Daily Archives: May 12, 2008

May 12, 2008 — Contents

MONDAY MAY 12 CONTENTS

(1) Another Original LR Translation: Essel on Milov

(2) EDITORIAL: Timothy Post, Malignant Kremlin Henchman

(3) Kasparov on Kozlovsky

(4) Annals of the Russian Switcheroo

(5) Russian Oil, Running Dry

NOTE: Hooray! NATO pushes back hard against Russian strategic bomber aggression. Publius Pundit has all the details.

Another Original LR Translation: Essel on Milov

“Frighten Them”

by Vladimir Milov

Translated from the Russian by Dave Essel

A word from the translator: Glancing through the personal website of Vladimir Milov (pictured) I came across the following article, written by him for Vedomosti at the very end of 2006. It says a lot for Milov’s analytical capability and foresight that his article reads as if it could have been written yesterday and retains all its actuality. Milov, LR readers may remember, is the co-author of the Nemtsov White Paper I previously translated for this blog. The title “Frighten Them” (Напугали) invokes on a rather nice Russian phrase indicating a gap between perception and reality, напугали ежа голой жопой (frighten a hedgehog by waving one’s bare ass at it).

2006 has been a year of serious blows to Russia’s reputation. We Russians make up a little over 2% of the world’s population yet it would appear that no one any longer has any respect for us. And we achieved this entirely through our own efforts.

The Russian authorities began the year with a gas war against the Ukraine and followed this up with agricultural embargoes against Georgia and Moldavia. Our reaction to a couple of off-the-cuff remarks of the US President was to generate a tidal wave of anti-American hysteria. Instead of engaging in a civilised review of ecological problems at the Sakhalin-2 oilfield, we mount an aggressive PR attack on the project. By the end of the year, things are as bad as they can be – a campaign against Georgian accompanied by nationalist outpourings with Putin, in a public first, actually using the words “support for our own nationals”. The Economist asks if the the time has not come to use the f-word – fascism – in relation to Russia. Anna Politkovskaya is murdered and the president cannot find anything to say about it except to insult her posthumously. Litvinenko is poisoned. One would have thought that after the Yandarbiyev and Yushschenko afffairs, any normal president would have been desperate to prevent further suspicions falling on his country.

A business will willingly spend vast sums on reducing damage done to its reputation after a mouse-tail has been found in a bun. But not us… We Russians snap back and hurl counter-accusations. Most people view such behaviour as an indirect admission of guilt in a matter.

It’s perfectly possible and indeed pretty certain that plenty of crap wine was shipped from Georgia to Russia. It would only be fair if the Ukraine paid more for Russian gas. But there are ways and ways of doing things. One can firmly yet politely stand one’s ground whilst showing respect for one’s interlocutor and playing by the rules. Or one can be rude, abuse one’s strength, confiscate property, ignore legal and civil rights, stir up suspicions and follow all this up by throwing hysterics and refusing to admit any errors.

In today’s open world, reputation is not a mere trifle. On the contrary, it is one of the most important factors in the competition for the minds of people, for markets, and for the the future. China is frequently preferred over Russia by foreign investors – and not just because it has faster economic growth and cheaper labour but also because property rights are protected there, they don’t go around killing foreigners, and regulatory levels aren’t used for political ends. “We’re going to have to bring Geiger counters with us whenever we go out for a meal with Russians,” an American businessman I know gloomily joked. And it hurts when people say things like that.

In the 1990s, people around the world still had normal attitudes to Russians. We were considered poor but in other ways “the same as everyone” – people with a complex past and a future ahead of them. Now Russia’s image has degraded and we are thought of as a hopeless nation consisting in the main of mafia thugs and bandits, corrupt bureaucrats, and KGB agents. People don’t want us to buy shares in Western companies any more, although it was fine only a few years ago for Russian companies to do so. No one believes a word of what we say about environmental protection and public health any more so we had better not find foot-and-mouth disease for real in any meat we import. We are not feared, just to be avoided, as one avoids thugs and crazy people. And for sure we are not respected.

Yes, we have thugs and crazy people in Russia and yes, they have done plenty to destroy our country’s image. What matters now is that the rest of us, the normal Russians, should understand this and acknowledge the problems that have resulted. Because we are the ones who are going to have to deal with the consequences of our ‘polonial’ past.

EDITORIAL: Timothy Post: Malignant Kremlin Henchman

EDITORIAL

Timothy Post: Malignant Kremlin Henchman

On Monday May 5th, the Moscow Times reported that Russia’s new prime minister Vladimir Putin would impose draconian new restrictions on members of the press operating inside his new lair at the White House (Russia’s parliament building) and would vastly expand the number of deputy prime ministers doing his bidding, nearly doubling the total Russia’s outgoing PM had to work with. In other words, he was dramatically increasing the authority of the Prime Minister (Putin also announced he would take control over the regional supervisors he himself had appointed to monitor the actions of the governors — whom he also had appointed — and seized control of the “United Russia” party of power).

The New York Times reports that, announcing the appointment of ministers for his new government, Putin “sat at the same place at a table that he used as president for these performances. Mr. Medvedev, officially the president, sat in a chair that viewers have come to regard as for subordinates.” The ministers were all Putin’s former flunkies; Medvedev will not be allowed to bring in any new faces. As the Times states: “The announcements reinforced the image that Mr. Putin will retain a grip on power and the direction of policy in Russia. Putin even kept the pen he had been given in transition by Boris Yeltsin, taking it with him to the White House rather than handing it over to Dmitri Medvedev.

Those were oddly assertive moves for someone who’s about to disappear from high office in accordance with the spirit of the Russian Constitution, weren’t they?

How do we know he’s going to disappear? Well, Timothy Post told us so, of course. That nasty little Russophile propagandist Mr. Post (pictured, with our doodles — folks like Tim are how folks like Senator McCarthy get started), who operates a business in Russia and relentlessly seeks to curry favor with the Putin administration with a torrent of ridiculous lies on Russia Blog after his own pathetic excuse for a blog turned out to be total failure (for instance, a propaganda diatribe that might just as well have been written by the Kremlin, and probably was, showing how Putin loves children and suggesting the Kremlin pour more money into his business ventures) and with bird-dropping-like comments on other blogs, went on record a few months ago with the following prediction:

“New Year’s Prediction: Putins resigns. Medvedev is President. Putin Prime Minister. Medvedev wins in March. Putin resigns as Prime Minister.”

You’ll recall how well Post’s boss at Russia Blog, the venal and mendacious Putin servant Yuri Mamchur, did with his own similar prediction, which we exposed as wholly fraudulent some time ago. So recalling, you’ll doubtless have some curiosity as to whether even one single syllable of what Post uttered turned out to be true.

In summary, according to this malignant subhuman reptile:

(a) Some time before the presidential elections in March Vladimir Putin was supposed to resign in order to make Dmitri Medvedev president, as Boris Yeltsin did for Putin.

Didn’t happen.

(b) Medvedev was then to name Putin his prime minister.

Given Putin’s non-resignation, it wasn’t surprising when that failed to occur as well. Putin served out his full “presidential” term as “president.” Medvedev named Putin long before the election occurred.

(c) Then, as the capper, as soon as Medvedev was elected, Putin was to resign as prime minister and leave the government entirely.

Again, not so much.

The blogger at Eternal Remont explains the actual facts:

Time is ticking down for President Putin’s final term. But the transition to Prime Minister is already taking shape. Last month, a Levada Center poll found that 61% of Russian’s believed “power in the country will remain in the hands of [Vladimir] Putin and his entourage.”

How astute.

Days later, State Duma Speaker Boris Gryzlov confirmed that the out-going president will indeed be made head of United Russia. Soon after reports began to surface that Putin would keep control over all, or some, of the power ministries. Just to be safe, Putin will also keep his authority over federal envoys to the regions — formerly answeable to the president.

If the current trend holds, then Putin is firmly on track to fundamentally alter the structure of state authority. Vremya Novostei has already noted that, “After May 7, we will have a president very limited in his actions and a premier very powerful in the sphere of realpolitik (Jamestown).”

Indeed, this new order will more closely approximate the former Soviet model of federal governance, whereby the presidency is relegated to a symbolic office, one party dominates the legislature, and the party general secretary – in this case Putin – will exercise true state power.

For Medvedev, the writing should be on the wall.

But hell, viva democracia!

Now, what would you suppose would have been Tim’s response to being proved utterly wrong. Think Tim might have written a post on Russia Blog apologizing for his lies, or do you think he might have just swept it all under the carpet the same way his malignant boss Yuri Mamchur did?

You thought right. Deafening silence from Tim and Russia Blog. Again.

Their “report” on “Putin’s last day as president and first day as “prime minister” consisted of not one but two YouTubes of Russia Today propaganda screeds.

Now, why would Tim have made these ridiculously false statements? Could the purpose have been to get Westerners to drop their guard so that Putin could consolidate his malignant dictatorship unfettered?

You better believe it could be. And it was. Now granted, Tim is so insignificant that his drivel couldn’t influence the path of a cockroach. But intentions are intentions, nonetheless. This is what we face in grappling with the neo-Soviet threat, and it will only get worse as the Kremlin grows more bold and mendacious and neo-Soviet in its efforts.

Simply put, in our view Tim is a traitor. A vile, contemptible, nasty little toadstool who would sell his own grandmother to a concentration camp if it would help to line his pockets. He couldn’t care less what happens to the people of Russia (it’s always people who don’t who hold themselves out as “friends” to the nation — with such friends, Russia hardly needs any enemies).

And Tim is not the only mendacious reptile who wants to profit from business interests in Russia that is writing propaganda screeds on Russia Blog, seeking to dupe unwary neophytes into plonking down their hard-earned dollars, yen and marks on the Russian sinkhole. Thus, as we’ve said before, anyone who reads that blog is, quite simply, a chump being played for a fool.

NOTICE: By drawing a Hitler mustache and hairdo on Mr. Post, we don’t mean to imply he has any Nazi connections or affiliations, we have no idea about that and assume he doesn’t. We’re just saying that, in our opinion, and in the one-picture-is-worth -a-thousand-words department, he’s as evil as a Nazi and as harmful to Russia’s future, that’s all. We remind our readers that (a) Russia Blog doesn’t allow this blog to comment on theirs and (b) Russia’s blog’s mentor, state-owned Russia Today propaganda TV, has refused our request for an interview.

Kasparov on Kozlovsky

Though Garry Kasparov may have outlived his usefulness as a real-world political leader on the ground in Russia, nobody can doubt that he writes a mean newspaper column in English. Writing in the Los Angeles Times, he gets Oleg Kozlovsky once again into a major world newspaper, and delivers a ringing condemnation of Russia’s new “president”:

Dmitry Medvedev was sworn in Wednesday as the president of Russia. Many reports have stated that this is his first elected office, an ignorant portrayal at best. The March 2 presidential election was widely recognized as a fraudulent charade. The presidency was assigned to Medvedev, in the same way he gained his previous titles — as outgoing President Vladimir V. Putin’s campaign manager, chief of staff and deputy prime minister. After the ceremony, Medvedev returned the favor and made Putin prime minister.

Putin has balked when asked if he would follow the tradition of government officials hanging the sitting president’s portrait in their offices. But the joke going around is that he will indeed have one: a portrait of Medvedev in the president’s office looking at a portrait of Putin.

According to the Russian Constitution, Medvedev is now in charge. But until there is evidence of his independence and authority, it is safe to assume that Medvedev still needs Putin’s permission to use the Kremlin lavatory. The real “smooth transition of power” was moving Putin from the presidency to prime minister.

We can expect a few proclamations and perhaps even token policy changes. Unfortunately, the early signs show that Medvedev’s statement about developing civil freedoms and ending “legal nihilism” were only a show for the West. Such displays are needed to offset elections with the results known in advance, lack of media freedom and businessgrowth that only benefits Kremlin loyalists. Otherwise, Putin’s gang of oligarchs might lose easy access to billions in looted assets held in the West. So far, though, as Putin learned over the last eight years, there is no such danger. Russia pretends to be a democracy, and the United States and the European Union pretend to believe Russia is a democracy.

That morally repugnant pact is not working so well for those of us fighting for real democracy here. The day before Medvedev took power, several dozen people were arrested simply for being in the general area of a planned rally that had already been canceled. The police had promised that no one would be detained if the rally was called off; apparently they did not receive Medvedev’s message about civil freedoms in time.

Oleg Kozlovsky, a member of the Other Russia opposition coalition leadership, was given 13 days in prison. Arrest reports for him came from two officers, each giving a different time and place of arrest. According to the judge, this curious fact “was not related to the case.” A photojournalist working for the Russian paper Izvestia was sentenced to six days in prison for trying to do his job.

It is essential to resist the temptation to give this new/old Kremlin regime the benefit of the doubt. Let us not pretend Medvedev was truly elected or that we know anything about him. Far more is known about Barack Obama’s former pastor. Medvedev is tainted from the start by his membership in Putin’s dictatorial Kremlin regime. Action, not words, will establish whether he is his own man.

For that action to be meaningful, Medvedev must give immediate attention to these issues: He must free the long list of political prisoners who were jailed as Putin developed his dictatorship by KGB cronyism. Mikhail Khodorkovsky and other members of the Yukos Oil Co. management are the most prominent names, but there are also scientists convicted on spurious espionage charges and activists whose only crime was speaking out against the Kremlin. And the new president must act against the wave of hate crimes that have claimed 40 lives this year, mostly immigrants or nonwhite Russians. Homicidal neo-Nazi gangs roam the streets while pro-democracy marchers are locked up.

The basic human right of thinking and speaking one’s mind has been drastically curtailed in Russia over the last eight years. The real test of Medvedev’s presidency will be the way in which he deals with his most vocal critics. Other Russia is planning to hold a national assembly on May 17 in Moscow to facilitate dialogue on the most relevant problems and to determine a national agenda by bringing together representatives of diverse social forces, including those with opposite interests. We will also continue our street protests across Russia.

Will our activists still be harassed and detained for handing out pamphlets? Will our people still be followed by the security services? Will our peaceful actions again be violently dispersed by police? Will we again be denied access to legal counsel after being arrested? Will the courts continue to rubber-stamp our prosecutions? Until we have the answers to those questions, there is no reason to take Medvedev’s word about anything.

Annals of the Russian Switcheroo

Writing in the Wall Street Journal, the Hoover Institution’s David Satter ably exposes the horror of Vladimir Putin as dictator for life.

Dmitri Medvedev was sworn in Wednesday as president of the Russian Federation in the Great Kremlin Palace. But the Russian political elite has no idea whether Mr. Medvedev will be the real president or only a figurehead. Neither do the voters. Amid signs of instability in the country, this situation is causing anxiety.

Formally, the Russian president has enormous power. He is commander in chief of the armed forces, can hire and fire the prime minister, appoint ministers, dissolve the parliament, and set the main lines of the country’s foreign and domestic policy. But Mr. Medvedev may not be free to exercise his authority.

[Vladimir Putin]

Vladimir Putin promised he would retire from politics in 2008. But everything now indicates that, as a result of agreements between the various power groupings, he will continue to play the main role in the government.

In February, Mr. Putin laid out development goals for Russia through 2020. Last month, he was named chairman of the United Russia party, which has a majority in the State Duma sufficient, should the need arise, to impeach the president. Yesterday he was confirmed by the Duma as prime minister. Meanwhile, the Duma is working on a bill that will transfer administrative tasks to lower-level bureaucrats and leave the prime minister free to focus on strategy.

If, as is widely expected here, article 32 of the law on government is amended to transfer authority over the military and security services and the foreign ministry to the prime minister, Mr. Putin will have the authority to continue to rule Russia regardless of the president. Postcommunist Russia can thus be ruled in reality (as opposed to appearance) by someone not elected as president, even in flawed elections.

Meanwhile, there’s already a growing impression that Mr. Medvedev is a pale reflection of Mr. Putin. During his recent visit to Moscow, Egyptian President Hosni Mubarak noted that the images of Messrs. Putin and Medvedev are merging into one. “When I went to a meeting with Mr. Medvedev in the Kremlin,” he told Mr. Putin (as quoted in Reuters), “and saw you on the television at the same time, I found myself wondering who was who.”

But the manipulation of the political system – amid the fights between ruling clans for money and power – can only create the conditions for an eventual, systemic crisis in Russia posing a danger for the world.

According to Transparency International, the only country with more measurable corruption than Russia (as a percentage of per capita income) is Equatorial Guinea. Under Boris Yeltsin, the Russian economy was dominated by oligarchs who amassed fortunes on the strength of corrupt connections to government. Now, government officials are the oligarchs.

Mr. Putin filled top leadership positions with his friends from St. Petersburg; men who, in addition to their government duties, sit on the boards of the most powerful state corporations and have access to their cash flows. Charges that they are stealing billions are ignored.

In 2007, a Zurich tribunal ruled that Leonid Reiman, the telecommunications minister, is the beneficiary of $6 billion in telecommunications assets. This inspired no action in Russia beyond an attempt to censor the news. According to published accounts, Gennady Timchenko – co-founder of the oil trading company, Gunvor, through which a third of Russia’s oil exports are sold – has a net worth of $20 billion, half of which belongs to Mr. Putin. According to a report by Vladimir Milov (a former deputy minister of energy) and Boris Nemtsov (the former Russian first deputy prime minister) published on the Web site, grani.ru, while Mr. Medvedev was the head of Gazprom, 6.3% of the shares worth $20 billion disappeared.

Since government officials can use the organs of law enforcement to ruin their competitors (as occurred most famously in the Yukos case), offers from companies connected to government officials to buy out other private businesses are seldom refused. Meanwhile, the bureaucracy can extract endless bribes. One Moscow businessman described to an investigative reporter how he paid $1.3 million in construction costs and $1.8 million in bribes to erect a building for his office. Similar stories are legion.

Forced to pay bribes, small- and medium-sized businesses are discouraged from investing in anything not immediately profitable. Without confidence in the future, Russia, despite a highly educated population, lags in the development of high technology. And if the price of oil falls, many Russian businesses face ruin: The weight of bribes to feed the bureaucracy will become unbearable at the same time a war will break out between bureaucratic clans for the remaining bribes, under the guise of a battle with corruption.

The alternative to all this, of course, is the rule of law, to which Mr. Medvedev seems sympathetic. In an interview with the Financial Times, on March 24, he described Russia today as a land of “legal nihilism.” But even if Mr. Medvedev would like to act on his liberal pronouncements (which is far from certain), he has authority only according to the law; whereas Mr. Putin controls mechanisms able to assure that the law does not operate.

In the end, the self-serving operations of Russia’s elite are based on a single assumption: The high prices for energy will last forever. But the decision of a society to count on its raw materials instead of its people is fraught with grave consequences.

Oleg Deripaska is a 40-year-old magnate who rose to the top of Russia’s aluminum industry and is, by most press accounts, Russia’s richest man. He has been quoted in Reuters that he was confident that Vladimir Putin would rule until at least 2020. Mr. Deripaska may be right. But Russians will pay a high price for this rule – in xenophobia, apathy, inverted moral principles and a stunted future.

Russian Oil, Running Dry

The Economist reports:

When the price of oil reached another record on May 6th, of over $122 a barrel, analysts pointed to attacks on pipelines in Nigeria and turmoil in Iraq as the immediate causes. Even small disruptions to supplies from such places can cause the price to jump, since only Saudi Arabia has the capacity to replace the lost production, and it does not seem inclined to do so. But to understand how supplies became so scarce in the first place, one must look at the state of the oil industry in Russia, the world’s second-biggest producer.

Over the past seven years, according to Citibank, Russia accounted for 80% of the growth in oil production outside the Organisation of the Petroleum Exporting Countries. The increase in its output in the early part of the decade matched the growth in demand from China and India almost barrel for barrel. Yet in April, production fell for the fourth month in a row. It is now over 2% below the peak of 9.9m barrels a day (b/d) reached in October last year. Before that, the growth in Russia’s output had been slowing steadily, suggesting that the drop is not a blip. Leonid Fedun, a vice-president of Lukoil, a local oil firm, says Russia’s production will never top 10m b/d. The discovery that Russia can no longer be relied upon to cater to the world’s ever-increasing appetite for oil is naturally helping to propel prices to record levels.

Oil and gas have been the foundation of the regime of Vladimir Putin, Russia’s outgoing president, and are also a preoccupation of his successor, Dmitry Medvedev, who was chairman of Gazprom, the state-controlled gas giant. The flow of petrodollars has created a sense of stability, masked economic woes and given Russia more clout on the world stage. Yet the malaise afflicting its most important industry is almost entirely man-made. “Geologically, there is no problem,” says Anisa Redman, an analyst at HSBC, a bank.

In principle, Russia’s bonanza could continue for years: it has the world’s seventh-biggest oil reserves, at 80 billion barrels, according to BP, a British oil firm. And oilmen reckon there are 100 billion more barrels to find—“the biggest exploration prize in the world”, in the words of Robert Dudley, the boss of TNK-BP, BP‘s Russian joint venture. But Russia has regulated the industry so poorly that production is falling despite the soaring oil price.

“Tax is the major impediment,” says Ms Redman. The government levies an export duty of 65% at prices over $25 a barrel. Add to that various corporate, payroll and production taxes, oilmen complain, and the state creams off as much as 92% of profits. Executives at TNK-BP have argued that rising costs across the oil industry will make many investments in Russia unprofitable unless the tax regime is changed. As it is, TNK-BP accounts for a fifth of BP‘s production, but only a tenth of its profits.

The government does offer tax breaks on production from older fields. So oil firms, naturally, have been concentrating on squeezing as much oil as they can out of those. Until recently, that was an obvious priority anyway, since fields that had fallen into ruin after the collapse of the Soviet Union in the early 1990s could be revived relatively easily and cheaply. By mapping existing fields more precisely, installing new pumps and injecting water and chemicals into wells to maintain pressure, private oil firms were able to raise Russia’s production from 6m b/d to almost 10m b/d, mainly from western Siberia. In 2003 alone, output jumped by 12%.

But this strategy is now yielding diminishing returns. Mr Fedun says the western Siberian fields have reached their natural limit. To keep production at today’s levels requires ever more investment. To get Russia’s output growing again, firms must make huge investments to develop new fields in remote provinces such as eastern Siberia and the Sakhalin region.

There has been some growth in these areas, mainly thanks to the less heavily taxed projects, called “production-sharing agreements”, that the government offered briefly in the late 1990s but has since curtailed. Strip out the production from these projects, and Russia’s output has been in fitful decline since August 2006, according to analysts at Citibank. Worse, the output from these projects declined last month too. The government’s ill concealed expropriation of various prize assets over the past few years has only added to the reluctance to embark upon big new projects.

Lukoil, for example, is investing $10 billion a year, but roughly 30% of that goes into gas production, which is now more lucrative than oil, given rising domestic prices for gas and lower taxation, says Mr Fedun. It has also been investing in refining, since the export tax on petrol and diesel is lower than that on crude oil. It is still projecting 4% annual growth in its output over the next 15 years, but the figure would be much higher if the government eased the tax burden, says Mr Fedun. Rosneft, the state-controlled oil champion, took on so much debt buying the plum divisions of Yukos, a private firm bankrupted by the Kremlin’s zealous tax collectors, that it has little leeway for expensive new projects. Other firms are hoarding their profits and waiting for the tax regime to change.

The government did provide some $4.5 billion in tax breaks last year. But this, the oil companies argue, is barely enough to keep production stable. In his inaugural speech to the Duma as prime minister on May 8th, Mr Putin said that taxes on the industry must be reduced. However, new fields can take a decade to develop. The Kremlin has also failed to hand out exploration rights in the Arctic—the region oilmen consider most promising. And it says that in future the foreign firms with the expertise to tap offshore fields beneath frozen seas will be limited to minority shareholdings in big projects. “Oil production will be whatever the government decides it to be,” says Mr Fedun.

Meanwhile, Russia today is more dependent on oil and gas than it has ever been, argues Chris Weafer, a long-time Russia watcher and chief strategist at Uralsib, a bank. The share of oil and gas in Russia’s gross domestic product has more than doubled since 1999 and now stands at above 30%, according to the Institute of Economic Analysis, a think-tank. Oil and gas account for 50% of Russian budget revenues and 65% of its exports. Yet the government has put at risk the goose that lays these golden eggs.