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Thursday, January 31, 2008

Gazprom - New Russian Weapon

Jan. 30, 2008 – Kommersant – ‘Gazprom, New Russian Weapon’, a book by Kommersant’s special correspondent Mikhail Zygar and Vedomosti’s Valery Panyushkin is out in February in the Zakharov publishing house. Kommersant is happy to publish excerpts of the book.
Instinct of Preservation
If asked how and why Viktor Chernomyrdin created Gazprom out of the Soviet Gas Ministry, Egor Gaidar, Russia’s former acting Prime Minister replies:
“Chernomyrdin is no fool. He saw that the old ministry system of governance was falling to pieces. A Soviet ministry was a system directly linked to authoritarian power. The ministry was alive as long as orders were followed. To make sure orders are carried out, armed authority is needed. Everyone was supposed to understand that if they won’t follow orders, armed authority will send them to jail or kill. As soon as armed authority waned, it was no longer possible to govern by orders. Authority became slack by mid-1980s. Chernomyrdin had an idea that in order to preserve the gas industry people could be encouraged to work by interest rather than by force. He had an idea that a person would be working not because otherwise they would be sent to jail but because it is good for him to follow guidelines from officials.”
Gaidar says “had an idea” to describe a most complex reorganization of a colossal structure which employs half a million people now and employed one-third more in the Soviet times. Before launching the reforms, Chernomyrdin would take his employees to Germany and Italy.
“I used to say then that we needed to create such a strong system that even if a fool comes to manage it, he won’t be able to destroy it,” Chernomyrdin says. “We were studying all systems in the world taking all the best – be it technology or equipment. The system had to be fool-proof if you want it never to be broken.”
He took Italian state-run gas company ENI as a model.
“Ryzhkov was the main obstacle,” Chernomyrdin recalls.
Nikolay Ivanovich Ryzhkov, the last but one Soviet prime minister and chief economist of Perestroika, came down to history with a phrase that he is crying at night when he thinks how fast prices are growing. Papers spent a lot of issues publishing different caricatures of the weeping Ryzhkov. Ryzhkov was still shedding tears but prices were not listening to him anyway. What is more, Ryzhkov did not realize that prices would never listen to him. But the decision was up to Ryzhkov when Chernomyrdin was transforming his ministry into a concern in 1989.
Chernomyrdin says that he went to Ryzhkov with his idea of a gas concern several times. He would draw graphs, explain, talk and talk till late evening. At one of these conversations Ryzkov asked him:
“So, you don’t want to be a minister?” he still could not believe that there is something better to do in the Soviet Union than being a minister.
“I don’t,” Chernomyrdin replied.
“So, you won’t be part of the government?” Ryzhkov did not understand. “Do you realize that you’re losing everything? Dacha and all the privileges?”
“I do.”
“Is it your idea?”
“It is. Nikolay Ivanovich, it’s not the time to be a minister now. We’ll make a company.”
Ryzhkov was hesitant.
“How many deputies have you got?” he asked.
“Three first deputies and eight regular,” Chernomyrdin replied.
“You see, if I’m going to let you go, you will take twenty deputies with you!”
“Why would I? I don’t need twenty. Two deputies are fine.”
Chernomyrdin went out of Ryzhkov’s office at midnight leaving the prime minister convinced that the gas industry minister had gone mad.
Chernomyrdin was on his way to the ministry where two of his deputies informed of the plan, Rem Vyakhirev and Vyacheslav Sheremet, were waiting for him. His phone rang in the car: “The question of transforming the gas industry ministry into a gas concern is to be discussed at the presidium of the Council of Ministers tomorrow. Chernomyrdin, Vyakhirev and Sheremet spent that night in 1989 thinking how to present their reckless idea to the presidium. Chernomyrdin had only secured support from Deputy Prime Minister Batanin who promised: “I’m not going to help you because I’m against it, but I won’t oppose it either.”
Batanin kept his promise. The Council of Ministers were listening to Chernomyrdin’s speech in silence. Other ministers were perplexed. At some point, Alexandra Biryukova, deputy prime minister in charge of light industry, took the floor.
“I listened to everything that the minister has just said,” Chernomyrdin retells her words, “but I didn’t understand a word he said. But you know what, why don’t we give it a go? What are we scared of? We know him well. Everyone has always been happy with his work. If he fails – we’ll just take his head off and take everything back to place.”
The Soviet Council of Ministers had less than two years ahead of it, as much as the Soviet Union itself. Members of the presidium believed that they were still able to take somebody’s head off and get something back to place. In reality, they were not able to do anything. Soon after Gazprom ceased to be a ministry, Soviet Prime Minister Ryzhkov said at a session of the Supreme Council that prices in the USSR were artificially low and they needed to be doubled while bread prices need to be tripled. In several hours all goods were swept from shops across the Soviet Union. The country introduced a food card system. On December 26, 1990, 61-year-old Ryzhkov retired to hand over to Valentin Pavlov. Hoping to defeat the economic crisis Pavlov was trying to put a monetary reform in place. It did not help to put the country back on track but embittered people more after they lost their savings in the reform.
The Soviet Union was crumbling down. Governments of many republics openly defied decisions of the Soviet government describing them as interference into their internal affairs. Gazprom was the only structure in the country to have a firm grip on its property – all pipelines and fields in the Soviet Union.
On August 19, 1991, Soviet authorities took the last attempt to keep themselves afloat. Soviet Vice-President Yanayev, KGB Chairman Kryuchkov and Defense Minister Yazov attempted a coup d’etat to oust Soviet President Mikhail Gorbachev. Prime Minister Pavlov was also there to support them. The attempt failed. The plotters met with resistance not from President Gorbachev, who was under house arrest at his dacha in Crimea, but from Russia’s President Boris Yeltsin who drew people to the streets in Moscow winning support of the people and later the army.
In reality, from this moment on the Soviet Union and all of its ministries were no more. In terms of law, the Soviet Union ceased to exist in December 1991 when Presidents of Russia and Ukraine Boris Yeltsin and Leonid Kravchuk and chairman of the Belarusian Supreme Council Stanislav Shushkevich signed the Belavezha Accords.
The world’s biggest gas producer Gazprom, which was extracting over 800 billion cu. meters of gas a year, had a 160,00 km pipeline network, owned 350 flowing plants, 270 field installations for gas preparation, several thousands of wells and dozens of underground storages, has lost one-third of its pipelines, one-third of deposits and one-fourth of flowing plants’ capacity.
But unlike any Soviet ministry, it has survived
After the dismissal of Evgeny Primakov, the struggle between his team and the Kremlin did not cease but gained new vehemence. A camp of those opposing the president’s administration hastily drew together former Prime Minister Evgeny Primakov, Moscow Mayor Yuri Luzhkov and media tycoon Vladimir Gusinsky, owner the NTV channel. The offended Rem Vyakhirev went forward to help them against the Kremlin.
“Primakov and Luzhkov were much closer to him,” Alexander Kazakov says. “This is where their policies toward NTV arose from. It was all agreed, I’m sure of that.”
“Gazprom threw its political support behind Primakov and Luzhkov and was active playing against us,” former head of the Russian president administration Alexander Voloshin recalls. “They were sure that the Kremlin was already dead. Rem Ivanovich [Vyakhirev] really thought the Kremlin had lost everything. He was afraid of a direct confrontation but Gazprom spent a lot of money on them. Rem Ivanovich was trying to be cunning.”
Rem Vyakhirev started another battle against the government. He had no idea that this was going to be his last one.
A cheeky news conference was the first step.
“I work as the chairman of the managing committee, and I’m going to be working as such until my term expires,” he said opening the conference. “I’ve never seen a paper more stupid than that,” he said referring to the trust agreement and promised to “give anyone” the right to vote by the company’s state share. As for Minister Kalyuzhny, Vyakhirev said he had never heard of him. As if parroting Boris Yeltsin who spent a lot of time searching for a successor, Gazprom’s CEO named his potential successor – his long-standing first deputy, Vyacheslav Sheremet.
The first front collision between the Kremlin and Gazprom occurred at the AGM on June 30 which was to elect a new board of directors. A day before that, Prime Minister Sergey Stepashin and head of the presidential administration Alexander Voloshin visited Rem Vyakhirev in his office at Gazprom on Nametkina street. No chief executive had been honored with such a high-profile visit before. Stepashin secured Vyakhirev’s approval of the list of would-be members of the board. He also asked Vyakhirev to elect five representatives of the government for the board, not four as before. He said that the state holds 37.4 percent in Gazprom, so the number of seats on the board would be 4.7. The two officials also recommended Viktor Chernomyrdin for the chair of the board. It is no surprise that the Kremlin picked the former prime minister. Unlike Vyakhirev, Chernomyrdin had never been a fan of Primakov and Luzhkov. What is more, he could not forgive the two for shattering his prime minister and presidential dreams. Therefore Chernomyrdin was to become the Trojan horse which would fight against Primakov and Luzhkov from the inside of Gazprom.
Voloshin, Stepashin and Vyakhirev had a long conversation. But the shareholders’ meeting made their own choices the following day electing four governmental officials for the board again. But Chernomyrdin was elected chairman.
Stepashin was ready to forgive Vyakhirev for that liberty, but Voloshin was enraged and asked the prime minister “not to pick up trash and let others treat you like this”. Voloshin assured Stepashin that Gazprom would become so powerful before the election that it would be very dangerous. Stepashin, however, thought that another conflict with Gapzrom would only create unnecessary tensions before the election.
“As the prime minister you gave an instruction who was to be elected. But they threw them away! Who did that? Rem Ivanovich decided by himself. We must change everything now, call an extraordinary meeting and re-elect the board,” Voloshin was saying in a rush.
“It’s a major company… How is the market going to react?” Stepashin was hesitant.
“They spit in you face! Come on, call the session, call Vyakhirev and no more talking.”
Stepashin obediently called the session to his office. Once everyone got their seats, Rem Vyakhirev took the floor as if he were a host. He said he knows why Stepashin invited everyone – “someone is not happy with the elected board”. But nothing wrong happened, he said. The state and Gazprom have always stood for the same causes, and it will always be this way. He said he cannot understand where all these accusations come from. Stepashin was nodding, saying that Vyakhirev is right and everyone in the government knows that Gazprom is a big company, and no hasty conclusions should be made, but everyone will learn this lesson to make amends in the future.
Voloshin took the floor and abruptly said that Gazprom must hold a shareholders’ meeting and re-elect the board of directors. He then went up and made it to the exit. When Voloshin was already in the doorway, Stepashin closed the session by saying: “Alexander Stalyevich [Voloshin] is right after all.”
This episode became fatal – not for Vyakhirev but for Stepashin. His chances to win the right to become the successor were evaporating.
An open battle between Gazprom and the Kremlin opened in summer 1999 between the election of the first and second board of directors. Gazprom reported $1.8 billion losses for the previous year and said that shareholders including the state would get no dividends. It meant that Gazprom was not going to finance the Successor operation. It also meant that Gazprom could throw its support behind any candidate.
Meanwhile, NTV, owned by Gusinsky and Gazprom, became increasingly criticial of the Kremlin and boosted support for Luzhkov and Primakov. The Kremlin demanded that Gazprom as a major shareholder in NTV influence the TV channel’s policies and tone down blistering criticism of the Kremlin. But Vyakhirev did not lift a finger.
It got worse in August. Yuri Luzhkov’s Fatherland party and the bloc of governors All Russia united. The grandeur of the structure clearly indicated Gazprom’s lavish financing. Sergey Stepashin got his last chance before this unification. On August 3, Alexander Voloshin held desperate talks with leading governors from All Russia trying to persuade them to become the party in power and put the prime minister as number one on their party ticket. But Stepashin said at the very last moment that he would not join any political bloc. He was never forgiven for fleeing the battle-field. The prime minister was sacked one week later. It took three days, from August 6 to 8, to finally confirm Boris Yeltsin’s suspicion that Stepashin is way too weak. Events on the North Caucasus also contributed to that. Yeltsin agreed to fire Stepashin after a Wahhabi group invaded Dagestan.
In a TV statement on September 9, Boris Yeltsin named the new prime minister, Vladimir Putin, and said that this is the person he would like to see as president in 2000. Other candidates have left the short list.
The new prime minister had to start from taking on Vyakhirev. The next day after Putin was appointed, Viktor Chernomyrdin was called to the Kremlin. Gazprom’s chair of the board listened to the list of accusations against his colleague Rem Vyakhirev ranging from his lack of action in relation to NTV to financing the parliamentary election campaign for Primakov and Luzhkov. Chernomyrdin had nothing to say. Following the meeting, Chernomyrdin went out to reporters and said with an unmoving face that the president “supported Rem Vyakhirev”. But one look at him was enough to understand that Vyakhirev was one inch away from the abyss. The following day, Le Monde published an interview with tycoon Boris Berezovsky who told the French newspaper that Rem Vyakhirev “is acting in an unacceptable way supporting Luzhkov” and “Vyakhirev’s dismissal is inevitable” since “it is ridiculous that the financial potential is being used against the president and the government”. People in the Kremlin were busy discussing different scenarios, one of which was to oust Vyakhirev from the post of the chair of the managing committee. Boris Berezovsky was among those who insisted that Vyakhirev be dismissed. In one of the most elaborate plans, a shareholders’ meeting was to be scheduled for August 26 while Rem Vyakhirev was celebrating his 65th birthday on the 23rd. He was to be invited to Yeltsin to receive congratulations and a state decoration. But Vladimir Putin was to meet Vyakhirev right before the president’s office “accompanied by national security and army chiefs”. They were to show Vyakhirev a folder with so much compromising information on him and his children that there was no way he would not step down then.
Rumors about these plans and daily coverage on state television were enough for not very courageous Rem Vyakhirev. He spent his birthday on the tenterhooks. Foreign leaders showered him with gifts but an invitation from the Kremlin never came. Boris Yeltsin sent a congratulation telegram while Vladimir Putin sent him a diploma “For Services to the State in Development of Russian Gas Industry, Ensuring Stable Gas Supply for the Economy of the Country and Long Reliable Work”.
Apart from spreading alarming rumor the government took some resolute steps. Offices of several subsidiaries of Gazprom, including Gazsibkontrakt and Sibur, were searched.
A shareholder’s meeting on August 26 went as smoothly as ever. Five representatives of the government were elected to the board of directors. Rem Vyakhirev kept his position. State Property Minister Farit Gazizullin said that documents to prolong the trust agreement with him were being prepared.
“I want like to hold both of the elections, and then, you know, start leaving this stuff,” Vyakhirev said before the voting for the second board of directors. He has never come in conflict with authorities after that.
The Successor Operation
Unlike Vyakhirev, Alexey Miller was not a gas industry professional. He did a degree at the St. Petersburg Financial and Economic Institute and went to work for Anatoly Chubais a few years after the graduation. Chubais, the new first deputy chairman of the City Executive Committee in Leningrad [now St. Petersburg] and chair of its economic development committee, was looking for young people with economic background. In the economic development committee, Miller was running a project to transform Leningrad into a free economic zone, but the idea was soon dismissed as hopeless. Anataly Sobchak was elected St. Petersburg Mayor in summer 1991, the City Executive Committee was abolished, and Chubais moved to Moscow in November to head the State Property Committee.
“Miller was the weakest in Chubais’s team,” one of his former colleagues says. “That’s why Chubais didn’t ask Miller to go to Moscow with him.”
Those people from the City Executive Committee who did not follow Chubais went on to work in different committees of the newly set-up St. Petersburg city hall. Miller was one of the few who found himself in the foreign relations committee which was then run by future President Vladimir Putin.
In 1996, Mayor Anatoly Sobchak lost the election to Vladimir Yakovlev. Sobchak and Putin’s team left the city hall, and Miller went to work at Sea Port of St. Petersburg as director for development and investment. In 1999, Miller was appointed director general of Baltic Pipeline System and was running the company without any particular achievements up until 2000 when his former boss Putin invited him over to Moscow.
Those who worked with Miller in St. Petersburg recollect that Miller “would listen to you attentively and take everything down in his notepad”. Miller was never the one to make big decisions right away. He would spend several days over his notes and would probably ask somebody for advice.
“Miller is a pretty good functionary, an almost ideal deputy but that’s it,” the former colleague of him says. “He has no initiative whatsoever. He is trying not to take any decisions that are not sanctioned by authorities and avoids any responsibility.”
“His major advantage is the ability to take a good bow,” another colleague of him recalls. “He was walking the line. Absolutely plain. He was living like a shadow and serving like a shadow…”
Indeed, Millers reminded of a shadow during his first months in Gazprom. He was almost always locked in his office where he would arrive early in the morning and leave after midnight. Gazprom managers recall that he was entering his own office on the fifth floor in such an insecure manner as if he were afraid that someone would drive him out of there. It took him a while to get used to the idea that he was now the master of Gazprom.
“Millers struck everyone as amazingly hard-working,” says Alexander Semenyaka, former head of Gazprom’s financial department. “He would come at eight in the morning and leave at midnight. Unlike then, he is almost always away now.
Miller was trying to get a good idea of everything, Semenyaka says. He was a nice person to talk was, interested in pretty much everything but afraid to make decision on the spot. He would hold meeting, hear his subordinates out and make decisions several days later. He also made it a point to demonstrate succession.
The only snag to it was that there was hardly anyone in Gazprom who thought that Miller would be able to keep the position for at least one year. Despite overwhelming support from Putin, Miller had a hard time at Gazprom at the start. On October 29, the Strana.ru website posted a report citing a source in the presidential administration that said Miller had allegedly handed in resignation as Gazprom’s CEO. The article was taken off the website and the source was fired from the administration. It is still not known whether Miller really handed in his resignation. But clearly his resignation would never have been accepted as it would mean Putin was admitting he made a mistake by appointing Miller at the head of the country’s biggest company. Miller was like a ship never to sink not because he made no mistakes but because Putin was ready to overlook them. Once Vyakhirev said to close friends: “Miller will hang himself in a month.” One month was over but Miller still would not hang himself – at least because no one allowed him to.
On July 31, 2001, Vyacheslav Sheremet was celebrating his 60th birthday. The party attracted not only his old friends but Alexey Miller as well. “Everyone was saying toasts,” a person from the party recalls. “Vyakhirev and other Gazprom people were congratulating Sheremet. Then Miller took the floor. He was terribly nervous and embarrassed. The guests were looking at him with sympathy. Finally, Miller could not think of anything better than reading out a congratulation telegram from then Energy Minister Igor Yusufov. After that, Miller finally retired to the background and left very soon.”
One month later, Miller stripped the 60-year-old Sheremet of the right of the financial signature and oversight over finances at Gazprom. Another month later, high-placed guests from Sheremet’s birthday party who were sneering at Miller’s awkwardness while reading of the minister’s congratulation had to leave their positions in Gazprom to give way to new people. In early September 2001, Miller overhauled Gazprom’s personnel. Among those ousted were Rem Vyakhirev’s staunch allies, Alexander Pushkin, who ran gas business in countries of the former Soviet Union, and top manager Nikolay Guslistoy. St. Petersburg native Pyotr Rodionov, who was known to be opposed to Vyakhirev, became Miller’s confidante for a short while. But Rodionov never got the right of the financial signature and was fired several months later.
Like Putin, Alexey Miller was shaping his team in Gazprom giving preference to friends and people from his home town. For example, Miller appointed his St. Petersburg friend Elena Vasilyeva chief accountant. Until this moment, the biggest company she had worked in was Sea Port of St. Petersburg with profits of $19.5 million. Now Vasilyeva had to be responsible for balance sheets of a concern with export revenues worth dozens of billion dollars and provide one-fourth of Russia’s tax receipts. Apparently, it was not professional qualities of the applicant but her personal loyalty that played the crucial role in the appointment. Miller had worked in the same companies as Vasilyeva and had already been her boss.
New appointees had little regard for Gazprom’s old-timers. Former head of Gazprom’s board of directors Alexander Kazakov recalls the day when Vasilyeva appeared: “I went to work and saw a lady in my office. She said she liked my office and asked to take my things out of there. What was I to do? I didn’t want to force her out.”
A few months later, Kazakov resigned.
A lot of Miller’s old acquaintances who were fortunate to have worked with him at Sea Port of St. Petersburg or Baltic Pipeline System made a dazzling career at Gazprom.
“I was aware that I had to go and hand my post to somebody from Miller’s circle,” Gazprom’s former main financial official Alexander Semenyaka recalls. “Gazprom has always been a caste-based company, and the new team made a clear distinction between their people and the old-timers. I was clearly an old-timer in their eyes.”
In April 2002, Semenyaka left Gazprom to hand over one of the company’s key financial department to Miller’s 32-year-old friend Andrey Kruglov. The St. Petersburg native made a brilliant career in just two years to become Gazpom’s financial director.
The personnel reshuffle at Gazprom was swift. Semenyaka recalls that one top manager went to work to see that his entrance card was not working anymore. Another one was summoned to Moscow from holiday to hear: “You’re fired.”
Over less than two years, Miller’s former subordinates at Sea Port of St. Petersburg Kirill Seleznev moved up the career ladder from the CEO’s aide to director general of Mezhregiongaz, responsible for the sale of gas on the Russian market. The office of the board was headed by Miller’s co-worker from Baltic Pipeline System, Mikhail Sereda.
Another key department, the property one, was entrusted with another St. Petersburg friend of Miller, Alexey Krasnenkov, director general of Astoria Hotel. Astoria became a joint-stock company in October 1995 when Vladimir Putin was working at the St. Petersburg city hall. However, Miller had to sack Krasnenkov less than a year afterwards following a scandal over advertising and sponsorship spending which was oversight by the property department. Krasnenkov left the company but he still takes an active part in its property deals and sits on the boards of Gazprombank, Sibur, Stroitransgaz and Nortgaz reaping annual remuneration of several million dollars there.
Non-Gazprom people viewed those changes as random. But Gazprom insiders say that the reshuffles were carried out under a well-thought plan based on a good knowledge of the company. Miller was putting his people on key positions as quickly as possible for the trustees to gain control over Gazprom’s financial flows as soon as possible and seize Vyakhirev’s assets which had been withdrawn from the company. Former chief of Gazprom’s security service Sergey Lukash says that each of the key appointments at Gazprom was agreed with the president personally.

Russia’s Gold and Currency Reserves Hit All-Time High

Jan. 31, 2008 - Kommersant - Russia’s gold and currency reserves grew $1 billion between January 18 and 25 to $479.4 billion, an all-time high for Russia and even the Soviet Union, the Central Bank announced Thursday. A week earlier, Russian gold and currency reserves went up $0.7 billion from $477.7 billion to $478.4. Reserves of the Bank of Russia have thus moved a bit closer to two world leaders, China and Japan. China reports having $1.5 trillion in its coffers which added 43 percent last year. The growth is largely attributed to a major inflow of foreign investment in the country and large profits from growing exports. Japan currently holds $973 billion in international reserves. Gold and currency reserves in Russia are high-liquidity financial assets at the disposal of the Bank of Russia and the government. They comprise of assets in foreign currencies, monetary gold, special drawing rights, reserve positions in the International Monetary Fund and other reserve assets.

Tuesday, January 29, 2008

Russia's Foreign Policy

// Russia is back – January 29, 2008
Kommersant Vlast keeps publishing articles that sum up the last eight years’ results in various spheres of life in Russia. This time, the Moscow Carnegie Center’s expert Dmitry Trenin talks about the way Russia’s foreign policy priorities have changed, and about the consequences of these changes.
In 1999, a possibility of “the world without Russia” was widely discussed. Many people thought the financial crisis put the kibosh on Moscow’s international ambitions for long. In the article published on the eve of Boris Yeltsin’s resignation, Vladimir Putin admitted that the USSR’s collapse was mainly due to its economic ineffectiveness. So, when Putin became the president, he set the goal to make Russia a global player again, although on a different basis than that of the USSR: economic, and not military-ideological. As it turned out, there were very favorable conditions for it: the new president came in the epoch of rapid economic growth in Russia supported by energy resource prices to a large extent.
Putin came to the international arena as a pragmatist ready to try different means and ways for achieving the goal he set. First, he put in order Yeltsin’s foreign policy legacy. Putin normalized the relations with NATO, which had exacerbated due to the bombings of Yugoslavia. He also established close personal contact with British Prime Minister Tony Blair, who for some time became Putin’s ‘connection’ both in Europe and on the other side of the Atlantic Ocean. The first Russian leader since Lenin’s times to fluently speak a foreign language, Putin became close with German Chancellor Gerhard Schroder – a man of a similar psychological type. With the support of these two partners, Putin could afford to disregard the criticism coming from the European Union due to the war in Chechnya.
The Russian leader decided not to exacerbate relations with the U.S. which faced presidential election in 2000. Putin waited for the White House’s new master to be elected, thoroughly prepared for his first meeting with George Bush, did his best to find common ground with Bush, and intuitively made the right decision on September 11, 2001: Putin personally supported the American president at the moment when the U.S. became a target for terrorists. Two weeks later, despite the stand of his associates, Putin decided to support the U.S. operation in Afghanistan, and not to impede the deployment of U.S. armed forces in Central Asia.
Certainly, it was a decision of strategic scale: the Russian president acquired a chance to become America’s leading ally in the struggle against international terrorism. The world’s strategic alignment turned upside down overnight: NATO was turning into anachronism, and a new global coalition headed by the U.S. and Russia was emerging. Putin thought that Moscow could count on Washington’s benevolent attitude to Russia’s chief interests. However, no specific strategic course followed that step of Putin. The ‘window of opportunities’ did not exist for long: Americans did not agree to regard the post-Soviet territory as the sphere of Russia’s vital interests, which was the main point on the Kremlin’s agenda. Already by summer 2002, the U.S. switched to preparing for war against Iraq. Moscow-Washington strategic partnership declined drastically since the U.S. invaded Iraq. The White House and the Pentagon no longer needed Moscow’s support so much, while the Kremlin saw a dangerous sign of striving for power hegemony in the U.S. actions.
In that situation, there emerged a ‘new Entente’ – a short-term union of Paris, Berlin, and Moscow, with the purpose of ‘friendly containment’ of the U.S.. Early in his first presidential term, Putin proclaimed Russia’s ‘European choice’, and then, with the growing prices on energy resources, hoped for political and, first of all, economic rapprochement of Russia and the EU countries. Relying on his close personal ties with heads of Germany, France, Italy, and Spain, Putin wanted to build the relations of positive mutual dependence, based on interpenetration of capitals.
However, the relations cracked after the YUKOS case. Moreover, the year of 2004 – the year of EU and NATO expansion, terrorist act in Beslan, and the orange revolution in Ukraine – became the turning point in the relations between Russia and the West. After the Beslan tragedy, Putin actually accused the U.S. of carrying out a policy aimed at weakening and dismembering Russia. The events in Ukraine, where the Russian president suffered a grave personal defeat, were ever after interpreted not only as the U.S. special operation for separating Ukraine from Russia, but also as the creation of a foothold for implementing the ‘orange scenario’ in Moscow.
In that situation, former attempts at Russia’s integration into Western organizations looked naive and pointless. Those who were partners just recently, appeared as old rivals again. By acknowledging the alliance with the West, established by Gorbachev and Yeltsin, to be fruitless and prospectless, Putin ‘applied for divorce’. He decided Russia is no longer a poor cousin: it does not owe anything to anyone, and it will seek fortune alone, sometimes engaging in situational relations with various partners – of its own choice.
Early in Putin’s rule, many people admired the Russian foreign policy’s pragmatism relieved of ideology. Yet, the ideological charge appeared right after the ‘orange shock’. Nowadays, ‘sovereign democracy’ is a topical slogan. Russia demonstratively gave up the status of listener at the international arena. Putin now declines binding alliances (for instance, a hypothetic possibility of Russia’s accession to NATO). He allows Russia’s integration either at the global level (G8, WTO, OECD), or if Russia plays a leading part (on the post-Soviet territory). Putin is the only G8 leader who talks to Venezuela’s president and Hamas leaders. Russia cooperates with Iran, America’s worst enemy, in the nuclear energy sphere; it supplies air-defense systems and other weapons to Iran.
Without renouncing Russia’s European origin, President Putin underlines its Eurasian location and its right for a full participation in forming universal values. Meanwhile, Western values are boiled down to a particular case, while the ‘Russian standard’ is offered to Russia. Louder and louder, Eastern Christianity is proclaimed to be the society’s value basis. Moreover, the Kremlin is not going to include Russia’s territory only: the president personally helped reunite the Russian Orthodox Church and the Russian Orthodox Church Abroad. All-Russia Patriarch’s speech in Strasbourg gave the European audience an idea of the special ‘Russian-Eastern Christian view’. Russia is acting as a defender of traditional, that is Christian, values of Europe, being at the same time Islam’s defender as an observer in the Islamic Conference organization. Refuting the claims of the OSCE and the Council of Europe on being universally competent in the human rights issue, Russia’s representatives declared their intention to create their own data research center in Brussels.
Meanwhile, Russia’s image has considerably worsened in the last four years, despite the growth of credit ratings. Litvinenko case triggered unprecedented exacerbation of criticism of not just certain actions, but the entire domestic and foreign policy of the Russian authorities and the president personally. From the Kremlin’s viewpoint, that reaction of the West could mean one thing only: Russia’s return to the international arena was now seen as a real threat to unipolar world order which was established after the Cold War end and the USSR collapse. Putin decided to launch the counter-offensive.
Speaking in Munich in February 2007, he said the main goal of Russia’s foreign policy towards the West would be to revise the Cold War results. The chief task is to reduce America’s role to the position of the first among equals, and to form a multipolar world. The Kremlin thinks such world should be governed by ‘a concert of powers’ similar to the 19th-century Sacred Union or the UN Security Council. Putin believes the world tends towards general decrease of the traditional West’s influence and towards the rise of new centers of power: China, India, Brazil (Russia’s colleagues in BRIC), along with South Africa, Iran, Indonesia, and others. One leg in the G8, and another leg catching the ‘new wave’, Moscow hopes to become a kind of global mediator, or even a leading world player if possible.
So, the importance of Russia’s relations with its emerging great eastern neighbor is growing. Early in Putin’s rule, Beijing was concerned: where the new president would turn? Certainly, China was apprehensive of the U.S.-Russia rapprochement which began right after September 11. However, Putin set a course for strategic partnership with China, although the project’s real content and prospects remain unclear. Putin’s chief current achievement is the final solving of the Russia-China border. The Shanghai Cooperation Organization has become an important regional forum. Russia and China moved from military-equipment cooperation to joint military exercises. The ‘Primakov triangle’, which seemed unrealistic, is actually beginning to work. It is the three-sided diplomatic cooperation among Russia, China, and India. Yet, despite regular visits and declarations, ‘great and friendly’ India is still in Russian policy’s deep reserve, while other East Asian countries are just outlined in Moscow’s policy at most.
Balancing between the major international forces, Putin’s Russia aimed at building its own center of force in Eurasia – on the territory from the EU in the west to China in the east, from the North Pole (where the Lomonosov Ridge extends) to the former southern border of the Russian Empire and the USSR. The stake was on the fact that Russia’s economy, as the most powerful one, would be able to act as a magnet for the economies of other CIS countries. Russian companies’ expansion in CIS states could become a real integrator of the Eurasian territory. Russia’s growing political weight would allow it giving support to friendly regimes and securing regional safety. At last, the Russian language, education, science, and culture (including mass culture) would form around Russia a ‘Russia-centered’ humanitarian environment.
So far, these hopes have not come completely true. In the political sphere, Russia failed in the last eight years to solve any conflicts on the post-Soviet territory: all these conflicts are frozen. In the economic sphere, there are magnets stronger than Russia: for instance, China, not to mention the EU. Abolition of empire privileges, or, quoting Minister Lavrov, “mutual economic emancipation” with its gas crises, completely buried the ties inherited from the Soviet Union. In the security sphere, Moscow’s ability and readiness to give effective support to friendly regimes (for instance, Uzbekistan’s) can hardly be determined in case of grave crisis. The Russian language is already forced to compete with national and other foreign languages and cultural influences, and its role within the former USSR has been declining so far.
A considerable problem of Russia’s foreign policy is the country’s growing loneliness. Multipolar world does not imply a magic solution of all difficulties caused by the U.S. hegemony. On the contrary, it means further complication of game rules. Even if Russia really becomes one of the five world’s leading economies by 2020, its breakaway from the leaders (the U.S., the EU, and China) would be multiple: 3-4 percent of global GDP against 20 percent of each giant. It would be hard to keep balance, and even harder to claim equality. There can be many poles, but they are of different calibers.
Despite all assurances of officials, the sentiments of Russia’s ruling elite are not yet established and swing like a pendulum. Hardly had the West stopped being an unconditional role model, when it turned into a sworn enemy right away. There is certain risk that some specific steps of the state are driving Russia into a dead-end, limiting its opportunities for maneuvering. If Moscow manages to get compromises on the missile defense and the CFE Treaty by means of forcing the West to partnership, -- very well. If not, what comes next? Will Russia (and will it want to) implement its threats, and how far is it ready to go along the way of confrontation and arms race? What if Moscow’s verbal threats trigger a new alliance of Western countries so as to contain Russia? It is necessary to keep in mind that both the creation of NATO and the preservation of U.S. military presence in Europe were the West’s response to the international crises intentionally provoked by Stalin to demonstrate his own firmness.
Let us summarize. Over the eight years of Vladimir Putin’s presidency, Russia’s international positions have strengthened. Owing to growing prices on energy resources, as well as the consequent economic growth and the strengthening of Russia’s financial position, the country managed to assert itself as a separately-standing great power. The achievements of the foreign policy proper are more modest. Russia’s attempt to incorporate into the West on its own terms failed, while U.S. and EU terms proved to be unacceptable. The solitary sailing, which is presented as the only one corresponding to the country’s historic tradition and national interests, is going quite stormily. Political relations with the U.S. and most EU countries have strained, and have exacerbated with some neighbors.
The moment is special also because Russia’s president has been so far the only genuine subject of the country’s foreign policy activities. Vladimir Putin’s personality had a great impact on Russia’s international behavior. Other officials mostly acted as assistants and agents of the president. Meanwhile, the line of demarcation between tough competition and confrontation (here is where Russia’s foreign policy is balancing now) is thin and almost invisible. Only virtuosi can play on the edge.
Foreign Policy: Chronology
2001. June. Vladimir Putin for the first time meets George Bush Jr. in Slovenia.
September. Putin expresses condolences to Bush due to the September 11 terrorist attacks, and declares support to the U.S. anti-terrorism campaign.
2003. May. At the celebration of St. Petersburg’s 300th anniversary, Bush and Putin declare there is ‘partnership’ between the U.S. and Russia, and announce the intention to jointly develop a missile air defense system.
2004. October. During his visit to Ukraine to take part in commemorating the 60th anniversary of Kiev’s liberation from Nazi invaders, Putin supports Viktor Yanukovych in the struggle for presidency in Ukraine.
2005. September. The agreement on building the North-European Gas Pipeline (Nord Stream) is signed.
2006. January. Russia cuts off gas supplies to Ukraine. Europe starts widely discussing the danger of its energy dependence on Russia.
2006. July. G8 summit in St. Petersburg. Despite the calls in the West to expel Russia from the G8, the summit goes as planned.
2007. February. Putin speaks at the Munich conference on security policy issues, and criticizes the U.S. foreign policy.
April. Russia announces that it suspends its membership in the CFE Treaty.
July. At the IOC session in Guatemala, Russia gets the right to host the Winter Olympics in 2014. Nearly at the same time, there blazes up the diplomatic conflict with Great Britain over the extradition of Andrei Lugovoi to British court as a suspect of Alexander Litvinenko’s murder.
“We see what’s going on in the world”
In the last eight years, Vladimir Putin often made it clear he is not satisfied with Russia’s position on the international political arena.
2000. “Our foreign policy’s independence is doubtless. Pragmatism, economic effectiveness, national tasks priority make up the policy’s basis. However, we are yet to work to make these principles become a norm of state life.”
2001. “We should accurately fulfill our long-term obligations and agreements, and defend the principles on which we now build our relations with other states. It is a balance of interests and mutually profitable cooperation, respect and trust. These approaches are much more productive than stiff ideological dogmas.”
2002. “The confrontation period is over indeed. However, I would like to point out something else: tough competition is normal in the modern world.”
2003. “Our foreign policy’s important element is a wide rapprochement and a real integration into Europe. Certainly, it is a complicated and long-term process. Yet, it is our historic choice.”
2004. “We need the EU expansion to unite us not just geographically, but also economically and spiritually.”
2005. “Russian nation’s civilizing mission on the Eurasian continent should be carried on.”
2006. “Not everyone in the world could depart from the stereotypes of ‘bloc’ thinking and the biases inherited from the global confrontation epoch… However, it means we too should make our home strong, safe, because we see what’s going on in the world. As the saying goes, ‘comrade wolf knows whom to eat’. So, he eats, not listening to anyone.”
2007. “There is a growing inflow of foreign money used for direct interference in our domestic affairs… Even in the colonialism epoch, there was the concept of the so-called civilizing role of colonizing states. Nowadays, they arm themselves with democracy-promoting slogans. Yet, their only purpose is to obtain unilateral advantages.

Monday, January 28, 2008

Serbia deal tightens Russia's grip on European energy

January 22, 2008 International Herald Tribune - by Judy Dempsey - BERLIN: Russia added Serbia's oil monopoly to its recent string of energy acquisitions Tuesday in a deal that will also allow Moscow to send more gas to Europe through its South Stream pipeline. Four days after signing a major pipeline deal with Bulgaria, the agreement to take a 51 percent stake in NIS, the state-owned oil company, was yet another blow to the European Union's ambitions to build its own 3,300-kilometer, or 5,300-mile, pipeline to bring gas to Europe from Iran and Azerbaijan via Turkey, analysts said. The EU's Nabucco pipeline project was conceived to allow Europe to reduce its dependence on Russia, which already supplies a quarter of the bloc's natural gas. Nabucco has been dogged by logistical delays, lack of political will and disputes over financing, the analysts said. "As regards the deal between Russia and Serbia, we can blame the EU for some of this," said Borut Grgic, an energy expert and director of the Institute for Strategic Studies in Ljubljana, Slovenia. "There is a big political dimension to this," he added. "In all its negotiations with Serbia when dealing with the future status of Kosovo, the EU never brought up with Serbia the issue of energy security and how Serbia could play an important role for Europe." Gazprom, Russia's state-owned monopoly, has taken advantage of the disarray inside the EU by forging ahead with its own contracts with Italy, Bulgaria, Hungary and now Serbia, as it consolidates its presence in southeastern Europe. Under the terms of the provisional agreement, endorsed Tuesday by Serbia's cabinet, Gazprom has offered to pay about €400 million, or $600 million, for a 51 percent stake in NIS, with pledges to turn Serbia into a hub for Russian energy. The contract is to be signed Friday in Moscow. Gazprom will also commit investments of about €500 million toward modernizing Serbia's energy infrastructure. In addition, a spur from the South Stream pipeline under the Black Sea will be directed into Serbia, enhancing its role as a transit point for Russian gas. OMV, Austria's biggest energy company, said that it had wanted to make a bid for NIS when it was put up for sale last year but that there was no official tender process. "OMV has always stated that it would be interested in NIS," the Austrian company said. "But to be able to decide, an official tender process would be needed, which did not happen." The European Commission had criticized the tender process but had little influence because the Serbian government resents what it sees as the EU's interference in its political affairs. The Serbian government had been divided over the terms of the deal. Vojislav Kostunica, the nationalist prime minister, had accepted the price, first negotiated last month, but members of the pro-European Democratic Party had challenged it, saying it was below market value. Analysts said Tuesday that the price represented only a fifth of the company's market value and that the terms of the sale were not transparent. Kostunica brushed aside the criticisms. During a cabinet meeting in which the deal was endorsed, he said the "strategic" deal with Russia would give Serbia a reliable supply of energy for decades. "This is Serbia's biggest economic undertaking, and this agreement will guarantee our country's huge economic development," he said. Vuk Jeremic, the pro-Western foreign minister, said the deal would guarantee "secure energy supplies to Serbia and the rest of the Western Balkans." The Russian deal coincides with a fiercely contested presidential election that has focused on plans by the United States and the EU to recognize the independence of Kosovo despite opposition from most Serbian political parties and Russia - regarded by Kostunica as Serbia's closest ally on this issue. The ultranationalist candidate, Tomislav Nikolic, won the most votes during the first round of voting on Sunday but not enough to secure outright victory. He has rejected Serbia's bid to join the EU. His pro-Western challenger, Boris Tadic, also opposes Kosovo's independence but has refused to support sanctions against countries that recognize Kosovo's statehood. The two candidates face a run-off in two weeks. Given the political context, analysts said, there was a linkage between the energy deal and the presidential elections. "If a pro-Western candidate were to win the election, the deal with Russia might not be signed," said an EU energy expert who spoke on the condition of anonymity because of the sensitivity of the issue. "There was no need to rush through the NIS deal, but the cabinet did it Tuesday." Kosovo is still legally part of Serbia but has been under United Nations administration since 1999, when NATO forces intervened to end Serbian forces' ethnic cleansing of Kosovo Albanians. Regardless of the outcome, Secretary of State Condoleezza Rice, who was in Berlin on Tuesday to attend talks about Iran, said a decision on Kosovo could not be postponed indefinitely. "At a point," she said, "we're going to have to take tough decisions, and putting off tough decisions doesn't make tough decisions easier."

Russia to join IMF program to deal with global market crisis

DAVOS, January 23 (RIA Novosti) - Russia will participate in the International Monetary Fund's initiative to deal with the consequences of the current turmoil in the global financial markets, the finance minister said on Wednesday. "At present, the IMF is outlining a policy to deal with the global market crisis. Russia will join this initiative," Alexei Kudrin said at an economic forum in Davos, Switzerland. At the same time, the minister added that Russia does not intend to take measures to eliminate the consequences of the crisis in other countries. "We should only respond to the stability of our own economy," Kudrin said. World stock exchanges have seen heightened volatility in recent weeks following the financial turmoil provoked by the U.S. subprime mortgage crisis and fresh signs of a recession in the world's largest economy. Earlier on Wednesday, Kudrin called Russia a 'haven of stability', as the country's economy remained stable amid slumping global stock markets, and said that Moscow could offer financial assistance to the international community. "As a country with substantial reserves, Russia could help soothe the global crisis," the Russian minister said. The largest U.S. banks said earlier they would seek to raise equity abroad to shore up their liquidity. Russia's Stabilization Fund, set up to accrue surplus revenue from high world oil prices, stood at 3.85 trillion rubles ($157 billion) on January 1, 2008, compared to 2.35 trillion rubles ($89.1 billion) a year earlier. The Russian Trading System (RTS) index gained 1.83% during Wednesday morning's trade to 2,003.65 points, regaining most of the losses sustained in the past two days when it plunged 7.38% from Friday's close to below 2,000 on Monday afternoon, and fell another 5.83% to below 1,900 points on Tuesday morning. However, the index was given a boost by the United States Federal Reserve's decision to slash its interest rate by three quarters of a percentage point on Tuesday, an emergency move to avoid a U.S. economic recession.

Wednesday, January 16, 2008

Russia's assets frozen in France over claim by Swiss firm Noga

PARIS, January 14 (RIA Novosti) - Certain assets owned by the Russian government have been frozen in France over a claim by the Swiss trading firm Noga, the Paris bailiff service said on Monday. Since 1993, the Swiss firm has repeatedly applied for the seizure of Russian property abroad, including Russian Central Bank accounts in France and a sailing ship and warplanes brought into the country for shows, to secure the repayment of debts under barter oil deals struck with Russia's government in the early 1990s. A document dated January 2 says that seizure applies to assets including accounts of government-controlled news agency RIA Novosti. Under the document, the Swiss trading firm estimated the Russian government's debt to it at 49 million euros ($73 million). Noga earlier claimed the Russian government owed an estimated 1.185 billion Swiss francs (about $950 million) under food-for-oil contracts it had unilaterally terminated shortly after signing them in 1991 and 1992. The contracts' total value was said to be $1.4 billion. About a year ago it was reported that a U.S. businessman of Russian origin, Alexander Kogan, had purchased part of Russia's debt to Noga. Soon after that, Noga chief Nessim Gaon said he hoped to resolve the debt dispute with the Russian authorities amicably.

Net capital inflow into Russia hit $82.3 bln in 2007

MOSCOW, January 11 (RIA Novosti) - Net capital inflow into Russia reached a record $82.3 billion in 2007, almost double the previous year's figure, the Central Bank announced on Friday. In 2006 the figure was $42 billion. In the last three months of 2007, net capital inflow was $23.5 billion, compared with net outflow of $7.6 billion in the third quarter. Earlier forecasts for 2007 put net capital inflow at between $70 billion and $90 billion. Analysts expect a similar figure for this year.

Wednesday, January 09, 2008

"Russia needs years to match Western prosperity"

russiaDecember 29, 2007 – Russia Today – The Russian economy has seen record levels of growth in 2007, with investment up 20% over the year. The high growth rate surprised economists, with many predicting a fall in 2007. Head of Economic Expert Group, Evsey Gurvich, said results were far better than expected. “We thought capital inflow would be $US 15 billion, but have gotten twice that figure. Direct investment has also increased - amounting to $US 45 billion,” Gruvich said. Sergey Guriev, head of the New Economic School, says that even if current growth levels are maintained over the coming years, Russia needs years to catch up with the world's top economies. “In 2005, Russia ,in per capita terms, was reasonably high, almost $US 1,213 per capita. And given that Russia is a big country, Russia is already one of the top eight economies," Guriev said. The analyst also pointed to evidence that Russia was "growing faster than other big economies", and that the country had "a good chance to catch up with those economies." However, Guriev warned that even with present growth levels, the country could not expect to match Western economies in terms of living standards and incomes for some time. "It does not mean that Russians will live better. Because in per capita terms, Russia is still number 40. In that sense Russia still has a way to go,” Guriev said.

Tyumen Region

December 2007 –Kommersant – Tyumen Region was formed on August 14, 1944, and is one of Russia's largest regions. It has an area of 1.4 million km2 (8.4% of Russia's total area), which is equivalent to the combined areas of Germany, France, Italy, and Great Britain. The region has a population of more than 3 million.
People of working age make up a large percentage (67%) of the population, whereas pensioners make up only 12%. This distribution is the result of high population growth in the younger age groups due to migration in the years when the oil and gas industry was forming and developing. The average age of the region's population in 2002 was 33.7 years (vs. 37.8 years for the Russian Federation).
Tyumen Region is Russia's third-largest region in area and thirteenth-largest in population. It is also one of Russia's most multinational regions, with representatives of 125 nationalities, including 26 small northern ethnic groups. Russians form the largest group, followed by Ukrainians (8.4%), Tatars (7.3%), Belarussians (1.6%), Bashkirs (1.3%), and Chuvashes (1%). Northern minorities living in the region number 51 900, or one-third of their total population in the Russian Federation.

The regional capital Tyumen, with a population of nearly 600 000, is the region's administrative, scientific, and cultural center. Tyumen accounts for nearly 5% of the region's total industrial output, and most of the freight and passenger traffic passes through it. Higher and secondary vocational educational institutions, research institutes, and regional health, cultural, and educational departments are all located in Tyumen.
Two autonomous districts, Khanty-Mansi and Yamalo-Nenets, formed on December 10, 1930, are part of the region. The Khanty-Mansi Autonomous District has an area of 523 100 km2 and a population of 1 350 300 people. The city of Khanty-Mansiysk (pop. 36 000) is the district center. The Yamalo-Nenets Autonomous District has an area of 750 300 km2 and a population of 500 500 people. Its capital is the city of Salekhard (pop. 31 200).
There are 28 cities in the region, the largest of which (besides Tyumen) are Surgut (pop. 272 300), Nizhnevartovsk (238 700), Tobolsk (117 000), Nefteyugansk (97 500), Noyabrsk (105 000), Novy Urengoi (101 700), and Ishim (63 100).
Tyumen Region occupies a large part of the West Siberian Plain and in fact divides Russia into two large territories: a western part consisting of the Urals and European Russia and an eastern, Asiatic part consisting of Siberia and the Far East.
Extreme climatic conditions are characteristic of the region, since 90% of its territory belongs to Far Northern or equivalent districts.
Nature in Tyumen land is rich and varied, owing to the region's location in three different natural climatic zones: Arctic tundra in the Far North changes southward to typical tundra and forest tundra, then to taiga, and finally to forest steppe and steppe in the south.
The region has a northern border on the Karsk Sea and has an extensive network of deep rivers, a large number of lakes, and an abundance of underground water, which reaches the surface in the form of springs in some places.
The region's largest rivers, the Ob and Irtysh, are navigable. The lakes and rivers in the region are noted for high fish yields and number of valuable fish species. There are sizable stocks of Siberian sturgeon, sterlet, white salmon, and various members of the whitefish/salmon family (e.g., whitefish, vendace, muksun, and tugun).
A large part of the region (43 million hectares) is covered with forests. Birch and aspen are the predominant trees of the forest steppe in the south; pine, cedar, larch, fir, and spruce predominate in the north; and alder, birch, and willow grow in the bogs. Berries (lingonberry, blueberry, cranberry, bilberry, and stone berry) and mushrooms grow abundantly in the forests. Fur-bearing animals (mink, white fox, red fox, sable, squirrel, muskrat, and hare), hoofed animals (moose and wild boar), the brown bear, waterfowl (ducks and geese), and game birds (partridge, capercaillie, black grouse, and hazel grouse) are of great commercial importance.
The region also has considerable land resources, including more than 4 million hectares of agricultural land and vast reindeer pastures (53 million hectares). Most of the arable land is concentrated in the more favorable southern part of the region, where the climatic conditions allow the cultivation of grain, potatoes, staple vegetables, and feed crops. In northern districts, farmland consists mainly of pasture and hayfields.
Humans began settling Western Siberia 15 000-20 000 years ago at the end of the Paleolithic period. More extensive settlement of the territory of Tyumen Region occurred during the Mesolithic period (8000-10 000 years ago). Archeological finds show that hunting and fishing were widespread at this time, and more sophisticated implements appeared, e.g., bows and arrows, spears, cutting tools, axes, and augers. Settlement of the Lower Ob and Polar regions took place in the Neolithic period. Pottery making continued to develop right up to the 13th century A.D., and metallurgy and metalworking appeared. There was extensive trade with both East and West. Formation of the ethnic groups inhabiting Tyumen Region was largely completed by the 16th century.
Khanty and Mansi (Vogul), Nenets (Yurak Samoyed), and Selkup (Ostyak Samoyed) tribes originally inhabited Western Siberia. Turkic tribes that would later form the ethnic group of Siberian Tatars arrived in the southern part of Tyumen Region around 1000 A.D.
The Siberian Khanate with its capital in Sibir (Isker) arose in the 14th and 15th centuries. The Siberian khans waged numerous wars with the Astrakhan Khanate and the Nogai Horde and carried out raids into Russian territories. Kuchum, who became khan in 1563, succeeded in uniting formerly hostile Tatar settlements and subjugating the Vogul and Samoyed tribes. Kuchum also had plans to expel the Russian population from the area around the Urals.
In order to defend their territories against the Tatars, the Stroganov family of Ural merchants and industrialists hired the services of Ermak Timofeevich's Cossack brigade. The Cossacks began a campaign against the Siberian Khanate in 1582, and on October 23, 1582, they destroyed the khan's forces in a battle on Chuvashia Cape. The Cossacks' Siberian campaign lasted four years and severely undermined the main Tatar forces. Even after Ermak's death in 1585, the Khanate was unable to recover its former strength. The campaign thus opened the way for Russian migration to Siberia.
In 1586, army commanders (voevody) V. Sukin and I. Myasny began building a fortified town on the Tura River, which later became Tyumen, the first Russian city in Siberia. The following year, a relative of the governor, D. Chulkov, founded the fortified town of Tobolsk. Berezovo and Surgut were founded in 1593 and 1594. As the land routes to Eastern Siberia expanded, the number of Russian cities and villages also grew: the city of Yalutorovsk was founded in 1630, followed by the villages of Vagai (1633), Isetskoe (1650), and Abatskoe (1680).
In 1590, Tobolsk became the main city of Siberia. Farm production increased, industries involved in processing agricultural products developed, and trades appeared in the cities. By the 17th century, Tobolsk and Tyumen, as commercial and trade centers, had reached the level of the cities of European Russia. Construction of the first stone buildings east of the Urals began in Tobolsk in the late 17th century. The only Kremlin in Eastern Russia was also built in Tobolsk.
One of the distinctive elements of life in Western Siberia was political exile. "Prisoners of State" were banished to the territory of Tyumen Region starting in the early 17th century. Among them were Abram Petrov (Hannibal) and Archpriest Avvakum, who were exiled to Tobolsk, and A.D. Menshikov, who was sent to Berezovo. In the first quarter of the 19th century, 36 Decembrists were exiled to Tobolsk and Yalutorovsk in Tobolsk Province. While in exile, the Decembrists made a great contribution to the intellectual life of the territory by establishing a school for commoners in Yalutorovsk, the first women's school in Siberia in Tobolsk, and other institutions.
Many members of other Russian liberation movements, such as writers Aleksandr Radishchev and Fedor Dostoevsky, and I.V. Petrashevsky, also passed through Tobolsk.
Tobolsk was the administrative, cultural, and spiritual center of Siberia in the 18th and 19th centuries. In addition to secular institutions, a system of religious schools developed; and for a long time, the school for higher clergy and the seminary were the only such schools beyond the Urals. The first literary magazine in Siberia, Irtysh, began publishing in Tobolsk in 1789, and a theater was opened.
Tyumen was the region's commercial and industrial center. Owing to its location at the crossroads of trade routes between West and East, Tyumen turned in the "Gateway to Siberia." Settlers from European Russia passed through Tyumen after the abolition of serfdom in 1861 and during the years of Stolypin's agrarian reforms. By the end of the 19th century, industries such as food processing, especially buttermaking, shipbuilding, tanning, glassmaking, and timber processing were well established in the province. Construction of the Trans-Siberian Railway resulted in further industrial development. Some of the outstanding people of Russian history were natives of Tobolsk Province, for example, the great chemist and developer of the periodic table Dmitry Mendeleev (Tobolsk), poet, storyteller, and author of The Little Humpbacked Horse P.P. Ershov (Tobolsk), and favorite of the last Russian emperor Grigory Rasputin (Pokrovskoe).
Tobolsk Province did not escape the events of the Revolution of 1917; however, there were no armed conflicts or any major political actions. After October 1917, power in the province passed to the Socialist Revolutionaries. The Bolshevik group played a minor role, coming to power in the province only at the end of February 1918, when five Red Guard detachments from Ekaterinburg and Omsk were dispatched to Tyumen, Yaltorovsk, and Ishim and occupied the railway station, post and telegraph offices, banks, and other buildings. The cities were placed under martial law, and the local bourgeoisie were forced to pay an indemnity. The provincial capital was moved from Tobolsk to Tyumen. A Provincial Soviet was established on April 3, 1918, with Bolshevik N.M. Nemtsov as its first chairman.
Emperor Nicholas II and his family were held under arrest in Tobolsk in 1917-1918 and then moved to Ekaterinburg, where they were executed.
Admiral Aleksandr Kolchak [Supreme Leader of the anti-Bolshevik government in Omsk during the Russian Civil War] took control of Tyumen (Tobolsk) Province before summer 1919; and in August 1919, 51 divisions commanded by V.K. Blyukher occupied Tyumen, Yalutorovsk, and Tobolsk. Partisan forces commanded by P.I. Loparev carried out most of the operations in the northern part of the province. Battles with White units continued in the north right up to March 1920.
The Soviet authorities' policy of "War Communism" met with fierce resistance from Siberian peasants. In January 1921, the largest anti-Bolshevik uprising in Russia since the Civil War broke out. Insurgents blocked the railway, occupied Tobolsk, Surgut, Berezovo, and Obdorsk (Salekhard), stormed Ishim, and came within four km of Tyumen. Both sides fought a battle of unprecedented savagery. Regular Red Army units using armored trains, warships, and other means took part in suppressing the uprising, which was finally crushed only in 1922.
Tyumen Region underwent a number of administrative and territorial reorganizations during the Soviet period. Two national districts, Ostyak-Vogul and Yamalo-Nenets, were formed in the Northern Ob area in 1930 based on the proportion of native people in these territories-about 50% in Ostyak-Vogul and more than 70% in Yamalo-Nenets.
As in pre-Revolutionary times, the region became a place of exile, and a GULAG system developed in the north. Tyumen Region was the site of the infamous 501 and 503 (forced labor) construction projects. The territory was still mainly agricultural between the 1920s and 1940s, the major change in this area being collectivization.
After the Second World War began, the region's entire economy was reorganized along military lines. Factories, research institutes, and a number of government ministries and departments were evacuated to the region's cities; and hospitals were set up throughout the region. Lenin's body was kept in Tyumen starting in summer 1941.
Ninety natives of Tyumen Region became Heroes of the Soviet Union, 90 000 were awarded medals "For Valiant Labor", and 70 000 received military decorations.
The main event in the territory's life was the formation of Tyumen Region, including the Khanty-Mansi and Yamalo-Nenets districts, on August 14, 1944, with the city of Tyumen as the capital.
A new chapter of the history of Tyumen Region began in 1964 with the "Discovery of the Century." The discovery of oil and gas fields formed the basis of the world's largest oil and gas complex. Development of the oil and gas fields fundamentally changed life in Tyumen Region; new cities such as Novy Urengoi, Nadym, and Noyabrsk arose.
In record time, Tyumen Region became the country's main oil and gas energy source. By the end of the 1980s, the region was supplying the country with 400 million tons of oil and 574.2 billion m3 of gas per year. Strong construction and engineering industries developed in support of this great burst of activity, and research and design institutes, higher educational institutes, and other schools appeared. Development of Tyumen Region's natural resources became the business of the entire country. The region's population increased many times. Hundreds of thousands of people arriving from all parts of the country to work the fields formed a new generation, for whom the region became a second home and the birthplace of their children. Today, Tyumen Region is both the country's largest and one of the world's largest natural resource storehouses.
Tyumen Region is rightly known as the "energy center of Russia" because of its huge hydrocarbon resources. A major part of the country's oil and gas reserves are concentrated here in the extraordinary Samotlor, Kholmogorsk, Krasnoleninsk, and Fedorov oil fields and the Urengoi, Medvezhye, and Yamburg gas fields. In the estimation of specialists, high-grade hydrocarbon zones are present on the Gydan Peninsula and in the Karsk Shelf area of Yamalo. There are also great prospects associated with development of the Uvatsk project in the southern part of the region.
In addition to oil and gas, the region produces peat, sapropel [aquatic ooze], quartz sand, brick and ceramic clays, limestone, and building stone. Nearly 400 deposits of raw stock for manufacturing building materials have been identified and explored to various extents.
Tyumen Region has abundant freshwater reserves and large mineral water resources. The region's subsurface waters contain more than half of Russia's iodine and bromine reserves.
Tyumen Region ranks first in Russia in industrial output. The main industrial centers are located in Tyumen, Surgut, Nizhnevartovsk, Tobolsk, Novy Urengoi, Nadym, Noyabrsk, Nefteyugansk, Kogalym, and Ishim.
The oil and gas industry is the foundation of the regional economy, accounting for 87% of the region's industrial output. The region produces a large part of the country's oil, gas, and gas condensate. Production figures for 2001 were 231.2 million tons of oil and gas condensate and 526.4 billion m3 of natural gas. Oil production is increasing in Uvatsky District in the southern part of the region.
A well-developed oil refining industry supplies light hydrocarbon feedstock to the country's petrochemical industry.
The chemical and petrochemical industries produce butadiene, synthetic resins, plastics, polyethylene tubing, and polymer film. Nearly one-third of the country's liquefied household gas is produced in the region. An industrial complex for producing vehicle fuel is developing in the north, and mini-plants producing motor oil for the local market are in operation.
Engineering plants manufacture such in-demand products as oilfield, drilling, exploration, and oil refining equipment; tractor trailers; woodworking machinery; concrete mixers; storage batteries; automatic devices; medical equipment and spare parts; medical needles; and single-use syringes.
The building material industry manufactures precast reinforced concrete structures and components, elements for large-panel housing construction, bricks, building blocks, environmentally friendly insulating materials, ceramic roof tiles, and facing tiles.
The forest and woodworking industries play an important role in the region's development. Companies in this sector manufacture a wide range of furniture; chipboard; plywood; wooden houses; heat insulation, finishing, and other materials; and woodwork.
Socially oriented sectors are represented by the light and food industries. Light industry manufactures woolen fabrics, yarn, fur items, fishing nets, leather and felt footwear, and clothing. The food industry produces a wide assortment of meat, fish, and dairy products; bread, baked goods, and confectionery; canned foods; and other food products.
Owing to the region's extreme climatic conditions and far northern location, farmland occupies only 3% of its territory. More favorable conditions in the southern districts allow the cultivation of grain, potatoes, vegetables, and feed crops. Livestock farms raise cattle, pigs, sheep, goats, horses, and poultry. More than 84% of the region's agricultural products are produced here.
Agricultural organizations in the autonomous districts specialize in the production of milk, eggs, and greenhouse vegetables. Fishing and reindeer herding are traditional occupations of the native people.
Per capita production is equal to 27 kg of meat (fattened beef and poultry), 163 kg of milk, and 326 eggs. Tyumen Region leads the other regions of the Ural Federal District in per capita egg production.
The main economic, geographic, and political conditions for investment in Tyumen Region include the following:
• abundant natural resources;
• predominance of sectors of the fuel and energy complex;
• the increasing share of the processing industry, including hydrocarbon processing;
• a skilled workforce;
• high effective demand for consumer goods and services;
• political stability;
• investment legislation providing a system of government guarantees and tax concessions for investors.
Tyumen Region is among the regions with the highest level of investment activity and is in a leading position in Russia in terms of fixed capital investments. The largest volume of fixed capital investments is directed to industry and transport.
The region is also a promising location for profitable investment of foreign capital.
Business cooperation is being carried out with partner companies and organizations in 87 countries, including the United States, Great Britain, and Cyprus. The most attractive sectors for investment are oil refining and gas processing, oil production, and trade.
Tyumen Region is one of three leading regions in foreign trade turnover, which in 2001 amounted to 6.9% of Russia's total foreign trade turnover.
Foreign trade operations are carried out with companies in many countries. The region's ten most important trading partners are Germany, Poland, the Czech Republic, Belarus, Ukraine, Hungary, Cyprus, Lithuania, Slovakia, and the Virgin Islands. The most stable partners, Ukraine, Germany, and Hungary, account for 45% of foreign trade turnover.
Nearly all exports (99.7%) consist of products of the fuel and energy complex. Machinery and equipment make up 71.6% of imports.
The regional Administration is the highest executive body. The head of the executive branch and highest official is the governor. The region’s executive and administrative body is the Government.
Official Site of the Administration of Tyumen Region:

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