October 4, 2000    
This Date's Issues: 4556 • 4557 • 4558 4559

Johnson's Russia List
#4558
4 October 2000
davidjohnson@erols.com


[Note from David Johnson:
1. RFE/RL: Michael Lelyveld, Russia: Gas Exports Likely To Surpass 
Other Suppliers.
2. St. Petersburg Times: Anna Raff, Regions Confronting Loss of Tax 
Revenues.
3. Moscow Times: Genine Babakian, THE WORD'S WORTH: If the President 
Says It, So Can the Rest of Us.
4. The New Republic: Stephen Kotkin, The Information Specialist.
(reviews Paul Klebnikov's Godfather of the Kremlin: Boris Berezovsky and 
the Looting of Russia, and Chrystia Freeland's Sale of the Century:
Russia's Wild Ride from Communism to Capitalism)] 


******


#1
Russia: Gas Exports Likely To Surpass Other Suppliers
By Michael Lelyveld


Plans to double Russian gas exports to the European Union could produce one 
of the biggest energy deals of the decade. But the huge increase is also 
likely to alter the market for Russia's competitors and force change in the 
countries that provide transit routes.


Boston, 3 October 2000 (RFE/RL) -- A European plan to double gas imports from 
Russia could affect strategic and economic relations across a wide arc of 
countries from Asia to Europe to the Middle East.


On Saturday, the Financial Times reported that European Union officials have 
proposed the huge increase in gas supplies from Russia following talks 
between President Vladimir Putin and Romano Prodi, the president of the 
European Commission.


Russia is already a major source of energy for European countries, including 
Germany, Italy, and France. Russia's Gazprom delivered 125 billion cubic 
meters of gas to Europe last year. The new plan calls for doubling the volume 
under a deal that could cover the next 20 years. The agreement would include 
an exchange of European technology to raise Russia's output of oil and gas, 
creating a strategic partnership in perhaps one of the biggest trade deals of 
the past decade.


The economic implications for Russia could be enormous. Gazprom accounted for 
one-fourth of the world's gas production and 8 percent of Russia's gross 
national product in 1998, according to the company. The country's monopoly 
supplier earned an operating profit of $860 million last year. That amount 
could soar due to higher energy prices and the proposed EU deal. Russia's 
independent oil companies such as Lukoil are also seeking export 
opportunities for the gas they produce.


But beyond the economic gains, it is hard not to see connections to two 
recent political events in the EU gas plan. The first is the weakening of a 
resolution on Chechnya passed by the Parliamentary Assembly of the Council of 
Europe last week. While European delegates continued to criticize Moscow's 
rights violations in Chechnya, they voted to drop recommendations that Russia 
be expelled from the council. Dmitri Rogozin, head of the Russian delegation, 
pointed to the prospect that Russia's voting rights in the body, which were 
suspended in April, will be restored three months from now.


While it seems unlikely that economics played a direct role in the 
resolution, both the vote and the gas plan have become possible because 
public outrage over Chechnya has waned. It is hard to imagine that an 
announcement on doubling business with Russia would have been politically 
acceptable six months ago, when Moscow's voting rights were revoked.


But there is an even stronger link between the gas deal and Russia's 
strategies to settle its problems with Ukraine. Moscow has been working from 
several angles to end its long-standing dependence on Ukrainian pipelines for 
its gas sales to Western Europe. While it has pressured Kyiv for payment of 
at least $1.4 billion in debt, Russia has also sought control of Ukraine's 
transit pipelines to bring an end to gas thefts.


At the same time, Russia has pushed for a new pipeline through Poland to 
bypass Ukraine. While Poland has resisted in order to protect its Ukrainian 
neighbors, Russia has raised the prospect of a direct gas link to Germany 
across the Baltic Sea. Gazprom has also recently held meetings with its 
biggest energy partners in Germany, France and Italy to discuss the pipeline 
plans, raising fears in Ukraine that its days of subsidized gas will soon 
come to an end.


The EU plan to double its Russian imports seems to be a direct result of the 
Gazprom talks. The discussions between Putin and Prodi are a sign that the 
issue has advanced to the political and strategic stage. Europe's interest is 
bound to be felt in Poland, a prospective member of the EU. The effects may 
include an easing of Poland's resistance to the Russian pipeline plan and 
profound economic changes for Ukraine, unless it can reduce its reliance on 
Russian gas.


The EU deal could also prove decisive for the countries of the Caspian region 
and Central Asia, which hope to reach European gas customers with connections 
either through Russia or Turkey.


The question is whether Russia will turn to countries like Turkmenistan for 
gas supplies to help meet the new European demand, or whether it will try to 
shut Central Asia out of the market entirely. If Moscow monopolizes the gas 
trade with Europe, Caspian countries like Azerbaijan could be forced to limit 
their ambitions and export gas only as far as Turkey, while Central Asian 
nations like Turkmenistan could be driven to export to the east.


If the 20-year deal with the EU does materialize, Gazprom could also find new 
reasons to help Iran with its project to pipe gas eastward from the Persian 
Gulf to Pakistan and India, rather than risk eventual competition from 
Iranian gas in Europe. Iran is expected to begin pumping gas westward into 
Turkey by next July.


But the far larger plan for Russian gas sales seems likely to surpass those 
of all other countries that hope to be European suppliers, perhaps making it 
harder for them to forge new economic ties with the West.


******


#2
St. Petersburg Times
October 3, 2000
Regions Confronting Loss of Tax Revenues 
By Anna Raff
STAFF WRITER


MOSCOW - While Moscow and St. Petersburg are hiking taxes to plug budget 
holes left by the new Tax Code, some of the country's other strong regions 
are scratching their heads wondering how to make ends meet next year.


None of the regions knows how much money it will receive from the federal 
government because the nation's 2001 budget has not yet been ratified. The 
regions do know, however, that if President Vladimir Putin had not signed 
Part Two of the Tax Code, their budget revenues would have been much higher.


Moscow will lose 35.3 billion rubles ($1.27 billion) and St. Petersburg 6 
billion rubles, according to officials in both cities.


What the other regions will lose is as yet unknown.


Sergei Zhuzhgin, spokesman for Tyu men region Gov. Leonid Ro ketsky, said the 
region is still calculating its losses, but they will be substantial.


"Of course, we will suffer," Zhuzhgin said by telephone from the region's 
capital, Tyumen. "But the federal government has good reasons for 
centralizing funds."


Tyumen - along with many other regions - is not planning to increase any 
taxes or introduce any new ones to make up for budget shortfalls due to new 
tax legislation, but the regions' coffers will take a hefty hit from certain 
provisions in Part Two of the Tax Code that were signed into law by Putin 
over the summer.


The legislation cuts turnover tax from 4 percent to 1 percent and repeals the 
housing maintenance tax, both major revenue sources for the regions. The 
federal government has also decided that its share of regional taxes will 
increase from 50 percent to 70 percent.


Needless to say, not all of the regional governors are pleased with the new 
status quo.


"When we passed the second part of the Tax Code, we were promised that the 
redistribution of taxes would stay 50-50," said Mikhail Prusak, governor of 
the Novgorod region, earlier this week at a meeting of the Federation 
Council, in remarks reported by Vremya Novostei.


"Now we are being told that the budget is being formulated based on the new 
Tax Code for which we voted," he said. "The government just happened to 
forget about its promise."


The Khanty-Mansiisk autonomous region, part of the Tyumen region, will have 
to hand over 15 billion rubles ($539 million) of expected revenues of 20 
billion to 23 billion rubles to the federal budget next year because of the 
new split, Zhuzhgin said.


The federal government has promised Tyumen officials that they will be 
reimbursed for shortfalls in the local budget.


It is still unclear what form those payouts will take and the matter is 
currently under hot debate in the Federation Council and the State Duma.


To what extent the regions can rely on the government's promises will 
probably be determined by what strategical alliances they can form with the 
Kremlin down the road, said Sergei Ryzhenkov, an expert in regional politics 
at the Institute for Humanitarian-Political Research.


"Unfortunately, a lot depends on politics, not on what is written in some 
economic tract about the budget," Ryzhenkov said.


Different regions will come out as favorites as the budget process unravels 
and which ones are winners won't be evident for at least another year, he 
said.


The economic health of the nation could also play a large role in determining 
disbursements, he added. A healthy economy would mean enough money for all, 
while a capricious economic downturn could annihilate any current surpluses.


St. Petersburg is one of the regions hanging onto a fragile surplus that 
could be threatened by an economic swing. Its 2001 budget projects revenues 
of 41.2 billion rubles and expenditures of 40.2 billion rubles, St. 
Petersburg Deputy Gov. Viktor Krotov announced at a news conference Friday.


St. Petersburg - which holds the federal status of region - is making up for 
losses under the revised Tax Code by increasing automobile and gambling 
taxes. The car tax alone will jump 80 percent.


But St. Petersburg is being forced to leave some projects - like the city 
road fund - without cash in order to come up with its 1 billion ruble surplus.


The city expects to get 3.54 billion rubles for the fund from federal 
coffers, Krotov said.


The city of Nizhny Novgorod is taking promises of federal funds with a grain 
of salt, said Yelena Bukareva, head of the city's budget planning committee.


She estimates that the city will lose about 1.6 billion rubles next year.


"There will be cuts in expenditures," Bukareva said. "But we are not looking 
to raise taxes."


She said, though, that the budget planning was in a preliminary stage and 
that the city would have a clearer idea of its plans in late October.


Mikhail Delyagin, director of the Institute of Problems of Globalization, 
said raising taxes is an unpopular measure that many regions want to avoid. 
While some regions just don't have the option.


"There are strict limitations on the government level as to how much regions 
can tax," Delyagin said.


Moscow, like St. Petersburg, is looking to post a budget surplus next year. 
To do so, however, the city approved Wednesday a 5 percent profit tax that is 
expected to add 16 billion rubles to the budget next year.


Under the law, every region has the right to introduce a profit tax of up to 
5 percent. Many regions, such as Tyumen, have had the law on their books for 
years.


The Moscow City Duma also on Wednesday hiked the sales tax from 4 percent to 
5 percent. That increase is expected to bring in an extra 3.2 billion rubles.


While uncertainty runs high in some regions over their budgets, a handful of 
regional officials remain upbeat about the tax changes.


Tyumen region's Zhuzhgin said he views the losses less as a financial 
nightmare and more as a sign that the federal government is "putting things 
in order."


"Before, a lot of this money was stolen or disappeared," he said. "With such 
a large amount of money, corruption was endemic."


Despite any short-term pain, the changes are ultimately a step in the right 
direction, he said.


Staff writer Vladimir Kovalyev contributed to this report.


******


#3
Moscow Times
October 3, 2000 
THE WORD'S WORTH: If the President Says It, So Can the Rest of Us 
By Genine Babakian
Staff Writer


One of the disadvantages of being a female student of Russian is that it is 
difficult to find someone who is willing to teach you ***russky mat*** f 
Russia's rich and textured gutter talk. Women usually pretend they are too 
ladylike to know such vulgar language, and men refuse, saying these 
expressions are not for the delicate ears of women. If only they could hear 
some of the ***mat*** I hear on my way to work every morning. 


So I am deeply grateful to President Vladimir Putin. Not only has he expanded 
my limited ***mat*** vocabulary, but he has enabled me to share these words 
with our readers. If someone as exalted as the president can use these words 
in a public forum, so can I. 


The first example of Putin's naughty talk came to my attention several months 
ago, when the president was referring to those pesky Chechen rebels, the ones 
he would like to ***mochit' v sortire***. In a gentler, un***mat***like 
context, ***mochit'*** can mean to soak, as in, you'd better soak that blouse 
before that stain becomes permanent. But the president had a different kind 
of soaking in mind. In this instance, ***mochit'*** means to waste, to kill. 
And ***sortir***? Toilet, can, head, outhouse. So what did he plan to do to 
the Chechens? To knock them off in the can. 


But this was tame compared to a reference he made when speaking to the 
relatives of the doomed sailors of the Kursk submarine. In the transcript of 
this meeting f published by Kommersant Vlast' f the president raised the 
stakes on public slang speak. 


Someone pointed out the president's curious choice of words to me when he ran 
across them in a transcript of the meeting. Stumbling upon the word 
***podmandyat***, the man reached for his dictionary. Unable to find it 
there, he approached his Russian secretary and asked her what it meant. Her 
face turned bright red. 


Roughly speaking, this crimson-inducing word means "cf up" f as in to touch 
up cosmetically with no significant results. A type of Potemkin village 
reference, only using the c- word. The root of the word that causes such 
offense, for those who are interested, is ***manda***. But don't bother 
looking it up f unless you have one of ***those*** dictionaries. And if you 
do, I'd like to know where you bought it. 


He speaks like a ***shpana*** or a teenage punk, said a Russian friend, who 
told me a brilliant joke made up by that creative Kremlin critic, Valeriya 
Novodvorskaya. Playing off the popular expression ***volkov boyat'sya, v les 
ne khodit'***, (if you're afraid of wolves, don't go into the forest), 
Novodvorskaya said: ***Putina boyat'sya, v sortir ne khodit':*** If you're 
afraid of Putin, don't go into the outhouse. 


******


#4
The New Republic
October 9, 2000
The Information Specialist
by Stephen Kotkin (kotkin@phoenix.Princeton.EDU)


Godfather of the Kremlin:
Boris Berezovsky and the Looting of Russia
by Paul Klebnikov
(Harcourt, Inc., 400 pp., $28)


Sale of the Century
Russia's Wild Ride from Communism to Capitalism 
by Chrystia Freeland
(Crown Business, 389 pp., $27.50)


I.


Amid the collective hysteria that passes for reporting and commentary on
Russian affairs, perhaps no issue incites more misinformed commotion than
that of "the oligarchs." And among the oligarchs, the king of the hysteria
is Boris Berezovsky. The diminutive, excitable, eyebrow-dancing tycoon,
writes Paul Klebnikov, "once told the Financial Times that he and six
other financiers controlled 50 percent of the Russian economy and had
arranged Yeltsin's re-election in 1996". Yes, he did say that. But could
such boasting have been remotely true? 


Klebnikov, however, abjures the path of ridicule open before him. Nor does
he have much time for Berezovsky's grand failures, such as the scheme to
seize control of Russia's gas monopoly_$9 billion in admitted export
revenue_which came to absolutely naught (aside from turning the
well-connected George Soros into an implacable foe). Instead Klebnikov
gives us three hundred harrowing pages to convey that Berezovsky is the
"godfather of godfathers." When the investigative journalist first invoked
the g-word, in a Forbes profile in December 1996, Berezovsky sued for
libel. Recently, the Russian won the right to sue the American magazine in
a British court. But now it may be time for Berezovsky to sue Klebnikov
for impersonating his publicity agent. 


Boris Abramovich Berezovsky was born in Moscow in January 1946, a
baby boomer. Klebnikov provides no details of Berezovsky's childhood or
early adulthood, except to note that his subject took a degree in
electronics and computer science at Moscow's Forestry Institute, a cover
for work on the Soviet space program. In 1970, Berezovsky earned the
equivalent of a doctorate at the Mechanical-Mathematical Department of
Moscow University. The previous year he had taken up an appointment at the
Control Sciences Institute of the Soviet Academy of Sciences, where he
would spend the next two decades, first as a researcher, and ultimately as
Corresponding Member. He wrote several dozen scientific articles and three
monographs about complex systems and information management (none of which
are cited or quoted in Klebnikov's book). He helped to establish and
directed a research team for the study of systems design, which was called
cybernetics_a term taken from the American Norbert Wiener, who coined it in
the late 1940s for the science of information and information systems
control. As we shall see, Berezovsky remains an information specialist.


Klebnikov presents the tycoon as the poster boy, if not also the
explanation, for everything that has gone wrong in Russia since 1991: the
"failure [sic] of democracy and capitalism," "the robbery of the century,"
"the corruption and crony capitalism epitomized by Boris Berezovsky," and
so on. But Klebnikov also works against himself, showing in some of his
book's best passages the extraordinary degree to which shady market
practices became widespread already in the Soviet period. He also weaves a
discussion of the pre-oligarch patterns of oligarch behavior: the channels
of secret financing for foreign Communist parties, the KGB shell companies
and banks in offshore locations, the foreign trade contracts rigged to
evade international laws, the old tax treaty with Cyprus permitting KGB
money laundering operations, and the covert operations windfalls derived
from secret sales of Soviet timber and oil abroad at world prices. What his
book superbly demonstrates, but does not argue, is that, despite the many
levels of discontinuity before and after the collapse of the Soviet Union,
the crookedness and breakdown of the old and the crookedness and breakdown
of the new are of a piece.


At the same time Klebnikov misses the extent to which Berezovsky (along
with Vladimir Putin) was a product of unsuccessful Soviet-era economic
policies. In 1965, Prime Minister Aleksei Kosygin tried to introduce
greater flexibility for enterprises and other innovations to overcome
sluggishness, but the invasion of Czechoslovakia three years later undercut
the will for experimentation. Instead, in the 1970s and 1980s, the Kremlin
placed a big bet on the computerization of production and planning, and on
the acquisition of Western technology, despite Cold War restrictions on
transfers. While Putin's KGB colleagues in East Germany set up front
companies and conducted remarkably successful industrial espionage,
Berezovsky worked on making Soviet industrial processes more efficient. 


Just as very few of the KGB's numerous acquisitions made it into lumbering
Soviet enterprises, so computerization failed to take off. By the 1970s,
close to 100 percent of American firms with more than 500 employees had
mainframe computers. In the Soviet Union, only one-third of equivalent
enterprises did. By the 1980s, the Soviet Union had 200,000 microcomputers,
while the United States had 25 million microcomputers_a number that was
about to skyrocket. The bet on "perfecting" the planned economy lost.
Berezovsky, like Putin, was part of the debris.


Here Klebnikov picks up the story, noting that one of Berezovsky's
responsibilities involved consulting for the Soviet automaker AvtoVaz,
which had been built in the 1960s by Fiat. AvtoVaz was a Soviet showcase_in
other words, a monument to monumentalism. It made more cars than any other
factory in the world, with an assembly line a full mile and a quarter long.
Klebnikov remarks that "it took AvtoVaz thirty times the man-hours to
produce a lousy car that it took a U.S. or Japanese factory to produce a
good one." Yet one person's white elephant is another person's fountain of
gold. In May 1989, when Mikhail Gorbachev revived and expanded some of
Kosygin's 1965 measures, legalizing small capitalist-like enterprises,
Berezovsky formed a "joint venture" with the Italian firm Logo Systems in
Turin and the general director of AvtoVaz. Joint ventures were meant to
encourage foreign investment and technology transfers, for which they
received tax advantages and could transfer profits abroad. They became an
ideal legal instrument for a time-honored Soviet practice: free use of the
resources of state companies for private gain.


As the planned economy imploded, Berezovsky, like tens of thousands of
others, was vigorously re-arranging the pieces. His new company, LogoVaz,
was supposed to supply automation software, but it became instead a
middleman for selling AvtoVaz cars. The factory, like innumerable
post-Soviet enterprises whose bilking expanded, was selling its products,
Lada jalopies and Niva Jeeps, to Berezovsky and his partner, the carmaker's
general director, at a loss_even though the population's demand for the
cheap cars knew no bounds. It was by such means that "red directors" and
their associates "privatized" and stripped the assets of state property
across eleven time zones. This happened long before anyone from Harvard or
Washington arrived to advise the "young reformers" about privatization.
Conveniently, there was no worry that without the revenue side (auto sales)
the cost side (auto production) would bring on insolvency at AvtoVaz, since
governments continued to issue Soviet-style credits to the giant employer,
or simply allowed it not to pay its electricity bills.


Berezovsky parlayed an obscure joint venture to sell software into the
country's most extensive network of car dealerships, which accounted for 10
percent of national sales. This alchemy required more than connections to a
red director and Moscow officials or a talent for rudimentary flim flam.
The early 1990s in Russia was a time when Soviet-era criminals came up from
the underground, aping the gangsters in pirated American videos, riding
Kalashnikov-stuffed Land Cruisers without license plates and launching
grenade attacks to expand "market share." Cash auto sales were especially
violent. For security and enforcement, in the absence of a civil service,
and a reliable police and judicial system, Berezovsky employed a private
army of Chechens. By 1993, they were besieged in a "mob" turf war by
Russian gangs. On June 7, 1994, as Berezovsky's armored Mercedes 600 ambled
down a Moscow street, a remote control bomb detonated. It was the capital's
most powerful explosion (in a highly competitive year). "Berezovsky
stumbled out of his car, his clothes smoldering," Klebnikov writes. "His
burns were severe, requiring months of treatment in a Swiss clinic." His
bodyguard lost an eye. His driver was decapitated.


It comes as no surprise, perhaps, that Berezovsky had already sought to
diversify. Back in 1991, he had ditched his Italian software partner Logo
systems, reincorporating LogoVaz as a joint venture with a Swiss trading
firm Andre & Cie, and the all-important carmaker AvtoVaz. The new
LogoVaz obtained a privileged export license from the Russian Ministry of
Foreign Trade, signed by the minister Pyotr Aven (today a top businessman
associated with Putin). Domestic prices for oil, aluminum, and strategic
raw materials had not been liberalized, and Berezovsky, like many others
with their export license in hand, sold them abroad at world prices. The
sizeable differentials brought in really big dough, and Berezovsky acquired
choice spreads in Moscow, London, and southern France. When pyramid schemes
emerged as the next frontier, he got a piece of that action, too_in
partnership, again, with the director of AvtoVaz, as well as with Alexander
Voloshin, who later became head of the presidential administration at the
end of Boris Yeltsin's second term, and retains that position under Putin.


All of this is well known. Klebnikov's contribution lies in exposing
Berezovsky's next move. When the Soviet-era airline, Aeroflot, was
partially privatized_49 percent went to workers and managers, while 51
percent remained in state hands_Berezovsky managed to install his own
people from LogoVaz to run the business on behalf of the state's
controlling packet. He also set up a Swiss company called Andava, in
partnership with his Aeroflot manager, to handle the airlines' billing and
foreign banking operations. Andava squeezed Aeroflot for commissions, but
according to Klebnikov it "performed no task that Aeroflot could not
perform itself."


Klebnikov should know: he visited Andava and a related company in Lausanne,
and found few employees and little activity. Despite huge operating
profits, he writes, the airline was losing money and its planes were being
impounded for failure to pay for leasing. Klebnikov shows that Aeroflot
paid usurious fees not just to Andava, but also to a string of companies,
which shared the same managers, bankers, accountants, and presumably,
owner. Berezovsky himself once bragged to Russia's leading newspaper
Kommersant_which he later bought, with the help of a front man)_that
he intended to "privatize" the profits of Russia's major airline.
Klebnikov broke the Andava story, in Forbes in early 1997, and it was
picked up in the Russian and Swiss press. A criminal investigation,
alleging $200 million to $300 million in illegal transfers, was launched. 


In March 1997, however, Boris Yeltsin's son-in-law, Valery Okulov, arrived
as Aeroflot's new general director, and not long thereafter the airline was
exempted from the currency repatriation rules of the Russian Central Bank.
This, presumably, was done to offer retroactive protection from charges of
misdirecting Aeroflot money. In 1999, the offices of Aeroflot, Andava, and
other companies in Russia and Switzerland were raided, Okulov fired all
LogoVaz people, and Berezovsky lost whatever control he had over Aeroflot's
cash flow. A warrant was issued for his arrest_the first and only in his
hectic career_and then quickly rescinded. He claims to have long ago
severed his connections to the Swiss-based companies under investigation.
The case remains open.


How did an auto-dealer and commodities trader who was almost killed
by a gangland bomb come to know a son-in-law of the Russian president?
Klebnikov rehearses the familiar story, told by Yeltsin's intimate and
bodyguard Aleksandr Korzhakov, of how the president's ghostwriter and
surrogate son Valentin Yumashev brought Berezozvsky into the Kremlin on the
pretext of publishing Yeltsin's second memoir. (This was the memoir that
was designed to explain why he had to bomb the mutinous parliament in
October 1993.) An important supporting reference from the well-known
AvtoVaz general director_whom Yeltsin had considered for prime minister in
1992_helped to overcome any hesitancy about the then obscure Berezovsky. He
brought out the book quickly and handsomely, depositing "royalties" in a
London bank account for the president, or delivering bricks of cash ("from
book sales") directly to the Kremlin. 


As reward, Berezovsky became a member of the Presidential Tennis Club, the
center of court society. One member of the club, Korzhakov, who ran the
Kremlin while Yeltsin lay in hospital or moodily disappeared, became a
special target of Berezovsky's attention. The car dealer also befriended
Tanya Dyachenko, Yeltsin's favorite daughter, on whom he bestowed a Niva
off-roader, and then a Chevrolet. When Berezovsky began bragging about his
tight links with "the family," long-time insiders became afraid to cross
him. Here was the information specialist's method: the more he talked up
his connections, the more power he began to exercise in practice. It was
just a matter of time before he realized that he needed his own media.


II


Even though Channel 1 of Russian state television reached one hundred and
eighty million potential viewers throughout the former Soviet Union, a
result of thirty years of investment, few people seem to have understood
its power and its importance. Using his point man Badri Patarkatsishvili,
an all-purpose fixer who had worked in the auto repair business in Georgia
before 1991, Berezovsky's LogoVaz first got a piece of Channel 1's
advertising sales, which were handled by Sergei Lisovsky. Then Berezovsky
began lobbying Korzhakov, and on occasion Yeltsin, to privatize the
station, promising that it would be the President's station and repel the
attacks against him in other media.


But someone else had already raised the idea of privatizing Channel 1: Vlad
Listyev, a distinguished producer and probably the country's most popular
TV host. To get the network out from under the state, Listyev had enlisted
Berezovsky's help. Instead Berezovsky helped himself. In late 1994, the
Kremlin announced the creation of a new company called ORT (Russian Public
Television), in which it sold a 49 percent stake. There was no auction, of
course, and the tycoon put up some chump change for his acknowledged 8
percent stake, doling out the other 41 percent of private shares to
surrogates. But Listyev battled to retain control. On March 1, 1995, he was
found on his apartment stairwell landing, shot in the head.


In the completely unregulated Republican paradise that is Russia, being
called a goniff is perhaps not the most stinging indictment. No, the
stinger of Klebnikov's book is the Listyev murder. And yet he can marshal
only circumstancial speculation and innuendo. At the book's outset,
Klebnikov announces his intention to be as conservative as possible in
piecing together "the fragments of truth" from interviews and rumor, though
he warns it is necessary to "bridge the gaps with assertions." "As I
looked into Berezovsky's meteoric career," he begins, "I discovered a
history replete with bankrupt companies and violent deaths." He soon adds,
however, that "there is no evidence that Berezovsky was responsible for any
of the deaths." 


Such is the challenge of this prosecutorial book. To connect Berezovsky to
the most grisly events, Klebnikov quotes the tycoon's published denials. To
illustrate Berezovsky's profitable commodities trading, Klebnikov describes
another company. After a long set piece about a corrupt aluminum dealer
named Marc Rich, Klebnikov writes that "there is no evidence that
Berezovsky ever did business with Marc Rich or even met him." Then why, in
a book on Berezovsky, mention Rich, and link them, even with a denial? "It
is not impossible," Klebnikov explains in a footnote, "that LogoVaz was
fronting for Marc Rich."


Many times Klebnikov repeats Korzhakov's allegation that Berezovsky "begged
him" repeatedly to kill another oligarch, Vladimir Gusinsky, apparently to
soften the reader for the coming Listyev murder suspicions. Only late in
the text do we learn that Korzhakov's allegation emerged as part of a
"sleaze war" in the autumn of 1996. Klebnikov's information about
Berezovsky being a suspect in the Listyev murder comes from an anonymous
source in the Moscow city vice squad_which reports to Mayor Yuri Luzhkov, a
close associate of Gusinsky, who is Berezovsky's arch-enemy.


Klebnikov emphasizes that right after the murder, detectives "swarmed"
LogoVaz headquarters. With Yeltsin out of town, Berezovsky went to
Korzhakov and made a video appeal to the President, arguing that the murder
was a set up of Berezovsky to harm the president. Klebnikov reprints a
purported transcript of the video from the Russian press, and asserts that
Korzhakov protected Berezovsky. (The men in charge of the investigation
were fired: they worked for the city and Mayor Luzhkov, who was then one of
Korzhakov's prime targets.) Berezovsky has denied involvement, including
in an interview with Klebnikov. The author notes that investigators also
questioned Lisovsky. Listev had announced his intention to break Lisovsky's
monopoly on allocating advertising sales on February 20, 1995, eight days
before being killed. The murder has never been solved. Berezovsky came to
control the network. 


To recap, Berezovsky paid perhaps a few million bucks for his lucrative
AvtoVaz car dealership, nothing for control over Aeroflot's nifty cash
flow, and $320,000 for his minority ownership and full control of the
country's dominant TV network. And when his pyramid scheme went bust, he
walked away unscathed, with around $50 million. On Wall Street, he would be
feted as a genius. Next came oil. Just before the sleaze privatizations of
1995-1996 were scheduled to close, a new company, Sibneft or Siberian Oil,
appeared out of nowhere; and with the rationale that the "president's" TV
network (Channel 1) needed cash, Korzhakov helped guide Sibneft to
Berezovsky and his partner, Roman Abramovich, an oil trader and close
associate of Leonid Dyachenko, the President's other son-in-law. They paid
about $100 million, after someone else's bid of $170 million was
"disqualified." Most recently, Berezovsky and Abramovich also appear to
have acquired a major stake in the aluminum smelting business. Klebnikov
writes about Berezovsky's "initiative" in 1999 to take over the aluminum
business; but insiders say that the deal was the work of Gazprom's
chairman, Rem Vyakhirev, who had been fighting over aluminum plants with
Anatoly Chubais, the head of the United Energy power monopoly, a major
Gazprom customer (and deadbeat). Vyakhirev, whose job Berezovsky had once
connived to take, brought in Berezovsky and Abramovich to undercut Chubais,
under the ancient principle that the enemy of my enemy is a useful tool for
screwing my enemy.


Cars, commodities trading, airline revenues, oil, aluminum: add it up, and
pretty soon it begins to sound like money. And it was. But it was also a
lot of noise. Have Berezovsky's dimensions ever really approached the big,
swinging depiction in the press? Even Klebnikov acknowledges that
Berezovsky was far from Russia's biggest commodities trader. He was indeed
"only one of a score of new business magnates," and "by no means the
wealthiest." 


Consider also that in 1995 the supposedly all-powerful tycoon lost his
contract to be the dealer for AvtoVaz. While Berezovsky's companies were
handling Aeroflot's perfectly respectable cash stream, Klebnikov could have
noted that the other tycoons' private banks were managing the billion
dollar superfunds of the Finance Ministry: state customs duties and
national tax receipts. It would have been worth mentioning, too, that
Berezovsky only accidentally backed into Aeroflot. Gusinsky had secured the
Aeroflot account, as a government decree announced, but then an exposé_in
one of Gusinsky's newspapers!_about an "incentive" (free shares in a
Siberian tin factory paid to the Kremlin point man on the deal) caused a
reversal of the decision. Be that as it may, Berezovsky eventually lost
his grip on Aeroflot, as on AvtoVaz. And during the give-away
privatizations, other players acquired much bigger companies, especially in
oil. True, Berezovsky was later handed a major share of Russia's valuable
aluminum production, but only after having been rebuffed trying to grab the
real prize, gas. In sum: the editors at Forbes, which once estimated
Berezovsky's net worth at $3 billion, do not bother with an estimate anymore.


III


All that looting, and late in the book Klebnikov reveals that Berezovsky
"was perpetually strapped for cash." How's that? Sure, his expenses on the
villas, the private plane, the children's boarding schools, the security,
the compromising dossiers, the politicians, and so on, were substantial,
but the "godfather of godfathers" strapped for cash? Klebnikov does not
explain. I would suggest that Berezovsky's multifarious, and often
disorganized ventures leaked money like a sieve. In the Aeroflot
shenanigans, Klebnikov implies that all the skimmed cash went to the top
guy, but Berezovsky's "people" were no doubt taking substantial cuts for
themselves up and down the line. The same goes for the oil business, and
the relationship with Abramovich, whose apparent looting of Sibneft
Klebnikov himself mentions but fails to assess adequately. As for
Berezovsky's appropriation of huge sums associated with Boris Yeltsin's
re-election campaign in 1996, Klebnikov, citing embezzlement estimates of
between $200 million and $300 million, does not explain how many people had
access to the money stream, and who stole from whom. Within the looting,
there was looting.


Anyone who has spent time observing Berezovsky from the inside, the people
he receives, the phone calls, the brainstorming sessions, can see that he
is not especially focused on the details of business. His operation, run
out of the old Smirnoff mansion, which he refurbished and renamed LogoVaz
House, resembles a Russian novelist's depiction of life on a nobleman's
estate, with concentric circles of favorites, "hunting" partners, and
lackeys, as well as musicians, painters, actors and other sponges. Wherever
Berezovsky, known as "Borya", moves in, they move in right behind him,
considering anything that they encounter theirs for the taking. 


The "baron," who busies himself with grand strategies, complex intrigues,
and socializing_ultimately they are all the same thing_has neither the
steady temperament nor the steady technique to discipline the moveable
kleptocratic feast. He knows it, and they know it. They pay him with
flattery, and with the implementation of directives or initiatives, and in
some cases, with genuine talent. What keeps the whole flotsam afloat is his
delight in hosting the endless party, in proper Russian style, as well as
his shrewd intelligence and engaging sociability, his access to the court
and layers of government, and his spactacular skill at projecting an image.


In the end, it all comes down to information. Berezovsky, with Korzhakov's
assistance, is alleged to have set up a private electronic eavesdropping
firm, which relied on KGB expertise and state-of-the-art technology, and
gathered material for blackmail. As Deputy Secretary under the president of
the Security Council, and later as Executive Secretary of the CIS,
Berezovsky made endless high-level contacts, picking up cell phone numbers
throughout the central and provincial bureaucracy and the former Soviet
republics. In the corridors and the dachas of the political and propertied
class, in the Chechen hills, or among the numerous journalists whom
Berezovsky employs or supports, ingratiators came to understand that the
quickest way to his good graces, and his money, was to call him with the
latest scoop. Whatever he learned of before a public announcement he would
rush to claim as his idea, and the media, including those he does not own,
would take his assertions of patrimony at face value, flattering his vanity
and increasing their viewership or circulation. 


Only the tiniest number of people has seen all the way behind the curtain.
One is Sergei Kiriyenko, the wunderkind chosen (briefly) by Yeltsin as
prime minister between the long-serving gas king Chernomyrdin and the
academic-diplomat Primakov. Kiriyenko (aka Bambi) demystified the
Berezovsky phenomenon for Klebnikov. "After spending five months at my
job," the fired prime minister told the author,
"I got the impression that all the stories that Berezovsky tells about his
ability to influence the president directly is pure fiction. Berezovsky is
able to project a demonic image quite brilliantly. He does this thanks to
the fact that he has access to good information and as soon as he finds out
that someone, somewhere, is trying to do something, he immediately appears
in public with a similar suggestion, so that the next day, everyone will
think that it was done because Berezovsky mentioned it."


Here was the Eureka moment. But Klebnikov rolls right over it. In the pages
that follow, he goes on to discuss Berezovsky promotion and removal of
prime ministers, without adducing any evidence for these colorful claims,
though he does pause to concede that Berezovsky did not control the
government "completely." In Klebnikov's account, nothing is beyond the
evil genius, not "mastermind[ing] two successful presidential elections (in
1996 and 2000)" and placing "his chosen candidate on the throne," not
instigating the Second Chechen War. The tycoon is made to appear ubiquitous
and omnipotent, just as he himself would have it.


Chrystia Freeland does not share Klebnikov's grasp of the Soviet
inheritance in corruption or gangsterism, but as the former Moscow bureau
chief of the Financial Times, she enjoyed access to several dozen top
players, and by effective juxtapositions she punctures their individual
puffery. In the case of Berezovsky, for example, she shows in her book that
although some meetings of the Yeltsin re-election effort in 1996 took
place at his LogoVaz House, a great many people helped to organize the
campaign, above all Anatoly Chubais and Igor Malashenko. (Berezovsky
himself once told Kommersant that the key was bringing the
president's younger daughter Tanya into the team, opening a direct channel
to the reclusive president, and that this had been Valentin Yumashev's idea.) 


Of course, whatever the work of political operatives and the media
manipulation, tens of millions of educated Russians went to the polls, and
the candidates who lost were poor campaigners with circumscribed appeal. To
guard against losing sight of a country while illuminating the world of
"the oligarchs," Freeland follows her high-jinks narratives of scams and
crashes with "working family" interviews. 


Freeland's account of the falling ins and falling outs among the high and
whining exhibits a keen appreciation of the interplay between "oligarch"
back-stabbing and co-dependency. By contrast, her adherence to the fiction
of "young reformers," whom she calls "McKinsey Revolutionaries," introduces
the air of a morality play; but this characterization is falsified by her
own narrative, let alone by what she neglects to report, such as the shifty
Chubais reign at the United Power monopoly. Some readers may also feel
that even as Freeland diminishes Berezovsky and captures the studied
duplicity of the "blue blood" oligarch Vladimir Potanin, she is perhaps
less exacting with Vladimir Gusinsky.


Gusinsky, to make a long and brutish story short, is a Soviet-era black
market hustler (jeans, New Age copper bracelets), gypsy cab driver, and
youth festival impresario who during perestroika founded MOST, a real
estate and construction firm that grew fat from city hall contracts under
Mayor Yuri Luzhkov, and really fat after MOST's accounting department
became a bank to manage vast public money from Moscow's municipal accounts.
This was the basic enrichment scheme that created all the oligarchs, and
Gusinsky pioneered it. Gusinsky's easier time with Freeland may result
less from sympathy than from sources. Rather than rely on the media echo
chamber of self-promotion and denunciation by Berezovsky and Gusinsky, she
cross-examines a wide and voluble circle, but Korzhakov adds a wild card:
he turned against Berezovsky, but Luzhkov and Gusinsky remain fast allies,
leaving us with considerably less first-hand dirt on "the Goose."


IV


Ultimately, all the fuss surrounding Berezovsky and Gusinsky arises not
because they epitomize crony capitalism_the upper ten percent of Russia's
145 million people do that_but because they control the country's top two
TV stations, ORT and NTV. The eye-popping story of NTV (Independent
Television) has never been presented systematically, though Freeland and
Klebnikov tell parts of it, as did David Remnick in Resurrection and
Ellen Mickiewicz in Changing Channels. It is a tale of parallel
plots, fantastic fortunes, skilled journalism, and hyper-commercialism.
NTV came about in 1993 on the initiative of Yevgeny Kiselyov, host of
Wrap-Up, the popular Sunday night franchise on Channel 1 (the future ORT),
and Malashenko, an erstwhile think tank analyst and Gorbachev presidential
aide, and latterly a state TV executive. The boss at the state channel
drove these two talents to establish their own production company, for
which they sought backing from Gusinsky, who suggested doing a whole
network that he would finance. Initially, NTV got permission to broadcast a
few hours on the regional St. Petersburg channel, also available to viewers
in Moscow. During Yeltsin's violent clash with parliament in 1993, the
infant network supported the president, and began lobbying for the right to
broadcast on the more substantial Channel 4. 


The "entrepreneurs" appeared to obtain their prize, but then the decree
mysteriously "got lost." By way of explanation, Klebnikov points to jealous
TV producers, who somehow managed to block a presidential directive, but
capitulated when Gusinsky threatened to stage a car accident_a piece of
entertaining slander put out by Berezovsky. Freeland has the real story:
Kiselyov and Malashenko, making the rounds, accidentally discovered that
Yeltsin's tennis coach, who kept a Kremlin office, was eyeing Channel 4 for
an all-sports network. When assured that NTV would have extensive sports
programming, he stepped aside. The elated duo paid a licensing fee that was
all license and no fee, for one of only a handful of national TV stations.
Klebnikov aptly describes NTV's early programming_during the six prime time
hours on what had been the country's educational channel_as "pornography,
horror, and gore (even by American standards)." He also observes that the
fledgling venture developed lively and popular news programs. These came in
handy when it lucked into the gruesome First Chechen War of 1994-1996,
which as Mickiewicz recounts, boosted ratings "suddenly and substantially."
NTV had reporters on the frontline, gave airtime to the Chechen side, and
showed images that exposed official lies and the coverage on Channel 1.
Korzhakov and others in the Kremlin went berserk. With its license at
stake, NTV became more cautious in 1995, as Freeland notes, broadcasting
some government statements on the war its producers knew to be false. 


Still, it continued to let the images of disorganized slaughter speak for
themselves. In just two years, NTV emerged as a force to be reckoned with
on the Russian scene. It was largely in response to NTV's coverage of
Chechnya that President Yeltsin and Korzhakov decided to cede control of
ORT to a jealous Berezovsky. "Portraying Gusinsky as a menace," Freeland
writes, "helped to enhance Berezozvsky's own power." Indeed. Yet in a
perverse way, the establishment of ORT may also have helped save NTV, for
it made license revocation seem less urgent. More importantly for the new
network, in March 1996, Malashenko signed on as chief media operative for
the Yeltsin re-election campaign. NTV collaborated out of a mixture of
conviction and self-interest: it opposed the Communist candidate for
president, and it sought the rights to Channel 4's entire broadcast day.
"We understood," Malashenko told Freeland, "that if Yeltsin won the
elections, then we would get that channel." In the fall, after the
electoral victory, NTV did get the extended hours, doubling its airtime.
Russia now had not one but two Rupert Murdochs.


Malashenko told David Remnick, without elaborating, "that television turned
out to be an 'incredibly profitable' business." That is a mysterious
statement. The entire television advertising market in Russia is estimated
at no more than $200 million, which is not enough to operate NTV and ORT,
let alone the full spectrum of stations. Whatever its political value,
television in Russia certainly looks like an invitation to financial
bankruptcy. NTV has survived only because the gas monopoly, in which the
government is the largest shareholder, made a substantial investment in the
station, in exchange for a 30 percent stake_which has grown to nearly half
as Gazprom extended "loans" to NTV that were pledged against shares and are
unpaid. ORT, which is 51 percent state-owned and is therefore supposed to
receive federal budget financing, is in roughly the same boat: in the
spring of 1996, according to Mickiewicz, it received just $30 million of
the $220 million necessary to cover operating expenses from the government.
Berezovsky as minority owner may have supplied some funding, but unpaid
debts accumulated.


But in a sense Malashenko was right. People in Russian television have been
making very good money. Mickiewicz writes of "kickbacks and payola
determining whose songs were played, whose firm was covered as a news
item," and of Duma politicians looking for coverage who must pay their way
on the box. Elections are Eldorado for the networks. (Sound familiar?) One
executive told Mickiewicz in 1993 that "some 82 percent of all television
airtime had been sold, or 'ordered' by interested parties," though she
concedes that over time the extent of camouflaged infomercials "was
extremely difficult to identify." Often, Mickiewicz notes, "it was the
individual correspondent, not the channel, who sold [the option of
becoming] news stories." At NTV, the process may be more organized, or
more hierarchical. At the same time, according to people with direct
experience, rates for planting a two-minute "news" piece on NTV have
declined over the years from around $30,000 to $10,000. Other stations,
such as the fully private TV-6_acquired by Berezovsky when its co-founder,
CNN, pulled out_have taken to tracking down victims of companies that paid
for "news stories" shown on NTV to advance their interests.


The opportunity to become the subject of a positive feature or to defame
one's enemies, in the guise of news, is for sale to "sponsors" on both
Russia's main networks, but the level of professionalism on NTV is
superior, and up to now it has provided far more of a counterweight to the
government. Following the brief arrest of Gusinsky in June, which
incongruously transformed him into a martyr, the Kremlin pressured NTV's
sugarddady, Gazprom, a partially state-owned company, to use the network's
massive outstanding debt to force an ownership transfer. After releasing
Gusinsky, who fled and remains abroad, the Kremlin pushed through the
appointment of its own heavy, and one-time Gusinsky casualty, as chief of a
new gas monopoly subsidiary, Gazprom Media, which has taken charge of NTV
forfeiture "negotiations," in tandem with the state prosecutor. And over at
debt-ridden ORT, not long ago, Putin's Kremlin renewed Berezovsky's
operating license, but more recently he, too, was served an ultimatum to
relinquish his 49 percent stake or face criminal charges. Future control
over both ORT and NTV remains unclear, and in the balance hangs the fate of
both Berezovsky and Gusinsky as "oligarchs"_but not the
fate of Russia, whose daily life and regions are almost invisible on the
Moscow-based "national" networks.


Outraged at what he sees in Russia, Klebnikov thinks that he has the
answer. Even though much of what appears in his book has nothing to do with
Boris Berezovsky, Klebnikov relentlessly insists upon the tycoon's
centrality with such hyperbole as "he hijacked the state." But things are
hardly so simple. The Russian state consists of millions of central and
provincial officials, who are mostly controlled by no one, including
President Putin. This disarray in the state inhibits the establishment of
either an effective regulatory civil service or an effective dictatorship
(let alone a "return to totalitarianism"). This is also what allows
Berezovsky_and many, many others at various levels_to poach and to
"privatize" select officials, systematically or on a one-time basis. If
there really were a Russian state to hijack, Berezovsky would not exist as
a phenomenon whose significance virtually everyone (in Washington, too)
loves to inflate.


Freeland, who offers a rounder, subtler criticism of the oligarchs, is
skeptical that President Putin can "discipline" or sweep them away, popular
as such a step would be domestically and internationally, because the
problem extends beyond specific individuals, who would simply be replaced.
Reaching for the big picture, she compares Russia to an heiress consuming
her inheritance. "After a decade of almost no investment," she concludes,
Russia's Soviet-era infrastructure "is beginning to decay." Beginning?!


Tragically, it required a Russian submarine to blow itself up, leaving its
crew at the ocean floor beyond rescue by their own navy, for the world to
rediscover the banal fact that the Soviet Union has still not finished
collapsing, and that Vladimir Putin is still in some ways a career
mid-level official with uncertain political instincts, and with more
problems than power. And then, the Promethean Soviet-era television tower
incurred a damaging fire, and the Russian president, who was supposed to
arrest the decline, pointed out the dilapidated state of the country's
infrastructure, and the need to do something. He spent nearly a year
sorting out a civil war among the bloated military brass over the direction
of military reforms, finally announcing that troop strength would be cut
from 1.2 million to 800,000, even though the mobilization for the Second
(and ongoing) Chechen War produced well under 100,000 grunts and so
mercenaries had to be hired. Putin did win a victory when the Duma passed a
flat tax, reducing tax rates. Now if only he could reduce Russia's army of
tax collectors, who calculate their own "tax" rates, and often collect for
themselves.


******