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Russia Report: December 10, 2001

10 December 2001, Volume 1, Number 31

Earlier this year, the partly state-owned gas monopoly Gazprom claimed to be acting purely out of economic interests when it gained a controlling stake in NTV and several other assets belonging to Vladimir Gusinsky's Media-MOST holding company. Few Russian journalists or media analysts took that claim seriously: Gazprom's shifting stance toward Media-MOST appeared to be politically motivated, and its insistence on changing NTV's management drove away many of the network's best staffers, undermining future prospects for profitability. But the gas monopoly had guaranteed hundreds of millions of dollars in loans to Media-MOST over the years, and Media-MOST could not repay those debts. Gazprom therefore could plausibly claim some economic justification for its actions toward Gusinsky's media empire.

The same cannot be said for partly state-owned LUKoil's approach to the private network TV-6, in which the pension fund LUKoil-Garant owns a 15 percent stake. In apparent disregard of its own economic interests, LUKoil-Garant has pursued the dissolution of TV-6, Russia's fourth-largest television network in terms of broadcast reach. The Moscow Arbitration Court on 26 November upheld its earlier decision ordering that TV-6 be liquidated within six months. The court's justification was the rarely-invoked article 35 of the Russian law on joint-stock companies, which states that a company can be liquidated if, two years running, its debts exceed its assets.

Attorneys for TV-6 argued that the network turned its financial situation around in 2001, thanks to a ratings and advertising boost after the arrival of journalists from NTV in the spring. However, the Moscow Arbitration Court discounted those arguments, since the law allowed it to consider only year-end balance sheets, not the quarterly or semi-annual documents showing that TV-6's assets now exceed its liabilities. The court appeared to be drawing on political considerations in its decision to liquidate a company that was gaining market share and increasing revenues. "Moskovskie novosti" pointed out on 27 November that judges could have postponed hearings on TV-6's appeal until January, enabling it to consider the network's 2001 balance sheet. (Lengthy court delays are common in Russia.)

Meanwhile, LUKoil's strategy toward TV-6 defied all business logic. A joint statement issued by the Union of Journalists and the Glasnost Defense Foundation on 28 November noted that "for several years, the channel's loss-making didn't bother anyone, but as soon as the new team of professionals arrived, as soon as the channel's ratings began to rise, and its profitability along with them, a shareholder goes to court for the express purpose of depriving himself of any opportunity of recovering the money he has invested."

If anything, that assessment understates the absurdity of LUKoil's approach. After TV-6 hired many former NTV employees, LUKoil-Garant tried unsuccessfully to nullify the shareholders' meeting at which those hires were approved, suggesting that the oil company was above all interested in gaining control over the network's management decisions.

Normally, a minority shareholder who is dissatisfied with a company's management will try to sell his or her shares in that company. But LUKoil never seriously pursued the option of selling its shares in TV-6. Boris Berezovsky, who has controlled 75 percent of the network's shares since the summer of 1999, publicly offered to pay $10 million for LUKoil-Garant's 15 percent stake (see his open letter published in "Kommersant," 17 October 2001). LUKoil did not take Berezovsky up on that deal, even though neither LUKoil nor its pension fund stands to gain financially from the liquidation of TV-6. Whereas Media-MOST's largest creditor was Gazprom, TV-6's main creditor (from which it received a loan of $8 million) is Obedinennyi Bank, controlled by Berezovsky.

On 23 October, LUKoil President Vagit Alekperov announced that his company was interested in buying Berezovsky's 75 percent stake in TV-6. If LUKoil-Garant's efforts to liquidate TV-6 were based on the network's poor economic fundamentals, why would LUKoil executives entertain the prospect of buying a controlling stake? Alekperov's statement made sense only as a message to Berezovsky: he could either sell TV-6 or watch his network be forced out of business.

In November, Alekperov changed course again, suggesting that he would like to trade LUKoil-Garant's stake in TV-6 for some of Berezovsky's assets in the Russian oil sector (see Alekperov's interview in "Nezavisimaya gazeta," 15 November 2001). If LUKoil was interested in exchanging its TV-6 shares for oil company assets of any value, forcing TV-6 into bankruptcy could only torpedo that goal.

Berezovsky and TV-6 General Director Yevgenii Kiselev have accused the Kremlin of using LUKoil to achieve political aims. LUKoil's business prospects, as well as the careers of its senior executives, depend on favorable decisions by government and Kremlin bureaucrats.

According to Anna Kachkaeva, a media expert for RFE/RL's Russian Service and professor at Moscow State University, LUKoil bosses may also harbor personal enmity toward Berezovsky. He acquired a controlling stake in TV-6 against the wishes of LUKoil, and one of his first management decisions was to end the network's contract with the Television News Service (TSN). Owned by LUKoil-Garant, TSN had supplied news programs to TV-6, but Berezovsky wanted the network to form its own news department. While Berezovsky was in favor at the Kremlin, LUKoil did not publicly challenge his decisions at TV-6, even though the oil company had invested millions of dollars in building TSN, which was reportedly owed some $3 million by TV-6. (In October 2001, TSN sued TV-6 for $5 million.)

What fate awaits TV-6? Kachkaeva argues that many groups have an interest in eliminating TV-6 as a competitor for television ratings and advertising dollars. Some Russian commentators have speculated that Media Minister Mikhail Lesin could withdraw TV-6's license to broadcast at any time. Technically, the ministry is obliged to delay that step until TV-6 has exhausted the appeals process, and Lesin has promised to make decisions regarding the network "exclusively on a legal basis," "Gazeta" reported on 28 November. But Lesin is not known as a stickler for the letter of the law. He drew fire in late 1999 for not applying rules on election commentary even-handedly toward Russian television networks. In July 2000, Lesin signed a secret document promising that criminal charges against Media-MOST bosses would be dropped if they sold a controlling stake in the company to Gazprom. As founder of the Video-International advertising agency, Lesin could also benefit financially from TV-6's disappearance, which would likely prompt advertisers to buy more air time on nationwide networks that have exclusive contracts with Video-International.

On the other hand, Kachkaeva is among those who think that Berezovsky and Kremlin officials may reach a compromise allowing TV-6 to survive in exchange for assurances that it will not pursue an oppositionist editorial policy. The Kremlin could then authorize a higher court to uphold TV-6's appeal, especially if the most recent balance sheets show the network's financial condition to be healthy.

A precedent for such a compromise exists. In May and June 2000, the Media Ministry postponed an auction for the broadcast frequency used by TV-Tsentr, controlled by the Moscow city authorities. Following back-room negotiations between Lesin and Moscow Mayor Yurii Luzhkov, TV-Tsentr's license to broadcast was extended. The network's news and analysis programs have since avoided the kind of hostile coverage that irritated the Kremlin during the summer and autumn of 1999.

Although TV-6 executives and attorneys denounced the Moscow Arbitration Court's ruling, the network has eschewed the path of confrontation taken by NTV in the late stages of its battle with Gazprom. Unlike NTV staffers, TV-6 journalists have not encouraged street demonstrations or staged on-air protests against attempts to "smother free speech." That may be in part because a poll by the All-Russian Center for the Study of Public Opinion (VTsIOM) in early November showed that more than half of the 1,600 respondents nationwide said they would not consider it a loss if TV-6 disappeared, "Izvestiya" (part-owned by LUKoil) reported on 26 November. TV-6's editorial policy has been more cautious and less oppositionist than was NTV's, according to Kachkaeva. Some Kremlin critics who enjoyed ample air time on NTV, such as Yabloko leader Grigorii Yavlinskii, rarely appear on TV-6.

Berezovsky has not publicly spoken of possible compromise with the Kremlin, but a deal might suit his interests. He is a wanted man in the Russian Federation, and TV-6 is by far his most influential media holding. However, the Kremlin's interest in a compromise is less clear. In this era of friendly relations between Russia and the West, shutting down TV-6 is unlikely to provoke an international scandal. Letting the network continue to operate with the current management, in contrast, would carry political risks. If economic troubles dent President Vladimir Putin's popularity, and a profitable TV-6 sharpens its criticism of the authorities, another economic pretext for shutting down the network may not present itself.

Whether TV-6 goes out with a bang, having its broadcast license withdrawn and liquidation forced upon it, or with a whimper, hanging on by virtue of a back-room political deal, its fate will inevitably shrink pluralism in the Russian television market.

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

THIS SEASON'S PARTY OF POWER. After a number of joint gatherings, Unity and Fatherland seemed to take a significant step towards togetherness with their congress on 1 December (see also "RFE/RL Russian Political Weekly," 16 July and 23 April 2001). A new name for the joint entity was found: the Unity and Fatherland party or Unified Russia for short, and a number of new party structures, committees, councils and the like were created, the most important of which seems to be the 13-member General Council and the 10 member Political Council (see "RFE/RL Russian Political Weekly," 3 December 2001). Joining the festivities for the first time were leaders of the All Russia movement, Fatherland's partner during the last State Duma elections in 1999. One of All Russia's founders, Tatarstan's President Mintimer Shaimiev, addressed the congress.

Commentator Otto Latsis, writing in "Novye izvestiya" on 4 December, found the proceedings all too familiar: "All of the speeches failed to conceal the fact that the leaders did not really have anything to say...And such a beginning dooms the new political party to follow in the footsteps of all previous parties of power of the last decade." Latsis noted that the new party doesn't actually have a program, but only a single task -- consolidation around a single person, President Putin. That person was in attendance, but kept his own option. Putin refused to join the new super party and instead cautioned delegates that, rather than declaring themselves the "party of power," they should seek to become the party of the majority. Communist Party leader Gennadii Zyuganov was also skeptical, declaring that over the last 10 years various parties of power have come and gone, "uniting around an executive chair and a money bag." He noted, "Just imagine, Putin will leave tomorrow, and the party of power will collapse within a week."

"Russian Political Weekly" spoke with Emory University professor of political science Thomas Remington just before the recent party conference to get his take on the party formation process. (Julie A. Corwin)

RFE/RL: I'd like to get your assessment of the Unity-Fatherland merger. Where do you think this stands? Earlier it seemed that two parties would not really become one -- except right before election time. But since Yevgenii Primakov's departure from the post of Fatherland-All Russia (OVR) faction leader, there seems to be at least the appearance -- if not the reality -- of closer coordination between the two groups. Do you think Primakov's departure was significant in this process or was it merely coincidental? Do you even agree with the basic premise of my question that the two groups appear to be moving closer together? Where does People's Deputy stand in this process? I recall at one point you seemed to think that People's Deputy head Gennadii Raikov had hoped to fashion his group as an alternative for the Kremlin to Unity? Is that still the case?

REMINGTON: The question of the relations between the parties in the Duma and the parties outside continues to intrigue me. Primakov appeared to play an active role in the effort to forge a majority coalition of the four pro-government parties in the Duma (Unity, Russia's Regions, OVR, and People's Deputy). He left at the point when it became clear that the outside the Duma Unity-Fatherland merger would not occur [by] dissolving both entities and then creating a new joint entity; instead, it appears that Fatherland and All-Russia are merging into Unity. He must have reasoned that he would not have a prominent or influential position in the new party. Perhaps also he wanted to preserve his political independence in the event that Putin wanted to appoint him to a visible state position of some kind.

In any event, the process of unification within the Duma is slightly different from the merger of the parties outside it. Inside the Duma, the Russia's Regions group appears to be eager to play a role in the new party, but it has no base outside the Duma. Outside the Duma, Fatherland and All-Russia have little existence apart from the executive staffs of their leaders. Unity has a developed formal organization but almost no presence in the government; [Emergency Situations Minister Sergei] Shoigu is presumably a figurehead, and the real political leadership comes entirely from Putin's political advisers. The active core is its Duma faction, as is true of almost all the parties except the communists. If Unity is ever going to develop a political profile, as opposed to being Putin's loyal shadow, it will need to draw on its legislative record and leadership, and give voters and local officials some reasons to support it. As experience has shown -- notably with Our Home Is Russia (NDR) -- merely being the party of power cannot give a party much appeal to voters and lower officials. Unity appears to be compounding this problem with its extremely rigid centralization, which local branches have complained about. It does not appear to have much to offer voters -- either program or patronage. Unity does not seem to be moving toward the model of a dominant party like the PRI in the past in Mexico or the LDP in Japan, where access to government at all levels lets the party direct a stream of material benefits and career opportunities to clients. All it has is the Kremlin's "administrative resource" and the Putin coattails. It may do better than NDR did in 1999 but other parties might conceivably run strongly against it.

This high centralization within Unity and its strategy of undeviating loyalty to Putin may be what is keeping People's Deputy from wanting to join the new party. People's Deputy is very willing to be loyal to the Kremlin as a member of the "coalition of the four" in the Duma, where the four, by jointly commanding a voting majority, are able to win benefits. For example, the case of the amendments to the 2001 budget and the passage of the 2002 budget, the pro-government factions were able to exchange guaranteed passage of the bills for commitments from the government for spending on programs that will benefit those parties electorally. But People's Deputy seems to be unwilling to lose its identity by merging into the new party outside the Duma, where it would have no independence of the Kremlin. Inside the Duma, the Kremlin needs it; outside the Duma, it needs the Kremlin. How can it (or any faction/group in the Duma without its own electoral resources) arbitrage its voting power in the Duma into electoral power outside the Duma?

RFE/RL: And finally, more generally, when the law on political parties was passed, most analysts predicted that Russia's political parties would begin a process of consolidation. Do you think this prediction has borne fruit yet? Do you foresee SPS and Yabloko ever managing to get together?

REMINGTON: The effect that the law on parties is having seems to be slow in taking hold, but I would imagine that reality will gradually sink in and politicians will begin forming interesting alliances. Also, party formation now may be (as in other periods before elections) a means of accumulating bargaining chips useful in negotiating coalition agreements later on. I would guess that we will see even more alliances forming among regional parties and between regional parties and national parties than we will between national parties. This is because regional parties cannot exist by themselves, but by joining in a coalition, they could help each other or national parties by supplying enough local members to meet the membership threshold requirements (the 10,000 minimum membership floor and the rule that they have to have members in at least 45 regions).

I do think that SPS and Yabloko will merge at the national level as they are beginning to do in Moscow and St. Petersburg. Generally, party mergers are unlikely to take place much before the final deadline for registration for the 2003 election, because each side in a prospective partnership will try to extract maximum leverage from the other before signing an agreement.

SENATORS QUICKLY SEND ON NEXT BATCH OF LEGISLATION FOR SIGNATURE. After a sendoff for outgoing Federation Council Chairman Yegor Stroev, senators on 5 December approved a number of bills that the State Duma had passed in their third and final readings the previous week. Included in this number were the presidential-sponsored bills reforming the judicial and pensions systems, amendments to this year's federal budget, and a new bill amending the law on privatization (see "RFE/RL Russian Political Weekly," 3 December 2001). In addition, senators approved a law on the order of admitting and establishing new federation subjects. The law established that after the signing of an agreement between two governments, the Russian president petitions the Constitutional Court with a request that the agreement be examined for its compliance with the Russian Constitution, according to Interfax. If the agreement corresponds with the Russian Constitution, this is sent to the Federation Assembly -- both legislative chambers -- for ratification. JAC


Name of Law__________________________Date Approved

On the Constitutional Court_________________5 December

On the judicial system______________________5 December

On the status of judges______________________5 December

On workers' pensions________________________5 December

On obligatory pension________________________5 December

On state pensions___________________________5 December

On the provision of state pensions_______________5 December

On privatization____________________________5 December

On 2001 Budget_______________________________5 December

On the order of adopting________________________5 December
and establishing new federation subjects

On the indexing of the rate____________________5 December
of taxes on land

COMINGS AND GOINGS IN: President Putin signed a decree naming Vladimir Zorin minister for nationalities policy, Russian agencies reported on 6 December. Zorin was most recently deputy presidential envoy to the Volga federal district. Zorin also served as a State Duma deputy heading up a committee on nationality policy.

IN: Yevgenii Satanovskii was elected on 6 December as the new head of the Russian Jewish Congress. The previous head, Leonid Nevzlin, who is also a deputy chairman at YUKOS, was recently named to the Federation Council.

IN: Delegates to the constituent congress of the Constitutional Party of Russia elected on 8 December Vyacheslav Volkov, a former adviser to Boris Yeltsin, as its new chairman, according to Interfax. ITAR-TASS described the party as center-right.

RENEWED: Agrarian Party leader Mikhail Lapshin was re-elected chairman of the party at a party congress in Moscow on 8 December, RIA-Novosti reported.

POLITICAL CALENDAR 13 December: State Duma delegation will make official visit to Beijing and Harbin

10 December: U.S. Secretary of State Colin Powell to meet with his Russian counterpart Igor Ivanov and President Putin in Moscow

10 December: The working group on Russian entry into the World Trade Organization will hold a session in Geneva

11 December: The Day of Euro will be held in Moscow

13 December: State Duma will consider the 2002 budget in its fourth and final reading

13 December: Court proceedings in case against military journalist Grigorii Pasko will reconvene

14 December: President Putin to visit Kharkhiv, Ukraine

14 December: Members of the Russian Chamber of Commerce and Industry will vote on their new president; former Prime Minister Yevgenii Primakov has been nominated

15 December: end of month-long Muslim Ramadan fast

15 December: Deadline by which the government should examine a strategy for developing Siberia, according to presidential envoy to the Siberian federal district, Leonid Drachevskii, on 6 November

15 December: Former presidential administration head Valentin Yumashev's 40th birthday

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

mid-December: Polish Prime Minister Leszek Miller to visit Moscow, RIA-Novosti reported on 21 November

19 December: State Duma to consider Labor Code in its second reading

19 December: Deputy Prime Minister Ilya Klebanov will address the State Duma on measures that have been taken to increase security on Russia's passenger airlines

19 December: State Council will hold its next meeting and will discuss the problems of small and medium-sized businesses, "Rossiiskaya gazeta" reported on 23 November

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

20-22 December: Second presidential judo tournament will be held in Novokuznetsk, Kemerovo Oblast

23 December: Presidential elections in Sakha Republic

25 December: Qatari Emir Sheikh Hamad bin Khalifa Thani will visit Russia, according to ITAR-TASS

26 December: Supreme State Council of the Russia-Belarus Union will meet in Moscow

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

13 January: Presidential elections in Kabardino-Balkaria and Adygeya

16-17 January: President Putin to visit Poland

Second half of January: Foreign Minister Igor Ivanov to visit Japan, ITAR-TASS reported on 28 November

Second half of January: Azerbaijani President Heidar Aliyev will visit Moscow

19 January: Communist Party extraordinary congress to take place in Moscow, according to TV-6 on 1 December

27 January: Presidential elections in North Ossetia

February: Newly established committee for financial monitoring will begin working, according to Finance Minister Aleksei Kudrin on 1 November

February: Spain's Crown Prince Felipe will visit Moscow

23 February: Proposed new state holiday honoring "Defenders of the Fatherland," according to ITAR-TASS on 3 December

March-April: Russia will issue up to $2 billion in Eurobonds, according to Vneshekonombank head Andrei Kostin on 15 November

end of March: CIS Interparliamentary Assembly will hold its 19th plenary session

April: Unified party of Unity and Fatherland to officially register as a political party

April: The St. Petersburg Dialogue, a Russian-German Forum, will hold its second conference in Weimar, Germany, according to ITAR-TASS

April: Gubernatorial elections in Penza Oblast

May: Russia-EU summit to be held 30 May: CIS summit will be held in Chisinau, Moldova

June: Government will have drafted a federal program for putting Russia's Armed Forces on a professional basis, according to Prime Minister Mikhail Kasyanov on 7 December

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