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Johnson's Russia List
20 April 2000
[Note from David Johnson:
1. lenta.ru: Russians Do Not Fear Communists and Civil War, but
They Fear Foreign Companies.
2. Interfax: JUST ONE IN 10 RUSSIANS TRUSTS DEMOCRACY.
3. Itar-Tass: Start-2 Ratification Signals End of Crisis of Power
4. Reuters: EBRD Calls for Reform of Russian Legal System.
5. Financial Times (UK)LETTER: Nicholas Arena, Putin is well placed
to undertake legal reform.
6. St. Petersburg Times: Vladimir Kovalyev, Kremlin Tightens Grip
7. Reuters: Maria Eismont, Russia's Gorbachev at exhibition in memory of
8. Moscow Times: Yevgenia Albats, Club 2015's Most Valuable Investment.
9. the eXile: Matt Taibbi, press review.
10. Stratfor.com: Russians Plan To Jack Energy Prices.
11. Reuters: Chubais pledges fair UES restructure.
12. RFE/RL: Sophie Lambroschini, Parliament Supports Putin By Firing Prosecutor.
13. Summary of Sergey Dorenko’s Program on Public Russian Television
14. Reuters: Blair defends Putin talks amid fascist charge.
15. BUSINESS WEEK ONLINE: A Fund That's Banking on Russia's Boundless Potential. Lexington Troika's Richard Hisey is racking
up big gains in what he sees as an undervalued market.]
April 19, 2000
Russians Do Not Fear Communists and Civil War, but They Fear Foreign Companies
The Russian National Public Opinion Research Center (VCIOM) has published
the results of its recent poll similar to the one held in 1996. The poll
questioned 1580 people over the age of 18.
It turned out that Russians dread economic difficulties and crime growth
most of all. The number of those who are afraid of unemployment growth has
increased from 30 to 35% since 1996. The next most dreaded possibilities
are price rise and impoverishment of the population (30% in 1996, 33% in
2000), disintegration of the economy and the country's bankruptcy (30 and
32% ), and crime growth (26 and 29%). The number of people who consider the
plundering of national wealth by foreign states and companies to be a
national threat has doubled (from 16 to 28%). People who fear Russia's
growing dependence on the West and its turning into a third world country
composed 11% of the respondents in 1999 and 19% in 2000.
At the same time the danger of Russia being drawn into military conflicts
and its militarization in general is regarded as serious only by 6% of the
respondents (13% in 1996). People are not at all afraid of dictatorship in
their own country, limitations on freedom, and the return of communists to
power. 17% of the respondents (the same number as in 1996) think that
Russiais threatened by lack of confidence in the future.
JUST ONE IN 10 RUSSIANS TRUSTS DEMOCRACY
MOSCOW. April 19 (Interfax) - As few as 9.1% of the 1,500 Russians
polled by the Russian Public Opinion and Market independent research
center (ROMIR) believe that democracy is the best form of rule despite
certain problems it poses.
This above view is shared to some degree by 38.7%. As many as 23.7%
disagree to some extent with this opinion and 4.2% reject it outright
while 24.3% are undecided.
The poll was taken in early April in 94 urban and rural areas of
Russia's 40 regions in every economic-geographical area.
As few as 6.9% believe that a situation in which political leaders
make decisions as they see fit would be best for Russia. A higher
number, 29%, think that this system could be useful.
Such a system is not likely to suit Russia, 26% feel, while 7.6%
think that it would be very bad for Russia and 30.5% were undecided.
As few as 2.8% believe that military rule would be very good for
Russia and 13.3% are inclined to think that it could be good.
An impressive 39.9% believe that military rule is likely to be bad
for the country and 27.5% reject it while 16.5% were undecided.
Start-2 Ratification Signals End of Crisis of Power in Rf. .
MOSCOW, April 19 (Itar-Tass) - The ratification of the START- 2 strategic
arms reduction treaty by both houses of parliament indicates that the crisis
of power in Russia is over, State Duma Defence Committee chairman Andrei
He said the president, the State Duma and the Federation Council are ready to
work together and share responsibility for their work.
Following the ratification of START-2, "Russia will ensure its security as it
sees fit and it will be able to respond to all security challenges", he said.
By ratifying START-2, "the Russian side is replaying the situation both
politically and militarily", he said, adding that "the Russian side will not
observe START-2 unless the United States complies with the ABM Treaty".
In an interview with the Ekho Moskvy radio station broadcast live on
Wednesday, Nikolayev stressed that U.S. compliance with the 1972 ABM Treaty
is the basis for the final ratification of START-2.
Nikolayev believes that "the ratification of START-2 has created a unique
situation for manoeuvering by the Russian president".
START-2 will enter into force after it has been signed by the presidents of
Russia and the U.S. and after the U.S. and Russia exchanged instruments of
"I think the Russian president will not delay the signing of the document. As
for the exchange of the instruments of ratification, the president will be
closely monitoring U.S. compliance with its obligations", he said.
Earlier, Federation Council chairman Yegor Stroyev said that having ratified
START-2 Russia should start drafting a START-3 treaty.
He noted that the voting in the Federation Council was "strong support for
"We agree to reduce missiles, but it is necessary to increase the country's
defence capability. We can't live in isolation. We should take steps towards
cooperation and look for a consolidated approach", he told journalists.
EBRD Calls for Reform of Russian Legal System
LONDON, April 19 (Reuters) - The European Bank for Reconstruction and
Development on Wednesday called for the reform of Russia's legal system and
said it would continue to fight against what the bank perceived as injustices
in the country's judicial process.
"When we speak about the need for legal reforms, we are not speaking on a
theoretical basis, but from experiences and lessons we have learnt the hard
way," the EBRD's Acting President Charles Frank told an investor conference.
"We know what foreign investors confront in Russia every day and we would
like to see it made better."
Although high oil prices and the one-off boon of a steep devaluation in 1998
have helped turn around the Russian economy, foreign investors often cite
corruption and poor corporate governance as a key deterrent to greater
The EBRD, which is considering a Supreme Court appeal over one of its Russian
projects that has turned foul, said Russia needed a better trained and paid
judiciary to help clean up its courts system.
"The confidence of investors in Russia's legal system is one of the most
important challenges the new Russian leadership is facing," Frank said.
Financial Times (UK)
19 April 2000
LETTERS TO THE EDITOR: Putin is well placed to undertake legal reform
>From Mr Nicholas Arena.
Sir, Although the president-elect of Russia, Vladimir Putin, has been viewed
negatively in some quarters, he may actually be well-suited to deliver that
nation from its most serious shortcoming: legal reform.
It would help set the Kremlin's priorities if the legal community, hitherto
lacking commitment to reform, and the Russian people, hitherto apathetic
about the rule of law, made clear they genuinely desired a just, effective
Dead many months, law reform needs to be revived to put the country on a par
with the leading powers with which Russia aims to compete. But all aspects of
life are denied normal development, due to the flawed system.
Russian lawyers have shown no determination to set things right, mirroring
It should be noted that Russia has attempted law reform in the past. Prior to
the 1864 Great Reforms, on the heels of the freeing of serfs and the Crimean
War, modernising Russia's laws was placed, by rulers like Catherine the
Great, in the hands of well-meaning aristocrats, military officers embarking
on second careers, who lacked training in law. After law-trained officials
reached high positions, reform made real progress, with the introduction of
jury trials, an independent judiciary and Bar.
Russia's president-elect studied law under the late Anatoly Sobchak. When
Sobchak became mayor of St Petersburg, Putin became his aide, in charge of
foreign investments. The mayor had been a dissident under the Soviets; we may
assume the former KGB German expert was not in the post to check on foreign
Putin has the potential to extend the tradition of Russian jurists who
advanced legal reform. A test of his bona fides would be the successful
privatisation of land.
The Russian people, and the world, will be beneficiaries, if they press
President Putin to follow the more liberal legal traditions of Russia's past,
in the process eschewing isolation from other democratic societies. It would
be a fitting course for a presumed admirer of Peter the Great.
Nicholas A. Arena, 172 West 79th Street/1OF New York, NY 10024, US
St. Petersburg Times
18 April 2000
Kremlin Tightens Grip on Courts
By Vladimir Kovalyev
President-elect Vladimir Putin has teamed up with the Constitutional Court in
an effort to limit the power of regional administrations over local legal
Last week, the Constitutional Court ruled that courts in any of the country's
89 regions can delay the enforcment local executive regulations, such as a
And a week earlier, Putin demanded that the federal government increase
spending on local courts and forbade their being financed by regional
This latter move is already spelled out in the Russian Constitution, but the
reality is often very different.
In St. Petersburg, for example, some local politicians have claimed Gov.
Vladimir Yakovlev prefers to skip around the Constitution and, like many
other regional leaders, uses his financial resources to exert influence over
the local courts.
City Hall gives St. Petersburg's courts millions of rubles annually. This
year, the city budget allocated 5.5 million rubles (about $190,000) to
renovating buildings and sewer systems of federal and regional arbitration
In addition, a City Hall regulation grants judges a free apartment once they
have been appointed to a local court.
The regulation states that the federal budget has to reimburse the cost of
While some analysts viewed Putin's latest demands positively, local
government officials said that the administration was left with no choice but
to finance the courts, since no one else would.
Yakovlev's spokesperson, Alexander Afanasiyev, said the city budget needed to
finance the court system, since Moscow does not contribute any money.
"What can we do if court buildings are being destroyed day by day and the
federal government does not worry about renovating them?" Afanasiyev said.
"If the federal government would finance structures that belong to them,
nothing would be left but for us to hope and pray."
At the moment, the federal budget owes St. Petersburg courts over 16 million
rubles (about $552,000), which is needed to cover operational spending,
including utility payments and the purchase of stationary.
Court officials contacted for this article denied they depended on the city
According to Yury Ryabtsov, head of the local branch of the Federal Court
Department, local judges have not received any apartments from the city
administration for the past three years. He said that City Hall only provides
money to renovate court buildings - which after all belong to the city, he
"I believe that St. Petersburg is in a better position than other regions. In
Moscow, for instance, the city budget pays the judges' salaries," he said.
Analysts, however, said Putin was going in the right direction.
"It would be good if the situation changed, since the current system makes
local courts dependent on the administration," said Alexander Ulanov, a
member of the St. Petersburg Board of Lawyers.
Boris Vishnyevsky, a local Yabloko party member, said the city's courts
"always take the governor's side when it comes to arguments."
As an example, he cited a local ruling last December, when many politicians
condemned Judge Tatyana Gunko's decision to refuse delaying gubernatorial
elections after lawmakers claimed they were established illegally.
Lawmakers opposed to Yakovlev claimed that his supporters in the Legislative
Assembly broke the law during an October vote to move the elections forward
from May to December.
Gunko found the claims were "not essential." Later, however, the Supreme
Court ruled against Gunko's decision, a move that was also seen as
politically motivated against Yakovlev, who was then a member of the
Fatherland-All Russia faction rivalling the Kremlin.
Sergei Markov, a Moscow-based political analyst, said the "the will of the
governors must be limited."
"Governors are powerful people because they pay money to everyone, including
the police, the courts and other institutions which are supposed to be under
federal jurisdiction," he said.
"The situation could change if the government completes a plan for the
regional tax police, Central Bank bran ches, security services, and local
United Energy Systems and Gazprom departments to be made [financially]
dependent on the center so that governors will find themselves with little
But Leonid Kisselman, a political analyst from the Russian Academy of
Sciences' Institute of Sociology, doubted reforms would come into effect soon.
"The state will not become civilized in [a day]," he said.
"When you build a plane, it needs to be tested and crashed before it starts
to fly. "
Russia's Gorbachev at exhibition in memory of wife
By Maria Eismont
MOSCOW, April 19 (Reuters) - Fighting back tears, former Soviet leader
Mikhail Gorbachev paid a visit on Wednesday to a Moscow art exhibition
organised in memory of his wife Raisa who died last September aged 67 after a
long battle with leukaemia.
Money raised from the sale of the paintings was due to help children
suffering from leukaemia in a project launched by Raisa 10 years ago, before
she herself contracted the deadly disease.
``She would have liked it (the exhibition), she would have liked all of it,''
said Gorbachev sadly, gesturing towards the paintings by Russian and French
As Soviet first lady, Raisa cut a stylish figure with her fine clothes and
jewellery, earning the resentment of many Russians who felt politicians'
wives should stay in the shadows.
But her illness and death unleashed a wave of compassion and sympathy for the
Gorbachevs, still blamed by some for the fall of the Soviet Union and the
economic turmoil which followed.
Thousands attended Raisa's funeral at the Novodevichy cemetery in Moscow,
queuing for hours to pay their respects.
``I think this exhibition will help raise money to finance the project that
we began with Raisa,'' Gorbachev said in a brief emotional speech at the
official opening of the exhibition.
``It is elderly people and children who have a hard life now,'' he said.
``But it is especially those poor kids who have got this awful disease. To
treat one child we need $20,000 to $40,000. To send him to America (for
treatment) we need $60,000. But what else can we do -- this is the life of a
``There is either life ahead or there is no life. So it's very important for
us adults to organise this help in Russia, it means we are all still alive
(and able to feel)...That's all I have to say,'' said Gorbachev, breaking off
due to his emotion.
His daughter Irina accompanied him to the exhibition.
The former Soviet leader, still feted in the West for his role in ending the
Cold War, remains politically active and recently set up a new Social
Democratic Party, though it won less than 0.1 percent in December's
Professor Alexander Rumyantsev, a leading Soviet haematologist who first
introduced Raisa to the problems of children suffering from leukaemia in
1989, said Russia had made progress in treating the disease.
``During last 10 years the results of treatment of our patients has improved
10 times. And the first contribution towards this progress was made by Raisa
Maximovna (Gorbachev),'' he said.
``This is the work of her own hands.''
19 April 2000
Club 2015's Most Valuable Investment
By Yevgenia Albats
One may rightly call Club 2015 a club of concerned businessmen.
It came into being about a year ago as a club of top executives of mid-size
companies. They formed a club because they didn't like the way things were
going in their country. They are quite well-settled in Russia, but this is
not just about them - they are concerned about the future of their children.
They ask: What should be done so our children can live in Russia?
Not a bad question - nor an easy one.
After meetings that included journalists, politicians and sociologists, after
digging into what's going wrong, the businessmen came up with a disheartening
conclusion: Turning things in the right direction will take lots of time - a
decade at least. They calculated that 2015 is the year when positive changes,
if started now, may come to fruition.
A year of research and discussions with those in power have led them to
believe that no good will come from the top. The only way to change the
country is from below. They traveled into the provinces, giving talks at
universities, talking to the new breed of businessmen and industrial managers
far from Moscow. (This has not been a cheap investment; each makes at least
$100,000, and each hour spent away from business means lost profits.)
But their discovery was worth it. It may sound naive to experienced
democracy-builders from the West, but it was news to them. First, the country
should be thoroughly studied: independent polls conducted, independent
analyses made. Second, a special program should be developed to teach
children liberal values, advantages of a market economy, honesty as a
profitable way of living. Third, research should be conducted as to how
successful countries are run, and coherent programs developed with
suggestions for those in power.
Overall, Club 2015's aim is to create a productive political culture, as
opposed to the unproductive culture that has existed for centuries. Its
members don't have formal schooling in contemporary political science; most
are engineers, accountants, MBAs or physicists. But as successful
businessmen, they don't see why doing what they intend to do should be more
difficult than starting an investment company or creating an industrial group.
A year's discussions ended up in this week's presentation of the club's new
think tank. Already, some several hundred thousand dollars have been raised
for this nonprofit venture. The presentation of the think tank was made early
this week among another gathering of "concerned intellectuals," Club National
Interests, comprised of representatives of the Moscow-based intelligentsia
who are also concerned about their country's future.
The discussion was heated and did not always lead to mutual agreement. But
the fact that a Moscow-based type of Carnegie Center is about to be created
by those commonly labeled here and abroad as "robber barons" (although none
of the members belongs to any oligarchic group) gives grounds for optimism.
This is a new phenomenon in Russia: Those who know how to make money are
ready to invest it in something that may turn a profit - but not in their
lifetime. Trying to create a country where their children would like to live
- even if it turns out to be as utopian as another "City of the Sun" -
sounds noble and is worthy of praise.
Yevgenia Albats is an independent journalist based in Moscow.
Date: Wed, 19 Apr 2000
From: "Matthew Taibbi" <email@example.com>
Subject: eXile press review
Is This Thing On?
By Matt Taibbi
....In many ways the [New York] Times provides the ultimate proof of why
the intelligent and college-educated are more easily fooled than the poor
and unsophisticated. People are much more easily distracted when they have
conceits and prejudices that can be appealed to, and the readers of papers
like the Times—who tend to be wealthy and extremely conscious of their
intellectual and cultural superiority—have conceits in abundance. You can
sell a Times reader just about anything, so long as you cloak it in small
type, Proustian expansiveness, and an anal and humorless journalistic
But none of these stories comes close to being as loathsome as the April 9
Sunday business story, written by Jonathan Fuerbringer, entitled “A Miffed
Moscow Means Headaches for Ikea.”
This story, which takes up an entire half page of the Sunday business
section, is morally abhorrent on a number of levels. The most startling
thing about it is that it is even in the paper at all. If it was suspicious
for the “Buy-a-full-page-ad, get-a-front-page-writeup-in-return” Moscow
Times to run a lead story about the Ikea bridge controversy, which at least
takes place within its editorial jurisdiction, it’s downright preposterous
for a New York newspaper to devote so much space to the Moscow Ikea story.
Loans-for-shares and FIMACO scarcely got this much space in the Times. When
tens of millions of ordinary Russians are robbed blind by despots with
American help, this is just barely a story in the Times; but when a rich
Swedish company encounters mild difficulties in its quest to become still
richer, it gets a half page. Amazing.
The article is not only of dubious relevance, but atrociously reported and
clearly biased, violating even the Times’s own thin standards for
objectivity. Fuerbringer’s story is based entirely on the testimony of one
source-- Johannes Steinberg, Ikea’s marketing manager for Russia. Though the
piece berates the Moscow government for its intractability and unfairness,
it does not quote so much as one Moscow city official—or one Russian, for
that matter. Fuerbringer said the city wouldn't comment, but I find that
hard to believe. They talked to plenty of other reporters-- why not the top
dogs? It doesn't make sense.
Then there’s the language Fuerbringer uses. Take, for instance, the
“The Moscow roadblock is a reminder of the worst aspects of doing business
in Russia, where laws and bureaucrats can be arbitrary, rules can change
quickly, and corruption is always a problem.”
Fuerbringer should be kneecapped for writing this passage. If the Russians
wanted to build a Russkoye Bistro on the deck of the U.S.S. Constitution,
you can be damn sure the Times wouldn’t describe the city of Boston’s
refusal as “arbitrary”. The passage allows Fuerbringer to make a value
judgement about the controversy—his use of the word “arbitrary” makes it
clear that he believes the Russians have no valid reason for opposing the
Later, Fuerbringer notes that Russia bent the rules for Ikea when it allowed
the company to pay import tariffs based on value, not weight. But for this,
Russia wins no points for its special treatment of a foreign company, as the
rest of the article continues to harp on the ramp issue as an example of
“Russia’s failure to come to terms with a major foreign investment in
But the worst part of the article is its last line. Here it might be useful
to point out that, generally speaking, there is almost nothing on earth that
comes close to being as unfunny as a New York Times reporter. Hunter
Thompson once wrote that he couldn’t imagine Richard Nixon laughing at
anything but the sight of a paraplegic who couldn’t reach high enough to
vote democratic. But Nixon was a one-man Monty Python, a human hand buzzer,
compared to your average Times reporter. Here’s how Fuerbringer ends his
“The monument whose view Moscow says it is protecting is the spot at which
the German advance on Moscow was stopped in 1941. In English, it is called
the Tank Trap. Perhaps the unfinished overpass could be called the Business
Four quick points about this joke:
1) Fuerbringer doesn’t know how to tell a joke. His method goes something
like this: “Now I will tell you a joke. Here it comes. This is what it is.”
If he really wanted to sell the “Business Trap” line, he would have
introduced the “Tank Trap” fact higher up in the piece, then surprised us in
the end with his little witticism, minus the mirth-killing telegraph setup.
As it is, he handles the joke attempt like a virgin working a bra strap.
2) Fuerbringer, in discussing Ikea’s complaints, never says “Ikea is
building the ramp because it says it needs to alleviate traffic.” The need
to alleviate traffic is assumed to be true and is reported as an unqualified
fact in Fuerbringer’s piece. But when he writes about the city’s intent to
leave the memorial unblocked, he writes about a view “Moscow says it is
protecting”, not a view “Moscow is protecting”. This is a very telling
3) Fuerbringer seems unaware of the real symbolism of the unfinished
ramp—the fact that, like the real tank trap, it represents the place at
which Russians refused to bend to the will of an obnoxious foreign invader.
The inability to see this highlights once again the Times’s refusal to see
things from the Russian point of view.
4) If I had a name like Fuerbringer-- not only silly but German-- I’d change
it before I went around in Russia making jokes in print about 1941. Just a
thought. But one more than the Times had.
April 20, 2000
Russians Plan To Jack Energy Prices
Russia’s major utilities are set to raise their prices. The Russian gas
monopoly Gazprom, with Kremlin approval, will hike prices by 20 percent May
1. Electricity prices also will be increased later this year. Both of these
moves will anger the already poor populace. Not only might this offer an
opportunity for President-elect Vladimir Putin to sweep some oligarchs out
of powerful positions, but it may also signal that Russia is moving toward
nationalization of its key industries.
Bloomberg reported that Russia’s Federal Energy Commission chairman, Andrei
Zadernyuk, said that Gazprom CEO Rem Vyakhirev wanted a 42 percent price
hike, but was convinced to settle for an increase of 15 percent for
residential customers and 20 percent for industries. Unified Energy Systems
(UES), the only electricity supplier, reportedly plans to raise rates by as
much as 55 percent by the end of this year, beginning with a 30-40 percent
boost in the next few months.
According to the CEOs of both utilities, the price hikes will make up for
the billions of dollars the companies lose through defaulted payments.
Money expected from increased prices would only be a drop in the bucket of
Gazprom’s $5 billion domestic debt. State-run industries are often only
mildly chastised for missing electricity payments, and independent
businesses have taken the cue and also ignore their payments without
rebuke. Gazprom officials estimate that only about 20 percent of their
customers pay for their gas in cash.
Both Gazprom and UES are partially state-owned but increasingly state
controlled, which means that the government can force Gazprom to supply UES
with free gas. This puts more of a drain on Gazprom, which is, however,
still required to pay taxes on the income that never comes.
These price increases will not improve Gazprom’s financial situation,
because Russians cannot afford to pay more for gas. Although Russia’s gas
prices are relatively low – about 10 percent of the cost of other countries
– Russian wages are commensurately low. The plan to raise the price of
essential energy utilities is sure to rile the already impoverished
population. And Putin may be able to use their outrage to his advantage.
If Putin can channel popular discontent toward the oligarchs who run the
companies, he may have support for replacing the Gazprom and UES CEOs with
leaders loyal to the Kremlin. This will be necessary if Putin wants to
effectively wipe out corruption and revive the profitability of Russia’s
Putin may be preparing to lay the blame on the oligarchs for the price
increases. It seems the government has already begun to play the role of
protector of the people, or the energy commission would not have pointed
out that the Gazprom CEO wanted an increase two times higher. But the
government, according to Zadernyuk’s explanation, stepped in the name of
reason, and in defense of the public.
Cleaning out the oligarchs, in effect, would lead to the nationalization of
the energy monopolies. The idea may seem radical for those who expect a
liberal, pro-Western economic plan from Putin’s administration, but if
Russians cannot afford to buy gas at 10 percent of the global cost,
Russia’s industries can never be free to operate competitively on the
Chubais pledges fair UES restructure
By David Chance
LONDON, April 19 (Reuters) - Russian electricity group Unified Energy System
EESR.RTS will ensure shareholders are treated fairly in the restructuring of
the company which controls the national power grid and most of the regional
power generators, Chief Executive Anatoly Chubais said on Wednesday.
Chubais, in London to meet with some of the foreign shareholders who own 33
percent of UES, told Reuters in an interview the company would be foolish to
ignore foreign holders views of the proposed restructuring as it wanted to
attract new capital.
``What is fundamental to the restructuring is to attract additional private
investment, there is no way to attract additional investment if this is not
transparent,'' he said.
Under the proposals, UES will be split into generating and transmission
assets, with some of its regional power plants being sold off.
However, restructurings in Russia have often seen minority shareholder rights
violated, most notably by the so-called ``oligarchs'' who won control of vast
chunks of Russian industry in the ``crony'' privatisation of the mid-1990s.
One early proposal for part of UES has already alarmed foreign investors, the
planned merger of the Sayano-Shushensky Hydroelectric Station with Siberian
FOREIGN FUNDS NOT CONVINCED
This has raised concerns that the Samara region electricity company could be
sold to the same concern.
``If I were a shareholder in one of the regional energos, Irkutsk, Samara,
Lenenergo, I would be very worried,'' said one fund manager, who attended a
meeting with Chubais.
He said that the restructuring proposals, which UES says will result in the
creation of many competing electricity companies, could in fact emerge with
UES retaining effective control over the most attractive assets.
``I just found parts of Chubais' presentation contradictory,'' he said.
Chubais said however that the Sayano sale had not yet been finalised and that
another proposal for the divestment had been received from an oil company.
``The Sayano plant is not sold yet, the plan is not realised yet,'' he said.
Chubais said he aimed to present final proposals to the UES board by the end
of June and start the restructuring in Spring of 2001.
He said that with Russian energy consumption growing as the economy revived
and older plants being retired as they become obsolete, there was a vast need
for additional capital.
UES said that $75 billion of investment is needed over the next 10 years.
Chubais said that generating assets would be made available to foreign direct
investors as well as portfolio investors.
Part of the restructuring will entail passing on increased costs from gas
giant Gazprom to the consumer.
A row between UES and Gazprom this month caused President-elect Vladimir
Putin to intervene over proposed cuts in gas supplies by Gazprom, which UES
claimed would have resulted in power supplies to eleven Russian cities.
Chubais said that consumers would have to bear the increased costs of gas
supplies and that tariffs would rise in two tranches this year.
``I think that this could be done in a 35 percent increase and a 25 percent
increase,'' he said.
Russia: Parliament Supports Putin By Firing Prosecutor
By Sophie Lambroschini
Russia's upper house of parliament, the Federation Council, has finally ended
one of last year's hottest political stand-offs. It voted today to dismiss
Prosecutor-General Yuri Skuratov, who had investigated former President Boris
Yeltsin for corruption. Moscow correspondent Sophie Lambroschini reports that
the governors, who refused to fire Skuratov when Yeltsin asked, did so now as
a gesture of goodwill to President-elect Vladimir Putin.
Moscow, 19 April 2000 (RFE/RL) -- The Federation Council put an end today to
a long-standing feud with the Kremlin over the fate of Prosecutor-General
Yury Skuratov by voting overwhelmingly (133 to 10) to dismiss him.
The vote closes a chapter in what had become a tedious soap opera of mutual
accusations between Skuratov and what was known as "The Family."
Last spring, the governors' refusal on three separate occasions to dismiss
Skuratov became a symbol of Yeltsin's waning power.
Skuratov had provoked Yeltsin's ire by supporting and cooperating with a
Swiss investigation into high corruption that implicated Yeltsin's daughter
and a series of presidential administration officials. The scandal broke as
the Duma was preparing for impeachment procedures against Yeltsin.
Yeltsin asked the Federation Council to approve Skuratov's suspension for bad
morals, and behavior that was inappropriate to his office.
As the Swiss investigation gained momentum, a compromising videotape surfaced
through the channels of the Federal Security Service--which at the time was
headed by Vladimir Putin. The tape showed a man who looked and sounded a lot
like Skuratov cavorting in bed with a few prostitutes. Skuratov said the
video was fake, and asked the Federation Council not to give in to Kremlin
For its own reasons, the Federation Council resisted heavy lobbying from
Yeltsin to have Skuratov dismissed. Many members of the council approved of
Skuratov's offensive against the much-hated Kremlin, whose Byzantine politics
of intrigue and corruption were often symbolized by Yeltsin's daughter
Tatyana and her alleged ally, tycoon Boris Berezovsky. And rebelling against
Yeltsin allowed the elected governors to express their newly-gained authority
and break from a policy of leniency toward the Kremlin.
Council members were also looking ahead to the following year's presidential
elections. At the time, Yuri Luzhkov -- Moscow mayor, Kremlin antagonist and
possible presidential candidate -- strongly opposed Skuratov's dismissal. By
supporting Skuratov, the governors signaled to Yeltsin that they might also
support Luzhkov in the presidential race.
But now, with Boris Yeltsin out of the Kremlin and Putin at the head of the
state, many of the council's motives for keeping Skuratov have disappeared.
The regional bosses seem ready to bury political wrangles and corruption
scandals and to join the general wave of support for Putin.
One of them, Magadan Governor Valentin Svetkov, told Reuters news agency that
it is time for the governors to support the new president "and consolidate
society." Luzhkov, who also voted to remove Skuratov, told Russian television
RTR that the governors were showing their determination to cooperate with the
As for Skuratov, he appeared before the Federal Council this morning and gave
a vigorous defense of his actions.
"The oversight activity of the prosecutor general's office is being weakened
along with its coordinating role. The international authority of this oldest
judicial institution is dropping. All this is occurring against the
background of a rapid rise in crime and corruption. These circumstances would
push me to tender my resignation but I will not do this because even
formally, I would not want to give in to these people -- in effect criminals
-- who were seeking my removal and who, unfortunately, continue to work in
the president's entourage."
Then he philosophically acknowledged defeat.
Skuratov told the Federation Council he understands the new political
situation created by the election of a new president. He admitted that he had
to leave, and thanked them for their former support.
Like the council's vote, Skuratov's parting words were a big change from his
previous position. Just a month ago, he was running against Putin in the
presidential race. His campaign speeches focused on denouncing Putin, whom he
saw as one of the people who initiated last spring's campaign against him,
and as the direct successor to what he viewed as Yeltsin's corrupt political
Perhaps Krasnoyarsk Governor Aleksandr Lebed came closest to the truth when
he tried to explain the Federal Council's vote today. He said everyone was
sick and tired of the debate.
Public Russian Television (ORT)
Sergey Dorenko’s Program
Saturday, April 15, 2000
[Summary prepared by
Olga Kryazheva, Research Assistant
Center for Defense Information
Dorenko discussed the incident between RAO UES and Gasprom. These major
companies have been fighting during the past week and threatening to stop
gas and power supplies. After the meeting with Khristenko and Putin the
conflict seemed to have settled down. Chubais and Vyakhirev argued over the
debt of RAO UES to Gasprom, that in reality equals the debt of RAO UES
non-payers. RAO UES owes $5 billion to Gasprom. Vyakhirev stated that
Gasprom’s budget is exhausted and started to demand payments from RAO UES.
Only 1,5 month ago Gasprom had money. It paid $211 million for debts of
Gusinsky and media holding “Most.” Vyahirev, the state, and the government
have used Gasprom as a source of money. Dorenko stressed that Gasprom’s
problem is its management that is incompetent and greedy. As both Chubais
and Vyakhirev benefit from this “staged” conflict, people suffer as
victims. People don’t know what two oligarchs argue about, but they know
when public transportation stops and the power in the apartment buildings
is disconnected for weeks. Last week the power supplies stopped in 660
enterprises in Novgorodskaya Oblast alone.
Last Thursday Vladimir Putin discussed the problem with both Chubais and
Vyakhirev. After the discussion the power and gas supplies were restored in
the regions. Putin also promised an addition to pensions and stated that
the government is ready to increase an average pension up to 713 rubles. He
stated that the majority will be getting up to 750 rubles every month, and
veterans of World War II will receive higher additions to their pensions.
Last week the Russian Army Colonel Savchenko was found and arrested in
Chechnya. He was making money by taking out Chechen fighters from the
regions occupied by Russian forces. He was not serving officially, was
resigning, and went to Chechnya on his own. Ironically, he also was a
political officer and taught soldiers the concepts of “military duty,”
“companionship,” and “defense of the motherland.” He used his uniform and
rank as a cover up for his business. Dorenko stated that he had partners
and was engaged in such business probably since the first Chechen campaign.
Savchenko stated that he needed money for an operation on his heart. The
Russian Army Command disproved this statement and said that when retired he
was offered benefits and free health care, including a free operation on
his heart. Even the need for money would not justify Savchenko’s actions.
Dorenko stressed that there were other cases of treachery of the Russian
military during the Chechen wars and expressed hopes that these cases would
In December 1999 Nikolai Kulikov, a Deputy Minister of Internal Affairs and
head of Moscow Militia, was fired. Yeltsin signed the order after Moscow
Militia showed that it was completely unprepared for terrorist attacks. The
Moscow mayor Luzhkov declared the order illegal and submitted an appeal to
the president but received a rejection. However, later the order was
appealed. Luzhkov insists on restoring Kulikov to his position. Dorenko
interviewed Yevgeny Shikhov, the head on Inspection in the Russian
Federation, who confirmed that Kulikov was fired due to the results of the
inspection of Moscow Militia. He stated that the level of dicipline of
the Moscow Militia is very low, citizens are lied to, and cases are not
being resolved. Dorenko stated that Luzhkov defends Kulikov passionately
because he needs to control Moscow Militia, and he needs somebody to cover
up the deeds of Luzhkov’s family.
The Russian minority in Karachayevo Cherkessia continues the discussion on
the republic’s status. There are 43% of Russians in the region. Some of
them support the president Vladimir Semyenov, who sees the region as
sovereign, and some want Karachayevo Cherkessia to join Stavropol Region.
Although the number of Russians in Karachayevo Cherkessia decreases
continuously, the republic officials have stated that the republic will not
The current Public Opinion Foundation survey shows the following results.
49% trust and 20% distrust Putin; 24% trust and 53% distrust Zyuganov;
Primakov has 23% of trust and 11% of distrust; followed by Tuleyev, who
received 21% of trust and 8% of distrust; 20% trust and 8% distrust Shaigu.
On the same question of trust to the power structures, Public Opinion
Foundation presents the following answers: 24% trust and 29% distrust the
government, whereas 16% trust and 41% distrust the Duma.
Dorenko noted that the Duma is traditionally distrusted. Last week it
approved the ratification of START II and its extension protocol by a vote
of 288-131 and considers it progress. Dorenko expressed his hesitation on
the matter as the reduction of the missiles was going by itself: old missiles
were out of order, and there was no money for production of new ones. The
State Duma did not want to ratify the agreement, because the Communist
majority and its allies insisted that it would destroy the nuclear shield
of the country. Alexey Arbatov noted that non-ratification of START II was
a political game. According to Arbatov, with the communist majority in the
Duma and its opposition to the Yeltsin’s administration the agreement was
not ratified for 7 years. Today the Duma agreed to ratify the treaty as
Putin came to power. Zyuganov calls START II “the betrayal of the county’s
national interests.” According to economic estimates, Russia is able to
maintain only up to 1,500 strategic nuclear warheads; thus it aims for
START III, which will bind the U.S. to Russian capabilities. Vladimir
Putin emphasized the fact that START II ratification was not dictated by
the weakness of Russian economy. He stated that Russia is able to destroy
any enemy in any part of the world at any moment. As the U.S. may continue
to develop its ABM capabilities and if it does not abide the conditions of
START II, Russia may break the agreement at any time.
Dorenko discussed the drug situation in Odessa, Ukraine. Drug dealing has
become an open, almost legal business there. According to official
statistics, there are about 8,000 drug users in Odessa (according to
unofficial sources 25,000). Drugs are accessible in schools and public
places. Everybody in Odessa knows about “Palermo,” a small village on
Odessa outskirts, where one can openly buy and take drugs. During one hour
of ORT filming in “Palermo,” 105 people appeared there to buy drugs. In
addition, drug injections are a largest source of HIV and hepatitis B in
Ukraine. Although the law enforcement agencies in Odessa are fully aware of
the problem, they remain silent. Dorenko concluded that drug addiction is a
huge problem not only in Odessa, but in the majority of the Russian cities
Blair defends Putin talks amid fascist charge
LONDON, April 19 (Reuters) - British Prime Minister Tony Blair on Wednesday
defended his policy of engaging with Russia after a member of parliament
accused Russian President-elect Vladimir Putin of making ``fascist'' comments
Blair told parliament he was concerned about human rights in Chechnya and
said ``those concerns were expressed very forcefully'' to Putin during his
visit to London on Monday.
``But I also said, and I believe, that it is better we remain engaged with
Russia rather than isolate Russia,'' Blair said. ``I believe that is the view
of the overwhelming majority of the international community.''
Blair spoke after Nicholas St Aubyn of the opposition Conservative party
asked whether the prime minister was still comfortable with Putin after the
``fascist terms'' the Russian leader had used about Muslims in breakaway
Putin told a news conference in London on Monday that Russia's military
campaign in Chechnya did not seek the enslavement of its people but the
``liberation of Chechnya from Islamic terrorists.''
He also warned that ``Islamic extremists'' were trying to destabilise Russia
and the entire region.
St Aubyn compared Russia's military campaign in Chechnya just ahead of
Russian presidential elections in March with the situation in Zimbabwe, where
President Robert Mugabe has endorsed the actions of blacks taking over
``Is the prime minister still comfortable with Mr Putin, whose actions in
Chechnya to win votes dwarf anything yet tried by the Mugabe regime?'' St
Blair replied that he was pleased that Putin had come to Britain. ``It is an
important relationship,'' he said.
Putin, under fire from human rights campaigners for alleged abuses by his
forces in the rebel republic, faced Muslim protesters while in London and
there was some criticism in the media of his remorseless defence of the war
Blair was also criticised by opposition politicians and human rights groups
for being the first Westerner to host the new Russian leader while the
controversy over alleged rights abuses in Chechnya continues.
BUSINESS WEEK ONLINE
April 19, 2000
[for personal use only]
STREET WISE By James A. Anderson
A Fund That's Banking on Russia's Boundless Potential
Lexington Troika's Richard Hisey is racking up big gains in what he sees as
an undervalued market
Its war in Chechnya has seemed never-ending. Since the fall of the Iron
Curtain, its politics has been in perpetual turmoil. Corruption is rife
throughout its government and business community, and reform occurs in fits
at starts at an agonizing pace. Just two years ago, moreover, it defaulted on
debts and devalued the ruble by 75%, sending its financial markets into a
To all appearances, Russia shouldn't present a pretty picture to investors.
But to Richard Hisey, co-manager of the Lexington Troika Dialog Russia Fund
(LETRX), the land of the Kremlin, onion domes, and borscht is a country of
boundless potential. It's also home to a stock market that's undervalued,
despite a recent recovery. Hisey notes that even though the market's Russian
Trading System Index, or RTSI, recently passed 220, up from a low of 37 in
October, 1998, it remains well below its 1998 peak of 570. "We look at Russia
as a value play among the emerging markets," he says. "Stocks here have a
long way to go even to reach levels attained before the devaluation."
Founded in mid-1996, Lexington Troika is a bellwether for mutual funds that
focus on Russia. It's the oldest open-end, pure-play on the country that
Morningstar tracks, and it has some $68 million in assets. Its nearest
competitor, Third Millennium, got its start in October, 1998, and now has
$3.6 million in assets.
ENERGY SURGE. Hisey's fund, which rose 159% last year and has racked up a 22%
gain so far in 2000, has benefited from a rebound in commodity prices,
particularly for oil and gas, which account for some 32% of Troika's assets.
Soaring prices have sent Lukoil Holdings, a stock that accounts for 17% of
Troika's assets, on a tear, with a 115% gain for the 12 months ended Mar. 31.
Gazprom, which claims to hold one-third of the world's natural-gas reserves,
has rocketed 492% during the same period.
Lexington is more than a commodity play, though. It's a bet that no matter
how bleak things look, Russia is starting to change. For one thing, the
recent election of Vladimir Putin has revived hopes that taxes will be cut
and reform finally visited on a hidebound economic system. Capital flight
from Russia seems to be slowing, too. And the Russian economy, after
expanding 3.2% in 1999, is headed for 5% growth in 2000. What's more, "from
what we've seen, it's not unreasonable to expect 5% or so annual growth for
the next five years," says Hisey.
That makes Russian infrastructure stocks a good play, in Hisey's eyes. He
particularly likes telecommunications stocks and has put 24% of his fund's
assets in them. One of his favorite telecom stocks is Moscow-based
Rostelecom, which handles about 95% of Russia's long-distance traffic and 85%
of its international calling volume. "Rostelecom's capital expenditures have
been a big part of the story during the past year," says Hisey. "They've put
$2 billion into their network since 1991, and the quality of calls in Russia
is starting to show improvement. Not long ago, you could only hope that 50%
of your calls out of the country would go through."
VOLATILE MARKET. Positive signs aside, Russia remains a volatile market, and
Troika shivers when the economy turns cold. The only open-end Russia fund
that was around during 1998's disaster, Troika suffered a 83% drop when the
ruble was devalued. Then in 1999, it produced a total return of nearly 160%,
eclipsing a 72% gain by a group of the emerging-market funds tracked by
Morningstar. On average, Troika's steep ascents and declines have amounted to
a -0.92% total return since 1996.
It may be that bad news is never far away. "Some analysts are saying the
Russian market has done very well the past year because the ruble's
devaluation has made Russian commodities more attractive on world markets,"
says Morningstar International fund analyst Heather Haynos. "This coming year
will be a litmus test of how far this economy has come and how well Putin can
lead." Indeed, after a strong run early this year, the fund's total return
has slipped 5% during the last month.
Hisey isn't worried. He says recent weakness is attributable to a bit of
postelection profit taking. Noting that the Russian market has yet to fully
recover, he sees potential aplenty for a nation whose natural resource
reserves rival any on the planet and whose population is well-educated. He
points out that industrial production leapt over 8% in 1999 and that Putin is
stumping hard for plans to curb corruption and attract investment. "This is a
market for the long haul," he says. "In the next five years, you're bound to
see sharp rises and falls, but the Russian market could double and still not
be fully valued."
Web page for CDI Russia Weekly: