted in Russia on charges of fraud and money laundering. Moscow continues to call for their extradition. The Foreign Ministry on 7 October issued a statement saying that "the purposeful harboring of Boris Berezovskii and Yurii Dubov on British territory" could damage the Russian-British partnership. Russian Ambassador to Great Britain Yurii Karasin told journalists in London on 7 October that "it would be naive to interpret the verdict in Dubov's case as only a legal or technical decision," the BBC reported. Dubov's attorney, Andrew Stevenson, welcomed the court's ruling, saying that the Russian government is persecuting his client for his criticisms of Moscow's policies in Chechnya and its suppression of the independent mass media.

RUSSIA SUBMITS NEW DOCUMENTS IN EXTRADITION CASE OF FORMER OLIGARCH. The Prosecutor-General's Office has forwarded to a Greek court new documents supporting its call for the extradition of former Media-MOST owner Vladimir Gusinskii, who is accused of fraud and money laundering, RIA-Novosti reported on 7 October. On 29 September, the Athens Appeals Court gave the Russian government 15 days to provide the additional documentation and said that if Moscow failed to do so, it would rule in favor of Gusinskii (see "RFE/RL Foreign Policy and Security Watch," 1 October 2003). The Prosecutor-General's Office has sent the court an explanation saying that under Russian law the fact that Media-MOST compensated Gazprom in 2001 for all losses caused by its activities does not release Gusinskii from potential criminal responsibility for causing those losses.

DUMA GIVES FIRST NOD TO BILL ON INVESTIGATIVE COMMISSIONS. The Duma on 7 October approved in its first reading a bill on establishing independent investigative commissions that would give both legislative chambers the right to probe the use of military force within the country and other incidents that cause casualties, Russian media reported. The bill would also authorize the legislature to investigate alleged violations of human rights that occur during states of emergency or under martial law or during federal or local elections. It would further allow investigations into territorial disputes among subjects of the Russian Federation. Under the bill, an investigative commission could be created by a vote of not less than 20 percent of the membership of either legislative chamber. They could investigate any state official except the president of Russia. Deputy Boris Nadezhdin (SPS) predicted that if the bill makes it through the Duma, it will likely be rejected by the Federation Council, polit.ru reported. Some analysts believe the bill was prompted by recent calls for new investigations into the October 1993 confrontation between President Boris Yeltsin and the Russian Supreme Soviet (see "RFE/RL Newsline," 6 October 2003), a bill about which is expected to be discussed in the Duma on 10 October.

THE WAY THINGS WORK

By Wayne Allensworth

Russian President Vladimir Putin's comments on the Yukos affair and privatization in Russia at a recent meeting with U.S. journalists, as well as comments at a subsequent meeting with students at Columbia University prior to his September summit with U.S. President George W. Bush, were the object of close scrutiny by U.S. and Russian media alike. The Kremlin has reportedly ordered a PR campaign to spruce up Russia's image abroad and claims it wants to increase foreign investment in Russia, while making Russia an alternative (to OPEC) source of oil for the U.S., so U.S. media naturally viewed Putin's comments within the framework of U.S.-Russia relations and opportunities for U.S.-Russian economic partnership.

But Russian media focused on Putin's comments -- as well as a series of remarks on the same subjects by Russian luminaries, including Prime Minister Mikhail Kasyanov, presidential administration head Aleksandr Voloshin, former Prime Minister Yevgenii Primakov, First Deputy Property Minister Aleksandr Braverman, and Yabloko head Grigorii Yavlinskii -- as a sign of machinations in the shadowy world of Russia's political and economic elite, machinations that involve the struggles of various elite factions ("clans") over property and political power, including the positioning going on before the parliamentary elections slated for December. And the games under way can tell careful observers much about the way things work in contemporary Russia.

At the 20 September press conference, Putin told U.S. reporters that "the results of privatization in Russia will not be reviewed," but went on to say that "if there were improprieties [during privatization] and the Prosecutor-General's Office is responding to this, I cannot obstruct it" (see "RFE/RL Newsline," 22 September 2003). Putin further pointed out that some of the charges against head of the Yukos security service Aleksei Pichugin and Platon Lebedev, one of the leading figures in the Yukos business empire headed by magnate Mikhail Khodorkovskii, involved alleged assassinations "in the course of the merger and enlargement" of Khodorkovskii's oil firm.

During his meeting with Columbia University students on 25 September, Putin said that a wholesale "review" of privatization would cause more harm than the chaotic privatization process itself had. Nevertheless, any amnesty must be for privatization in general, not for persons involved in specific criminal cases in connection with privatization. Putin's answer referred to a broad amnesty plan suggested by Yabloko party leader Yavlinskii, a plan that would not cover crimes against individuals, such as murder. Yavlinskii also suggested a 10-year ban on those involved in privatization taking part in politics. Interestingly, in view of Yavlinskii's comments on the political aspect of his proposed amnesty, Putin told U.S. businessmen at a 26 September meeting that there would be no "reversing" "market-oriented" reforms made in Russia -- and no "radical changes" to the Russian political system. How these issues are likely connected will become evident shortly.

Putin's privatization comments were similar to previous statements on privatization and the Yukos affair made by him recently, as well as to remarks by Kasyanov, Braverman, and Voloshin. The thrust of all these comments seemed to be that privatization as a policy was not subject to negotiation, but that individual criminal cases involving privatization would remain open and could be pursued by the authorities, leaving the Kremlin an avenue to pressure Khodorkovskii (and others) in the future. At the same time, Kremlin and government officials seemed to be signaling that it would be necessary to rein in the "siloviki," a group of business oligarchs, members of the presidential administration, and security officials, particularly in the Federal Security Service (FSB), who are widely viewed as the authors of the Yukos affair, which some observers have taken as an attack by reactionary, FSB-connected forces on the reforms of the Yeltsin era. Kasyanov, for instance, has suggested that it was necessary to reform the "power structures" -- the security and law enforcement agencies.

The posturing over privatization is taking place against the political and economic background of the upcoming State Duma elections, in which many observers claimed Khodorkovskii was seeking a near monopoly on political influence by financing parties ranging from the Communists to Yavlinskii's Yabloko, with the rivalry between Khodorkovskii and state-owned oil firm Rosneft chief Sergei Bogdanchikov, seen as a member of the siloviki clan, as an important part of the picture.

Thus, it is probably no coincidence that one of the noteworthy themes in the Duma campaign is the question of the oligarchs paying the state "rent," or development fees, for the use of natural resources, something that appears aimed at weakening the private-sector oil magnates' influence (and Khodorkovskii is the leading oil oligarch) in the Russian system. The fee payments would go to, among other things, "investment" in other industrial sectors, such as the defense industry. Meanwhile, the siloviki and Voloshin Kremlin factions are reportedly jockeying for position in a battle over influencing the various Kremlin-backed parties.

Khodorkovskii probably had designs on the current government as well. The Yukos chief appeared to be quite impatient with the Kasyanov cabinet and was likely one of the chief proponents of a shift to a parliamentary system -- a system in which the Duma, which Khodorkovskii apparently was seeking to dominate, would form the government. (The plan was dubbed an "oligarch coup" by "political technologist" and provocateur Stanislav Belkovskii, whom some observers have linked to the siloviki camp). But Kasyanov returned Khodorkovskii's fire: the prime minister has repeatedly stressed the need to de-emphasize the "raw materials," or natural resources, sector in Russian economic development, especially taking aim at Russian dependence on oil prices, hinting at his support for a development-fee arrangement. And Putin's comments on the political system seem to be a signal to Khodorkovskii that the presidential system will remain intact, for the time being, at least.

Thus, many players in the Russian political/economic game seem positioned to gain from making an example of Khodorkovskii politically and containing the influence of the natural-resources economic sector. And some Russian sources have claimed that Voloshin, often portrayed as the defender of the oligarchs in their alleged battle with the siloviki, also wanted the overly ambitious Khodorkovskii brought to terms -- and that the Kremlin administration chief is playing the role of arbiter in a multifaceted game aimed at achieving a new balance of power among political/economic elites by initially forging a compromise between the siloviki and Khodorkovskii, ending the Yukos affair.

Which brings us back to Yavlinskii's and Putin's privatization remarks: these comments were probably part of a wave of signals sent by the various players to each other regarding bargaining over the terms and conditions of a general political/economic settlement, prompted by the Yukos affair. Former Prime Minister Yevgenii Primakov, for instance, who heads the Russian Chamber of Commerce and Industry and is usually identified by Russian media as sympathetic to the siloviki faction, recently countered the Yavlinskii proposals. On 22 September, Primakov stated that legislation forbidding reviewing privatization deals made before 1998 should be coupled with a development-fee proposal, the bulk of the fees coming from "raw materials monopolists." "Izvestiya" interpreted Primakov's comments as the conditions the siloviki were offering in exchange for suspending the legal attack on Yukos.

While the intrigues around Yukos have garnered much of the attention in Russian media, another, related story was unfolding at the White House: Voloshin has been reported to be involved in some hard bargaining with Kasyanov over Kasyanov's leaving the government after the next State Duma and presidential elections. A new star appeared on the political horizon last spring, when Boris Aleshin, a man with ties to the defense industry, was elevated to the position of first deputy prime minister. Aleshin has been portrayed by Russian media as a man acceptable to various elite clans -- acceptable enough to become Kasyanov's replacement next year. (Some reports have Aleshin as a close associate of Kasyanov, but at least one Russian source has claimed Aleshin is Kasyanov's rival. Where the political reality ends and provocation and disinformation begin is often difficult to gauge.) And the defense industry stands to gain from a development-fee agreement.

Thus, the struggle over forming the next government is linked to the Yukos affair and the elections via Khodorkovskii's apparent desire to dominate the Duma under a parliamentary system. The Kremlin now seems to be leaning toward a government of the parliamentary majority, wherein the winners of the next election will likely have the inside track on placing their people in the cabinet -- but without the formality of a constitutionally mandated parliamentary system. So many elite players saw weakening Khodorkovskii's influence with the various political parties as very important, as is the influence of the Kremlin factions on the parties, who will take part in forming the next cabinet and influence the final shape of any general political/economic settlement on a new balance of power, a settlement that would probably involve legislation on privatization and a development-fee arrangement.

So several separate intrigues seem to have gradually merged. They touched on, among other things: the question of revising privatization, the Yukos affair, the debate over fees, the shape of the political system, the Kremlin factions' positioning over the election campaign, and the formation of the government. The merger of the interlocking intrigues has broadened the scope of the shifts under way. Plans to rein in Khodorkovskii have turned into broader efforts to undermine the influence of the oil magnates and achieve a new balance of forces in both the political and economic spheres. By forcing Khodorkovskii to come to terms, the key players in this game can bring all the oil barons into the big tent of a general settlement.

It does not seem likely that there was ever was a single "global" conspiracy on the part of any of the key factions. There were, rather, several strands of conspiracies and maneuvers that merged over time. The final push to merge the lines was the attack on Yukos, which has changed the political landscape. The Yukos affair and the maneuvers that have surrounded it give Kremlin watchers some important clues as to how the oligarchy works -- but we need look no further than the Soviet past, especially the Stalin period, for the basic political machinery in use today. Media campaigns, provocations, assassinations, public statements by political leaders, disinformation, unspoken signals to action -- these methods and tools were in use then and still are.

Wayne Allensworth is an independent research analyst specializing in Russian affairs.