PUTIN OR MEDVEDEV

Preparing for the 2012 Elections

Sergey Brin, one of the two inventors and billionaire owners of Google, the world’s largest Internet company, emigrated from Russia in 1979 at the early age of six. He described his country as “Nigeria with snow, controlled by a bunch of cowboys”. The question is, what kind of cowboys they really are. Good guys or bad guys? And who is a “good” and who is a “bad” guy, after all, in the eyes of Russia and the world?

The President’s choice

Speculation about who will lead the ex-USSR’s greatest successor state after the spring 2012 Presidential Elections has been going on for years. In 2008, after two consecutive presidential terms, the then 56 year old Vladimir Putin could easily have secured the right to stay in power, with his overwhelming, – and inconceivable in the Western world – popularity rate of eighty per cent. We still do not know why he did not push through the usual scenario favoured by Eastern successor states of the former Soviet Union, abolish the paragraph of the constitution that prohibits a third term, and establish himself as president for life. The oft-heard argument according to which the former Leningrad politician who, after his long years in the KGB, controlled his hometown’s foreign, and in particular German economic relations, would not have wanted to oppose the practices of Western democracies in 2008, is a weak one. Putin followed in nearly every other field the barely civilized customs of the Eastern autocracies, from the redistribution of the national wealth within his own circle, to the deliberate displacement of the former elite, to the violation of human rights. At the same time, he did everything to promote economic expansion towards the Western countries, powerfully symbolized in the double-headed eagle of Tsarist Russia, its one head looking to Asia, the other to Europe.

In December 2007 Putin named his former right-hand man, Dmitry Medvedev as his preferred successor as President. Medvedev was at that time the manager of his secretariat, a Law graduate, naturally also from St Petersburg, and last but not least the chairman of the mammoth Gazprom’s board of directors.

It was a different world then. The global financial crisis was only just starting to bite. Russian oil and natural gas had been exported for many years at an astronomical price. From the huge takings, Moscow paid off its foreign debts and bared its imperial teeth again in Ukraine, Georgia and even in former Eastern European countries. It appeared that the President of Russia would lose little skin off his nose by putting up a stooge for a relatively short period.

When Putin named Medvedev as his successor, the world breathed a kind of collective sigh of relief, despite the fact that the process had so little in common with conventional Western democratic practice.

The pleasant, mild-mannered Medvedev came from an old family of academics and was evidently easier to cope with than his predecessor, who was a firm believer in a rough if not brutal state. The vast majority of Russian voters chose him in an orderly way. It seemed obvious to everyone that his long standing boss would simply bide his time for four years as Russian Prime Minister, then run for another eight years as President.

As usual however, events did not exactly follow Putin’s game plan. This time it was not a rebellion of the praetorian guard, a frequent recurrence over the centuries of Russian history, that changed the balance of forces; it was the global economy. The crisis diminished the possibilities for Russian economic expansion, because the fall in production in the export destination countries dramatically reduced their demand for energy products. In 2011, importers – even Germany, Russia’s greatest ally – refused, one by one, to accept the quantities of oil and gas stipulated in the long-term contracts imposed on customers by Moscow. First the Italian ENI, then – most recently – E.ON have initiated arbitration proceedings. For obvious reasons – its involvement in the South Stream project – Moscow surrendered to ENI. It looks set to behave in the same way with E.ON.

During Medvedev’s reign, the national income decreased in Russia, while the deficit and inflation, in particular, increased dramatically to ten per cent. At the same time, an expansion which became increasingly aggressive during the almost biblical seven years of plenty backfired; its climax was the memorable and recurrent shut-down of the gas taps, with the intention of obstructing Ukraine’s Western orientation. For three winters in a row, the interruption in gas supplies cut by the Russian authorities during the coldest days of January caused a quasi-wartime emergency in a dozen European countries, including EU member states. The European Union was thrown first onto the defensive, then stung into taking punitive counter-measures. Its Third Energy Charter, which reacted inter alia to these events, came into force on 3 March, 2011.

Putin’s “bomb-proof” plots were to a certain extent obstructed by the surprisingly successful performance of his successor. The Western world observed with satisfaction Dmitry Medvedev’s declarations on lawfulness and human rights, as well as his more flexible style in negotiations. Such appreciation culminated on 9 March, 2011 during a meeting at the Kremlin, when US Vice President Joe Biden indicated clearly to him, that during the upcoming elections he will be supported by Washington against Vladimir Putin. On the morrow of the Medvedev-meeting, the American Vice President met the Russian Prime Minister as well. According to the official communique, such old chestnuts as Russian–American economic relations and Moscow’s WTO adherence were discussed. In reality, rumour has it, the guest made an unusual offer to Putin: if he were prepared not to stand in the election, he could become the next UN Secretary-General. And if this was not enough, he would be offered the chair of the International Olympic Committee.

A “feasibility study” of this extremely crude “project”, the rumours continued, had even been made. The Americans allegedly planned a series of sanctions; that in case the Russian Prime Minister resisted, they would repeatedly refuse visas to Vladimir Putin’s friends who control the huge country’s economy, its entire foreign trade – especially weapons transport, oil and gas export and other strategic sectors. If they still did not know how to take a hint, their European and overseas bank accounts would be frozen. The latter measure was already applied on one occasion, some years ago, against mammoth Russian companies that violated the embargo imposed on Iran.

During the last months of the disintegration of the Soviet Union, the empire’s first and last president, Mikhail Gorbachev craved the post of United Nations Secretary-General. Putin, on the other hand, is at the peak of his powers, and can easily win the next presidential elections, notwithstanding any dip in his domestic popularity caused by various scurrilous and probably manipulated reports, about the construction of luxurious palaces. He is supported in his endeavour not only by the income from rising oil and gas prices, but also by his continued control of the power-enforcement organizations. The same services which, prior to the presidential elections in 2000, allegedly posed as Chechen terrorist groups to cause explosions which demolished residential buildings in Russian cities, to convince voters to stand by the strong and heavy-handed politician who would defend them from such atrocities.

Medvedev has a dream

According to independent analysts in Moscow, the interpretation of the Biden visit detailed above could have originated in the dread of the elite which has formed in the last three years around Medvedev losing power and influence. And if they are afraid, that could not possibly mean that Putin is preparing to step down. The recurrent assumption in the world press for many years, that the two politicians have agreed between themselves on the future has no further validity. It might have been true in 2007/2008, but then again, why would the resigning Head of State create Rostechnologii, a company uniting several hundred huge military and vehicle industry enterprises under the direction of Sergey Chemezov, his former fellow KGB agent? By doing so, he virtually secured for himself – against Medvedev – access to the profit of such valuable and gigantic holdings.

Moreover, by the summer of 2011, the two strong candidates for the presidency have become openly opposed to one another. Hardly a day passes without an innuendo from one side or the other. The legend of the “deal” between Medvedev and Putin must be abandoned.

Medvedev is increasingly and visibly prone to take advantage of the possibilities residing in the unquestionable sympathies of the West. His advisers base their moves on the fact that, besides the sense of superiority rooted partly in religion, partly in two centuries of imperial history, many citizens of this huge country, including a large part of its elite, even today look up to the Western world as the incarnation of the prosperity they desire. This contrasts with the hostile perception of the United States which took root right at the start of the Soviet era, including the harshest years of the Cold War, and was fed by envy, by an inferiority complex, and by the desire to outdo it. In 1959, First Secretary of the Communist Party Nikita Khrushchev threatened (or in his view, no doubt flattered) US President Eisenhower that his grandchildren would become dedicated followers of communism. As we know, the exact opposite happened: “Tsar Nikita’s” grandchildren have now been American citizens for about twenty years. Listening to Dmitry Medvedev’s speech at Stanford University during his visit to the US, one could not fail to get the impression that that controversial desire “to catch up with and outrun the US” is present once again in Russian politics. “I wanted to see with my own eyes the source of success, how a business, and what is more, an innovative, cutting-edge business is made”, the present-day leader of the Kremlin told his audience. His visit to this magical university campus, alma mater to many great scientists, was no coincidence.

Already in November 2009, Medvedev called for a movement to establish in Russia a kind of “innovation city”, a scientific centre for cutting edge research. This popular idea – behind which it is not hard to discover a deliberate opposition to the very different priorities of Putin’s circle – is slowly taking shape. In February 2010, Medvedev signed a decree ordering the creation of the Russian Silicon Valley, and on 9 March, 2010 the first meeting on the project was held in his Kremlin study. The stakeholders made an important decision on the location of the future innovation city. The chosen place is Skolkovo – near (by Russian standards) Moscow, already home to several serious scientific centres, including the Cosmic Relations Centre. The Business School, nicknamed the “Oligarchs School”, is conveniently located in the same place.

This is important because the intention is to create the Russian Silicon Valley not only from state resources, but also with the active participation of billionaires loyal to Kremlin. And quite expediently: Medvedev wants to involve owners of the huge construction companies who managed the largest construction works in the Russian capital and who own extensive land around Skolkovo. The Russian activities of this innovation centre, which will also have important international relations, will be directed by Viktor Vekselberg (a resident of Switzerland).

The 53 year old businessman was the world’s 44th richest entrepreneur before the crisis. The unofficial king of Russian titanium and aluminum also has a considerable fortune in the energy sector – partly in BP’s Russian enterprise, the TNK-BP, which was at the centre of various scandals in 2011, partly in his home country, Ukraine. He has countless monumental enterprises, some of dubious reputation. Vekselberg’s company snapped up, for example, in controversial circumstances the building of the Hungarian Trade Centre in Moscow for the equilavent of 3.5 billion forints, and caused a loss of several billion forints to the Hungarian state. A knowledge of at least the broad outlines of these careers could be useful, if we want to see the background of the Russian presidential elections as the fight between the “good” and the “bad” guys.

Vekselberg has gotten into trouble with the authorities several times both at home and in Switzerland. He has, however, done a lot for Russian culture. In February 2004, for instance, he bought for 100 million dollars the Fabergé eggs put up for auction by the Forbes family in New York, once owned by the last tsar, Nicholas II. He also acquired in 2006 the beautiful old bell of Lowell House, Harvard and returned it to its original place, the Danilov monastery in Moscow. The bell had been sold with many other devotional objects in 1930, because, after all, “why would an atheist country need bells?” These latter arrangements cost Vekselberg only a million dollars, including the price of the new bell made for Lowell House.

The oligarch, who provides frequent political and economic services to the Kremlin, is not the only one taking part in the realization of Medvedev’s dream of a Russian Silicon Valley. The person known for his similarly controversial political-economic activities, not to mention the purchase of Chelsea Football Club and the building of the world’s largest private yacht, Roman Abramovich is also on board. Then there is Anatoly Chubais who is loathed by many Russians to this day as the father of a voucher privatization scheme which failed ignominiously in the early 1990s. For Putin and Medvedev however, he was also the mentor, the father figure of the Petersburg group from the mid-1980s. He has every right to be concerned with the Russian Silicon Valley dream, since he stands – and has done for some time – at the head of the well-financed, state-owned mammoth holding which manages the country’s nanotechnology research.

Another important person responsible for the project, also present at the March 2010 meeting, is Boris Gromov, governor of the region selected for the location of the innovation city. There are no business successes, no huge enterprises to recite in his case. But General Gromov was the Commander of the 40th Army, the last soldier to leave Afghanistan at the end of the Soviet occupation, on foot, just like General Viktor Shilov left Hungary on 19 June 1991. It is hard to imagine how a person who received the gold star of “the Hero of the Soviet Union” for leading a bloody military intervention, a soldier turned politician, will represent the spirit of innovation.

In Stanford, they tried to explain to Medvedev that Silicon Valley is not a territory, but a “state of mind”. And that is where we arrive at the doubts the Russian press formulates more and more often. The American Silicon Valley did not come into being by the will of the State, not even with its participation; it was born as an organic, inherent development, following its own principles and purposes. Its activities did not have to be subordinate to a bureaucracy with a completely different agenda than that of science. Yet Vladislav Surkov has already laid hands on an idea destined to be the symbol of Medvedev’s reign. The same Surkov who, as the main ideologist of the Kremlin, or of Vladimir Putin, organized the movements to crush the “orange revolutions” at birth, is the relentless father of the “sovereign democracy” theory whose purpose is to whitewash autocracy. The reason is easy to guess: this attractive, useful idea has thus become the maidservant of Russia’s new nationalism. But the largest successor state of the Soviet Union still has a great dormant intellectual power. It is a cause for concern that two Nobel prize laureate scientists – the still faithfully communist Russian Zhores Alferov and the American (moreover, Stanfordian) Roger David Kornberg – declined the offer of posts as scientific leaders of Skolkovo. It is another cause for concern that the interest of Nokia, Philips and Boeing in the plan, is in vain. The unknown Russian blogger will probably be proven right: he expressed his sadness that chinovniks will snatch half the money allocated to the project, and if after all some young scientist does achieve serious results, he or she will be brain-drained from Skolkovo by helpful transnational enterprises; in Skolkovo for the time being, malicious gossips suggest, only the prostitutes are established, in the hope of future customers.

Putin has a dream too

It is interesting to compare the – value-oriented, by our standards – ideas of the Head of State with those of a Prime Minister who follows the rules of another logic. The most tangible example of this may be found in the long and ambitious article by Mr Putin published in the German daily Süddeutsche Zeitung on 25 November, 2010, in which the abrasive politician began an unexpected, though not entirely surprising campaign against Brussels. The essay entitled “Russia and Europe: from learning a lesson from the crisis, to a new agenda of partnership” was received with astonishment and incomprehension by the global political and economic elite. Even in Moscow, where according to certain analysts, “Vladimir Putin is misinformed by his advisers” on the perspectives of the EU’s energy market; while others think that the Head of Government is bluffing. The first hypothesis can be rejected out of hand, since there can be no Prime Minister so comprehensively informed, and in such a timely manner, of global developments in the oil and gas sector, as Putin. The second assumption – that the text struck the world press like a bombshell and might be a bluff – is a bit more complicated.

The script prepared for a forum of leaders and top managers of German enterprises contains five main items. The first proposal is the creation of a harmonious economic community stretching from Lisbon to Vladivostok. Putin does not specify what would make an economic community harmonious, but moves on immediately. In his view, this would lay the foundations of a free trade zone or of “even more advanced forms of economic integration”. The Russian Prime Minister urges a common industrial policy “based on the aggregation of technology and resource potential of Russia and the EU”. and “the implementation of joint development programs for small and medium enterprises active in the real economy”. Following these two rather general proposals, the author proposes the third point of this cooperation agenda, which aims at the creation of a “common energy complex”. In his own words: “this idea bangs literally at the door”. We do not know exactly what the Russian Prime Minister has in mind with this complex. What we do know is that the purpose of the article was exactly this vague sentence. The fourth and fifth items – “the necessity of securing the leading position of European science and education”, and “the elimination of the visa requirement for travel between Russia and EU member states” – were no more than necessary stock phrases. As was the conclusion of Putin’s program, that the implementation of these proposals “would demonstrate the real integration of the EU and Russia”.

With this contribution, very unusual from a man in his position, as well as with other speeches given and discussions held during his visit to Germany, Putin was defending Russian energy policy, which has been forced onto the defensive by a number of different reasons. The principles laid down in the Third European Energy Package struck a terrible blow against the position acquired by Russian companies in Europe, in particular Gazprom. It is well-known that in order to guarantee the liberalization of the energy market, Brussels forbids companies which exploit and sell fossil fuels to own oil and gas pipelines. They have either to sell them, or to organize them into affiliated companies, or into independent structures specifying expenditure and income in a precise and controllable way.

For the time being it is hard to foretell whether and if so when, this in principle price-cutting measure – the third EU energy package – will in reality moderate prices, since it cannot eliminate, but will at least weaken monopoly. What goes without saying is that the third energy package is directed against Gazprom. This is mostly the Russian giant’s fault, since the loss of confidence caused by the repeated gas supply cut-offs from January 2006 seems irreversible.

It is absolutely certain that no innocent millions would have had to do without heating, hot water, and cooking for three winter periods in consequence of the Kiev–Moscow dispute, if the Kremlin had allowed foreign companies to enter the gas supply market, and if it had not insisted on retaining exclusive state ownership of this strategic sector. But far from letting foreign energy companies take a share in the ownership of the pipelines, Putin and his circle prevent even Russian oligarchs, connected to the Kremlin through thousands of mutually advantageous economic links, from buying themselves into the networks. Oil supply is the exclusive monopoly of Transneft, gas supply of Gazprom, while larger and smaller Russian gas exploiters complain incessantly about their losses due to Gazprom’s monopoly.

In the Süddeutsche Zeitung Putin threatened Europe: should the extractive and selling enterprises surrender the ownership of supply systems, this would “undermine the willingness (sic!) of investors to invest in new projects. As a result, it could happen that, instead of enjoying the benefits of a competitive market, we come face to face in a few years with a dilapidated infrastructure, shortage of energy sources and consequently high prices for European consumers.” “Our ability to learn to take into account, not in words but in deeds, our mutual strategic interests is of crucial importance”, Putin writes.

The announcement of the Russian politician is strangely and frighteningly reminiscent of the “peace movement”, personally initiated for Europe by Stalin almost six decades ago, the real objective of which was the violent expansion of Soviet Russia, disguised in honeyed phrases. The wording – absolutely unlike Vladimir Putin’s usual style – evokes, no less strangely, – the style of “Brezhnev stagnation”: the hammering in of unrealistic imperial objectives with the use of obscure expressions.

The attitude of one of the world’s most powerful politicians is, however, easy to understand. For long years, Gazprom had holdings in the local natural gas network in nearly a dozen of countries – including Lithuania, Germany, Poland, Latvia, and Estonia. The Polish and Lithuanian governments have already initiated a (de facto nationalization) procedure against the Russian company, and other capitals have also declared their intention to follow suit. 

Gazprom’s argument against this seemingly unstoppable process is that if the network is in the hands of an owner who is independent of the company which exploits and sells the resources, it will focus solely on profit rather than development, while the enlargement of the network serves the exploiter’s profit, and is thus in its interest.

Such reasoning is deeply false, while the concern is certainly justified. Even so, in the spirit of Orwell’s maxim that “all animals are equal, but some animals are more equal than others”, which is also valid in Brussels, those German and French giants with the strongest lobbying potential in the European Union – inter alia E.ON – have already secured exemptions from any gas pipeline sell-off. The same lobbying activity has successfully ensured that investors and owners of the North Stream pipeline, under rapid construction due to Russian–German collaboration, are also exempt from the obligation to sell.

Putin’s firm action in Germany was in reality a cry for help – and in this sense the opinion published in the economic press in Moscow was right, it was a bluff. To protect the interests of the Russian energy sector, an unprecedentedly strong attitude is to be expected from the Kremlin. This is Putin’s credo, programme and the guarantee of his victory in the spring of 2012.
 

Translation by Szilvia Kazanlár and Nick Thorpe

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