Johnson's Russia List
#5609
20 December 2001
davidjohnson@erols.com
A CDI Project
www.cdi.org

[Note from David Johnson:
1. Reuters: IMF says sound Russia policy protects from oil fall.
2. Reuters: Confident Russia to help crisis-hit Argentina.
3. Reuters: Putin to be in televised phone-in on Christmas Eve.
4. Bloomberg: Russia Says UN Must Approve Any New Anti-Terrorist Operations.
5. Moscow Times: Yevgenia Albats, Making Everything Nice and Easy.
6. Chicago Tribune: Colin McMahon, Storied zoo sees a wolf at the door.
Russia's oldest rumored to be a developers' target. (St. Petersburg)
7. Financial Times (UK): Andrew Jack, Russia's oil barons feel a shift in 
power: The way cuts in output were agreed shows how the oligarchs are
adjusting to life under President Putin.
8. Moscow Times: Alla Startseva, Chubais Doesn't Mind the Heat Over UES.
9. BBC Monitoring: Military reform failing, Central Asia being lost to
USA - general. (Leonid Ivashov)
10. The Globalist: The Russian Roots of the Texan Mafia.
11. Washington Times: Franklin Kramer, Enemies of the states. Bureaucrats
may battle Russian realignment.]

*******

#1
INTERVIEW-IMF says sound Russia policy protects from oil fall
By Patrick Lannin
  
MOSCOW, Dec 20 (Reuters) - Russia is safe from recession and can repay all
its foreign debts in 2002 without the need for financial aid, even if
prices for oil fall more substantially, the IMF's resident representative
in Moscow said on Thursday. 

Russia has enjoyed two years of boom due to high world prices for its
commodity exports, particularly oil. Gross domestic product rose 8.3
percent last year, a post-Soviet record, and is set to grow 5.5 percent
this year. 

The International Monetary Fund's Poul Thomsen told Reuters that Russia
would be protected by the fact it had pursued sound economic policies in
recent years. 

"The current stance of fiscal, monetary and exchange rate policies would
remain broadly appropriate even if there was a further small decline in oil
prices in 2002 from current levels," he said in an interview. 

"In fact, even if there was a more substantial drop in oil prices, the
authorities could cope without needing financial support from the IMF,
although there would have to be some adjustments to economic policies," he
added. 

"The important conclusion is that the starting position of Russia is quite
favourable. Russia is in a position where it should be able to manage a
less favourable external environment very well." 

An IMF mission recently finished a visit to Moscow to assess Russia's
economic policies. 

Thomsen declined to say exactly what would count as a more substantial drop
in oil prices. However, he said much of what would be required if oil
prices slid had already been agreed with parliament, which was why the Fund
was confident about Russia. 

He said a more fundamental and long-term drop in oil prices would have a
deeper impact, but saw such an outcome as unlikely given what was currently
known about world markets. 

Thomsen also said Russia should be able to manage to make its foreign debt
repayments on schedule. 

"Can they do it without exceptional balance of payments support from the
Fund or the Paris Club? Yes, they can," Thomsen said, speaking of the
ability to repay its loans. 

Russia has built up foreign and gold reserves to more than $30 billion. Its
balance of payments is also helped by a large trade surplus of more than
$40 billion. The IMF has in the past bailed out Russia several times, but
Russia this year decided not to sign up to a programme from the Fund of any
kind. 

Thomsen said he was confident that the reforms launched by President
Vladimir Putin would continue. 

"From what we have heard from the government as far as 2002 is concerned,
they intend to keep moving across a broad range of reforms," he said. 

*******

#2
Confident Russia to help crisis-hit Argentina
  
MOSCOW, Dec 20 (Reuters) - Russia offered a helping hand on Thursday to
crisis-torn Argentina as Buenos Aires struggled with economic collapse,
civil unrest and the resignation of Economy Minister Domingo Cavallo. 

Foreign Ministry spokesman Vladimir Yakovenko said Russia hoped for a rapid
end to the "long-running social-economic crisis" in the Latin American
nation, once the powerhouse of its region but now deep in crisis. 

"The Russian Federation, acting with other members of international
organisations including the Group of Eight, has lent and will continue to
lend its support to the creation of the external conditions necessary to
normalise the domestic situation in Argentina," Yakovenko said in a
statement. 

He did not give further details. 

Cavallo, accused in Argentina's latest crisis of failing to drag the
economy back from the brink of the biggest debt default in history, was
lauded as an economic guru when he visited Moscow in 1998 to offer his
solution to a financial crash. 

Russia had just devalued its rouble currency and was to default on some of
its debt, making it an economic pariah in the eyes of the world's financial
markets. 

The Argentinian, who was economy minister under ex-President Carlos Menem
from 1991-96, urged Russia at the time to apply the "Plan Cavallo." This
included setting up a currency board to fix tight limits on how much money
can be printed, a measure aimed at suppressing inflation and stopping
devaluation. 

The plan was widely credited with saving Argentina from quadruple-digit
price rises in the early 1990s. 

"Whichever (Russian) government is in power, sooner or later it will have
to do something very much like what we did," Cavallo told Clarin newspaper
after his 1998 visit. 

Russia, after vigorous debate, did not employ the plan. It later staged a
startling economic recovery. 

Helped by a boom in oil prices, Russia is currently one of the few
economies in the world to be growing and its stock market is one of the top
performing bourses. 

Its economy is expected to have grown by 5.0 to 5.5 percent in 2001,
according to official estimates, with annual inflation at around 18
percent, slightly lower than the previous year. 

*******

#3
Putin to be in televised phone-in on Christmas Eve
December 19, 2001
  
MOSCOW (Reuters) - President Vladimir Putin will host a televised phone-in 
from his Kremlin office on Christmas Eve, fielding questions live from 
Russians around the country, the presidential press service said Wednesday. 

The phone-in will be broadcast on the state-run ORT and RTR television 
networks across Russia's 11 time zones, from the Kamchatka Peninsula in the 
far east to the western enclave of Kaliningrad, hemmed in by Lithuania and 
Poland. 

The Kremlin opened up a free-phone hotline Wednesday which took around 2,000 
calls within a few hours of opening, ORT said. 

The call center will remain open until the end of the live broadcast, which 
starts at 4 a.m. EST Dec. 24. Officials say they expect around 1.5 million 
calls. 

Staff at the center said calls so far had focused on hard-pressed Russians' 
main preoccupations -- low living standards, pensions and conditions in the 
army. 

Citizens connected to the Internet will be able to put questions via the 
World Wide Web, the presidential press service said. 

Putin, 49, has used radio phone-ins and the Internet to talk to domestic and 
international audiences before to underscore his style as a modern, efficient 
manager. 

In March, Putin defended his policies on reform, press freedom and Chechnya 
in a Web cast with two Russian Web sites and the BBC, in which he also 
revealed his tastes in music, literature and leisure. 

In February 2000, Putin took questions on a call-in show organized by a 
popular Moscow daily, part of a charm offensive designed to soften his image 
as a tough and calculating leader ahead of presidential elections the 
following month. 
----
Questions can be submitted on the Internet at the web site www.ortrtr.ru, or 
by calling 8-(tone)-8-00-200-40-40. The calls are free of charge and accepted 
from Wednesday until the end of the live transmission Dec. 24. A transcript 
of the interview is to appear on the web site Dec. 25.

******

#4
Russia Says UN Must Approve Any New Anti-Terrorist Operations
By Paul Tighe

London, Dec. 20 (Bloomberg) -- Any new international anti- terrorist
operations must be approved by the United Nations Security Council, the
Interfax news agency cited Russian Defense Minister Sergei Ivanov as saying. 

``Any use of force must be sanctioned by the UN Security Council,''
Interfax quoted Ivanov as saying yesterday at the start of a visit to the
U.K. ``For this, convincing proof must be submitted'' of the existence of
terrorist structures. 

The U.S.-led military operation in Afghanistan drove the ruling Taliban
from power and destroyed bases of the al-Qaeda terrorist network suspected
of carrying out the Sept. 11 terrorist attacks on the World Trade Center
and the Pentagon. 

U.S. President George W. Bush has indicated the fight against terrorism
will be pursued in countries that harbor terrorist groups and those that
develop weapons of mass destruction. 

``The forcible action in Afghanistan is legitimate and justified,''
Interfax cited Ivanov as saying. ``As far as other regions are concerned,
talking about them would be too early.'' 

Moscow expects to be consulted by the U.S. if Washington intends widening
the war against terrorism beyond Afghanistan, Russian President Vladimir
Putin said this week in an interview with the U.K.'s Financial Times
newspaper. 

Iraq, Somalia, Sudan and Yemen are countries that have been mentioned as
possible targets in the U.S.-led war on terrorism. Bush last month demanded
that Iraq's President Saddam Hussein allow inspectors into the country to
prove he isn't building weapons of mass destruction. Iraq rejected the
demand. 

An attack on Iraq shouldn't be part of the anti-terrorism war, Putin told
the Financial Times. 

``Primarily, we should talk about ways to block the financing of terrorist
activities,'' he said. ``And so far I have no confirmation, no evidence
that Iraq is financing the terrorists that we are fighting against.'' 

******

#5
Moscow Times
December 20, 2001
Making Everything Nice and Easy
By Yevgenia Albats  
 
If for nothing else, the outgoing year should be praised for having
simplified things. Now everything is nice and easy. There are the good
guys, for the most part faceless and led by President Vladimir Putin, who
is still basking in popular support. 

There are the not so good -- but still decent -- guys, now loyal servants
of the state, who manage the country's wealth (i.e. natural resources) --
well, not exactly on behalf of its citizens, but definitely on behalf of
its top bureaucracy.

The executive branch even has its own enfant terrible, presidential
economic advisor Andrei Illarionov, whose constant clashes with everyone
else on the "right" side of the Russian political spectrum introduces an
element of discord into otherwise rather dull politics.

And then there are the bad guys. They are the leftovers of what was once
known as the Family clan, plus the bad oligarchs who have failed to comply
with the current Russian fashion known as "order and -- God permitting
(which he never does) -- some law."

There are a few other characters whose identity, like the identity of the
Kremlin's semi-retired insider Gleb Pavlovsky, is hard to define in
clear-cut terms: part-dissident, part-snitch, part-statist, part-not.

Pavlovsky used to be full of admiration for the Kremlin newcomers -- those
bureaucrats in epaulets who used to be known under a single acronym: the
KGB. But no longer. Now Pavlovsky, along with Boris Yeltsin's new-old
son-in-law, Valentin Yumashev, has realized that the KGB was not just the
Soviet Union's most powerful institution, but also was and is a corporation
with its own, quite specific organizational culture that is driven by
notions of the imperial state and disrespect for individual lives, freedoms
and liberties. That is why they have now started shouting loudly about how
former KGB men pose a threat to the country's fragile democracy. 

Yumashev and Pavlovsky could not care less about those cowards -- their
fellow citizens -- whose freedoms and liberties are under attack. But they
do care about their own freedoms and so all of a sudden they have recovered
their sight, which they lost two years ago when they did their best to
bring the very same bureaucrats in epaulets to power.

You really cannot help but ask yourself whether it can really be true that
such ignorant guys ran the country on behalf of the sick president for
almost four years.

So, back to the things that are nice and easy. Indeed, with the exception
of the above-mentioned, just about everyone else in the country is a
nobody. Of course, other institutions and names do exist, but they have no
real power or influence (even those that used to have before), and no real
impact on the public consciousness. The State Duma passes laws written by
bureaucrats for bureaucrats; political parties conduct politics according
to Kremlin blueprints; civil society receives recipes in what was the
Soviet Communist Party's Palace of Congresses; courts are busy waiting to
be reformed; and then there's the media. 

Yes, the media used to be quite something. Some three years ago I used to
entertain myself by trying to calculate the market share of this or that
media group. I feel kind of sad and nostalgic looking now at the diagrams
of the Russian media market that I used to piece together. Back then there
were some nine nationwide groups, and the state, which de facto controlled
about 40 percent of the national media market, was only one of a number of
players. Now the state's share has at least doubled and a significant share
of the media that are not de jure state-owned are in close alliance with
the state and quite often resemble official mouthpieces for the state.

The owners -- formerly oligarchs -- are no longer eager to challenge the
Kremlin and prefer the role of loyal servants (or agents, if you will). So,
as soon as TV6, with Yevgeny Kiselyov at the helm, is wiped out everybody
else will be free to write about politics on Mars, but not in Moscow.

It is, of course, a shameful truth that back then -- in the mid-to-late
'90s -- the media were used by their owners in an often most undesirable
manner ("you're gonna deliver a service and I'm gonna pay for it"). 

However, we did not understand our luck back then. As long as there were a
number of owners (of which the state was just one) whose interests were
constantly clashing, the media were able to provide quite a pluralistic
picture of Russian politics. There was no lack of information, and although
there may have been many dangers, a closed corporatist state was not one of
them.

Alas, no longer. Now everything is nice and easy with just a few
exceptions, and by and large it's a result of the closed-type bureaucratic
style of politics that are the only politics in town these days. 

For example, presidential administration chief Alexander Voloshin resigned,
then he did not; the president would accept his resignation and then not --
in other words, a whole load of rumors, but little or no hard news.
Newsmakers no longer bother to give explanations, to confirm or deny, or
even to explain what and why, and when and how. After all, Voloshin is not
just another Muscovite -- surely the nation has a right to know what is
what in such a case.

Instead, they conduct themselves likes spies out in the cold: recruiting,
retreating, buying people off, and all under a veil of conspiracy.

It is clear now that "state capture" or "oligarchic capitalism" never fully
materialized in this country. People like Boris Berezovsky were capable of
challenging the government and appointing or dismissing ministers only
because the then president of this 150 million-strong nation was running
the country in a profound state of unconsciousness and de facto surrendered
his authority to a group of non-elected elements who lacked the legitimacy
to carry out the job and therefore had to share responsibility with the
oligarchs. 

It did not take long for the young and energetic Putin, who enjoys both
legitimacy and popular support, to return things to the order that has
traditionally prevailed in Russia. 

Make no mistake: The state in Russia is well and truly back. But don't get
too excited. Never in Russian history has this redundant, unaccountable,
non-transparent and self-serving machine ever been effective in delivering
public goods to the people. Is there any reason why things should be
different this time around?

There is no way of knowing until budget revenues from oil start to
nose-dive. However, even then I am not convinced that the nation will be
informed about what is really happening, as there is not exactly a lot of
information available now.

For example, last week the Central Bank lost almost as much of its reserves
as it did during the 1998 financial collapse. Were we informed about what
happened or were we left to chew on a rumor that the government was buying
Russian sovereign debt using the Central Bank's currency reserves?

Thus, the desired stabilization has been achieved, and the regime -- that
mutant of unfinished and stifled political reforms -- has already been set
in marble and stone. 

So, the year ends with everything nice and easy, and with all efforts being
made not to disturb the public from its nap. All that remains to be done is
to restrict the media outlets that still remain to choosing between either
reporting good news or very good news. Nice and easy.

Yevgenia Albats is an independent Russian journalist.

********

#6
Chicago Tribune
December 19, 2001
Storied zoo sees a wolf at the door
Russia's oldest rumored to be a developers' target
By Colin McMahon
Tribune foreign correspondent

ST. PETERSBURG, Russia -- The St. Petersburg zoo has survived the Bolshevik
Revolution, the Nazi blockade and, on pluck and a budget of peanuts, a
decade of post-Soviet economic tumult.

Now the zoo faces a new threat. Commercial interests and their political
allies in Russia's second city want to close the zoo and develop its prime
real estate, according to local media reports.

The issue is whether St. Petersburg should build a new zoo on its outskirts
and, if so, what should become of the storied Leningradsky Zoopark in the
city center. The larger issue is what St. Petersburg does with its cultural
institutions and how the city makes those decisions.

The tale is typical of today's Russia: all murk and intrigue and bombast.
The characters include a popular zoo director, the governor's wife,
combative city officials and who knows who else twisting arms and greasing
palms behind the scenes. Then there are the animals in the zoo.

Even with an entrance fee of only $1, Leningradsky Zoopark struggles to
draw a crowd. Russia's culture budget is no match for Soviet times, and the
zoo is no match for the Hermitage, the Russian Museum or the other St.
Petersburg landmarks fighting for every kopeck that the state hands out.
The zoo has only a few corporate sponsors, most of them multinationals.
Charitable giving, to put it kindly, is a tradition yet to take hold in
post-Soviet Russia.

The result is that at 136 years, Russia's oldest zoo looks its age.
Buildings sag in disrepair. Exhibits plead for updating. The place feels
cramped to visitors; one can only imagine being the caged tiger prowling a
space smaller than an average American dining room.

Director Ivan Korneyev knows the zoo needs help. He would welcome a big,
modern zoo outside town, but he does not want any new zoo to replace his.

Lincoln Park Zoo cited

He used Chicago as an example. Lincoln Park Zoo may not make money. It is
small compared with the elephantine Brookfield Zoo. But no one tries to get
rid of it.

"In principle it is not important to me what they would build here if they
closed the zoo," said Korneyev, who survived a recent effort by city
officials to have him fired. "What's important is that something else would
be here instead of the zoo, which has always been located here, which
survived even the blockade. It's an unacceptable change of the city face."

For all the talk floating around St. Petersburg about getting rid of the
zoo, however, no one can say for sure who backs such a plan. If anyone.

With impatience bordering on hostility, the chief of the city's cultural
committee dismisses as provocation reports in the St. Petersburg media that
developers plan to put a casino or a hotel on the zoo's land.

"There are no plans to close the zoo. Period," said Vladimir Shitoryev.
"These rumors were started by those with their own special interests."

The Zoogarden Fund, a non-profit group created to aid "the development of
the Leningradsky Zoopark," wants it turned into a "zoological education
center." Then a mammoth zoo and amusement park could be built on the
northwest edge of St. Petersburg.

Korneyev, once a member of the Zoogarden Fund, now distrusts its
intentions. He fears that "zoological education center" is a euphemism for
stripping the park of all but a shack or two. He, too, hears reports of a
new casino or hotel going up on the zoo's land.

Some friends of the zoo blame shadowy business interests. When Korneyev was
fighting to keep his job, supporters donned animal masks and protested.
Later that day, a demonstrator was abducted, driven outside the city,
forcibly shaved of his long hair and instructed to tell his comrades that
no more protests would be tolerated.

"There are many people surrounding this who have in mind their personal
interests and personal profits," Korneyev said. He would not elaborate.

Korneyev and other experts heap scorn on the Zoogarden Fund's plans for the
new park at Dolgoye Lake, particularly the list of animals it wants to
collect. Critics cackled at a plan to stock dozens of crocodiles, scores of
monkeys and hundreds of bees.

"Some scene," observed the Moscow News. "A bird colony on a manmade cliff
populated by seagulls to be specially purchased, even though there are
plenty scavenging at Primorsky dumps absolutely free of charge."

Friends of the zoo ineffective

Zoogarden Fund opponents can take solace in its inability to get much done.
Though Gov. Vladimir Yakovlev appointed his wife, Irina, to supervise the
fund when it was created in 1996, it has failed to rally either investors
or donors.

"There is no project yet," said fund President Olga Chesnova. "There is a
concept and a business plan. If some sponsors are interested, they are
welcome."

Korneyev, who started working at the zoo 23 years ago when he was a
17-year-old cleaning the cages of predators, is making plans of his own. He
is raising money from residents to build a new home for elephants, who have
been missing from the zoo for nearly 20 years.

*******

#7
Financial Times (UK)
20 December 2001
Russia's oil barons feel a shift in power: The way cuts in output were
agreed shows how the oligarchs are adjusting to life under President Putin
By ANDREW JACK

When Mikhail Khodorkovsky, the head of Russia's second largest oil company,
attended a high-profile meeting with his competitors and senior government
officials in early December, his relaxed choice of clothing sent out a
strong signal.

Dressed in a casual shirt with no tie, he exuded confidence that his
outspoken views would prevail. A few hours later the wider world knew that
Russia would cut oil exports in an effort to prop up falling world prices;
while insiders understood Russia's contribution would be only modest.

The public statements of the previous few weeks had implied tensions among
the oil companies, and between them and the government. The outcome
provided an insight into the interplay of the state and business.

Domestically, the government was torn between the competitive boost that
lower oil prices could give to many of its companies; the extra budget
revenues and export earnings of higher prices; and the hope of being able
to "freeload" on cuts in other countries without any Russian contribution.

Abroad, it wanted to remain friendly with its traditional Middle Eastern
allies in the Organisation of Petroleum Exporting Countries, while not
contributing to substantial price increases that might trigger a further
global economic downturn and alienate its new allies in the US.

Some leading Russian oil companies - notably Mr Khodorkovsky's Yukos and
Roman Abramovich's Sibneft - openly opposed cuts, having committed
considerable sums to new investment programmes designed to boost production.

They had significant cash reserves and low operating costs, allowing them
to be able to sit out a price war over several months, after which they
believed Opec would cave in and cut production unilaterally.

They were also hostile to the Arab oil producers, and shared with the
government an enthusiasm for building up Russia as a significant
alternative long-term supplier for Europe and the US.

Rival producers - such as Lukoil and Tatneft - were less concerned. They
had more modest domestic expansion plans and higher debts. Cuts would do
little harm to their own business, while helping to ensure global oil price
increases. A price war, on the other hand, with its immediate depressing
effect on revenues, would be detrimental.

When Mikhail Kasyanov, the prime minister, had first announced on November
9 that the oil companies were set to announce "voluntary" cuts, they
expressed surprise, and even some anger, at an apparent government diktat.
Russia's raw capitalist phase in the 1990s had left most oil production in
private hands. Those oil barons controlled output and, under President
Boris Yeltsin, had determined much government policy too.

Yet Mr Khodorkovsky argues that the government still has the power both to
limit exports and to withdraw production licences - not to mention applying
indirect pressure via tax inspections or other bureaucratic means. Under
President Vladimir Putin, there has also been a loosening of the grip of
big business on the state.

"Putin runs the country now, not the oligarchs," says one western oil
industry expert. "He listens and takes their views into account, but there
is a more normal process of discussion. If the oil companies had had it
their own way there would not have been any cuts at all."

Simon Kukes, the chief executive of the oil group TNK, says the government
in the past made decisions based on "relations" with the oil barons. Now,
they are the result "of business, of what makes sense". Agreement about
export cuts in the December meeting was possible "not because of common
love but because there was some basic economic sense", he says.

Another participant at the meetings says consensus had already been
achieved during November. But the government wanted a climate of economic
uncertainty while it pressed parliament into approving discretionary
spending cuts of Rbs68bn (Dollars 2.3bn, Pounds 1.5bn) for this year's
budget. Once that was voted through, oil cuts could be more openly discussed.

*******

#8
Moscow Times
December 20, 2001
Chubais Doesn't Mind the Heat Over UES
By Alla Startseva 
Staff Writer 

Anatoly Chubais is used to taking heat for his ideas. 

Three years into his term as head of Unified Energy Systems, Chubais says
he has taken a lot of abuse for his drastic plans to restructure the
electricity and heating monopoly and, thus, ensure that the very people who
detest him have heat in their homes.

"Not less than 50 effigies of Chubais have been burned, and the most
popular slogan at strikes has been 'Kill Chubais,'" Chubais said at a
recent news conference.

The ginger-haired St. Petersburg native brushes off the public outrage.
Chubais, who drew up the disastrous loans-for-shares privatizations of the
mid-1990s, seems to wholeheartedly believe that he is in the right.

A glance at what Chubais has accomplished during his brief reign suggests
that he could be on the right track. 

The government, which has made the reform of UES one of its priorities,
seems to agree. It gave its stamp of approval to a Chubais-backed
restructuring program on Aug. 3.

The energy sector that Chubais tackled in 1998 had changed little from the
vertically integrated structure left by the Soviets seven years earlier.
The increasingly inefficient monopoly lacked competition in the retail and
wholesale markets and had to operate with the funds generated by low,
government-regulated electricity tariffs. 

In 1998, 20 percent of energy payments were made through barter schemes. By
that year, the annual shadow turnover from those schemes had reached $8
billion, about $3.2 billion of which ended up as direct losses from noncash
payments, UES deputy head Mikhail Abyzov said.

Salaries faced delays of up to seven months, and protests and hunger
strikes were almost daily events at local power companies.

Analysts predicted Russia would be without power in 10 to 15 years.

Then, President Boris Yeltsin appointed Chubais to put the house in order.
Chubais put together a new team of top managers and drew up a
stage-by-stage recovery plan for UES. The first phase, a three-year
efficiency program, ended this year. The next step is a massive
restructuring of the company.

Chubais is pleased with what has been accomplished, calling the results of
the first phase "triumphant." 

He and other company executives rattled off a list of numbers showing those
results at the news conference last week. Among them:

•UES reported its first net profit under international accounting standards
this year. The company posted a net profit of $16.7 million in 2000,
compared to a loss of $12 million in 1999.

•Taking debt repayments into account, cash payments for energy will ring in
at 115 percent in 2001.

•Investment soared from 2.8 billion rubles in 1999 to 11 billion rubles
this year. If the Cabinet signs off on its investment plan Feb. 15, UES
will invest 36 billion rubles in 2002.

UES will pay 41 billion rubles ($1.4 billion) to the federal budget this
year, almost as much as the government earmarked for the country's armed
forces.

Revenues to the Pension Fund will grow 22 percent from 2000 to 13.5 billion
rubles ($450 million), or enough to pay 3 million pensioners.

Electricity exports were boosted 31.2 percent this year, with 18.5 billion
kilowatt-hours delivered compared to 14.1 billion kWh in 2000.

UES's market share in CIS countries grew to 9.7 billion kWh in 2001, up
from 8.6 billion the previous year. Those markets used 8.8 billion kWh,
compared to 5.5 billion kWh in 2000. 

CIS energy debts shrank from $647.7 million in 1998 to $391.1 million in
the first nine months of 2001. Kazakhstan owes $298 million, Georgia $46.4
million, Ukraine $39.7 million and Belarus $9 million. UES deputy head
Andrei Rappoport said he would soon visit Kazakhstan to settle its debts.

A corporate governance code was adopted.

Over the past three years, 78 percent of the general directors at UES' 250
subsidiaries have been changed.

Foreign investors, who hold about 30 percent of UES, are delighted with the
progress. They have pushed up UES' capitalization by more than 200 percent
this year. With UES shares currently trading at about $0.15 each, the
company is worth more than $6 billion.

Such a growth in share price was only possible after it became clear that
"the government had resolved its own disagreements about Russian energy
sector restructuring," Chubais said.

The company had taken a lot of flak from minority shareholders, and Chubais
conceded, "We have made lots of mistakes." UES is now trying to make amends
and at the same time quash fears that its inevitable restructuring will
lead to asset-stripping. The man appointed to head the committee in charge
of restructuring represents one of the company's minority shareholders.

Despite the changes, Chubais would no doubt be the first to admit that a
lot remains to be done.

The government holds a 52 percent stake in UES, but it has provided only
limited financing. This year it gave $100 million, enough to add 80
megawatts in capacity. UES added 1,000 megawatts in capacity this year, 10
times less than what was needed, Chubais said.

The restructuring plan approved by the government in August was Chubais'
second phase for UES. That revamp is to be drawn up and implemented in
three steps over the next five to 10 years. The first step, which is to be
completed by 2004, involves passing the necessary legislative framework and
creating the infrastructure for a competitive market. It also calls for the
reorganization of the ownership structure of both UES and its regional
energy companies.

UES assets will be split into an independent transmission grid company, a
system operator and several generation companies, with shares being
directly held by the government and minority shareholders. UES stakes in
regional energy companies will be consolidated into a single holding company.

In the first quarter of 2002, several electricity generating companies
(gencos) are to be set up by merging 32 power plants and several regional
energy companies. UES submitted its proposals for the creation of gencos to
the board of directors and the government this month. A final gencos plan
is expected to be approved by the government early next year. 

"Hundreds of new companies will emerge in the energy sector as assets are
redistributed," Chubais said. "Operations will start for the Federal Grid
Company, the Administrator of Trading System and the system operator," he
said.

The Administrator of Trading System, or ATS, is meant to introduce
competition into the market and eliminate the conflict of interest that
stems from UES' 80 percent ownership of the existing wholesale power
regulator, the Federal Wholesale Power Market.

The ATS actually came into being this year. But market participants
complained that UES was allowed to retain its dominant role, controlling 50
percent of the ATS until the end of 2002.

Come Jan. 25, the UES board of directors is to discuss the creation of the
Federal Grid Company and the restructuring of some regional companies. 

The main issue of the restructuring is to attract investment into the
sector, UES said. In the first quarter, UES plans to hold tenders for 10
generating projects worth about $1.8 billion.

Chubais has said UES needs upward of $50 billion in investment to increase
output and upgrade assets.

However, market experts consider to the company too risky to attract such
investment at this time.

"I don't think investments into the construction of new facilities will
come to UES earlier than 2005," said Kakha Kiknavelidze, power analyst at
Troika Dialog. Investors remain concerned about asset-stripping, especially
as regional subsidiaries are spun off, he said.

"Strategic investors will not come to UES no matter how much UES wants it
until they get control over the company and are given the freedom to set
tariffs," said Mikhail Seleznyov, an analyst at United Financial Group.

UES owns 30 power plants and controls 74 regional power utilities. Its
688,000 employees help UES provide power to 71 percent of the country.

***** 

#9
BBC Monitoring
Russia: Military reform failing, Central Asia being lost to USA - general 
Source: Nezavisimaya Gazeta, Moscow, in Russian 18 Dec 01

Vice president of the Academy of Geopolitical Problems, Col-Gen Leonid
Ivashov, who until recently was the head of a main directorate of the
Defence Ministry, said in a newspaper interview that Russia had no clear
geopolitical doctrine and lamented the failure of the military reform and
the decision to close two military bases abroad. Ivashov also stressed that
Russia was losing its influence in Central Asia to the USA. The following
is the text of report by Russian newspaper Nezavisimaya Gazeta on 18
December, subheadings have been inserted editorially:

Just a few months ago Col-Gen Leonid Ivashov, chief of the Russian
Federation Defence Ministry main international military cooperation
directorate, was one of the most influential people in the Russian military
department. After the replacement of the leadership there, however, he was
removed from office and is now being discharged from military service. In
his new capacity Ivashov intends dedicating himself to military-scientific
work. He is now vice president of the Academy of Geopolitical Problems. Our
conversation focused on some results of the military reform and of military
policy and geopolitics.

Results of military reform lamentable

[Correspondent] Leonid Grigoryevich, for a long time you were a key witness
to and participant in the organizational development of the new army in
Russia, you elaborated, shaped, and implemented the basic guidelines of its
military policy and military-diplomatic activity. Could you please tell us
the main results of this work?

[Ivashov] In my opinion the results of the military reform are to a large
extent lamentable. One of the main aims of military organizational
development is to enhance the effectiveness of the armed forces and ensure
that their structure, combat personnel, and technical equipment correspond
to the scale of the military threat. Unfortunately this has not been
achieved. For almost 10 years now we have been doing nothing but talking
about the reform of the armed forces and making some incomprehensible
attempts in this direction. In 1997 I took part in all the military
collegiums which discussed the basic guidelines of military organizational
development in Russia. Among the decisions at that time it was considered
expedient to eliminate the Ground Troops High Command and to amalgamate the
space forces and antimissile defence with the Strategic Missile Troops.
Time has passed and what do we see now? All these things are being revived
- a Ground Troops High Command has been formed and the military-space
troops and antimissile defence forces have been recreated as troop combat
arms.

But little by little we have lost our military cadres and thousands of
officers' families have been cast adrift, so to speak. In the past few
years alone the ill-conceived military reform strategy has meant that
around 100,000 young officers have been discharged from the army with no
vision of a precise and clear prospect of military service.

I believe that the strategic errors committed in the reform of the army are
the result of a bureaucratic approach to the solution of the most important
problems of Russia's military security.

Military leadership has been cleansed of independent thinkers

[Correspondent] You are being discharged from the army before the statutory
retirement age. Does this mean that relations with the country's new
military leadership have not worked out?

[Ivashov] I am still a serving colonel general. And I understand what unity
of command in the army means. Therefore I do not want to criticize anyone
personally. But I believe that there are things that must be said. In the
past two years there has been a campaign to cleanse the Defence Ministry
and the armed forces of those military leaders who have their own view on
the problems of army reform. This view was distinct from that of the
General Staff but these people were able to defend their opinion and not be
drawn into various kinds of behind-the-scenes intrigues. Today their stance
is being confirmed by practical experience but, as people say, they are not
around any more.

[Correspondent] Are the actions of the General Staff really so destructive?

[Ivashov] They can be assessed in different ways. But in my opinion the
most important thing is that the General Staff was not consistent in the
elaboration and implementation of the strategic areas of the organizational
development of the army or in determining the foreign policy priorities and
military cooperation. For example our military presence in Cuba is being
scrapped. But a year ago /OUR/ [word between slantlines printed in
all-caps] facilities there were considered a priority for us.

We are planning an active Russian presence in the world's oceans but for
some reason we are also eliminating the naval base at Camranh Bay. We will
pay nothing for its lease before 2004. Things are difficult for us now but
the base can be mothballed. Basically this is just two moorings for ships
and some port and airfield infrastructure...

Russia loses its role as US takes over control of Afghanistan

[Correspondent] How do you assess Russia's role in the settlement of the
situation in Afghanistan? Is Moscow losing its influence here?

[Ivashov] Unfortunately Russia lacks a geopolitical doctrine and has no
clear model for its geopolitical conduct. This makes our foreign policy
inconsistent, which, whether we like it or not, contributes to the
subordination to another policy - US, pro-Western, and so forth. We seem to
be following in the wake of this policy. Even though Russia's potential
today is simply enormous. Especially if we were to operate together with
our fraternal Ukraine and our other countries in the CIS. With China, Iran,
and the Islamic world. If we were to operate together in the strategic
Central Asian sector we would have entirely different results. But what we
see is what we get. Today our planes are delivering humanitarian freight to
Bagram and are already seeking the permission of the Americans.

[Correspondent] The United States controls almost all of Afghanistan's
military airfields...

[Ivashov] Yes, this is true. You know that even if the tragic events of 11
September had not occurred the Americans would still have found a pretext
for clambering into Afghanistan. The Americans made skilful use of the
potential created by Russia and Iran for the victories in Afghanistan. In
carrying out the missions of the antiterrorist operation the Americans
bombed the Taleban essentially without any risk to themselves. Subunits of
the Northern Alliance and the Pushtun tribes have taken part in the ground
operations. The Americans carried out all sorts of public relations
exercises there, saying that special forces have landed in various places.
But in fact they took hardly any part in active combat operations directly
on the ground, they are protecting their soldiers. They will carry out
special operations and subsequently will activate other levers -
military-diplomatic, economic, via the special services, and so forth. The
most important thing for them is to consolidate their position in
Afghanistan and establish control over this crucial region of Central Asia.
This will not necessarily be done by military methods alone.... This is
merely a prelude to a major skirmish to establish control over Central Asia.

USA persistently sidelines Russia in Central Asia

[Correspondent] Do you think that they have gone in there for the long haul?

[Ivashov] Yes I do. Let us go back a few years. A fairly modest
peacekeeping contingent - the Central Asian Battalion - was formed in
Central Asia. It included certain CIS countries. Exercises were held. The
Americans attached the most enormous significance to these exercises. They
funded them and took part in them. In 1998, unless I am mistaken, US
airborne troops, travelling from US territory, flew over CIS territory
without landing and, by means of mid-air refuelling, landed in Kazakhstan.
The strategic system of command and control, the command and control of US
strategic aviation, was being tried out here and Gen [Henry H.] Shelton,
commander of the special forces and a future chairman of the Joint Chiefs
of Staff, made a parachute jump together with his men into the territory of
Kazakhstan. Each year they took part in the same way. It should not be
forgotten that literally 30 months ago the United States declared Central
Asia a zone of responsibility for the US Central Command without asking
anyone's permission. They showed an interest in Central Asia long ago and
this is no chance interest. Now they have a pretext and they have gone in
there. They are in there for the long haul, if not for good.

[Correspondent] Do they need access to Central Asia's rich resources?

[Ivashov] I shall quote a phrase used by US Secretary of Energy [Bill]
Richardson in 1999: "The direction of US policy must coincide with the
directions of the oil routes." No comment needed here, as they say.

The United States is seeking to build up its military and economic power
and has no qualms about this. In its National Security Strategy it writes
that it "must have the capability and determination to exert influence on
other states' actions for the purpose of ensuring global superiority."

[Correspondent] Has Russia now lost its geopolitical influence in the region?

[Ivashov] Unfortunately it is losing it. But by and large it has an
opportunity to preserve or intensify this influence. In my opinion the
important thing is to correctly determine the long-term geopolitical line
of conduct in this region. At the same time we should not forget what an
important role is played for the Russian Federation in this region not only
by the CIS countries but also by China, India, and Iran. After all, it is
by no means a coincidence that the Shanghai cooperation organization, which
has good prospects in regard to the collective security system in Asia, was
formed less than a year ago.

*******

#10
The Globalist
www.theglobalist.com
December 20, 2001
The Russian Roots of the Texan Mafia 
Stephan Richter, Publisher and Editor-in-Chief

During the 1990s, Russian energy companies were notorious for cooking their
books, defrauding their shareholders — and using political connections to
cover shadowy deals. So, readers of Russian newspapers were not at all
surprised over recent stories about an energy giant that was misbehaving in
this manner. What was unusual was that the company in question was Enron —
as quintessentially American as the Texan heartland where it is based. 

After the Soviet Union's collapse, the country's centralized oil sector was
among the first to be privatized. In that process, a number of new, private
oil companies sprung up. They all boasted vast reserves — and a huge
potential of export revenues. 

Avoiding split-ups 

Meanwhile, Russia's natural gas industry avoided a split-up. It was neatly
folded into Gazprom, one of the largest natural resource companies in the
world.
 
Both Mr. Bush and Mr. Putin have one unfortunate thing in common — their
rise to the presidency, at least in part, was financed by non-transparent
energy giants.
 
Not surprisingly, the fantastic prospects of the Russian energy sector
became one of the leading global investment stories of the 1990s. Foreign
investors rushed headlong into Russia. Eventually, they triggered the
ascent of the Russian stock market, based on such energy blue-chips as
Gazprom, Lukoil, Surgutneft and Tatneft. 

And in those heady days of the go-go 1990s, many American officials grew
hoarse criticizing Russia's dubious financial management practices and
demanding better disclosure and shareholder protection. Almost inevitably,
most foreign investors ended up losing their money. 

Strange similarities 

Now let's switch the scenes completely. At least in hindsight, it's uncanny
how much events at Houston-based Enron ended up resembling the story of
Russia's crooked energy giants. 

In essence, Russian energy companies lacked transparency and hid
transactions and revenues in a Byzantine accounting system. As we are now
becoming aware, despite its much glitzier and perfectly polished exterior,
on the inside, the shenanigans of Enron senior management echo the 1990s in
Russia.
 
Only, in the ultimate analysis, Enron's feat must be considered that much
more stunning. After all, it did not happen in a fluid situation of
underdeveloped supervisory agencies — and in a country lacking the
appropriate depth in financial management skills.

The Enron fiasco occurred under the presumably watchful and experienced eye
of the SEC and an army of other highly-skilled professional watchdogs in
the United States.
 
The Enron fiasco occurred right under the presumably watchful and
experienced eye of the Securities and Exchange Commission, independent
auditors, market analysts, credit rating agencies and an army of other
highly-skilled professional watchdogs in the United States. 

Despite all these deep layers of professionalism, Enron was able to engage
in the same kinds of activities sported, if not pioneered, by its Russian
counterparts.

Just like Russian oil giants, Enron was able to hide losses and mislead
investors. Of course, one crucial difference was that Russian companies
usually tried to hide profits — in order to keep them from investors and
tax authorities. Enron, by contrast, deliberately overstated its profits
for a number of years to push up the value of its shares.

Dummy corporations

When trouble started at Enron, its senior managers appear to have sold off
their shares, leaving shareholders — including the employee pension fund —
holding the bag. Enron CFO Andrew Fastow, whose departure prompted the
company's meltdown, set up a number of private partnerships on the side,
which did business with Enron while he managed them. 

His actions have plenty of precedents in Russia. Take the case of Gazprom's
long-time management team which was investigated earlier this year. It
turned out that the company had routinely guaranteed loans and also made
investments into businesses set up by close relatives of Gazprom senior
executives.

Political ties

In Russia, such practices are often legal — or at least not expressly
forbidden. What's surprising is that in the United States, accountants and
rating agencies managed to maintain silence, or ignorance, about Enron's
practices for so long.

In the United States, Enron's political connections have not saved the
company. Investigations are under way — and a myriad of lawsuits have been
filed.
 
And legions of U.S. stock analysts were only too happy to tout Enron. They
must have been solidly asleep all along. It should have been a warning to
U.S. mutual fund owners that, in some cases, the analysts pushing Enron's
stocks were the same guys who had promoted Russian energy companies just
before the Russian stock market bubble burst in August 1998. 

But the potentially most corrosive aspect of the Enron scandal lies in the
political realm. Russian energy companies have been able to fool investors
largely because they were protected by powerful political connections. 

(Viktor Chernomyrdin, the long-serving Prime Minister in Boris Yelstin's
government, had previously been the head of Gazprom. He is rumored to have
become Russia's first billionaire as a result of that connection.)

Political protection for the worst offenders

Hence, it proved very difficult to sue any of the Russian investors in
court. Even if investors win a decision, it's pretty much impossible to
enforce it. Indeed, Russian regulators are too weak to go after them.
 
In hindsight, it's uncanny how events at Houston-based Enron resemble the
story of Russia's energy giants.
 
Enron seemed to have banked on a similar formula for success. Its Chairman
and CEO, Kenneth Lay, has close personal and business ties to the Bush
family. As one of the largest and earliest contributors to George W. Bush's
presidential campaign, he "earned" the title of a "pioneer" — as one of
those contributors whose contribution to the President's campaign war chest
exceeded $100,000. 

While Mr. Lay himself was considered a candidate for Energy Secretary,
other former Enron executives figure prominently in the Bush
administration. At the Pentagon, Thomas E. White serves as the Secretary of
the Army. Previously, he was Vice Chairman of Enron Energy Services.

Jail time for offenders?

There are differences, of course. No Russian oligarch has ever been
punished for defrauding investors — or taking minority shareholders and tax
authorities for a ride. On the contrary, most energy companies in Russia
rushed to support Vladimir Putin once he became Russian prime minister in
August 1999. 

They also helped finance his subsequent presidential campaign. Since then,
two of the largest energy concerns, Gazprom and Lukoil, helped throttle the
two remaining media groups that dared criticize the government.

Russian energy companies lacked transparency and hid transactions and
revenues in a Byzantine accounting system — as did Enron. 
 
While Mr. Putin had promised voters to eliminate the oligarchs as a class,
in reality they have become more powerful and wealthier than ever under his
rule. At least, Mr. Putin sent his top assistant to clean up the murky
business affairs at Gazprom.

But in the United States, Enron's political connections have not saved the
company from bankruptcy. Investigations are under way, Congress is looking
closely into the matter — and a myriad of lawsuits have been filed by duped
shareholders. 

But despite this pivotal difference between the United States and Russia,
there is one discomforting parallel. For whatever reason, the rise to
political power is all too often financed by companies that can only be
characterized as having questionable accounting practices.

*******

#11
Washington Times
December 20, 2001
Enemies of the states
Bureaucrats may battle Russian realignment
By Franklin D. Kramer
Franklin D. Kramer is a former assistant secretary of defense for
international security affairs (1996-2001).

     Despite Afghanistan's recent prominence, the most important
international decisions in the past few days have not been in the worldwide
meetings focusing on that country's fate. Rather, the key issues have
involved Russia and the West, and the crucial meetings have turned round
technical adjustments to a minor, and heretofore ineffective, piece of
bureaucratic machinery, the so-called NATO-Russia Permanent Joint Council.
Though the changes thus far are wholly bureaucratic, if properly
implemented they can result in a geostrategic readjustment nothing short of
earthquake proportions. For the first time in history, Russia could become
fully aligned with the West.
     Grand historical events can often turn on small beginnings. The
current grand Russian realignment, if it is successful, will have begun
because an American president with limited foreign experience was willing
to walk into a room with his Russian counterpart without preconceptions.
The resulting positive discussion led the Russian president promptly and
productively to respond when America was struck on September 11. That
establishment of personal trust now allows the opportunity for
implementation of actual long-term cooperation between Russia and the West.
     Here, however, is where the proposed NATO-Russia bureaucratic
realignment becomes crucial. For the Bush-Putin effort to become effective
will require the support of the real implementers of foreign policy — who
are, after all, not the heads of state, but their bureaucrats. The famous
Truman dictum that, upon taking the presidency, "Poor Ike — he'll sit here
and say 'Do this' or 'Do that' and nothing will happen," illustrates that
high level motivation is not enough. This is especially true since as one
Russian defense writer has noted, "The new course is bound to provoke
resistance from . . . officials who work out decisions in the fields of
foreign and defense policy."
     In those fields of foreign and defense policy, much of the
Russian-Western relationship turns round NATO. But an effective NATO-Russia
security arrangement requires a forum in which real problems can be jointly
addressed. Until now, the NATO-Russia Permanent Joint Council had badly
failed in that regard. The NATO foreign ministers determined in principle
that changing it into an effective instrument is crucial, but doing so in
fact will require four key steps. 
     First, the success of this, like any new endeavor, will be enhanced by
adopting a new name. If renaming sounds trivial, consult any advertising
agency about its importance. Such a change sweeps away the vestiges of the
past, allowing parties to act with a new frame of mind. Of course, renaming
is far from enough for real change. The second critical step will be the
establishment of processes that allow parties to work together effectively.
Here, the key is that Russia needs to become part of a group of
participants, all of whom who are reaching for consensus. Involving Russia
in real security decisions will break important new ground.
     Third, new substance also is crucial. Russia is not part of NATO and
should not be involved in all matters, but there can be no serious
discussion without serious subjects. In reality, however, common
overlapping issues of terrorism, weapons of mass destruction, Central Asia
and peacekeeping present an important initial agenda on which Russia and
NATO can cooperate. Finally, NATO is a military alliance, and to create a
new security relationship requires some significant military arrangements.
Here, new approaches are required. In order to implement the key area of
cooperation, Russia needs to be involved in NATO military exercises
regarding terrorism, weapons of mass destruction and missile defense. More
broadly, especially given Russia's involvement in Bosnia and Kosovo,
contingency chains of command for new activities can be established.
Likewise, units that potentially will work together can train together
regularly.
     Successfully implementing what has been proposed in principle will be
far from easy. Indeed, it should be understood that, to make NATO-Russia
security cooperation successful, some real risks will have to be taken. For
example, making Russia a real participant risks that it can politically if
not legalistically block agreement on important issues. There is a
significant chance that Russia may not play its part in responding on
issues such as missile defense or weapons of mass destruction. Certainly,
Russian bureaucrats, to now, have not been forthcoming. Working together
militarily likewise will not be easy. There is a good deal of suspicion to
overcome as well as the more mundane problems of different structures and
limited funding. But the greater risk is to leave Russia unnecessarily
outside the security framework for crucial common questions. This is both
because Russia has important substance to offer and because Russian
geostrategic involvement with the West will increase the benefit of that
very security framework that NATO provides.
     At the end of the day, NATO is strong enough to take the risks
involved, and the benefits from achieving common interests are substantial.
The foreign ministers seized the moment. Now comes the hard work of
implementation.

*******