Ukraine’s new foreign minister Poroshenko “will not oversee” EU free trade negotiations

Graham Stack, Berlin / Kyiv

According to Ukraine’s ambassador to Germany, Natalia Zarudna, new foreign minister Petro Poroshenko will not oversee trade negotiations with the EU, despite being tasked by President Viktor Yushchenko with achieving an associate membership agreement with the EU as soon as possible.

“Petro Poroshenko will not oversee negotiations on the free trade part of the Ukraine-EU associate membership agreement,” Zarudna told this correspondent in an interview. “This will be done separately by ministry trade experts, with Poroshenko overseeing only the political component of the agreement.”

Zarudna says this rules out any conflict of interest with Poroshenko’s business dealings: Poroshenko is not only a close associate of President Viktor Yushchenko and political high-flyer. He is also a top businessman, and his assets are held to include Ukraine’s second largest car producer Bohdan Corporation, although he does not officially acknowledge ownership of the car maker.

“Poroshenko may be a shareholder in Bohdan, but he is not involved in operational control of the company, since this would contradict Ukrainian legislation,” explains Zarudna.

The issue is pertinent, because Bohdan Corporation is one of the principle victims of Ukraine’s economic crisis, with its revenues down 87.4% in the first half of 2009, and losses totaling $27.1m.  Analysts are questioning whether the company can continue servicing its debt, after having come close to default in August.

In an interview with this correspondent earlier in the year, Bohdan Corporation CEO Oleg Svinarchuk demanded a government U-turn on trade policy, with a shift from free trade to protectionist tariffs to save Ukraine’s car industry. Svinarchuk also bitterly criticized the terms of Ukraine’s accession to the World Trade Organisation.

This indicates Poroshenko’s ties to Bohdan Corporation could clash with his duties as foreign minister – in particular concerning trade negotiations, where higher import tariffs on cars would directly benefit Bohdan Corporation.

There are already signs Poroshenko’s appointment will benefit the company. Immediately following his appointment, the government announced a raft of measures to help Poroshenko’s automotive holdings. Prime Minister Yulia Tymoshenko called Bohdan “a strategic partner in bus production,” and announced a government order for 750 school buses worth UAH 150m, and orders for Euro 2012. There is also talk of a government credit line to modernize bus production facilities, according to sources at Bohdan.

Tymoshenko’s generosity contrasts with previous animosity between herself and Poroshenko, whom she openly accused of corruption in 2005, days before Yushchenko ended her first spell as prime minister. However, considering that votes from Tymoshenko’s party Bloc Yulia Tymoshenko were crucial for Poroshenko’s confirmation by Ukraine’s parliament, the Rada, it is likely that some wider deal is in place, believes Yelena Biberman, Ukraine foreign policy expert at Brown University.

“It could involve Poroshenko buying into Tymoshenko’s more pro-Russian foreign policy line,” says Biberman. Biberman points out that among Poroshenko’s first actions as foreign minister was to reject US radars in Ukraine as part of the US anti-missile defence system. Poroshenko said such plans, aired by U.S. Deputy Defense Secretary Alexander Vershbow, would “contradict the constitution.”

According to Zarudna, however, Poroshenko’s appointment does not signify any shift in Ukraine’s foreign pro-NATO policy. “But because of the crisis, foreign policy may be temporarily more oriented to trade and aid,” she concedes.

Meanwhile, the foreign ministry itself is pinning its hopes on Poroshenko to secure more budget funds. “The foreign ministry suffered disproportionately from budget cuts in 2008, compared to ministries more loyal to the prime minister,” complains Zarudna. “We think that Poroshenko will use his ‘special diplomatic skills’ to get more funds for the ministry.”

According to Zarudna, Ukraine’s foreign representations have had funding cut to 40% of 2008, with budget funding down 20% and hryvnia devaluation doing the rest. “We are being inventive and attracting sponsors to help with our functions,” Zarudna says.

Will Putin sign up China?

Graham Stack for Russia Profile (www.russiaprofile.org)

 

Russian Prime Minister Vladimir Putin’s last visit to China, when he attended the opening of the Beijing Olympics in August of 2008, went badly wrong when Georgia opportunistically attacked South Ossetia, and the resulting war damaged relations between Russia and the West. Putin could now continue Russia’s eastward shift on his upcoming visit to China, by signing long-term gas supply agreements between Gazprom and the China National Petroleum Corporation.

Speculation is mounting that a long-term gas supply agreement might finally be signed between the Russian gas giant Gazprom and China National Petroleum Corporation (CNPC). The plan, outlined in a number of memorandums signed by the Russian and Chinese sides, but since bogged down in negotiations over price, envisages new gas pipelines from Western and Eastern Siberia to China and the development of virgin East Siberian gas fields.

As president, Putin was closely involved in the negotiation process during his previous visits to China, and may feel that it’s now time to go the final mile. The last Memorandum of Understanding on the issue was signed in 2006: it specifies a pipeline running from West Siberia with a 30 billion cubic meters capacity, and another from East Siberia with a capacity of 38 billion cubic meters, with work due to start in 2011. That date is now clearly unrealistic, but still, for most analysts, it is just a question of time.

“We have long taken for granted that Gazprom will sell significant amounts of gas to China,” said Alfa Bank energy analyst and Head of Research Ron Smith. “The resource base of East Siberia and Russia’s Far East is very large, including two untapped world-class gas fields in Chayanda and Kovykta that are very well situated for pipeline exports to China, not to mention the Sakhalin reserves that are already being tapped.” So analysts perceive Putin’s hastily arranged visit to China as indicative of the fact that a long-term deal has been finalized for signing.

Negotiations to date have been shrouded in secrecy, but the main problem holding up implementation of the project has been arguing over the price mechanism. Russia is rooting for the same price mechanism applied to Gazprom’s European Union customers. China has pushed for a discount price previously paid by former Soviet countries, such as Ukraine. “Since then, however, the discounted deal with Ukraine ended in a very high-profile manner, and Russia is also paying full price for gas purchases from Central Asia,” said Chris Weafer, an analyst at UralSib brokerage. “Hence the rationale for China’s discounted price demand is eliminated.”

But the Chinese may instead want a gas price linked to coal prices and not to oil prices, as is the case for European customers. Since there is no global market price for gas, gas prices are linked to the cost of the fuel gas substitutes for, which in Europe is crude oil and heating oil. In China, however, gas will substitute mainly coal used in power generation. “We are not sure whether the Chinese prefer a coal-linked price, as that fuel generates the bulk of the country’s power, or whether it is a matter of a simpler argument about the absolute level of prices,” said Smith.

“Linking the price of gas to the one of oil is an anachronism,” argued Mikhail Korchemkin of East European Gas Analysis. “There is an oversupply of inexpensive gas in the world, and the market prices of oil and of gas often move in opposite directions.”

Coal prices are currently very low following the economic crash, while oil prices have soared back up to 2007 levels, making it harder to reach a compromise. However, according to a source quoted by the Russian business daily RBK, in the absence of final agreement on a long-term price mechanism, Gazprom and CPNC could still provisionally agree on fixed prices for short-term delivery volumes.

But the Chinese have some trumps that could induce Gazprom to bring the prices down from the European levels. Firstly, China is flirting not only with Russia, but also with Central Asian countries. The 7,000-kilometer-long Central Asia-China pipeline is set to take Central Asian gas to China, particularly from Turkmenistan, which has contracted to supply 40 billion cubic meters of gas annually for 30 years. Korchemkin believes that Turkmenistan probably agreed to prices around 50 percent lower than Gazprom’s European price. “Moscow will be keen not to lose the opportunity to be a direct gas supplier to China, especially with a lot more uncertainty over future gas export volumes to Europe,” said Weafer.

Secondly and most importantly, with the economic crisis having raised the cost of borrowing even for Russian giants such as Gazprom, Chinese state companies can offer cheap credits unavailable elsewhere. The summer has seen a slew of Chinese credits granted to Russian companies in telecommunications, cement and energy. According to Kingsmill Bond of Troika Dialog brokerage, “China provides cheap financing and equipment for the development of Russian infrastructure. As the head of the Russian cement association poignantly said, ‘we can’t borrow from Russian banks at less than 20 percent, but from China we can borrow at under ten percent.’”

In June of 2009, China provided Turkmenistan with a $4 billion loan to develop its massive South Yolotan field. But the mother of all such deals was signed between Russia and China in February of 2009, with CNPC and the China Development Bank offering a $25 billion loan to Russian oil pipeline operator Transneft and state-owned oil company Rosneft, as part of an agreement for Russia to supply 15 million tons of oil annually for 20 years. The credit, at an unbeatable estimated interest rate of 5.7 percent, will finance oilfield development and pipeline construction from East Siberia to China.

“If that deal were to be replicated in the gas sector, we could see a timeline agreed not only for the pipelines, but also for the development of the giant Kovykta gas deposit, as that is the logical source of gas sales to China,” said Weafer.

Georgia vs. South Ossetia: The Prequel

The South Ossetian conflict flaring up in late 1989 started the break up of Georgia. The conflict of 2008 might well have sealed it.

Four months after Slobodan Milosevic’s speech on the Kosovo Field June 1989 symbolised the start of the Yugloslavia conflict, Georgia’s nationalist leader Zviad Gamsakhurdia, backed by over 20,000 supporters including paramilitaries, rolled towards the South Ossetian capital Tskhinvali, to assert ethnic Georgian rule over the entire territory of the republic. Ossetian groups duly blocked Gamsakhurdia’s entry to the town, and violence broke out. Andrei Sakharov, not long before his death, commented gloomily on the creation of “minor empires” in the former Soviet republics.

The standoff escalated through 1990. In April 1990, the Supreme Soviet in Moscow ruled that the ethnic autonomous territories of any republic seceding from the Soviet Union retained the right to remain in the Soviet Union. Then it was Tbilisi’s turn to pour fuel on the fire. In August 1990, the Georgian Soviet adopted a law prohibiting regional parties from participating in Georgian elections. Excluded from the political process in Georgia, South Ossetia boycotted parliamentary elections in October 1990, instead holding elections to their parliament in December 1990.

In response to the South Ossetian elections, the newly-elected Georgian parliament abolished the autonomy status of South Ossetia, declared a state of emergency in the region and in late December, imposed an economic blockade on the region that was to last to July 1992.

The conflict finally escalated into war the following month. In the first days of 1991, the Supreme Council of Georgia passed a law on the formation of the National Guard of Georgia. Then on January 5th, at the time of the Orthodox Christmas festivities, several thousand Georgian troops, police and paramilitaries entered Tskhinvali and carried out violent reprisals and atrocities against the population, ostensibly in search of arms.

The weekend war

The initial fighting took place mainly in and around Tskhinvali, around the Georgian villages, and north along the road to North Ossetia, the lifeline of the South Ossetians in the face of the Georgian blockade.

According to Nikola Cvetkovski of Caucasus Links, who has written a history of the South Ossetia conflict, the fighting in Tskhinvali initially divided the town into an Ossetian-controlled western sections and a Georgian-controlled east. But fierce resistance from Ossetian irregulars meant that already by the end of January, 1990, Georgian forces withdrew to take up positions on the heights around the city. From there they enforced a blockade that lasted almost one and a half years, and aimed at cutting the town off from heat, electricity, water and food.

Actual fighting was low intensity, deploying mostly light arms. Fighting however peaked regularly at weekends, as the so-called ‘weekend warriors’ of paramilitary formations arrived from Georgia proper. The ‘weekend warriors’ were themselves more interested in looting than fighting. As a result, military fatalities stayed low, but of the roughly 1000 Ossetians killed in the conflict, only around 100 are regarded to have been militia members: the remaining 900 were civilians. In addition, according to Alexei Zverev, ethnic conflict expert at Vrije University of Brussels, 93 villages (mostly Ossetian) were completely burned down.

Even the newly-formed Georgian national guard, intended to become the core of a new Georgian army, was recruited and financed “almost exclusively by private individuals, especially successful black-market entrepreneurs,” according to Swiss security expert Christoph Zuercher, who has written the classic account of the Georgian crisis in “The Post-Soviet Wars”.

Georgia’s second main (para)military formation prosecuting the war, the Mkhedrioni (Georgian for medieval knights), was, according to Zuercher, “created in 1989 by Jaba Ioseliani, a former patron of the Soviet underworld, and funded its activities from criminal dealings, including extortion and racketeering,” and constituted “a private army at the service of the state when it was waging war against secessionist minorities.”

“The Georgian militias—the Mkhedrioni and the National Guard—were to a very significant extent driven by the presence of private entrepreneurs of violence, undisciplined weekend warriors, who conducted frequent attacks on the civilian population and took hostages,” Zuercher continues. “But in the case of the Ossetian and Abkhazian fighters, the use of military force was not mainly motivated by private profit, but by the perceived threat to the status quo posed by an independent and nationalistic Georgia. (…). Once the Georgian militias entered their territories, Ossetians and Abkhazians saw their fears confirmed, and organized violence ceased to be an option and became a necessity,” adds Zuercher in his seminal study.

Russia appears on the scene

Until then, the Soviet Centre, in its death throes, had remained largely on the sidelines in the conflict. The Soviet leadership had apparently latterly struck a deal with Tbilisi, allowing Gamsakhurdia a free hand in South Ossetia in return for accepting Soviet supremacy. This deal was shown up during the Moscow Putsch in August 1991, when supposedly nationalist Gamsakhurdia – in sharp contrast to events in Moscow and Leningrad – meekly accepted the authority of the Provisional Committee established by the putsch, and subordinated his armed units to the Soviet Interior Ministry.

The failure of the putsch, however, destroyed Gamsakhurdia’s authority: On December 22, 1991, in the last days of the Soviet Union, approximately 500 National Guard soldiers entered Tbilisi and drove Gamsakhurdia out, marking the start of the Georgian civil war. The new interim authorities—Ioseliani (leader of the Mkhedrioni) and Kitovani (head of the National Guard), then called Eduard Shevardnadze, former Soviet foreign minister, back from Moscow to head Georgia.

The struggle for power in Tiblisi now hugely exacerbated the ongoing ethnic conflicts, as the deposed president mounted military resistance from his home region in western Georgia against the new authorities in Tbilisi – and thus triggered the Abkhasian conflict, flaring up in spring 1992 and turning to war by the summer.

The conflict constellation now also changed due to the appearance of an entirely new actor: Boris Yeltsin’s Russia. Yeltsin’s new Russia, born of the idealism of the Perestroika liberal movement, and riding high on the wave of enthusiasm following the defeat of the Putsch, was more concerned about the rights of minorities in neighbouring states than the Soviet leadership had been. Russia was also sensitive to the concerns of the North Ossetian leadership, who were inundated with refugees from the South Ossetian conflict and feared further destabilisation.

According to Alexei Zverev, this new conflict constellation made Russian intervention on the side of the South Ossetians look increasingly probable. In mid-April 1992, Georgian artillery resumed daily missile attacks on the residential quarters of Tskhinvali. Then, in 20 May 1992, unidentified gunmen, whom the Ossetians claimed were Georgians, massacred a busload of Ossetian refugees fleeing Tskhinvali.

The massacre prompted North Ossetia to cut the gas pipeline to Georgia, and elicited furious statements from Russian politicians, including chief reformer Yegor Gaidar. By June 1992, Boris Yeltsin’s administration seemed to be on the brink of intervening to protect South Ossetia.

The situation was ironically saved only by a further escalation of Georgia’s own civil war between Shevardnadze and Gamsakhurdia in Western Georgia, which was simultaneously making conflict between Tbilisi and separatist Abkhazia look imminent. In the face of this extraordinarily dangerous situation, Shevardnadze could not possibly afford to fall out with the Russians.

On 22 June 1992, Yeltsin and Shevardnadze duly met with North and South Ossetian representatives in Sochi and signed a ceasefire agreement. The agreement envisaged the deployment of joint Russian, Georgian and Ossetian peacekeeping forces. The peacekeepers moved into the region on 14 July, 1992.

In view of the civil war raging at the time in Georgia and the start of the Abkhazian conflict, no one initially gave the South Ossetian ceasefire much chance. But it held 16 years… until August 7 2008.

Medvedev moves against state corporations

Graham Stack for Russia Profile (www.russiaprofile.org)

Medvedev Asks State Prosecutor General to Inquire into the Activity of Seven Major State Corporations

The much-anticipated shift toward more liberalism in Russia marked by Dmitry Medvedev’s election as president in March of 2008 but delayed by last year’s war with Georgia and this year’s economic crisis looks to be slowly getting started. Under the Kremlin’s patronage, an alliance appears to be forming against the state corporation juggernaut.

In December of 2007, a key Medvedev friend and confidante, university friend and law faculty colleague Anton Ivanov, now chairman of the Supreme Arbitrage Court and as such the chief of Russia’s system of commercial courts, said that “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 the 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.”

Anton Ivanov plays a similar role for Dmitry Medvedev to the one that Sergei Ivanov played for former-President and now Prime Minister Vladimir Putin – a trusted friend and a top official. And whereas Sergei Ivanov counted as a key member of Putin’s hawkish network of former St. Petersburg KGB agents known as the “siloviki,” Anton Ivanov is a key figure in Medvedev’s liberal network of the St. Petersburg civil law scholars, nicknamed the “civiliki.”

However, the shift from statism back toward liberalism has been slow in coming. Cynics argue that Medvedev is merely a placeman until Putin resumes the presidency in 2012. Optimists say a planned policy shift has been derailed by the Georgian war in 2008 and the economic collapse in 2009.

Until now the cynics seemed to have the better arguments. However, in what is seen as Medvedev’s first real independent initiative, on August 10 he requested the State Prosecutor General Yuri Chaika to audit the activity of the seven state corporations set up in 2007 to manage various fields of the economy, from the defense sector production and export to the construction of facilities for the 2014 Sochi winter Olympics.

With their wide-ranging powers and little room for oversight and accountability, the state corporations seem to adhere to a state-dominated model of bureaucratic capitalism that could crowd out private enterprise and increase corruption. Moreover, over the previous eight years their anomalous legal form – neither truly state-owned nor private, neither truly non-commercial nor solely profit-oriented – has outright contradicted much of the progress in creating a unified legal space in Russia.

In speeches and interviews in the run-up to his election as president, Medvedev frequently repudiated “state capitalism,” calling it a dead end and declaring that he is on the side of private enterprise and innovation. His failure to back words with deeds until now only reinforced the impression that he was a puppet of his Prime Minister Vladimir Putin.

Collective discontent

Medvedev’s move comes just after a number of different bodies raised a chorus of criticism of state corporations in June and July. This points to a carefully orchestrated campaign to discredit state corporations and to the fact that the president has enough political backing across state bureaucracies to get his way.

The first blow was dealt by the “civilik” Anton Ivanov. In early June, in an interview to the Vedomosti business daily, Ivanov publicly reprimanded state corporations, calling for a moratorium on their creation and for the enforcement of “generally-binding norms for all legal entities.” “It is not for nothing that legal scholars criticize state corporations,” he said. “Because their assets are private, but you can’t call them private in essence. And if the decision was to be taken to liquidate a state corporation, who would get the stakes in the companies owned by them? We need to stop calling old structures by new names, when they in fact remain the same in essence.”

In June, the Presidential Council on Legal Codification went even further, calling for the elimination of state corporations as a legal form altogether, since they have no place in Russia’s civil code.

Then in July and August, the powerful Audit Chamber and the Anti-Monopoly Service joined in the chorus. Both are headed by former members of the liberal Yabloko party, Sergei Stepashin and Igor Artemev, respectively. Perhaps more importantly, they both have little jurisdiction over state corporations and would like to change this.

Thus, a report prepared by the Federal Anti-Monopoly Service (FAS) and leaked to the Kommersant daily named state corporations as one of the main threats to competition in the Russian economy. Writing in Vedomosti about the correct way to go about modernizing the Russian economy, the Head of the Audit Chamber Sergei Stepashin argued that this had to be done by changing legal norms to support and reward innovations, not by Soviet-style “sectoral” corporations, which he said “had failed to justify themselves.”

Finally, Valentin Zavadnikov, the chairman of the Federation Council’s industry committee, put up bitter resistance to a draft bill setting up a state corporation to run Russia’s roads. Back in February of 2008, Zavadnikov authored a damning Federation Council report on state corporations, calling them “the perfect chance to transfer state property to the non-state sector with no financial benefit for the state and at the risk of uncontrolled use and alienation of assets.”

Civiliki vs. siloviki

The Kremlin’s move against state corporations has two targets: the “civiliki’s” concern about the disastrous implications for Russia’s developing civil code of the state corporation anomaly and the desire to eradicate it by converting state corporations into other legal forms provided for in the civil code – such as joint stock companies or government agencies.

Ironically, this might be the easier part. A number of state corporations themselves are headed by liberals who are likely to tow the Kremlin’s new line. Liberal Anatoly Chubais, the head of Rosnanotech, the state corporation for developing nanotechnologies, declared in August that changing the legal form would make no real difference in Rosnanotech’s activities. Sergei Kirienko, a former liberal party colleague of Chubais and now the head of atomic power state corporation Rosatom, is also unlikely to object to a change in form. Nor is Dmitry Kozak, the head of the Olimpstroi State Corporation for constructing the facilities for the Sochi 2014 Olympics and a liberal colleague of Medvedev’s at the St. Petersburg law faculty, likely to kick up a fuss. In fact, Vedomosti recently reported that Olimpstroi is likely to be transformed from a state corporation into a federal target program.

As a sign of the tide turning against state corporations, one planned state corporation to own and run Russia’s roads was scaled down to a state company in July, thanks to the efforts of the above-mentioned Valentin Zavadnikov in the Federation Council. Likewise, there apparently will be no state corporations in the space and rocket industry, Deputy Prime Minister Sergei Ivanov told journalists yesterday. Instead, the country will resort to forming vertically integrated public joint-stock companies.

And in August, Russia’s Finance Ministry abandoned the project of a state corporation for managing Russia’s financial assets. Deputy Prime Minister and Finance Minister Alexei Kudrin, who in 2007 criticized state corporations for de facto privatizing state assets free of charge, said that the state corporation form “was no longer deemed suitable” and another legal form would be found instead to do the same job.

But the big stumbling block will be what to do with the mother of all state corporations – Russian Technologies (RT) – the very first state corporation established in December of 2007. RT was originally based on defense sector exporters and their suppliers, but rapidly snowballed to include companies ranging from metallurgy to carmakers. The corporation is headed by the influential friend of Putin’s Sergei Chemezov. He is the man who single-handedly tailored the state corporation legislation to suit his personal goals, and is not likely to surrender his huge privileges without a major struggle.

Suspicion of Russian Technologies’ activity runs even deeper than suspicion of the legal form of state corporations. Chemezov’s activity as head of RT seems not just to threaten the integrity of the civil code, but the overall primacy of private property in the Russian economy. In contrast to the other state corporations that operate in specific fields of activity, Russian Technologies has acted as a cross-sectoral “Ministry of Deprivatization,” acquiring privately-owned companies and often prompting accusations of behaving semi-legally as a “corporate raider.” RT’s latest major hostile acquisition was the fairly successful engine and turbine producer Saturn, which, as a private company owned by CEO Yuri Lastochkin, developed engines for the Superjet aircraft and a new generation of turbines for gas-fuelled power stations.

According to Kirill Rogov of the Institute of Economy in Transition, “Medvedev’s target is not only state corporations in general, but also one certain corporation in particular: Russian Technologies. Whereas for other state corporations the consequences will be limited to adjusting their status to conform with the Constitution and Russia’s laws, for Russian Technologies this is the beginning of the end of the project itself.”

Halting the Russian Technologies juggernaut would thus finally mark a modest beginning to the project announced by Anton Ivanov in December of 2007 of re-tipping the scales away from the state, and back toward private enterprise.

Legal eagles Obama and Medvedev swap notes

Graham Stack for Russia Profile (www.russiaprofile.org)

The Connection Between the Lawyer Presidents is More Curious than Medvedev Seems to Have Realized

When they first met, Russian President Dmitry Medvedev played up the common legal background he shares with U.S. President Barack Obama. And despite question marks over the veracity of Medvedev’s claim to have studied a “legal reference work” authored by Obama, the influence of the Russian president’s legal schooling is palpable, in his public statements, policies, and above all his appointments. But is his habit of hiring like-minded colleagues really a bid to consolidate the rule of law, or just good old-fashioned nepotism?

Relations between U.S. and Russian presidents are full of paradoxes. Since the collapse of the Soviet Union, each new Russian president has been paired with a new U.S. president – Bill Clinton and Boris Yeltsin, George W. Bush and Vladimir Putin, and now Barack Obama and Dmitry Medvedev. The previous two presidential pairs featured an unlikely personal bond, which nevertheless failed to prevent tensions escalating between the countries.

Obama, after his first meetings with Medvedev, seemed to deliberately avoid any sentimentality, emphasizing that he wants a relationship based on shared national interests, not personalities. In fact, Medvedev’s response to Obama was more personal than vice versa, inspired by his and Obama’s common background as legal scholars.

Following the two presidents’ first meeting at the G20 summit in London in March, Medvedev commented that “we have read the same books.” Following a bilateral meeting at the G8 summit in L’Aquila on July 10, the footnote swapping seemed to have gone one step further: Medvedev said he had previously studied a “legal reference work” co-authored by Obama. “This is curious to say the least,” Medvedev remarked.

The issue is actually even more curious than Medvedev seems to have realized: Obama, as a legal scholar, published nothing, except one research note to the Harvard Law Review as a graduate. Medvedev’s own publication record is far more impressive than Obama’s – having co-authored a standard work on Russia’s civil code in the 1990s.

What publication was Medvedev referring to, then? It could be that he meant the Harvard Law Review. Obama famously edited the prestigious periodical between 1980 and 1990 as its first black editor. These were also the years when Medvedev was completing his doctorate in St. Petersburg.

However, according to a number of sources, it is extremely unlikely that the journal was available at St. Petersburg State University until the late 1990s. Also it is unclear why Harvard Law Review could have been interesting for a Russian legal scholar at that time.

More likely is that Medvedev confused Obama’s editorial position at Harvard Law Review with his later teaching post at University of Chicago. University of Chicago law school publishes the famous journal “Law and Economics.” “Law and Economics” is the flagship journal of the neo-institutional economic school that analyses an economy according to its legal institutional framework, and as such is a key journal in Medvedev’s field of commercial law. Obama’s faculty friend and now top economic advisor, Austan Goolsbee, was lead editor of the journal in the 1990s.

Neo-institutional economics became mainstream in Russia in the second half of the 1990s, as it became clear that macroeconomic stabilization and privatization did not work if an economy lacked efficient laws and institutions. As a result, government economic reforms started to focus on the legal sphere. This shift was embodied by the appointment of legal scholar German Gref as a long-serving economy minister between 2000 and 2007. Gref studied and taught alongside Medvedev in the St. Petersburg law faculty in the early 1990s.

Medvedev must have studied this school of thought – and may (wrongly) think Obama edited its foremost journal when he taught at the University of Chicago. In fact Obama taught constitutional law, and was concerned with issues of race and citizens’ rights quite distant from Medvedev’s scholarly interests.

Civiliki: Network or norms?

Whatever the truth, Medvedev’s response to Obama demonstrates how strong his identity as a civil law scholar remains, despite years of working in the Kremlin and government. This is an identity he shares with other top officials and friends, nicknamed the civiliki, to distinguish them from Vladimir Putin’s ex-KGB network of siloviki.

This identity was underscored last week by a visit to his alma mater, St. Petersburg University’s law faculty, posted on his video blog on the Kremlin website, where Medvedev reminisces about his years studying and teaching there. Ilya Nikiforov, an associate lecturer at the civil law department, pointed out that “Medvedev even contributed a chapter for a civil law textbook, co-authored by members of St. Petersburg Law School, after having become president last year.”

Medvedev’s background in law does not just serve him intellectually, but as a source of personnel appointments. Besides Gref, who now heads Russia’s largest bank, the state-owned Sberbank, the new Minister of Justice Alexander Konovalov also studied and taught alongside Medvedev in Petersburg in the 1990s, where he lectured on Roman and civil law.

From among Medvedev’s undergraduate classmates (class of 87), Konstantin Chuichenko heads the Central Control Directorate in the presidential administration, Nikolai Vinnichenko is presidential envoy to the Urals Federal District, Artur Parfenchikov heads the State Bailiffs Service, Nikolai Gutsan is deputy prosecutor general, and Valeriya Adamova chairs the Moscow Arbitration Court. About a dozen other colleagues and classmates are scattered through the top echelons of the state as well as Gazprom.

Most civil among the civiliki, and the closest to Medvedev, is his longtime friend, former classmate, faculty colleague and textbook co-author, Anton Ivanov. Ivanov was catapulted to head Russia’s Supreme Arbitration Court, the country’s court of final instance in commercial disputes, also with prerogatives in norm setting, in 2005.

Like Medvedev, Ivanov has retained close ties to academia, as scientific director of the law faculty of Moscow’s prestigious Higher School of Economics. According to deputy dean of the faculty, Natalia Rostovtseva, Ivanov’s position is not a formality. “He plays an active role in the life of the faculty,” said Rostovtseva. “He teaches the second year course on the civil code, and examines. Moreover, he insists that students get practical experience by attending sessions of the Supreme Arbitration Court and completing internships there.” Ivanov himself complains that he now only has time for three or four publications per year.

Ivanov is notable for having taken a principled position against siloviki policy in the state sector of the economy. In June he called for a moratorium on the creation of state corporations such as giant defense sector and engineering holding Russian Technologies, headed by leading silovik Sergei Chemezov, a personal friend of Vladimir Putin’s. Ivanov argued that Russia’s civil code does not envisage any such hybrid form of private and state property, and demanded “common norms for all legal entities.”

Likewise, Medvedev’s rhetoric against “legal nihilism” and his calls to strengthen the rule of law obviously draw on his roots in jurisprudence.

On the other hand, the civiliki network might turn into a “jobs for the boys” club, ensuring the loyalty to Medvedev of what are meant to be independent institutions. On July 7, for instance, a former St. Petersburg law faculty member, Sergei Mavrin, was proposed by Medvedev as deputy chairman of the constitutional court. Prior to this, new legal amendments empowered the president to propose candidates, whereas previously judges had voted on new members. Mavrin is now widely tipped to head the constitutional court when current head Valery Zorkin steps down in 2012.

So the crucial test for Medvedev’s presidency could be whether his declared interest in strengthening legal norms is actually implemented, or whether his academic background will simply serve him as a source of cadres, equivalent to Vladimir Putin’s siloviki network.

Similarly in U.S.-Russian relations, a reset will only work if Obama’s and Medvedev’s shared legal background helps them move ahead with strengthening the rule of law in the international sphere. If their legal interest is simply used as a basis to build a personal relationship, the history of the previous two presidential pairs, where personal friendship failed to prevent escalation of Russian-U.S. tension, may be doomed to repeat itself.

Cut the budget deficit and raise energy prices, Biden tells Ukraine

Graham Stack in Kyiv

In a speech in Kiev yesterday July 23, on the last of his Ukraine visit, US vice president Joe Biden told Ukraine to do exactly what the IMF says, and on two specific points: “The Fund requires that your government, and your government agreed to critical reforms to cut the budget deficit, revive a striving [sic*] banking system, and phase out energy subsidies, which I know from experience is a very difficult thing to do. Carrying out this agreement requires very hard choices and tough action, but it will help put you on the road to growth and competitiveness.”

Biden told Ukraine that, “moving toward market pricing for energy is brave, but also absolutely necessary pre-condition.”

Biden argued that shifting to market prices would strengthen Ukraine’s energy security. However, it also the Russian position that Ukraine must shift to market prices for gas.

If the US is resetting its relationship with Russia, it appears the US is also rethinking its relationship with Ukraine.

Biden as expected committed to Ukraine’s independence and sovereignty, and praised Ukraine’s democracy as the ‘the freest country in the region.” He emphasized however NATO or EU membership would be entirely Ukraine’s choice, and that the US would not push Ukraine to join. “The USA supports Ukraine’s deepening ties to NATO and to the European Union. But again, we recognize they are your decisions, your choices, not ours whether you choose the EU or seek to, or NATO. We recognize that how far and how fast to proceed on your choices is, again, a uniquely Ukrainian choice — it is not ours.”

Yesterday, Biden warned that the sustainability of Ukraine’s democracy was threatened by economic collapse and pervasive corruption.

“Mature democracies survive because they develop institutions such as a free press, a truly independent court system, an effective legislature – all of which serve as a check on the corruption that fuels the cynicism and limits growth in any country, including yours,” Biden said. Referring to Ukraine’s economic problems, Mr Biden asked: “Can you name me a place where democracy has flourished where the economic system has failed?”

He also harangued ruling politicians for their failure to work together. “Communications among leaders has broken down to such an extent that political posturing appears to prevent progress.”

Committing the US to respect for national sovereignty is a retreat from the neocon supremacist position, and, although delivered with an anti-Russian twist in the Georgian context, in facts coincides with longheld Russian and Chinese demands for the US to abide by international law.

Underlining the shift, Biden said the US was committed to a “multi-polar world” – an expression straight out of the Putin / Primakov phrasebook.

Ukraine’s poisoned president launches doomed bid for second term

Graham Stack in Kiev

Ukrainian president Viktor Yushchenko, the world’s most unpopular president according to opinion polls, climbed Ukraine’s highest mountain Sunday July 19 to prove his fitness for a second term in office. At the summit of Mount Hoverla (2016m) in the Carpathians, with a view westwards to the Europe he aspires to, Yushchenko announced officially that he would run for a second term in office in elections in January 2010.

“I would like to officially announce here that I will be running for the Ukrainian presidency in January,” he said.

A small band of supporters who had followed him to the peak in beautiful summer weather struggled with tears after his announcement. Opinion polls give Yushchenko an approval rating of only 2% – less than the margin of error – meaning he is facing utter humiliation in the elections. Pollsters point out that his rating constitutes a world record for unpopularity. His motorcade regularly encounters a hostile cacophony of blaring horns as it winds through Kiev streets.

Yushchenko’s record-breaking unpopularity is astonishing considering his initial approval rating of over 60% on taking office in January 2005. Yushchenko was swept to power by mass protests against electoral fraud in late 2004, known as the Orange Revolution. In the run-up to the rigged elections, opponents poisoned Yushchenko with dioxin. The images of his severe facial scarring that resulted have become an icon of people’s struggle for democracy.

The scarring, the medical term for which is chloracne, and facial immobility are still very obvious. The subtext of yesterday’s ascent of Hoverla was not only symbolic, but also simply to prove that the president is physically fit enough for high office in times of crisis.

Poisoned chalice

Leading international toxicologists familiar with the case argue however that the poison has massively impaired the president’s performance. They dispute Yuschenko’s claim that his body has got rid of 95% of what was one of the highest dioxin doses in humans ever recorded.

“My belief is that he will suffer many ill effects of dioxin for many years, including possible brain damage,” says dioxin expert University of Texas professor Arnold Schechter. “His chloracne not only affects the face, but the whole body – as every single follicle may be involved in severe cases as the one of president Yushchenko is,” agrees Vienna’s Alexandra Geusau.

Yuschenko has traditionally said little about the effects of the still unsolved poisoning, except to claim he is in good health. Last month, however, he admitted he had undergone 26 secret operations in the first two years of his presidency. “Nobody knew about the operations, because they were carried out at the weekend, on Friday evenings, and on Monday I was already back at work,” Yushchenko told journalists, adding that each operation lasted over three hours.

Toxicologists say Yushchenko’s out-of-touch performance in office is a direct result of the poisoning.

During the Orange Revolution, the poisoning added fuel to the popular fury at stolen elections. But according to Valery Khmelko, president of Kyiv International Institute of Sociology, “following the poisoning, Yushchenko became more interested in his presidential palaces, amateur history and bee-keeping than in running the country.” Crisis-hit Ukrainians see their president as out of touch with reality and incapable of exercising power.

British toxicologist Alastair Hay of Leeds University lists lethargy, enervation, numbness, liver damage and weakened immune system as medium-term consequences of dioxin poisoning

“Yuschenko’s behaviour is what you might expect from someone exposed to dioxin in the quantities he was,” says Hay. “The chloracne indicates he is genetically susceptible to dioxins, so he may have many systems of his body damaged. It must have taken an effort of will to continue in his high-octane job.”

Now, in a bitter irony of history, the clear favorite to win the upcoming elections is the man whom the Orange Revolution prevented seizing power in 2004, pro-Russian former Prime Minister Viktor Yanukovych.

A further bitter blow is the decision on the part of Barack Obama’s new US administration to send only the vice president to Ukraine, while Obama himself visited Moscow last week without any stop-over in Kiev. Yushchenko has staked everything on a pro-US foreign policy aiming at NATO membership, and Obama’s rapprochement policy with Moscow is making this look like a dead end.

Earlier this week, Yushchenko’s foreign policy spokesman said pointedly that the main topic of discussion with Biden would be to negotiate a visit to Kiev by Obama himself.

Putin reminds that it was Russia that dissolved the Soviet Union

Speaking with the Russia-watchers of the Valdai discussion club yesterday September 11 in Sochi, Prime Minister Vladimir Putin denied claims Russia was acting imperialistically regarding its former Soviet neighbours.

Putin significantly pointed out that it was Russia that did most to end the Soviet Union seventeen years ago.

“Russia initiated the end of the former Soviet Union. If not for the position of Russia, the USSR would have existed until now. We made the decision long ago and have no wish or grounds to encroach on the sovereignty of former Soviet republics,” he said, according to Interfax.

Heritage Foundation’s Ariel Cohen also said Putin denied that Russia had any territorial claims to the Crimea.

“We came to an agreement with Ukraine on borders a long time ago, during the collapse of the USSR, and we recognized those borders,” Putin said, according to Interfax.

Foreign Minister Sergei Lavrov, visiting Poland, also denied there was a prospect of South Ossetia uniting with North Ossetia.

“South Ossetia does not want to join anything,” Lavrov told a news conference, according to Interfax.

Earlier South Ossetian president Eduard Kokoity indicated that South Ossetia would united with Russia’s constituent North Caucasus republic North Ossetia.

Commenting on the situation on Russia’s financial markets, Putin denied there was a liquidity crisis, saying that the Central Bank has offered banks more funds than they actually took up.

Putin also denied the Georgian war was to blame for the steep Russian stock market drop, saying it was caused by the global financial crisis, and this in turn caused by the US current account and budget deficits.

Graham Stack / bne

United Russia – a conservative party?

Graham Stack for Russia Profile
Putin’s party United Russia is increasingly referring to itself as a ‘ ‘conservative’ party. But is it anything like a conservative party in the Western sense?

One of the surprises following the death of Alexander Solzhenitsyn has been the reaction of Putin’s party United Russia. While the laments and praise of liberal figures, and the silence of the Communists were predictable, the leadership of United Russia was unexpectedly vocal in claiming Solzhenitsyn as one of its own – as a conservative.

Andrei Isaev, head of the Duma committee on labour and social policy, and leader of United Russia’s Centre for social-conservative policy, called Solzhenitsyn August 14th ‘the founder of conservative ideology in Russia,’ according to polit.ru

And with Solzhenitsyn’s death closely followed by the 100th day of Dmitry Medvedev’s presidency, United Russia figures were quick to claim the new president as one of their own as well – as a conservative. Isaev claimed that Medvedev was no liberal but “just as much a conservative as Putin.”

There are even rumours afoot that United Russia is about to adopt ‘conservatism’ as the sole definition of its ideology at its party conference in November.

‘Conservatism’ would then replace the current master concept of ’sovereign democracy’, dubbed by critics ’sovereign disregard for democracy’. Medvedev himself has publicly criticized the ’sovereign democracy’ concept, and Putin, now United Russia’s honory chairman, himself has repeatedly savaged for its lack of any clear ideology.

Political conservatism in Russia is paradoxical – the very word had to be imported from English, and is unfortunately consonant with the Russian for condom. Russia’s conservatives in the literal sense would seem to be the Communists and nationalist parties, harking back to Soviet and imperial greatness – and propogating the very opposite of Western conservative values.

So is United Russia really going conservative, or is the label just a Potemkin village?

“There isn’t, in my view, a Russian equivalent to the conservatism of European Christian Democrats or of either the free-market trend or the one-nation trend in British conservatism,” says Phillip Hanson, emeritus professor at Britain’s foreign policy institute Chatham House. “Russian conservatism as the Russian political mainstream is dogmatically nationalist and its connections with business are close and corrupt, but Russian political conservatism is not business-friendly in the sense of either dancing to the tune of big business, or seeking to promote a good business environment for all comers.”

However, politics professor Nikolai Petro of Rhode Island University, disagrees:

“I believe that United Russia is what political scientists like to call a “catch all party;” i.e., one that defines itself not in partisan terms, but as THE party of law, order, and prosperity, an agenda that transcends political divisions. They model themselves on the French Gaullists, whose purpose is to preserve a politically viable elite in power, not to promote any particular ideology. (…) Also, as the country as a whole is becoming more aware of its pre-Soviet historical identity, it is becoming more comfortable with an identity that is truly “conservative,” in the traditional sense. Such an identity was severely repressed in Soviet times, and is just now beginning to become politically significant, with the political rise of young people”

Private property and political rights are key to conservatism

Conservative parties the world over indulge in nationalist rhetoric, especially when it comes to foreign interference in domestic affairs, and also talk tough about law and order. The key to conservatism, however, is that all the “strong state” talk stops as soon it comes to private property and political rights. Because basically, conservatism is all about political rights protecting private property from state intervention.

This is the million dollar question about Russian conservatism.

“Russian society views conservatism as the idea of strong state protection. Conservatism has stronger traditions in Russian politics than socialism. At the same time, elements of the socialist past are regarded as part of the idea of conservatism as well,” says Alexander Rahr of Germany’s foreign policy think tank German Society for Foreign Policy.

So in Russian conservatism with a small c, the protection of private property plays a small role – because historically private property has played a small role in Russia.

Now, however, with 80% of Russians homeowners, after the privatization of the 1990s, conservatism theoretically has a natural constituency – a vast one at that.

However, United Russia are clearly reluctant to harp on about private property. The reason is that the population de facto owned their apartments in late Soviet times, although they could not buy and sell them. “Private property”, on the other hand, is still widely associated with the injustice of the 1990s’ privatizations that saw a class of ‘oligarchs’ emerge. And, although Vladimir Putin’s election in 2000 arguably saved the 1990s privatization from reversal, the Putin administration resorted on occasion to anti-oligarch rhetoric, and in the notorious Yukos case, to very real deeds.

So the jury is out on whether Russia’s self-named conservatives really understand that the key to conservatism is the self-restricting state.

Critics point to media control, violence in Chechnya, nationalization of key companies and appointment of regional governors as indicating otherwise.

Putin supporters, on the other hand, argue that it was Putin who saved privatization from reversal, unified the legal space, introduced private ownership of land, brought in jury trials, slashed the draft, retained the death penalty moratorium and, finally, stepped down after two terms.

With this ambivalence at the heart of Russia conservatism, it is telling that the homage paid to Solzhenitsyn was also ambivalent.

For all that Solzhenitsyn loathed communism, Isaev finds in him support for a gradual move from communism instead of the ‘ultraliberal course’ embarked on in the 1990s by Boris Yeltsin, i.e. as a critique of privatization.

“I remember that Solzhenitsyn’s article ‘How to rebuild Russia’ of 1990 seemed to many in the country to be too moderate, conservative and even out of touch,” says Isaev. “But now, with hindsight, if we had listened to him then, we would have been able to avoid many disasters.”

Russian’s wannabe conservatives might better heed Solzhenitsyn’s more recent words – in his last interview – on the importance to conservatism of property rights and entrepreneurship.

“Although many fortunes were amassed in Yeltsin’s times by ransacking, the only reasonable way to correct the situation is not to go after big businesses but to give breathing room to medium and small businesses. That means protecting citizens and small entrepreneurs from arbitrary rule and corruption,” Solzhenitsyn told Germany’s Der Spiegel in 2007.

Conservatives prefer evolution to revolution – and Russia’s conservatives, like Russia itself, are themselves still only evolving.

Equal-Distancing of the oligarchs: Did it work?

Graham Stack for Russia Profile

The name Roman Abramovich is back in the headlines this week in Russia -in connection with yesterday’s UEFA cup final in Moscow May 21, where Chelsea, the team he has pumped hundreds of millions into, were unlucky to lose to Manchester United. But coming a week after a new Russian government and Kremlin administration were announced, it was revealing that nowadays political intrigue surrounding Abramovich concerns the Chelsea board and locker rooms. Only a few years ago, Abramovich was regarded as one of the main power brokers in the Kremlin. So what has changed?

Veteran head of the opposition Communist Party Gennady Zyuganov, whose party voted against Putin’s appointment as prime minister May 8, commented in an interview with Vedomosti last week, “Putin started with seven billionaires, and now there are over 100.” But even he did not allege that the oligarchs had a say in last week’s major government reshuffle.

Compare that with the recent past of the Yeltsin era, and a qualitative difference is clear. Yeltsin’s former finance minister, liberal Aleksandr Livschits, recalled vividly in 2004 how the late 90s oligarchs exercised control over government appointments:

“There were three stages in the 1990s. At the start there were simply rich people, for whatever reasons. Then they became magnates at the head of banks. (…) And then these magnates became oligarchs (…) They started to participate in politics, and they laid hands on the holy of holies. In politics, especially in Russia, there is one thing sacred – cadres. Laws, decrees, resolutions are important but — the oligarchs should never have been allowed to determine who was minister, who was deputy prime minister. But they did. And I know about it not from rumours, but from my own experience. They called me in front of them after the 1996 elections and explained how I was to behave, and what I was to do, who I was to report to and what I was to show them. And they answered my question “and what will happen if I don’t” with the words «we’ll remove you». And they did remove me, and not just me.”

Boris Fydorov, another prominent Eltsin era liberal reformer, describes in his memoirs how oligarchs reacted when officials thwarted their wishes. In late 1997, 25% of telecommunications giant Svyazinvest was put up for sale – and the much criticised privatisation authorities got what was generally recognised to be a fair price of $1.25m from an international consortium including Oneksim Bank and George Soros. This despite media oligarchs Boris Berezovsky and Vladimir Gusinsky having laid claim to the asset as their own.

According to Fydorov, Berezovsky’s response by phone was abrupt: “You’re f*******d” – and two days later the infamous «writers’s scandal» began, with Berezovsky’s and Gusinsky’s TV channels relentlessly pounding the government by unveiling ‘proof’ of kickbacks taken by privatisation officials. The scandal lead to a spate of dismissals of reformers, paralysing a government struggling to handle the effects of the Asian crisis, and delaying any coherent response until it was too late.

As distinguished political scientist Philip Hanson has written, by the end of the Yeltsin era «the dominant paradigm in analyses of Russian development was one of state assets ruthlessly plundered by a tiny, grasping elite of business ‘oligarchs’ who had ‘captured’ the state and taken over its functions.” Western journalists and analysts routinely referred to Russia as a kleptocracy.

Some oligarchs more equally distanced than others

Looking back, the astonishing thing about the all-powerful, but permanantly feuding oligarchs of the Yeltsin era is not the extent of their power, but the puniness of their wealth. None of the notorious oligarchs of the 1990s would have ranked among today’s 100 wealthiest Russians.

In 1998, Forbes counted only four billionaires in Russia. Ten years on, in March 2008, Forbes counts a staggering 110 billionaires worth a total of $522bn, topped by Oleg Deripaska, the head of holding company Basic Element, at $28.6 billion.

This begs the question of why the oligarchs lost their grip on the state at the same time they have grown so astronomically in size and number.

The turning point seems to have come 28 July, 2000, when newly-elected president Vladimir Putin met with the oligarchs. Recorded from the now legendary meeting were Putin’s words:

“We will prevent anyone sucking on to political authority and using it for their own goals. No clan, no oligarch should come close to regional or federal authorities – they should be kept equally distanced from politics.”

The phrase ‘equal distancing’ immediately entered Russian political jargon – flavoured with massive scepticism: Putin had come to power principally on the back of the Yeltsin family, the collection of bureaucrats and businessmen including Boris Berezovsky and Roman Abramovich, and was regarded as entirely their creation. Any talk of equal distancing seemed pie in the sky.

Times have changed: Now the criticism levelled at Putin and his friends is not that equal distancing is purely rhetorical, but that it is all too real. Moreover, some oligarchs have been more equally distanced than others: criminal proceedings caused Berezovsky and Gusinsky to flee the country, and Mikhail Khodorkovsky was jailed after crossing swords with the Kremlin behind the scenes.

As Philip Hanson has written, the decrease in oligarch power is partly due to a more disciplined state apparatus: „Putin has re-established central control over the machinery of state, while economic recovery has strengthened public finances. The state is therefore now a unified and stronger interlocutor, more able to assert itself over private interests.”

According to Richard Sakwa of University of Kent, “three things  changed” for political power shifting from the oligarchs to the Kremlin.

“Firstly, the nature of big business influence changed: now allowed to comment on socio-economic matters within the framework of government policy, but not to infringe on the clear sphere of governmental authority in public; secondly, the structure of big business also changed – with a number of ’state’ oligarchs, including those at the head of state corporations; thirdly, oligarch factions in government are offset and counter-balanced by other factions”

According to Alexander Rahr, one of Germany’s leading foreign policy advisers on Russia: “The answer is very simple: in 1999 Russia was poor and falling apart. The handful of oligarchs of the Yeltsin era were running the Russian economy and appointed ministers and state officials. Eight years later, the overall situation has changed. Russia is a rich capitalistic country and has a huge number of billionaires and millionaires who mainly have risen from the energy sector. They are an indication of Russia’s economic boom, not because of Putin’s policy.”

Rahr adds: “Putin stopped consulting with the oligarchs, as Yeltsin had. They lost access to the Kremlin.”

Although the Kremlin still consults with oligarchs, and on the president’s foreign trips they pack the official Kremlin delegation, even the fiercest Putin critics do not allege that Deripaska, Abramovich or their colleagues dictate policy or appointments.

The opposite is true. Philip Hansen writes that the current dominance of the state over business in Russia has “no parallel” in other similarly situated countries.

This was well illustrated in an interview given by Deripaska to the Financial Times last year. Deripaska ate humble pie, saying all he owned had fallen on his lap from the sky, and he would be prepared to cede his main asset, RusAl, the world’s largest aluminium producer, to the state at any time. This was the polar opposite approach to Boris Berezovsky at his zenith, who notoriously informed the Western press that he and his oligarch colleagues had the right to rule Russia because they owned half of it.

Will current business acquiescence last, as Russian business expands and expands? According to Hanson, one factor leading to the pacification of the Yeltsin-era oligarchs was their massive unpopularity arising from the uncompetitive privatisation by which they came to their assets.

However, among the new billionaires are an increasing number who have built up their own businesses by providing new services to the population: in telecommunications, retail, and now even in the Internet. Yesterday, Russia’s prospective newest billionaire, and the first Internet oligarch, stepped forward – founder and co-owner of the Yandex search machine, Arkadii Volozh, evaluated at $5bn in the run up to an IPO this year.

In the Russia of ten years ago, Volozh would ranked among the richest men in the country – and speculation would have mounted over which government faction he was backing. Yesterday, no one blinked an eye.