The ISCIP Analyst
Behind the Breaking News
The ISCIP Analyst
The Tandem's law of gravity
Legal Issues by Sergei Tokmakov
The insider trading bill revived
Central Asia by Monika Shepherd
Central Asia 20 years later
Western Regions by Tammy Lynch
Will Clinton serve another helping of “Chicken Kiev” in Ukraine?
The ISCIP Analyst
Volume XVI, Number 14 (29 June 2010)
The Tandem’s law of gravity
The manifesto developed into a presidential “modernization” agenda, which seems to have caught on among at least some sectors of Russia’s electorate, despite attempts to slow its progress (at least in the political sphere) by the prime minister. (3) Suddenly, Prime Minister Putin, bogged down in the details of financial crisis, seemed very much at risk of being outflanked on the political stage by the thoroughly modern Medvedev.
Given the opaque nature of relations between Russia’s tandem leaders, any hint of light or sense of censure between them has stirred analytical inkwells. Indeed, the first investigations into the nature of the Putin-Medvedev relationship, and the inherent instability of the political tandem, predate even Medvedev’s inauguration. In most instances, an off-hand comment or even a rather pointed snub seemed to reveal little of substance. Given the cagey savvy of Putin’s team, particularly of the prime minister himself, skeptical analysis well may be the best approach to tandem-ology. (4)
There can be little doubt that, as the time approaches for a decision to be made on who will stand as the official presidential candidate (this resembles a primary race without the pesky interference of voters), Putin holds most of the administrative resources. His team has control of most of the financial assets (including the loyalty of many of the country’s wealthiest entrepreneurs), (5) his natural base in the security services, coupled with his recent efforts to secure his footing among military leaders (the relative success of which is difficult to gauge) gives him comfortable “security” with the power organs, and he still heads the strongest political party in the country, although there seem to be some cracks appearing both in the leadership of United Russia and in its dominance on the political scene.
As president, Medvedev has primary authority in foreign affairs, although there have been moments when Putin seemed to design events to upstage Medvedev. (6) Medvedev’s most effective strategy, should he have in mind a contest for the presidency, may be to follow through on his modernization agenda, highlighting his future-oriented high-tech policies as he has in his most recent visit to the US, while hoping for his luck to continue as difficulties with Putin’s strong suits seem to weaken his overall hand.
In particular, Putin has had to revisit his first term as prime minister, as trauma in the Caucasus exploded in the Moscow train system. Putin’s policies, in Chechnya in particular, seem to have set the stage for a series of determined and resilient militant groups (some with territorial independence in mind, others more single-mindedly religious) to train and plan attacks against the Moscow-based administration. The more often violence resounds from the Caucasus, the less successful Putin’s security agenda appears.
Additionally, Putin’s financial policies have yet to produce economic rebound. The longer the fiscal drought, particularly in terms of foreign investment capital, the less successful Putin appears as prime minister.
The trial of Mikhail Khodorkovsky, complete with testimony from Putin’s former prime minister, Mikhail Kasyanov, and broader press coverage thanks to Medvedev’s moves towards loosening the restraints on the media, also leaves Putin desperately wrong-footed. Not only does Khodorkovsky remind Russian citizens of the efficiency and success of private entrepreneurs (not to overstate the point – many in Russia would view Khodorkovsky’s success as thievery), but further serves as a reminder of the state grab of Yukos oil and other privately held assets – the poster child for which is Putin’s right hand man, Igor Sechin.
For some months, despite occasional off-hand remarks, it has been unclear if Putin truly intended to stand for the presidency again. Indeed, in recent comments to the French press, Putin commented "Naturally, I am already thinking about this issue with President Medvedev but have decided not to make much fuss about it….” (7)
One thing seems clear: This presidential game is Putin’s to lose. If Medvedev has in mind a real run for the presidency, he will need for Putin’s strongest suits to turn against him. Luckily for Medvedev, Putin’s Team may well turn out to be his own worst enemies.
By Susan J. Cavan (email@example.com)
The insider trading bill revived
(1) “The State Duma has passed in second reading the insider trading bill,” RIA Novosti, 18 Jun 10 via http://www.rian.ru/economy/20100618/247775966.html.
(2) Olga Popova, “Market participants in RF are afraid of punishment for insider trading,” Reuters, 12 May 10 via http://ru.reuters.com/article/businessNews/idRUMSE64B12C20100512.
By Sergei Tokmakov (firstname.lastname@example.org)
Central Asia 20 years later
Central Asia today, unfortunately, in many ways bears a striking resemblance to the Central Asia of 20 years ago. Much of the region’s infrastructure has not been updated and is deteriorating to the point where vital systems, such as the power grid, experience frequent breakdowns, due to decaying equipment, which can no longer reliably handle an ever increasing demand. The power grid’s physical limitations have been exacerbated by political corruption, as well as disagreements over the use and allocation of power sources, most notably water. Tajikistan and Kyrgyzstan rely heavily on hydropower to generate electricity not only for residential sectors, but also for businesses and industry. Uzbekistan and Kazakhstan, on the other hand, need the same water for crop irrigation and the Uzbek government has voiced adamant opposition to plans for building new dams and hydropower plants in Kyrgyzstan and Tajikistan. Meanwhile, the Tajik and Kyrgyz governments impose stringent power rationing measures on their citizens at least nine months of the year and, on occasion, must grapple with widespread blackouts. These measures affect even their most prized and lucrative industries, such as Tajikistan’s aluminum plant in Tursunzade, which in turn results in decreased tax revenues and, as one might expect, fewer state funds for domestic investment.
Central Asia’s agricultural sector, which continues to focus mainly on cotton production, suffers similar problems: political corruption and reliance on outdated practices and deteriorating equipment and irrigation systems. Much of Central Asia’s cotton is still gathered by hand, an extremely labor-intensive process, which requires the government to send soldiers and even students (a practice that has caused the Uzbek government to run amok of the UN’s prohibitions on child labor) out into the cotton fields every October. The laborers are poorly paid, often must live in the most rudimentary of barracks, and are offered no protection from the chemical fertilizers and pesticides which continue to be used heavily in cotton cultivation. Thus, in addition to the human cost involved in the cotton industry, it also has exacted a high price in terms of the damage it has caused to the region’s environment. Portions of once arable land have become toxic and all but useless, due to the chemicals that have leached into the soil and water.
The high degree of political corruption has kept many potential foreign investors from lending their funds and expertise to the Central Asian republics’ most troubled industrial sectors. The corruption begins at the top, with the presidents, their families and entourages and often extends all the way down to the village or neighborhood level. Tajikistan’s President Emomali Rahmon is rumored to treat TALCO (Tajik Aluminum Company) aluminum plant as his personal cash cow, Uzbekistan’s President Islom Karimov allegedly permitted his daughter Gulnora to seize stakes in virtually any company or enterprise to which she took a fancy, Kazakhstan’s President Nursultan Nazarbaev and his family are said to own a considerable number of very desirable land tracts, and Kyrgyzstan’s former President Kurmanbek Bakiev and his family likely were heavily involved in fuel supply contracts to the US-leased Manas airbase. In joint ventures where the president or one of his family members owns a significant stake, the foreign business partner must tread very carefully; if the president or his representatives become dissatisfied with their portion of the profits, the foreign partners can suddenly find themselves without a contract. And possession being nine-tenths of the law, even should the foreign partner win compensation in international court, the equipment and other resources which were invested are likely to remain in the hands of local authorities.
In the political arena, issues such as human rights, civil rights, freedom of expression and an impartial system of justice have not fared well in Central Asia. Uzbekistan and Turkmenistan practice a quite brutal form of political repression; Tajikistan and Kyrgyzstan have permitted somewhat more political openness, with occasional backsliding; and Nazarbaev seems to have established Kazakhstan as a fairly benign dictatorship.
Overall, however, the Central Asian presidents wield an extraordinary amount of power. Kyrgyzstan, with its recent regime change, is the sole exception, although under Bakiev, the presidency assumed control over all policy and economic development issues, a turn of events which helped mobilize popular sentiment against him. The concentration of power in the hands of one man and whichever political elites currently hold his favor has created a situation where there is no mechanism to ensure a peaceful transfer of power, creating the potential for violent conflict any time a president dies in office or steps down. Furthermore, it has crippled the Central Asian states’ ability to move forward politically and economically. Their respective presidents are interested, first and foremost, in personal enrichment, even if it means draining their own countries’ resources in the process. This attitude often seems to be replicated at all levels of government, resulting in a system where the only way to get ahead is via graft and the promise of political favors. Under these circumstances, even a task as small as obtaining the signature and stamp of the proper official on a visa application can seem Herculean and it is small wonder if the average citizen in Central Asia is suspicious and distrustful of his/her own government.
If the Central Asian states are to see substantial progress in the next 20 years, they must find leaders who do not pose a threat to the well-being of their own citizens, who choose to pursue public office out of concern for the public good, rather than for the good of their own overseas bank accounts. Then, perhaps, everyone will have true cause for celebration.
By Monika Shepherd (email@example.com)
Will Clinton serve another helping of “Chicken Kiev” in Ukraine?
On 4 July, Secretary of State Hillary Clinton arrives in Kyiv. This visit comes on the US Independence Day holiday, and almost 20 years since President George H.W. Bush signaled US opposition to an independent Ukraine in his so-called “Chicken Kiev” speech (1 August 1991). In that speech, Bush repeatedly discussed the US commitment to working with a central Soviet government “and Republican governments” while urging “freedom” and cautioning against quick movements toward independence. (1) In other words, Mr. Bush championed a balancing act, with Ukraine teetering between independence and a Soviet overlord.
In April, following the announcement by Viktor Yanukovych’s administration that Russia’s Black Sea Fleet lease in Crimea would be extended for decades, Secretary of State Clinton fell back on Bush’s 1991 construct. “I think given Ukraine’s history and Ukraine’s geographic position, that balancing act is a hard one, but it makes sense to us,” she said. Yanukovych is simply trying, she continued, “to keep a foot, if you will, in both sides of his country.” (2)
Russia’s Black Sea Fleet is, of course, Russian, which technically is neither side of Ukraine. But presumably, Clinton meant to suggest that Eastern Ukraine supports the continued stationing of Russia’s fleet in Crimea. This is likely true, although it is entirely unclear whether Eastern Ukrainians care enough to mobilize in opposition to its leaving. Ukraine’s recent history suggests that Eastern Ukraine is far from a hotbed of political activism and mobilization – unless it is directed and funded from “above.”
Nevertheless, Clinton’s comment suggests that the US welcomes Ukraine’s significant rapprochement with Russia, even if it means Russian vessels in Crimea – just a quick sail to the shores of Georgia. Theoretically, this support for a “balancing act” is understandable and even preferable to ongoing battles of will between Russian and Ukrainian leaders. But, in reality, this act has never worked in Ukraine’s favor.
For whatever reason, periods of “rapprochement” with Russia since 1991 generally have been characterized by diminished freedoms for Ukraine’s citizens. This was particularly true during the Leonid Kuchma regime, when media was stifled, elections were heavily influenced by government actions, political opponents were harassed and arrested, and the occasional journalist ended up dead.
In 2005, oppression of political opponents, journalists and activists largely ceased with the election of President Viktor Yushchenko and the confirmation of Prime Minister Yulia Tymoshenko. However, in recent months, as the new administration of President Viktor Yanukovych and Prime Minister Mykola Azarov settles in, old habits have been reestablished.
Just last week, the Director of the Konrad Adenauer Foundation, Nico Lange, was detained at Kyiv’s Borispol Airport for ten hours while attempting to return to Kyiv. Lange has lived and worked in Ukraine for three years. Upon his release, he said the “official version” of events was that there was “a misunderstanding” at the airport. However, one month ago, the German national wrote an article entitled, “The first 100 Days after Change of Power in Ukraine: Authoritarian Tendencies and Rapprochement with Russia." (3)
At the same time, a Russian national based in Kyiv working for Kommersant newspaper announced that he had been approached by the Security Services of Ukraine (SBU). Respected investigative journalist Artyom Skoropadsky said that he was warned that he may face deportation for having contact with certain political forces.
The SBU quickly responded that the organization did not have an employee by the name that was given to Skoropadsky. But, SBU Head Valerii Khoroshkovsky promised to “identify the person and his accomplices which want to compromise the Security Service of Ukraine in the eyes of the public ....” (4)
Meanwhile, Ukrainian Catholic University Rector Borys Gudziak claimed he was told by the SBU to order his students to stay away from anti-government protests or risk prosecution for “illegal activities.” (5)
Surprisingly, Khoroshkovsky confirmed this claim. “Crime prevention is a sacred duty of law-enforcement,” he said. “Therefore, when he get information about instigating to unlawful actions, the only thing we do, and we will continue to do this, is to protect students from being dragged in these games.” (6)
It would appear that “unlawful actions” are, in fact, protests and demonstrations. The ZIK News Agency explained: “Asked why the SBU official wanted the rector to sign a document notifying him of criminal responsibility for participating in unauthorized protests, Khoroshkovsky replied that the official wanted to make sure he did well in his mission.”
And Khoroshkovsky made it clear that the SBU had returned as a force of control in Ukraine. “I can see several lines of attack taken by our opponents to destabilize the situation in Ukraine. … Let me stress again: we will be tolerant and open but we have our duties and we will be tough performing them,” he said. (7)
In response to this sort of attitude, a group of prominent journalists recently announced the creation of a group called “Stop Censorship,” and said they would protest against increasing “pressure from politicians and authorities” on the media. In particular, the journalists complained of “barefaced interference by the authorities in the news making policy of TV channels,” and “police inactivity regarding violent behavior toward journalists.” (8)
President Yanukovych responded to journalists’ concerns by pledging to protect the freedom of the press. Still, US Ambassador to Ukraine John Tefft said on Thursday that there had been "troubling reports of pressure on journalists." He also urged against a return to the “old system.” (9)
That “old system” also saw Kuchma use a “special relationship” with Russia to set up various networks of corporate entities and joint ventures. These allegedly were then used to assist Kuchma’s allies financially. In a particularly interesting move, Russia and Ukraine created a joint gas broker to handle gas price negotiations and financial transfers between the countries. This single company, RosUkrEnergo, “negotiated” on behalf of both parties, while collecting and paying all money. Yuriy Boyko, then head of Ukraine’s state gas corporation Naftohaz, sat on the coordinating council of RosUkrEnergo. But neither the government nor Naftohaz had any real stake in this joint venture. A number of well-connected individuals owned Ukraine’s 50% stake. The other 50% was owned by Russia’s Gazprom.
Perhaps not surprisingly, RosUkrEnergo was criticized by EU officials for potential political corruption. After coming into office in 2005, then-Prime Minister Yulia Tymoshenko bluntly called the set up “a front company” and charged that it was designed to enrich certain Ukrainian officials.
In 2008, after years of negotiation, Russia finally agreed to eliminate the intermediary. But now, it may be returning – and with it, an attempt to arrest Tymoshenko and/or her allies.
Last week, the Stockholm Court of Arbitration ruled that eleven Billion Cubic Meters of gas in underground storage had been wrongly confiscated by Naftohaz in 2009. (10) The gas reportedly belonged to RosUkrEnergo (RUE), but was transferred to Naftohaz following the January 2009 Russia-Ukraine gas deal that eliminated RUE as a party to the contract.
In a case brought by one owner of RUE against Ukraine, the court reportedly found that the state had no right to confiscate the gas and ordered Ukraine to compensate RUE for its damages – which could be over $2.5 billion or return of the gas. However, at the time of the gas deal, Gazprom confirmed that Ukraine had paid it for the eleven Billion cubic meters of gas. (11) Since Gazprom owned 50% of RUE, Ukraine apparently considered the matter over – until the Stockholm suit.
With the removal of Tymoshenko’s government and the election of Yanukovych, Ukraine’s defense in Stockholm of the decision to confiscate the gas was transferred to the new authorities. Yuriy Boyko, former RosUkrEnergo coordinating council member, took over as Fuel and Energy Minister.
It is telling that, before the decision was published or confirmed by the court, the SBU became involved. This is particularly relevant since SBU head Khoroshkovsky is a chief shareholder in the Inter Media Group, which also was reportedly partially owned by (or at least associated with) Dmytro Firtash, a majority owner in Ukraine’s 50% share of RosUkrEnergo. So, Khoroshkovsky, Boyko and Firtash appear to be related in some way – although all three deny inappropriate links.
After RosUkrEnergo suddenly announced it had won the case, the Security Service immediately arrested Tymoshenko’s former State Customs Service head Anatoliy Makarenko, who had approved the transfer of the gas to Naftohaz. The charge would appear to be large scale theft. (12)
In a press conference following the arrest, Tymoshenko assailed the decision to arrest her longtime ally, calling it “political persecution.” She also released documents that detail the agreement with Gazprom to buy RUE’s gas in storage, as well as confirmation of payment to Gazprom. Finally, she told reporters that the order to transfer the gas had come from her personally – not from Makarenko. (13)
It is unclear whom Ukraine is supposed to pay following the Stockholm decision, particularly since the country says it already has paid Gazprom for the gas (at an admittedly discounted price). Gazprom was a 50% partner in RUE. Will Gazprom collect twice for the same gas (assuming Ukraine actually did pay already)?
Ukraine quickly said that the state would appeal the decision. However, almost on cue, Gazprom CEO Alexei Miller offered a proposal to merge Naftohaz and Gazprom. (14) The proposal is just the latest in a long line of Gazprom attempts to gain some sort of foothold in Ukraine’s gas pipeline system. Should Ukraine owe RUE/Gazprom $2.5 billion, a stake in the system may be seen as an “easy” way out of a debt the country can’t pay. This may partially explain Gazprom’s reluctance to answer questions about this issue, even though Gazprom itself clearly confirmed payment for the gas months ago.
For his part, SBU Chief Khoroshkovsky (who seems to be everywhere) is on the case. He told journalists, “The fact that Tymoshenko declared she was giving orders to officials to confiscate the gas gives us more evidence, something for which we are thankful to her. However, in order to make it impossible for her to backtrack on her declarations, we need to gather more evidence.” (15)
Khoroshkovsky clearly has no concerns about the appearance of political persecution created by Security Service investigations of the former Prime Minister, who is the government’s loudest opponent. In fact, this is the third case Khoroshkovsky has pursued against Tymoshenko and her allies – the first two, dealing with carbon credit funds and the poisoning of former President Yushchenko – have gone nowhere, despite numerous hours of questioning.
He is undeterred, however. Speaking as if the case is already completed, Khoroshkovsky said, “I am convinced that when the criminal investigation is over, and when the court passes its legal and just ruling, all the talk about persecution will stop.” (16)
So, as Secretary of State Clinton visits Kyiv, she will have her own special balancing act. If the US is interested in maintaining the only functioning democracy (although barely) in the region, Clinton will need to do more than smile, speak of friendship, and eat chicken.
(1) Speech is available online here: http://en.wikisource.org/wiki/Chicken_Kiev_speech.
By Tammy Lynch (firstname.lastname@example.org)