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Russia Report: October 15, 2001

15 October 2001, Volume 1, Number 25

The Moscow Arbitration Court's recent decision ordering the liquidation of the TV-6 network provides yet another example of the Russian media's predicament under Vladimir Putin. The president regularly pays lip service to the idea of press freedom. In a recent interview to the German television network ARD, quoted by the Arkhangelsk newspaper "Pravda Severa" on 13 October, Putin said, "In any normal democratic society the media and the press, as a rule, are in the opposition. It's a natural position. In large part that's how it should be [....]."

Putin may accept the existence of opposition media in an abstract sense, especially when speaking to a foreign audience. The trouble is, Russian media outlets that do provide alternative news and analysis tend to confront potentially fatal legal and financial obstacles.

During the wide-ranging campaign against NTV and executives of its parent company, Media-MOST, Gazprom and Kremlin officials steadfastly maintained that political motives in no way influenced the course of events. In their view, Gazprom's efforts to collect debts owed to it, which culminated in the gas monopoly's takeover of NTV and the liquidation of Media-MOST, represented a normal business dispute between a debtor and creditor. Similarly, criminal investigations of Vladimir Gusinskii and his colleagues represented the dispassionate enforcement of Russian law.

In reality, double standards were evident during the campaign to change NTV's management and cripple Media-MOST. Fifty-one percent state-owned Russian Public Television and fully state-owned Russian Television networks had also accumulated large debts, and Audit Chamber investigations of those networks had uncovered ample evidence of financial abuses. But political loyalty appeared to protect those networks and their executives from criminal investigations and hostile takeovers.

Yet Media-MOST and its subsidiaries did owe hundreds of millions of dollars to Gazprom and various state-controlled banks. That fact prompted some optimistic analysts of contemporary Russia to conclude that NTV's fate was not a cautionary tale for all media companies. Perhaps it was merely an object lesson in the need for private media not to borrow imprudently.

TV-6's troubles with a minority shareholder since April suggest such optimism is unfounded. Partly state-owned oil company LUKoil was one of the founding investors in TV-6 in 1991. LUKoil-Garant, a private pension fund affiliated with LUKoil, has owned a 15 percent stake in TV-6 for years. Boris Berezovskii and entities controlled by him have owned shares in TV-6 since the early 1990s. Berezovskii acquired a controlling stake in TV-6 in 1999 by purchasing shares from the network's founder, Eduard Sagalaev. At that time, LUKoil executives were said to be unhappy with some of Berezovskii's management decisions (see Floriana Fossato and Anna Kachkaeva, "Russian Media Empires V,"), and TV-6 was unprofitable in 1998, 1999, and 2000. Yet shareholders filed no lawsuits against the company's management.

LUKoil-Garant's confrontational stance toward TV-6 began almost immediately after that network, on Berezovskii's instruction, hired dozens of NTV staff and picked up various NTV programs following Gazprom's takeover. At first, Berezovskii claimed that the Kremlin had told LUKoil to buy out his controlling stake in TV-6. Berezovskii had been forced to sell his minority stake in Russian Public Television in 2000, and he signaled that he had no intention of giving up control over TV-6. Though it does not broadcast nationwide, as does Russian Public Television, or even to 70 percent of the population, as does NTV, TV-6 broadcasts to some 70 Russian cities and is available to more than half of the country's residents.

LUKoil representatives denied receiving orders from the Kremlin to buy out Berezovskii's stake in TV-6. However, actions by LUKoil-Garant fueled speculation that, whether on explicit instructions from Putin's administration or not, the oil company was bent on neutralizing the network's new political orientation. LUKoil-Garant first filed lawsuits seeking to invalidate shareholders' meetings at which the new TV-6 management were appointed. The Moscow Arbitration Court rejected those lawsuits in June.

Having failed to reverse personnel decisions at TV-6, LUKoil-Garant sought to put the network out of business. On 27 September, the Moscow Arbitration Court ruled in favor of the pension fund, citing a clause in Russia's Civil Code, which states that a company posting losses two years running can be liquidated. (Using the same logic, the Moscow Arbitration Court in May approved Gazprom's demand to liquidate the Media-MOST holding company.) According to Anatolii Blinov, an attorney representing TV-6, the network has been profitable for the last six months and will show a profit for 2001 as a whole, "Vedomosti" and "Kommersant" reported on 28 September. However, the law on joint-stock companies states that only annual balance sheets are admissible when determining a company's profitability, so the court did not take into account quarterly or semiannual sheets indicating that TV-6 had turned the corner financially, Blinov told "Vremya novostei" on 2 October.

As did Gazprom representatives during their fight for control over NTV, LUKoil executives deny harboring any political animosity toward TV-6. Mikhail Berezhnoi, the general director of LUKoil-Garant, says the pension fund is only standing up for its rights as a shareholder. LUKoil vice president Leonid Fedun disputes assertions that TV-6 is now profitable. He claims that TV-6 is losing money, in part because of its large share of what he called "political" programming. According to Fedun, "Under Sagalaev the network had good prospects, but now it exists only on [cash] infusions," "Izvestiya" (itself partly owned by LUKoil) reported on 2 October.

Those claims do not withstand scrutiny. Moscow's media market is famously oversaturated. The number of media outlets that have not posted losses at least two years running at some point since 1995 (when the Civil Code was adopted) could probably be counted on one hand. Even before the ruble crash of 1998, few media companies were profitable, and the decimation of the advertising market in late 1998 and 1999 hit the media sector hard.

It is no exaggeration to say that virtually every Moscow newspaper survives on cash "infusions" from shareholders or covert sponsors. But the Civil Code article stating that a company is eligible for liquidation if it posts losses two years in a row has been applied to only two Russian media companies: Media-MOST and TV-6, "Novaya gazeta" reported on 1 October. Yevgenii Kiselev, general director of TV-6, told "Novaya gazeta" that "half of Russia could be liquidated" if that portion of the Civil Code were applied across the board.

Moreover, even if TV-6 representatives are exaggerating about the extent of this year's profits, the network's debt load is not excessive. At the beginning of 2001, TV-6 owed a total of $12 million, roughly $8 million to Berezovskii's Obedinennyi Bank and the rest to producers of television programs, "Kommersant" (controlled by Berezovskii) reported on 28 September. To put that debt load in perspective, Russian Public Television borrowed $100 million from Vneshekombank in 1998, a loan that was extended twice. ORT shareholders recently approved plans to pay back Vneshekombank soon, but to do so the network will need to borrow $120 million, most likely from Sberbank, "Vedomosti" reported on 10 September.

If LUKoil-Garant were merely interested in protecting their rights as shareholders, they would presumably have filed suit after TV-6 lost money in 1998, 1999, and 2000. Yet as noted above, the pension fund sought to liquidate the network only after their attempts to reverse politically motivated hiring decisions failed. Market research this year has shown consistently that TV-6's audience has grown since it took on the former NTV staff, especially in Moscow, which is such a crucial market for advertisers. From a hard-headed business perspective, it would make more sense for LUKoil-Garant to wait and see whether TV-6 has become profitable, in which case its 15 percent stake in the network would increase in value. LUKoil vice president Fedun told "Izvestiya" on 2 October that no one had expressed interest in buying LUKoil-Garant's stake in TV-6, but he did not make clear whether the pension fund had embarked on any serious effort to find a buyer.

TV-6 will certainly appeal the Moscow Arbitration Court's ruling, and the network's lawyer, Blinov, is confident that appeal will be successful. Speaking to "Vremya novostei" on 2 October, Blinov noted that the court ruling ordered TV-6 shareholders to liquidate the company within six months of the date its ruling takes effect, adding that the ruling will not go into effect until the appeals process has concluded. By that time, Blinov suggested, it will be clear that TV-6 is profitable. A commentator for "Novye izvestiya" (which is financed by Berezovskii) on 29 September noted that TV-6 journalists are confident of resolving their current problems through the court process and are therefore not planning any public demonstrations or on-air protests against its shareholder, as NTV journalists did during the late stages of their battle against Gazprom. But the "Novye izvestiya" commentator put little faith in the impartiality of Russia's "pocket" judges. His pessimism about TV-6's prospects is not surprising, considering that "Novye izvestiya" was founded in 1997 by journalists who left "Izvestiya" following clashes with shareholders LUKoil and Oneksimbank.

However TV-6's court battle ends, the fact that a television network with a growing audience share is fighting for its life says much about the Russian media's precarious position. While Putin plays the "good cop," speaking out in favor of media freedom, corporations that want to maintain good relations with the Kremlin are happy to play "bad cop," seeking to stifle media that give too much favorable coverage to alternative political views.

Laura Belin, a doctoral student at Oxford, has written about Russian politics and media issues since 1995.

VLADIMIR PUTIN'S TELEPHONE DIPLOMACY. That Russian President Vladimir Putin differs from previous Russian leaders is well known, but perhaps the most striking contrast -- particularly with his immediate predecessor Boris Yeltsin -- is how he conducts his foreign policy. For one thing, Putin is a frequent flyer. During Putin�s first 18 months in office he took 40 foreign trips compared with Boris Yeltsin's 21, "Moskovskii komsomolets" reported on 14 August (see "RFE/RL Newsline," 15 August 2001). Of course, Yeltsin had a host of health problems as well as a more combative political opposition to handle. But Putin has also traveled more than the physically fit president of the world's remaining superpower, U.S. President George W. Bush, who had gone on nine foreign trips during his first six months compared with Putin's 12. But Putin has not only logged more miles to foreign locales, he spends considerably more time on the phone with foreign leaders.

An informal survey of Putin's telephone calls as reported in the media and by the Russian Foreign Ministry since Putin assumed office shows that Putin has a regular habit of phoning world leaders. Most frequently contacted over last year have been French President Jacques Chirac, British Prime Minister Tony Blair, German Chancellor Gerhard Schroeder, and U.S. President Bush. On the territory of the former Soviet Union, Ukraine's Leonid Kuchma and Kazakhstan's Nursultan Nazerbaev are preferred over their neighbors. Georgia's President Eduard Shevardnadze appears to be Putin's least favorite colleague -- at least judging by Putin's phone records. Since the 11 September terrorist attacks on the U.S., the frequency of Putin's phone calls to foreign leaders has picked up considerably. According to the table below, Putin has made 32 separate phone calls to world capitals in the 34 days that have elapsed since the incidents. Putin has kept in close contact not only with Bush, but also with Chirac, Blair, and the leaders of the Central Asian states.

One consequence of all this chat over secure phone lines is that it further downgrades the importance of the Foreign Ministry. Already, Foreign Minister Igor Ivanov has taken a back seat to other members of the cabinet, such as former Security Council Secretary and now Defense Minister Sergei Ivanov (see "RFE/RL Russian Political Weekly," 1 October 2001). But in recent weeks, Putin himself would appear to be relegating Ivanov and Russia's network of ambassadors around the world to an increasingly secondary role. Some supporters of rethinking of Russian foreign policy may welcome this trend: The Foreign Ministry is widely seen as a bastion of conservatives, so the more the presidential administration takes the initiative away from this institution, the better.

However, there are at least two potential drawbacks to Putin's telephone diplomacy. One is that the process of downgrading institutions can create less continuity. George W. Bush looked into Putin's soul and liked what he saw. While both might look set for a second term at the moment, what will happen to U.S.-Russian relations when they both eventually leave office? A second consequence is the weeks-long process of decision-making, negotiating, conferring, and consulting between countries is speeded up. Processes that once could have taken weeks to transpire now occur in an accelerated fashion. And, faster is not always better. Decisions made in the "heat of the moment" on the basis of insufficient information may be regretted later. In the meantime, though, Putin does not appear to regret giving the U.S. the green light to stations some troops in Central Asia -- as one observer noted recently, Russia would rather have Americans in Uzbekistan than the Taliban. (Julie A. Corwin)

The Putin Phone Log, September-October 2001

World Leader_________Country_________Date of Call

Heidar Aliev_________Azerbaijan_________17 September

Jean Chretien_________Canada___________28 September

Jiang Zemin__________China____________19 September

Hosni Mubarek_______Egypt_____________5 September

Jacques Chirac_______France______________9 October
_____________________________________21 September
_____________________________________19 September
_____________________________________10 September

Gerhard Schroeder___Germany___________12 September

Tony Blair__________Great Britain__________8 October
_____________________________________28 September
______________________________________1 September

A.B. Vajpayee_________India______________9 October

Sayed Mohammad______Iran______________25 September

Ariel Sharon__________Israel_______________5 October

Silvio Berlusconi_______Italy______________14 September

Junichiro Koizumi______Japan______________5 October

Nursultan Nazarbaev___Kazakhstan_________23 September
______________________________________17 September

Askar Akaev_________Kyrgyzstan_________23 September
_____________________________________17 September

Yasser Arafat__________Palestine___________5 September

Imomali Rakhmonov____Tajikistan_________12 October
_____________________________________23 September
_____________________________________17 September
_____________________________________11 September

Ahmet Necdet Sezer____Turkey____________1 October

Saparmurat Niyazov___Turkmenistan_______17 September
_____________________________________23 September

George W. Bush_______U.S.______________8 October
____________________________________13 September
____________________________________12 September
____________________________________11 September
____________________________________10 September

Islam Karimov______Uzbekistan_________10 October
___________________________________23 September
___________________________________17 September
___________________________________10 September
____________________________________1 September

Sources: Russian Foreign Ministry website, ITAR-TASS,

DEPUTIES SET NEW RULES FOR INHERITANCE... After a busy opening session last month, deputies approved lower profile legislation during its sessions on 11 and 10 October. Deputies approved unanimously in its second reading the third part of the Civil Code. Passage of the bill changes the inheritance rules from the Soviet-era Civil Code, which has been in place since 1964, according to the website Three hundred and fifty-four deputies voted for the bill with zero votes against, and zero abstentions. Under the new rules, a person's last will and testament serves as the first basis for inheritance and relevant laws second. JAC

...AND ASK FOR SPECIAL HELP FOR ECONOMICALLY TROUBLED REGIONS. Deputies also voted to approve a bill defining economically depressed territories and the principles under which they should receive financial support. The vote was 327 in favor, 51 against, and one abstention. According to deputy (Russian Regions) Andrei Klimov, a member of the Committee on Federation Affairs and Regional Policy, there are 19 territories that fit the definition of economically depressed regions. They are heavily dependent on financial transfers from the federal center and "cannot stand on their own feet." The government does not support the bill; Mikhail Dmitriev, first deputy minister for economic development and trade, said that while "the government does not deny that the problem (of economically depressed regions) needs to be resolved, this legislation does not solve the problem since it doesn't provide a criterion for identifying these regions." Dmitriev also charged that bill conflicts with wide number of existing pieces of legislation, "Kommersant-Daily" reported on 11 October. Presidential envoy to the Duma Aleksandr Kotenkov also spoke against the bill. Deputies also adopted amendments in the third reading to the second part of the Tax Code on 10 October. The changes free pawnshops and concession stores from charging their clients tax on the sale of their property. The taxpayers themselves now have to pay these taxes independently on their own annual declarations. JAC


Name of Law__________Date Approved____________# of Reading

On state pensions___________11 October______________1st
(article 99)

Tax Code (2nd part)_________10 October_______________3rd

Civil Code (3rd part)_________10 October_______________2nd

On basic federal support_______10 October______________1st
for depressed territories

COMINGS & GOINGS IN: Anatolii Safonov has been named deputy foreign minister in charge of antiterrorist operations, Interfax reported on 12 October. Safonov is the 13th deputy foreign minister, according to the agency. From 1994-97 he served as first deputy director of the Federal Security Service with the domestic security portfolio.

IN: Aslanbek Aslakhanov, a deputy from the single-mandate district in Chechnya, has decided to join the Fatherland-All Russia faction in the Duma, Russian agencies reported on 10 October. Previously, Aslakhanov had been an independent.

POLITICAL CALENDAR Middle of October: State Duma will consider a new version of a law on reforming the election system, according to Central Election Commission Chairman Aleksandr Veshnyakov on 11 September

Middle of October: U.S. Secretary of Commerce Don Evans will visit Russia, according to ITAR-TASS on 19 September

19 October: Duma will consider 2002 budget in its second reading

20-21 October: President Putin will take part in the ninth informal summit meeting of the Asia Economic Cooperation forum in Shanghai, according to ITAR-TASS on 2 July

22 October: French Prime Minister Lionel Jospin to attend meeting of Russian-French cooperation commission in Moscow

25-29 October: Portuguese President Jorge Sampaio will visit Russia

27 October: Unity party to hold its third congress in Moscow

28 October: Gubernatorial elections in Orel Oblast

29 October: Espionage trial of political scientist Igor Sutyagin to resume in Kaluga Oblast

30 October: Presidium of State Council together with the Security Council will hold a joint session on development of the military-industrial complex, Interfax reported on 9 October

End of October: French Prime Minister Lionel Jospin to visit Moscow

November: Unity and Fatherland to hold unification congress in Moscow

November: Russian-EU working group for the creation of a single European space to meet, according to Deputy Prime Minister Viktor Khristenko on 3 October

14 November: Nationwide act of protest to be organized by independent Russian trade unions, according to "Vremya novostei" on 27 September

16-17 November: Civic Forum, a gathering of more than 250 NGOs, to be held in Moscow

21 November: Interior Minister Boris Gryzlov to address Duma on efforts to combat corruption within government ministries

21 November: Justice Minister Yurii Chaika to address Duma on the prison system

27-28 November: Federation of Independent Trade Unions to hold congress in Moscow

30 November: CIS summit to be held in Moscow

End of November: Fatherland to hold an all-Russian congress of agrarians, according to TV-Tsentr on 3 August

December: Prime Minister Mikhail Kasyanov to visit Brazil

Early December: President Putin to visit Greece, according to Foreign Minister Igor Ivanov

1-12 December: International chess championship to be held in Moscow, according to "Kommersant-Daily" on 15 August

16 December: Presidential elections in Altai, Chavash, and Komi republics

20-21 December: An international conference on the topic of "Islam against Terrorism" will be held in Moscow, ITAR-TASS reported on 9 October

23 December: Presidential elections in Sakha Republic

28 December: Duma's fall session will come to a close, according to ITAR-TASS on 13 July

January: Presidential elections in North Ossetia

9-16 October 2002: All-Russian census will be held.