Business down but not out in St. Petersburg

Graham Stack for Russia Profile

Petersburg’s middle class look hard hit by the financial crisis. But the city’s huge industrial sector, from carmakers to the defence sector, looks set to benefit in the crisis years from a whole range of recent investment commitments.

First the bad news: As one of the Russian regions most integrated into global finance, Petersburg’s financial, retail and real estate sectors have swiftly felt the effects of the current crisis.

Petersburg’s middle class are feeling the pinch more than elsewhere in Russia, and more than other classes in the city.

Petersburgers rank among the national leaders in terms of per capita indebtedness, with an average of 45,000 rubles debt per head, according to figures supplied by Petersburg’s Gorodskoi Hypotechny Bank. This compares with a national average of 28,000 rubles.

Moreover, it seems that those with loans may be the most at risk of being laid off in the economic downturn.

Sources in the Petersburg administration said in December that the city’s companies were firing one thousand employees per week. Most of these, according to deputy governor Mikhail Oseevsky, are office staff, rather than shopfloor workers or technical specialists, for whom there are still many vacancies open.

If this is the case, job losses will affect precisely those most likely to have run up debts for cars and apartments.

According to a new public opinion survey by ‘Tvoi opinion’, 35% of Petersburgers are now feeling the impact of the crisis and have changed their lifestyle accordingly. 17% have postponed large purchases.

Petersburg’s troubled finances were epitomized when upwardly mobile Petersburg-rooted bank KIT Finance became one of the first victims of the financial meltdown in October.

As in Moscow, the real estate sector has also hit the skids, with new construction being put on hold. This week the first Petersburg developer looks likely to fold. Stroimontazh, one of the city’s largest real developers, failed to pay on its bond obligation last week, and is being sued for $30m by one of the city’s main corporate lenders, Baltiiski Bank.

Petersburg’s retail revolution turns sour

Petersburg feels Russia’s ‘most European’ city not just due to its baroque architecture. It’s service culture is also far more European than anywhere else in Russia.

According to retail analyst Natalia Zagovzdina, the share of “modern food retail formats’, i.e. supermarkets, chainstores, hypermarkets, compared to traditional kiosks, small shops and open-air markets in Petersburg is already nearly 80%, compared to only 40% even in Moscow. One chain alone, X5, has around a 35% market share in food retailing.

But retail expansion is similar to real estate in being basically a land grab fuelled by credit up front. Now that credit has dried up and debts are being called in, the sector is looking very shaky and financially massively overextended.

And the worst is yet to come for the sector. Alexei Bobrova, director of Petersburg chain Lenta, was quoted this week as saying he expects a sharp downturn in sales when Christmas shopping subsides and the impact of job losses spreads.

Meanwhile, city hall is putting pressure on the retail chains to pay their suppliers promptly, to prevent a domino effect of nonpayments building up in the city’s economy.

At the same time, the federal government has made clear it will not bail out retail as it has done industrial giants.

The most likely outcome is a wave of M&A in the sector. Global giants such as Walmart, heard complaining earlier in the year that they had left it too late to enter Russia, may now decide this is the perfect opportunity to do just that.

And most analysts regard Petersburg chain Lenta as the most likely candidate for foreign acquisition. So retail in Russia’s most European city might be getting a whole lot more European soon.

The good news: Investment guaranteed for industry

But the big sucking sound in retail, finance and real estate will be partly cushioned by guaranteed new investment in Petersburg’s manufacturing industry.

The crisis has come at the ‘right time’ for Petersburg’s industry. In car production, power engineering, defence and infrastructure, private sector investment commitments signed 2007-2008 and surging budget expenditure from the expansionist 2009-11 budget should create a strong countercyclical effect.

Petersburg is probably the only place in the world looking to the car industry to help ride out 2009. The crisis years 2008-2010 will see the birth of an entire new industrial sector in the city employing upwards of 10,000.

With Russia becoming Europe’s largest car market this year, a Ministry of Economy programme to persuade foreign car makers to set up production in Russia came just at the right time.

Petersburg has been one of the prime beneficiaries of this development, with seven of the world’s leading automotive producers now setting up shop in Petersburg.

Ford has been running a large plant in Leningrad region since 2001, but it was only at the end of 2007 that the first car plant was set up in Petersburg itself – with Toyota launching production at its $150m plant with a workforce of 4000.

Then November 7, 2008, despite the crisis at headquarters in Detroit, General Motors opened a $300m plant with a workforce of 1000.

Plants are currently also being built in Petersburg by Nissan (115m, Suzuki Motor, and Hyundai, with Nissan and Suzuki due to go onmline in 2009, and Hyundai in 2011.

Inevitably due to the crisis, the time scale for these plants to move to full capacity has been lengthened, and projected sales slashed. But no projects have been abandoned.

Hyundai confirmed in December that the company would developing s special low cost model for the Russian market.

Equally significantly, the South Korean company signed an agreement to set up 7 individual car component plants in Petersburg at the cost of around 150m dollars.

This marks the start of the second stage in the development of the Petersburg automotive cluster: the arrival of car part manufacturers

Following Hyundai, Canadian car components giant Magna announced in December it would launch a plant in Petersburg in 2010, but start production in January 2009 on premises leased from a Petersburg industrial plant.

Other car component producers who have declared a definite interest in joining the Petersburg cluster, as the new car plants implement localization stipulations, include Japan’s Tenneco, Denso and T-Rad as well as Britain’s Stadco.

Car sales are plummeting in Russia as everywhere else, but the Russian government, has undertaken to protect local car producers with increased import tariffs adding to the devaluing ruble. Prime Minister Vladimir Putin has stated clearly that ‘foreign producers based in Russia count as Russian’.

So Petersburg’s automotive revolution is still on the road.

Power sector investment secured just in time

“We were very lucky. because if everything that has happened on the world’s financial markets had not taken place this autumn, but half a year earlier, we would never have been able to complete reform of the electricity sector, and there would have been no $36bn in investment for the power generation sector,” reformist tsar Anatoly Chubais told business daily Vedomosti in December 16.

The credit crisis has impacted on the electricity sector’s investment plans. The original power sector agreement with Petersburg committed over $10bn to be invested through 2012. Last week, the schedule was significantly downsized, with only $6bn now to be invested by 2012, the rest by 2015.

But Petersburg will benefit not just directly from this investment. The city’s huge power engineering industry will also be a major winner. According to Rencap analysts, “the power engineering sector is in the early stages of its long cycle. Equipment manufacturers started to receive orders in 2007, and their order books are set to expand rapidly over the next two-to-three years.”

Petersburg likes to boast that 10% of the world’s power turbines are turned out by the city’s power engineering companies, most of which are now united in the Power Machines holding owned by oligarch Alexei Mordashov.

Power Machines, one of the city’s largest employers, has 60% of the Russian market, so it will take a lion’s share of the forthcoming power sector demand.

On December 18th, Power Machines announced $36m investments in 2009 to continue designing a new plant for the production of power engineering equipment in St. Petersburg.

Defence spending surge on the cards

A third source of consolation for Petersburg business is a massive surge in Russian defence spending as part of the three year budget running 2009-2011.

The federal budget stipulates an increase in the state defence order to $42bn for 2009, up from 40bn in 2008 and $35bn in 2007. The defence order is set to reach $52bn by 2011.

The government has assured that next year’s budget will be executed as planned, even if transfers from the stabilization fund are required to cover the deficit.

Petersburg, one of the main centres of the Russian defence industry, with companies ranges from shipbuilding to metallurgy to radioelectronics, is also set to benefit from this spending surge. Almost all Petersburg Soviet-era industrial plants have defence sector production lines.

Moreover, as a sign of Petersburg’s historical significance as the birthplace of Russia’s navy, in 2009 the headquarters of the navy will move back to Petersburg from Moscow, following the move of the Constitutional Court from Moscow to Petersburg in 2008.

And, as one of the first spin-offs for the city’s economy of the move, on December 22, city authorities announced a major construction project in the adjoining port town of Kronstadt to create a single central naval training college for Russia’s fleet.

Infrastructure wobbles

Things strangely enough do not look so rosy for Petersburg infrastructure investments. While Obama’s and Brown’s New Deal is set to pump trillions in Keynesian infrastructural investment, the Petersburg government in December cancelled a number of large infrastructure projects to avoid a looming budget deficit for 2009.

Petersburg city hall is anticipating a 25% cut in budget expenditure in 2009, taking the budget back to 2006 levels, as a result of falling tax revenues.

First to go in this case will be expensive infrastructure projects rather than social spending crucial to governor Valentina Matvienko’s popularity rating.

Consequently, in December, city hall announced the postponement or downsizing of a number of major projects in 2009, such as an express rail link, a new airport runway, and a major tunnel construction project with a total investment volume of around $3bn.

An additional problem is that many infrastructure projects were conceived as public-private partnerships. Even where the public sector is able to find the cash, often the original planned private investments are now in doubt. Question marks have gathered in December around one major Petersburg project, the South Circular highway, with planned investment volume of $1bn, half of it from the private sector.

This scrapping of infrastructural projects on local level runs counter to economic sense and federal policy. According to Renaissance Capital analyst Paul Rogers, “the time is right for implementation of the major overhaul of public infrastructure.”

Revamping public infrastructure” says Rogers, “is key to maintaining economic transformation. In 2009, Russia’s public sector must compensate for the anticipated nosedive in private sector investment. Longer term, private sector expansion requires an upgrade of Russia’s dilapidated infrastructure, which has actually deteriorated since the Soviet era, despite the past decade of economic growth.”

Prime Minister Putin also has spoken of the need to bring forward public sector infrastructure investment, rather than postpone it, as Petersburg city hall is doing. In this light, Petersburg city hall may be angling for a federal ‘bail out’ of regional infrastructure projects – which arguably, according to VTB Capital Elena Sakhanova, would be a better use of funds than channeling them to obsolete Soviet-era carmaker Avtovaz.

However, there is one bright side for Petersburgers arising from the city’s tightfistedness in infrastructure spending: the dreaded Gazprom City skyscraper complex, that was planned to tower over the old town like a stake in its heart, and to be co-financed by the city, has also disappeared from the 2009 budget.

Putin’s Finest Hour a Distant Memory as Hopes for Democracy are Dimmed in St. Petersburg

Graham Stack for Russia Profile

For someone who loves to display a good memory for facts and figures, Russian President Vladimir Putin suffers from severe amnesia regarding one decisive episode in the history of his country: the putsch attempt of 1991. The residents of St. Petersburg who took part in resisting the putsch remember those days more accurately than Putin.

Putin himself now jogs their memory for all the wrong reasons. For the first time since the Soviet era, there is an almost complete lack of political alternatives to the current administration, and the government does all it can to maintain the status quo by controlling TV and “managing” democracy. Putin’s cricket score popularity ratings and the economy’s snowballing growth also help.

Every revolution has its Thermidor

Alexander Rahr mentions in his Putin biography “The German in the Kremlin” that, on the first day of the putsch, the mayor of St. Petersburg and Putin’s boss Anatoly Sobchak was at Boris Yeltsin’s dacha in Moscow. The KGB had orders to arrest Sobchak immediately upon his return at St. Petersburg’s Pulkovo airport, but “To their great surprise, when they arrived, they found the plane guarded by armed police units. Putin had returned from vacation and learning of Sobchak’s pending arrest, decided to defend him by all means possible, thus openly turning against his former employers.” According to Rahr, Putin arrived at the airport in person, put Sobchak in his car and drove him at breakneck speed into town, where crucial talks were held with the head of the city’s KGB and military. The negotiations resulted in the law-enforcement agencies agreeing not to intervene.

Alexander Sungurov, human rights activist and senior lecturer at the St. Petersburg branch of the Higher School of Economics, was a democratic deputy in the Leningrad Soviet at that time.

“Perhaps the most important thing in St. Petersburg,” he remembered, “was the stance of the head of police, who refused to follow orders from Moscow to disperse demonstrators. In addition, Petersburg was the only city where even the Communist Party showed some opposition to the putsch, demanding that Gorbachev be released and shown on TV so that people could see he was alive.”

Sungurov continued to work as a deputy of the St. Petersburg Legislative Assembly throughout the 1990s. “I remember Putin well, of course. He was a perfectly normal aide to Sobchak. He was someone we often spoke with. He’s basically a conformist, loyal to the team of which he is a member. When he was on Sobchak’s team, he was loyal to Sobchak.”

At present, Sungurov is a member of the Presidential Committee on Human Rights under the chairmanship of Ella Panfilova. “You have to understand that every revolution is followed by a downturn, every revolution has its Thermidor. That’s just a law of physics. The question is just how far it goes. The only real alternative to Putin was General Alexander Lebed, and if he had become president, things would have been a whole lot worse. So Putin taking charge of the country in the authoritarian phase following the revolution is far from the worst thing that could have happened.”

Sungurov is upbeat about the newly-elected president Dmitry Medvedev. “The main thing is to learn from mistakes and to get ready for the next democratic wave, which I believe will be coming very quickly. For the first time in a century, at least since Vladimir Lenin, the new president will be someone whose parents have a higher humanitarian education. Medvedev doesn’t belong to the KGB Corporation.”

“If Putin had stayed president it would have been like in Central Asian republics,” he added. “But he had the courage to say enough’s enough. The fact that he hasn’t completely gone, but is staying as prime minister, is also understandable. Putin himself said that he is staying ‘because I know what my friends the siloviki are planning for the country if I leave completely.’ Putin can control the siloviki and Medvedev can’t.”

“The real revolution in Russia took place when independent deputies were elected in 1990,” Sungurov concluded. “What happened during the putsch in 1991 was the equivalent of the colored revolutions in Ukraine and Georgia. We’ve been through all that already. We’re waiting for the next stage now.”

What I fought for I still have

Lev Apostolov, 34, now a logistics manager in the book trade, was a student in 1991 and one of the youngest to join the official defense of the Leningrad government during the Putsch.

“I went straight to Nevsky Prospekt and joined in a demonstration against the Putsch. The next day I went back and joined the official defenders of city hall. It seems funny now, but it wasn’t funny then. There were six of us in the brigade – my school friend Jan, another student, a butcher, a burglar (by his own admission). There were groups of martial arts enthusiasts and a lot of Afghan veterans.”

“We were assigned to patrol the Bolshaya Morskaya Street and to build a barricade right beside a cinema called Barrikada. So we piled up trash cans,” said Apostolov. “We were given arm bands and told not to jump on tanks if they appeared. That whole night was very tense, full of rumors. In the morning came the announcement that the putsch had failed, and they played Bob Marley on the speakers. I remember that the democrats in city hall behaved with great dignity and calm. Sobchak gave a splendid speech – fascism will not pass things of that sort.”

“Yeltsin was a hero at that time. Without any publicity at all, the democrats could gather thousands and thousands of people. Now look at the Dissenters’ March. They advertise on the radio, on Ekho Moskvy. And still no one goes. Everyone was politicized back then. Perestroika was a great time. Of course, there were huge hopes, many of which were never fulfilled, but I don’t regret anything. What I was defending then was my right to travel, to hear the music I want to, to read the books and watch the films I want to. And these rights I still have.”

With regard to the status quo, Apostolov said, “The biggest problem with Putin is that, if they are tightening the screws now, when there’s no reason to, what on earth are they going to do when the price of oil falls, when the problems start? I can’t understand why they want to turn people into idiots with this farce of an election. I took my bulletin with me from the voting booth.”

Fed up with being afraid

The day after Dmitry Medvedev took 70 percent of the vote despite his candidacy having been announced just two months previously, around 1000 members of St. Petersburg’s liberal opposition forces gathered to hold a Dissenters’ March, showing that not everyone had forgotten what democracy is about. March 3 is also the anniversary date of the overthrow of the Romanov monarchy and the establishment of a parliamentary democracy in 1917. But among those marching, memories of 1991 were more important than those of 1917.

Anatoly Sergeev, 62, who calls himself a “simple worker,” reminisced about how different it was all back then. “I went to St. Isaak’s Square and joined a brigade of official defenders. We had no weapons. We built barricades. In contrast to today, there were no police trying to stop us. At night we then sat on the rooftops by the square drinking tea. There was fear in the air. But in the end nothing happened.”

“It was a great mistake to let the Soviet Union collapse,” Sergeev argued. “They should have kept the Union – there was a majority in favor of it at the referendum. No one had permission to break up the USSR. The individual republics creating their own central banks out of the Soviet state bank drove the last nail into the coffin. I still like Gorbachev, but he should have been tougher. Sobchak was a thief; the only good thing he did was to rename Leningrad Petersburg. And he acted bravely during the Putsch.”

Turning to contemporary politics, Anatoly pulls no punches. “Putin’s just a puppet, other people are pulling the strings. He has done a lot, but not for me. How can you live on a pension? I have a bad heart and need medicine. I had to pay for my daughter to study somehow. And prices keep rising.”

Despite straitened circumstances, Anatoly is proud of having resisted the putsch. “I don’t regret taking part at all. I didn’t even think twice back then. It’s simply that at some stage you get fed up with being afraid. Why don’t they give us proper elections today? I would have voted for Ivanov, the defense minister, if he had stood. He’s a strong figure. Why did they not let him stand? Why did it have to be Medvedev?”

A child of the revolution

Lena, 46, a school librarian and another participant in the March 3 Dissenters’ March in St. Petersburg, said that she had supported the resistance to the putsch with all her heart. The only reason she did not join herself was having her first child.

“Of course, it was all terribly frightening, the putsch I mean,” Lena remembered. “But I saw the people who were involved before and after. Their faces were alive, that’s all I can say. Their eyes were bright. Look around you now at the faces here. People are awake. Look at the faces of the police. Completely dead.”

“That’s why I came here,” she said. “Of course I know it’s no use, that no one will pay attention. But I come here to feel myself a person, to feel myself honest. These elections were not honest.”

Asked if her daughter knows about the Putsch, Lena answered: “Of course, she’s aware of it all. Much more than the other kids her age are. She’s not here today, but I know she’s on our side. Her time will come.”

Petersburgers underwhelmed by “Kinder Surprise” Medvedev

Graham Stack for business new europe

As universally expected, Vice Prime Minister Dmitry Medvedev, strongly backed by incumbent President Vladimir Putin and enjoying a lion’s share of media coverage, won 70.2% of the vote in the presidential election with almost 100% counted. Distant second came Communist Party candidate Gennady Zyuganov with 17.77%, followed by nationalist Vladimir Zhirinovsky with 9.37% and rank outsider liberal Andrei Bogdanov with just 1.2%.

Both Putin and Medvedev hail from St Petersburg, and the city shows the extent to which Putin has reshaped the Russian political landscape. Once a strong hold of Russian liberalism, with liberal parties like SPS and Yabloko taking 30-40% of the vote in the 1990s, now the pro-Putin United Russia party enjoys a majority in the city’s parliament, and liberals lead a marginal existence.

At the same time, St Petersburg has shaped the new Russian political landscape: Not only Putin and Medvedev, but the majority of Putin’s Kremlin team worked in the city’s administration in the 1990s.

Like Putin, 42-year-old Dmitry Medvedev, Russia’s new president, is a son of Russia’s cultural capital. He was born, grew up, studied and worked in the city until the Anatoly Sobchak administration in which Putin was vice mayor lost the municipal elections in 1996. Medvedev’s wife is also from the city.

However, this does not guarantee him the affection of his fellow Petersburgers, although his backing from Vladimir Putin guaranteed him their vote. Many on the historical streets of the city centre on election day March 2 were skeptical about Medvedev’s leadership qualities and mocked his lack of charisma. In voting for Medvedev, they did not vote for the person, but for stability, and for Putin.

“Yes, we voted for Medvedev, but we don’t like him” said Olga, 35, an architect, and her friend Masha, 27, agreed. “We’ve never seen much of him, and he doesn’t come across positively on TV. He’s wooden. I voted for stability, and because there’s no alternative to Medvedev.” Both also agreed: “We liked Putin much better, but the law rules out more than two terms.”

When asked if they considered Russia a democracy, they both laughed. “Perhaps in a relative sense,” said Olga. “We’ve a long way to go before we’re a democracy,” said Masha. But both are proud that the third Russian president is a Petersburger.

“I will vote for Medvedev because of Putin” said Leonara Kononova, 71, “but he hasn’t really done anything or said anything independently.”

Lena, 25, who works in radiophysics, said she had not decided who to vote for. For Lena as well, Medvedev suffers by comparison with Putin, “I don’t like the way he speaks – he can’t construct proper sentences. It’s always pleasant to listen to Putin speaking. He answers quickly and in clear sentences.” Lena’s biggest concern is the state of science in the country. “So many friends leave the country after studying to do their PhDs abroad. They get offered good grants and jobs.”

Almost all those voting for Medvedev would have preferred to see Putin stay – although, as most added, he is not exactly going either, since he is set to become prime minister. “Putin should have stayed,” said 24-year-old Svetlana, selling souvenirs at a stand. “We’ve got used to him.”

“No I don’t like Medvedev particularly, but Putin is staying anyway as prime minister, so it’s OK,” said 22-year-old Dima. “The main thing is for the authorities to observe people’s rights,” said his girlfriend Sascha.

“We’d have liked Putin to stay” said Marat and Kamilla, 22 and 21. Marat, a manager, added that, “the most important thing is that there is no default again.”

Some who support Putin voted or were considering voting against Medvedev. Tatiana, 55, a nurse by profession, said that she had voted for Zyuganov. “Medvedev is too young. What’s he ever done? He is like a Kinder Surprise.” But her sister Elena, a librarian, said she voted for Medvedev because of Putin.

Another pair of sisters, teachers Alexandra and Nastya in their mid-20s, said they approved of Putin, “who’s going to stay anyway,” but they had voted for Bogdanov, the long-haired outsider pro-EU candidate. “He’s an alternative kind of guy. They were showing Medvedev on TV all the time, it was unbearable,” said Nastya.

Ironically, however, most analysts agree that the Bogdanov candidacy was initiated by the Kremlin to increase the number of candidates. Alexandra and Nasty hoped for an end to bureaucratic arbitrariness in Russia.

Even a member of Edinaya Rossiya, 35-year–old neurologist Mikhail, had little positive to say about Medvedev’s personality. He said he thought it was good to separate politics from personality, and said he was simply voting for his party’s candidate. The greatest current danger he sees is for Russia to get “dizzy with success” and overplay its hand on the international stage.

Irina 62, was one of the few with something positive to say about Medvedev: “He is young and clever, and the partnership with Putin will be strong.”

Arkady, 32, a rock musician, was positive about Medvedev because of his taste in music – Medvedev is a Deep Purple fan. As to Russia’s international status, Arkady believed that “countries will start respecting us when we learn to respect each other.”

“Russia’s biggest problem is high prices for oil,” he said ironically, and no, he does not consider Russia a democracy.

The protest vote

Vyacheslav, a 70-year-old post office worker whose vote went to the Communist Party’s Zyuganov, is one of the few to offer sharp criticism of Putin. He was outraged by Putin’s recent statement that, “whether you like it or not, we need to raise the salaries of civil servants many times over.”

“He won’t raise pensions, but he brazenly declares he’s going to raise his own salary a number of times over, whether we like it or not!” Vyacheslav said that Russia is “at the most to be only 50% democratic.”

Alla, 55 years old, voted for Zyuganov because of his policy of nationalization of natural resources, a point mentioned by other communist voters.

Alexei, 18, said he intended to vote for anyone except Medvedev and the United Russia party, and had voted for nationalist Vladimir Zhirinovsky in the Duma elections in December. He pointed to inflation and pensions as the main problems in Russia, and also a lack of national pride.

The most damning criticism came from those who refused to vote, because they held the vote to be pre-decided. “It’s all a farce, it’s all arranged,” said 40-year-old engineer Yevgeny, who nevertheless speaks positively about Putin as honest and hardworking. “The country will only change when the relationship between people changes, when people start to think of others instead of just themselves,” he philosophised.

Sveta, 27, a doctor, and Seryozha, 45, a technician, were also not intending to vote, because they hold it all for a charade. They even denied that Putin and Medvedev had anything to do with St Petersburg. “They’ve been in Moscow for so long,” Seryozha said. “Moscow has swallowed them up like a swamp.”

Tracing the rise of Medvedev’s network – Russia’s “civiliki”

Graham Stack for business new europe

Dmitry Medvedev, Russian President Vladimir Putin’s endorsed successor, is likely to ask a slew of old university friends round to the Kremlin when he moves in later this year. Not to party, but to work. Much as Putin has relied on a string of friends from St Petersburg formerly with the KGB, the so-called siloviki, Medvedev has hauled up into high positions a network of friends and colleagues from the St Petersburg State University civil law department: the “civiliki,” as it were.

“Relations between state and business are like a seesaw – they tip to one side and then to another. There was a time when the state had lost influence over business to the extent that it practically handed out indulgences for non-payment of taxes. Now we are in tougher times. Perhaps the seesaw has even tipped too far in the other direction, and it is time to re-determine the correct balance between business interests and state authority.”

When the chairman of Russia’s Supreme Arbitration Court, 42-year old Anton Ivanov, interviewed by business daily Vedomosti on December 25, came out with the above statement, Russian political observers took notice: only two weeks before, Ivanov’s friend and colleague of 25 years standing, Deputy Prime Minister Dmitry Medvedev, had been picked by Putin to succeed him as president. The presidential elections are due on March 2.

Medvedev and Ivanov studied together at what was then Leningrad University’s faculty of law from 1982-1987. Following graduation, both went on write PhDs and teach at the faculty in the civil law department. Their PhD supervisor was none other than law professor Anatoly Sobchak, leader of St Petersburg’s surging pro-democracy movement, elected mayor of Petersburg in 1990, and Putin’s boss until 1996.

Medvedev and Ivanov’s professional partnership extended to co-authoring, together with other faculty members, an acclaimed civil law textbook that’s still widely used in Russia, and also jointly founding a legal consultancy in St Petersburg in the early 1990s.

At every stage of Medvedev’s subsequent rise to the top since then, Ivanov has followed him at a short distance. And not only Ivanov. From Medvedev and Ivanov’s class of ‘87, a cluster of names such as Konstantin Chuichenko, Valeriya Adamova, Vladimir Allisov, Ilya Eliseev, Mikhail Krotov and Nikolai Vinnichenko have accompanied Medvedev and Ivanov’s dizzying rise.

Just as during Putin’s presidency saw the previously obscure siloviki members such as aide Igor Sechin and state arms trader Sergei Chemezov rise to become national figures, in the same way some of the above names are likely to figure large in the still-nascent art of “Medvedevology.”

First stop: Gazprom

Dmitry Medvedev was named head of the supervisory board of Gazprom in June 2000, immediately after Putin’s inauguration as president. The civiliki were quick to follow him to Gazprom.

In July 2004, Anton Ivanov was appointed first deputy head of Gazprom Media, Gazprom’s structure for managing its media assets which had been expropriated from exiled media oligarch Vladimir Gusinsky.

A number of his former classmates had already been installed at Gazprom.

Konstantin Chuichenko, class of ‘87, had in March 2001 become head of Gazprom’s legal department, and in 2002, he became a member of the Gazprom management board and chairman of the supervisory board of Gazprom Media. As of 2004, Chuichenko has been a managing director of the controversial gas trader RosUkrEnergo, the murky intermediary for Russia’s sales to Ukraine of Turkmen gas that was at the centre of the “gas wars” scandal in 2006.

Valeriya Adamova, also class of ‘87, became vice-president of the legal department of the Gazprom chemicals affiliate Sibur in April 2003. Adamova played an active role in helping Gazprom to reclaim assets transferred to Sibur under the 1990’s management. Vladimir Alisov, again class of ‘87, was head of the legal department of Gazprom’s newly-created subsidiary, Gazpromregiongaz, which handles gas distribution in Russia.

One year after Ivanov’s move to Gazprom, Ilya Eliseev, Medvedev and Ivanov’s former classmate, faculty colleague and co-author, was appointed deputy chairman of the management board of Gazprombank, Russia’s third largest. Finally in April 2005, Mikhail Krotov, class of ‘85 this time, former faculty colleague and co-author, succeeded Ivanov as deputy general director of Gazprom Media. Putin had chosen Ivanov to chair the Supreme Arbitration Court, Russia’s highest commercial court.

Civiliki go to court

Ivanov became chairman of the Supreme Arbitration Court in 2005 despite his never having worked before as a judge. He was tasked with launching a systematic reform of the commercial court system – and quickly built up a public profile thanks to frequent media appearances.

Ivanov appointed as his deputy, Elena Valyavina, a university classmate and then faculty colleague, who in the 1990s worked under Ivanov in the St Petersburg city justice department. Adamova moved from her post at Sibur in 2005 to become deputy chairman of the very important Moscow Arbitration Court in 2005.

Nikolai Vinnichenko, class of ‘87, a friend of Medvedev and Ivanov, had risen through the state prosecutor’s office to become state prosecutor for Petersburg in 2003. In October 2004, he was appointed director of the Federal Service of Court Bailiffs.

Vinnichenko’s long-standing deputy in St Petersburg prosecutor’s department, Aleksandr Konovalov, a 1992 graduate of the St Petersburg law faculty, and then faculty colleague of Medvedev and Ivanov, moved to become chief state prosecutor for Bashkiria in 2005, and in the same year was promoted to the post of presidential representative for the Volga region.

Finally, in November 2005, Medvedev’s faculty colleague and co-author Mikhail Krotov moved from Gazprom Media to become the presidential representative to the Constitutional Court.

Civiliki at the Kremlin gates?

How quickly Medvedev will promote his own people to important posts will only become clear if he wins the presidential election and after he is inaugurated as president in May.

It’s also too early to say how the civiliki might impact on the country’s politics. But it would be wrong to expect fundamental democratic impulses from them. Not only are legal scholars inclined to favour technocratic solutions over the cut and thrust of democratic politics, but more importantly at Gazprom Media the civiliki were implicated in the effective de-privatisation of formerly independent TV station NTV, and it was after Anton Ivanov’s move to the Supreme Arbitration Court that the crippling tax claims against Mikhail Khodorkovsky’s now-bankrupt oil company Yukos were enforced.

For the civiliki to tilt the seesaw back towards society, they will first have to discard a lot of ballast.