24 May 2004 01:42
President Putin to Launch New Systematic Campaign Against Russian Oligarchs Say Analysts at London Think Tank Russian
Axis
Alfa Group's Mikhail Fridman Tops List of Vulnerable Businessmen LONDON, May 24 /CNW/ -- In his
state-of-the-nation address scheduled for Wednesday, recently re-inaugurated President Vladimir Putin will provide for
the first time signals of a new campaign to methodically uproot Russia's system of "oligarchic
capitalism," according to analysts at Russian Axis, a think tank based here. Writing in a report released today,
Russian Axis forecasts that Putin, sworn in for a second term just two weeks ago, is expected to offer a "systemic
solution" to break the grip on the national economy that a small group of influential businessmen, often referred
to as "oligarchs," gained during the reign of his predecessor Boris Yeltsin. The address will be Putin's
first major speech of his new term. It will be delivered before both chambers of Parliament -- the State Duma and the
Federation Council. The analysts predict that Putin will reveal the contours of a de-oligarchisation campaign, while
stopping short of making an explicit policy statement at this stage due to the issue's continuing political
complexity. Important political messages articulated in Putin's address should gain force following the submission
in mid-June of a special report from the government Audit Chamber, the supreme body of state financial control in
Russia. The report is to comprehensively analyse the economic impact and legal aspects of the 1990s industrial
privatisations. Those often-rigged auctions put a big fraction of Russian GDP in the hands of a small group of
well-connected businessmen. Putin's address comes against the background of heightened media speculation in Moscow
that magnate Mikhail Fridman of Alfa Group, as well as Vladimir Potanin of Interros, has now appeared in the cross hairs
of the Kremlin's effort to undo one of the key negative economic legacies of the Yeltsin years. According to a
calendar of likely events included in the report by Russian Axis, a spike in the campaign is probable in mid-summer - a
time the Kremlin favours for controversial activities to exploit the light information flow of the vacation season. The
arrest last year of oligarch Platon Lebedev, a principal shareholder in the oil company YUKOS, under investigation for
massive tax evasion, took place in early July. The think tank report is titled "The Second Presidential Term of
Vladimir Putin and the Coming Campaign of De-Oligarchisation - Possible Scenarios." It says that the Russian
President will move qualitatively beyond the seemingly ad hoc and selective assaults on big businesses seen during his
first term. (Those actions included the exiling of Boris Berezovsky of Logovaz and Vladimir Gusinsky of MOST Group, and
involve the continuing investigation of YUKOS and incarceration of former chairman Mikhail Khodorkovsky.) The report
says that a renewed, more "systemic solution" for de-oligarchisation will be based on new tax legislation and
anti-monopoly regulation and on winning the support of domestic and international public opinion. The report details ten
big private business groups vulnerable to becoming targets of the de-oligarchisation campaign. Each is given a rating
according to a set of susceptibility criteria derived from Russian Axis' exclusive methodology. The criteria range
from volume of capital concentration in relation to the federal budget, to accumulated resources for lobbying Russian
and particularly foreign governmental entities. Topping the list of vulnerable companies in the report is Alfa Group, a
sprawling financial and industrial empire founded and lead by 40-year-old oligarch Mikhail Fridman. Alfa received a
susceptibility rating of 7.64, compared with second-highest Interros at 5.01. The principal reasons for Alfa's top
rating include a unique confluence of economic concentration in natural-resource industries, the Kremlin's
perception of monopolistic tendencies, and disproportionately high levels of political influence within Moscow and the
West in both the private and public sectors. Third in the ranking was the RUSAL-Base Element conglomerate of 36-year-
old Oleg Deripaska; it had a vulnerability of rating 4.01. Fifty-one-year-old Vladimir Bogdanov's Surgutneftegaz
oil company received the lowest rating of the ten business groups at 1.01. "Our goal in this report was to go
beyond reading tea leaves and merely making predictions to providing a thorough analytical framework for understanding
possible future scenarios of Kremlin de-oligarchisation policy based on actual trends and conditions," said Dr
Vadim Malkin, head of Russian Axis and editor of the report. "Having done that, we do have a high level of
confidence that this policy of the Putin Administration will unfold consistent with our evaluation of the
situation." Drawing a distinction between Putin's first-term anti-oligarch efforts and now, Dr Malkin noted:
"Earlier the oligarchs had sufficient power to be described almost as states-within-a-state, which was the
fundamental problem for the Kremlin, but now the balance has shifted toward President Putin. "The earlier implicit
pact that all you have to do is stay out of politics and you have virtually free reign in business no longer applies.
Consider that last year Putin met with the oligarchs before his state-of-the- nation speech to solicit views. This year
they will meet him only after the address and take what is handed to them. They are all vulnerable now." The
release of the Russian Axis report follows the announcement April 7 of a World Bank study warning of the retarding
impact of economic concentration in Russia. It said Russia's 23 largest business groups controlled more than a
third of the country's industry by sales and at least a sixth of its employment. The companies were said to be
inefficient compared with those controlled by other private owners. The powerful business blocs were said to be
capturing the majority of foreign investment, limiting other business segments' opportunity for growth. The
Financial Times quoted Christof Ruhl, chief economist for the World Bank's Moscow office, who coordinated the
research, as saying: "Russia needs to do what the Americans did 100 years ago by introducing tough antitrust rules
and anti-monopoly regulation to create fair competition." Where resistance by large business structures is met, it
is believed that the Kremlin will also utilise external levers, including seeking cooperation from foreign officials
that are perceived to be providing cover for the Russian magnates as a result of their extensive oversees lobbying
activities. According to Russian Axis, the imperative for a systemic approach to de- oligarchisation is driven by the
Kremlin's critical need to consolidate state power in still relatively young post-Soviet Russia, and to manage
effectively the disposal of scarce resources to immediately address problems of overwhelming social importance. These
issues include a crumbling housing and utilities infrastructure that could spark social unrest, a disintegrating
military, and volatile relations with the states on Russia's periphery that were once part of the Soviet Union. The
British-based information and analytical centre Russian Axis is an independent non-governmental organisation, providing
Western experts on Russian affairs objective analysis including native perspectives and first- hand information. Russian
Axis published reports to date include "The 2004 Presidential Campaign" (76 pages) and "Ten Years of the
Russian Constitution" (44 pages). To view these studies and the current report visit our Web site at:
http://www.russianaxis.org. For additional information and up-to-date commentary on the upcoming state-of-the-nation
speech, please contact Russian Axis: In London Fu tel: +44 7789 230-199, Dr Vadim Malkin, Director General In Moscow Fu
tel: +7 095 506-9078, Dr Maxim Kiselev, Deputy Director General
VIEW ADDITIONAL COMPANY-SPECIFIC INFORMATION: http://www.newswire.ca/en/releases/orgDisplay.cgi?okey=96528 /For
further information: In London - Dr. Vadim Malkin of Russian Axis, +44-7789-230-199; or In Moscow - Dr Maxim Kiselev,
Deputy Director General, +7-095-506-9078/ /Web site: http://www.russianaxis.org/
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