MOSCOW BRIEFING February 2005

News this month

Pension protests

Thousands of pensioners across Russia protested against the loss of social benefits on January 10th, the first workday after the long Christmas holidays. Pensioners blocked roads and rallied outside government buildings in Moscow and in towns all over the country.
The new law strips Soviet-era benefits, such as free public transport and free utilities, replacing them with a small cash payment. With inflation running at more than 11% last year, many fear these cash payments will quickly devalue. “Taking away our free rides has literally taken away our lives,” wrote protesting Moscow pensioners in a letter to the government. Pensioners in the Moscow region were particularly vociferous, as many have to come into the capital to work or to receive other benefits. The city has ensured that its pensioners have kept most of their old benefits.

Silencing the critics

President Vladimir Putin does not take kindly to criticism. He stripped his liberal economic advisor, Andrei Illarionov, of one of his key posts after he said the government's dismantling of Yukos, the country's biggest oil company, was an “expropriation of private property”. Mr llarionov was replaced on Jan 3rd as Russia's representative to the Group of Eight nations by Igor Shuvalov, Putin's senior economist aide.

Mr Illarionov's remarks came after Yuganskneftegaz, Yukos' main production company, was taken over by state-owned Rosneft in December, after a much criticised auction. (Mr Putin defended the deal as “perfectly normal”.) He has often criticised the government's policy decisions since becoming Mr Putin's economic adviser in 2000. After the ratification of the Kyoto Protocol, Mr Illarionov warned it would be an economic “Auschwitz” for Russia. He has also said that Russia could be heading toward a political revolution similar to that in Ukraine. The demotion was a clear signal to Mr Illarionov to hold his tongue if he wants to retain his post as economic adviser.

The death knell

The nationalisation of Yukos was virtually completed on December 22nd, with the announcement that Rosneft, a state-owned oil giant, had acquired Yukos's most prized asset. On December 19th, Yuganskneftegaz, which accounted for 60% of Yukos's oil-production capacity, was sold by the government for $9.35 billion, ostensibly to pay some of Yukos's huge tax bill. But the sale was not to Gazprom, a state-run gas firm that was rumoured to be the buyer. Instead, Yugansk was bought by Baikal Finance Group, a hitherto unknown firm whose registered address in the town of Tver reportedly houses a grocery shop.

Rosneft then bought Baikal (and thus Yugansk) for an undisclosed sum. The chairman of Rosneft is Igor Sechin, a close confidant of Mr Putin. President Putin defended the auction saying that “the state, using absolutely legal market mechanisms, is ensuring its interests.” Mikhail Khodorkovsky, Yukos's former boss, whose political ambitions incurred Mr Putin's wrath, is still in prison and on trial.

Same old story?

Tax claims against VimpelCom, Russia's second-largest mobile phone operator, in December created fear among investors wary of another Yukos-type action by the government. The firm, which has 23.2m customers and is listed on the New York Stock Exchange, was served with a reported tax bill of $158m. Some believe the claim to be connected to a long running dispute between Mikhail Fridman, whose Alfa Group partly owns VimpelCom, and the technology minister, Leonid Reiman. VimpelCom agreed to pay a much-reduced sum in January: $10.2m in back taxes and $7.4m in fines and penalties. Though the dispute seems resolved, some fear that the government may be casting its eyes beyond the oil sector.

Crying foul

Ikea, the Swedish furniture retailer, accused officials of delaying the opening of its new $300m mall on the outskirts of Moscow. “We're subject to blackmailing, sabotage and pressure for bribes,” said Lennart Dahlgren, head of Ikea in Russia. The grand opening for Eastern Europe's biggest mall, with more than 250 businesses, was cancelled at the last minute on December 2nd, after Moscow regional officials said an underground gas pipe could be damaged by customers driving to the store. The mall was eventually opened on December 15th, after Ikea agreed to build a ramp over the gas pipe and reaffirmed its intent to put $1m towards local sports facilities.

Catch if you can

February 2005

Russia 2

Until February 15th 2005

The Guelman Gallery, an important venue in Russia's contemporary art scene, has organised a series of exhibitions and events about “another Russia”—art that remains outside the officially sanctioned idea of culture. In the first event, which takes place at the Central House of Artists, more than 30 contemporary artists will explore this idea of two parallel cultures. Much of the work is visual, but several rooms have been set aside for performance artists.

Central House of Artists. 10 Krymsky Val. Metro Oktyabrskaya. Tel: +7 (095) 230 7788.