The Battle for Moscow's Billions

1. The Battle for Moscow's Billions Power and Money in the Russian Capital Under Mayor Sergey Sobyanin Donald N. Jensen Kennan Institute February 4, 2011

2. The Many Faces of Moscow “Moscow at night glitters as never before. The Russian capital…is vibrantly alive, almost pulsating with energy…. Mayor Yuri Luzhkov has seen to it that virtually every building façade, every urban surface, is well-scrubbed or freshly painted – and brightly lit. Very brightly. Hundreds, perhaps thousands, of spotlights and streetlights have been installed by Luzhkov’s government to display the new Moscow to best effect. And the sight is indeed impressive. In its central districts, Moscow can be compared to the downtowns of the great cities of Europe – something that could never be said truthfully before, at least not since 1913.” -Blair Ruble Mid-1990s

3. The Many Faces of Moscow (cont’d) • Westernized: Moscow-Siti • Desacralized symbolic Soviet spaces: skating rink near Lenin mausoleum; • Russified: refurbished statues of Aleksandr II; Peter the Great • Diversified: new lifestyles, housing, ethno-cultural diversity

4. Moscow: the Economic Powerhouse • Gross regional product: $340bln (24% of Russia’s GDP) • 40% of Russia’s foreign investments

5. Moscow the Economic Powerhouse: August 2010 budget draft calls for 1.3 trillion rubles ($43bln) of spending in 2011 • Sample figures: • Social Benefits: 592 blnR • Road construction: 38blnR • Metro construction: 26blnR

6. Moscow Is By Far the Richest Region in Russia

7. Downside: the Unheavenly City? • Pervasive corruption • High crime rate • Pollution • Deteriorating roads • Traffic congestion • Deteriorating public transport • High cost of living (eg, utilities and housing)

8. Transportation bottlenecks: 3.6 Million Cars for 10.5 Million People

9. Macro-Issues (Colton) • Service and Responsiveness • Scale • Accessibility • Coherence and Accountability • Regional cooperation • Local-central diplomacy • Strategic planning • An expanded policy reportoire

10. Outline • Moscow, the Economic Powerhouse • Moscow, Inc. • Why Luzhkov Was Ousted? • How is Sobyanin doing? • Deluzhkovization • Battling crime and corruption • Redistribution of property • Public satisfaction • Transport • Social payments • Tolerance of public protest • Challenges: Ethnic riots, OpppositionDemonstratios, Domodedovo bombing • Prospects: the Meaning of Moscow

11. Luzhkov’sMoscow:Keys to prosperity • Takeover of city’s Soviet-era assets • Supermayoral system of governing • Luzhkov’s charismatic leadership • City Hall’s extensive involvement in business • Massive inflow of resources from Russia’s regions and foreign investment • Highly criminalized political and business climate • Federal subsidies • Luzhkov’s alliance with Yeltsin, then Putin

12. Luzhkov’s Moscow: A semiautonomous political-economic system embedded within the Russian Federation • Money-power nexus • Relatively consolidated • In Putin era, federal patrimonialism as in important ways come to resemble that in Moscow, rather than vice versa

13. Moscow, Inc. The mayor and his proteges act as owners of the city as well as its political leaders: • Extensive participation of the city in business • The involvement of Moscow businesses and financing city programs and the commercial use of Moscow city funds • An opaque budget process marked by extensive use of off budget funds as well as federal subsidies. • Russian Finance Minister Kudrin recently claimed that one quarter of Moscow’s government decrees were secret, including decrees allocating land in central Moscow.

14. City of Moscow Owns: Mosmedynagroprom holding in Kaluga Oblast (experimental corn, purebred cattle) • 356 State Unitary Enterprises • 337 blocs of shares in ventures and companies including: • Agricultural holdings • ZIL automotive metallurgy plants in Smolensk • Building projects in: • Abkhazia and South Ossetia • Crimea, Ukraine • Other foreign countries, from Mongolia to Venezuela As of 2008 Moscow received 0.15% of its budget revenue from these enterprises. During the economic crisis, this revenue shrank by 90%. The city poured 100 times that much money into supporting the enterprises

15. Moscow, Inc. (cont’d) • The AFK Sistema conglomerate, headed by Luzhkov crony Vladimir Yevtushenkov, embodied the fomer mayor’s blend of politics and business. Sistema operates consumer service businesses in telecommunications, microelectronics, insurance, home construction, oil, the media and banking. Sistema’s firms draw loans and business from the city government and generated funds for Luzhkov’s projects.

16. Moscow, Inc. (cont’d) • Inteko, the firm owned by Luzhkov’s wife, Yelena Baturina – named by Fortune in 2010 as the world’s third richest woman – is one of the most power business empires in Moscow • Baturina’s brother, Viktor Baturin, sued Inteko for $120 million in 2007 alleging wrongful dismissal

17. Supermayoralism • Powerful elected mayor and apparatus • Weak city Duma • Tight Luzhkov team • Neighborhood institutions (prefect, subprefect), largely act as transmission belts for City Hall orders • Fawning local media

18. Luzhkov’s Friends, Enemies , Inventions,Medals

19. Luzhkov’s “Team” of closest advisors • Yuriy Roslyak • Valeriy Shantsev • Vladimir Resin • City Duma Speaker Vladimir Platonov

20. Relations with Federal Authorities • Kremlin has allowed Moscow significant autonomy, (exemption from federal privatization in exchange for Luzhkov’s loyalty and andmainenance of political stability • Bolstered by Luzhkov’s alliance with Yeltsin, then Putin; Luzhkov was a key Yeltsin ally in ‘91, ‘93, ’96 crises; relations with Putin were correct, but not close (Luzhkov made a presidential run in 1999) • Moscow receives lucrative subsidies and privileges • Moscow depends on revenue sharing from federal center • Moscow is largest contributor to national budget

21. Luzhkov’s Foreign Policy • To ensure Moscow has sufficient fuel, food, and other supplies, Luzhkov has placed a high priority on cultivating good relations with other Russian regions and other countries • Economic cooperation agreements with most of Russia’s 88 units • City loans to other regions • Direct ties with Ukraine, Lithuania, other CIS countries, Latvia, and the separatist regions of Transdnestria, and Abkhazia

22. Law Enforcement in Moscow • The courts, the Procuracy, the FSB, the MVD, are formally subordinated to the federal authorites • In practice, the city has say over their budget, personnel and operations • Moscow subsidizes police officers salaries • More than 100,000 federal armed troops are also are based near Moscow • The city has provided material support to many of these troops,

23. Corruption • Central to governing city. It has “…has stopped being a problem and become a system.” (Nemtsov) • Interlocking network of politicians, businesses, media holdings, law enforcement personnel, answerable to City Hall. Bribery, protection, graft is widespread

24. High Costs of Road-Building in Moscow: A Sign of Corruption? • Figures from August 2010. • An officer of Mostotrest contracting company cites high costs from the “Kafkaesque paperwork associated with transfers of ownership to City Hall” and the need to move the underground “tangle of pipes, power lines and telephone lines, most of which have different owners …”

25. Moscow real estate Favored construction companies—especially Baturina’s Inteko, Su-155 and others– received preferential treatment: permissions, municipal orders. Kickbacks in the permissions process can reach 50-70 percent of housing costs Municipal orders accounted for almost half of the living space under construction in 2007 (yellow windows in the diagram).

26. Criminalized Law Enforcement • Position • Cost • Police general in Moscow • Approx. $1 million • Police Major-General in Moscow Oblast • $500,000 • Police chief of an administrative district in Moscow • $100,000-$1 million or powerful business connections • Chief of prosperous Tsaritsyno precinct in Moscow • $500,000 • Precinct captain • $50,000-$100,000 to be put at the head of the waiting list for the post • Criminal police chief, precinct level, central or southern Moscow • $25,000-$30,000 • Precinct criminal investigation chief in prosperous part of city • $10,000-$15,000 • Chief of public order section, precinct level • $15,000-$30,000

27. Moscow Police On the Take: Who paid whom for protection in 2007

28. Prices of Favors in the Law Enforcement System

29. Organized Crime Organized crime is pervasive: • It plays a political role as lobbyist and partner in governing the city. • City hall manages oc rather than fights it • In recent years evolved from burglary, robbery and protection racket to acquisition of real estate, manufacturng firms and business

30. Criminal Map of Moscow (Komsomolskaya pravda September 2009) • Solntsevo Group • Slavyanskiy Group (Usoyan) • Tbilisi Crime Clan (Oniani) • Izmaylovo Group • Shushanashvili’s Georgian Gang • Azerbaijani Gang • Taganka-Chinese Gang • Golyanov Group

31. Glossary of Criminal Organizations • Solntsevo Group • Territory of Mozhayskiy and Khoroshevskiy highways, Perovo, Shchukino, Ramenki, Dinamo, Cheremushki, area surrounding Southern and Prague subway stations, Balashikha, Odintsovo, and several large firms in downtown Moscow -- Solntsevo gang's sphere of influence. • Approximate size: More than 1,000 soldiers, not counting brigade leaders and underlings. • Specialization: real estate, protection of firms on "its own territory," and money laundering, including proceeds from drug trafficking. Sphere of interests -- hotel business and all waste disposal firms in the capital. • Area surrounding Belarus subway station -- Tbilisi crime clan. Approximate size -- about 3,000 members. • Leader -- "Thief-in-Law" DedKhasan (AslanUsoyan) • Base -- in Sochi. • Specialization: Interest in oil, hotel, trade, gambling business; banking, metal sales, travel industry, motor vehicle sales, and money laundering. • Tbilisi clan • Central District -- Tbilisi crime clan. • Size -- over 3,000 members. • Leader -- "Thief-in-Law" TarielOniani, aka Taro. • Base -- in Spain. • Specialization: gambling, banking, real estate, drugs, arms trade, and money laundering. • Izmailovo • Northern District -- Izmaylovo gang. • Size -- over 1,000 members. • Leader -- "Thief-in-Law" Aksen (Aksenov). • Base -- in Moscow. • Specialization -- protection of local businesses and some banks, trade, insurance, and extortion. Protection of jitney lines. • Loyal to DedKhasan (AslanUsoyan) and Yaponchik (VyacheslavIvankov). • Georgian gang of Lasha Shushanashvili, loyal to Tariel Oniani • Altufyevskiy Rayon, Lianozovo, areas surrounding Polezhayev and Oktyabrskoye Pole subway stations, and Mnevnikov region -- Georgian gang of Lasha Shushanashvili. Loyal to crime boss Taro. • Specialization: Medium business, trade, theft of items left in vehicles. • Azerbaijani gang • Nagatino, Maryina Roshcha, Tekstilshchiki, Lyublino, Brateyevo -- Azerbaijani gang, no acknowledged leader. • Specialization: control of Moscow's outdoor markets. Protection of businessmen in "trust territory" and protection racket. • Lasha Shushanashvili • Altufyevskiy Rayon and areas surrounding Polezhayev and Oktyabrskoye Pole subway stations -- Lasha Shushanashvili's gang. • Specializing in real estate. Owns trade firms. • Taganka--Chinese gang • Taganka -- controlled by Chinese gang. Leaders constantly changing. • Specialization: contraband consumer goods, equipment sales, drugs. • Golyanov group • Izmaylovo, Tushino -- Golyanov gang. • Leader -- "Thief-in-Law" Pasha. • Specialization: Theft of items left in vehicles, burglary, and small business in trade sector. Controls outdoor markets and local businesses. • Georgian gang • Area surrounding Moscow Oil Refinery -- Georgian gang. • Specialization: banks, oil and hotel business, and protection of local enterprises and businesses. Slavyanskiy group • Part of Central District -- Slavyanskiy crime clan. • Based in United States. • Specializing in vehicle sales and contraband, interest in banking, gambling, and information technology. Affiliated with Ded Khasan (Aslan Usoyan).

32. Luzhkov’s friends with underworld ties Iosif Kobzon, the Russian Frank Sinatra

33. Luzhkov’s last chance to boast: Moscow Day, September 4, 2010 • Highway projects • Clinic • Sports complexes • “Worker and Peasant” statue museum • Music school • “Informational Intellect Center and Gimnazia”

34. Why was Luzhkov Fired? • Long rumored, causing widespread anxiety among Moscow elite • Medvedev: “lost trust” • The Kremlin wanted to further centralize political power, • Part of a broader trend toward replacing entrenched regional heads (18 fired in 2010) • Federal authorities wanted unfettered access to Moscow’s riches. • Luzhkov’s independence; his act had become tiresome • Repeated disputes with federal center over Moscow fires last summer, road construction, and corruption, and the Khimki forest • Putin: “Maybe it was for unsportsmanlike behavior.”

35. Anti-Luzhkov Campaign • Dismissal preceded by ugly smear campaign on state tv which “revealed” massive corruption, traffic paralysis, and other problems obvious to anyone who has ever visited Moscow • Luzhkov hit back: he wrote an open letter to Medvedevaccusing him of organizing a witch hunt and being “undemocratic” • Sensing the end was near, many Luzhkov cronies embedded themselves in the Olympic construction mess, and were blamed by some for construction cost overruns and delays

36. Who Fired Luzhkov: Putin or Medvedev? • Putin said it was Medvedev’s decision and he made it because he and Luzhkov did not get along} • Ultimately Putin’s decision, not Medvedev’s

37. Selecting a new mayor

38. Meeting Mr Sobyanin • Disproves speculation about growing political clout of Medvedev. He is a Putin man. • Shows no indication he is anything but loyal to the federal center. Tight lipped bureaucrat rather than populist politician • His career track is closely linked to oil and gas sector, especially to Lukoil and TNK-BP

39. Sergey Semenovich Sobyanin Considered an ally of Vladimir Bogdanov (Surgutneftegaz) and Roman Abramovich Received support from Putin and siloviki in the Tyumen governor’s race Not tied with “Petersburg group” or particular silovik groups, though some see a tie with Prosecutor Chayka “Kogalym Group” unites him with ex-Transneft head Semen Vaynshtok, ex-Energy Minister AleksandrGavrin His aide AnastasiyaRakova followed him from Tyumen and is now Deputy Mayor, staff member, and mayor’s representative to the City Duma • Born 21 June 1958, Khanty-Mansi Autonomous Okrug • 1980s Komsomol work in Chelyabinsk, local administration in Kogalym • 1990s: Regional posts in Khanty-Mansi Autonomous Okrug • 1996-2000: Federation Council member • 2001-2005: Tyumen Oblast governor • 2001-2003: Board chair of TNK fuel company • 2004: The first governor to support Putin’s plan to end gubernatorial elections • Dec. 2005: Head of Putin’s Presidential Administration • 2006: Board chair of TVEL nuclear fuel company • May 2008: Head of Putin’s government administration • 2009-: Chair of Channel 1 • Oct 22 2010: Inaugurated Moscow Mayor

40. Sobyanin-Tyumen Group Oleg Chemezov (former deputy to Sobyanin in Tyumen, then vice president of TNK/BP) Laura Sokratova (Gavrin’s wife) • Semyon Vaynshtok (Former head of Transneft • Aleksandr Gavrin (Former Fuel and Energy Minister) • Irina Rubinchik (Sobyanin’s wife; headed various regional projects when Sobyanin was governor; reportedly related to Vaynshtok or Gavrin)

41. Sobyanin Agenda • Development of transport system • Health care • Education • Social support • Housing • Development of communal-engineering infrastructure • Energy conservation • Environmental protection • Scientific development and innovation

42. First 100 Days Sobyanin Soaring? • Suspended several construction projects, including $49 billion 4th Ring Road • Towed many cars • Further centralized power by demoting many district prefects to below cabinet rank; many have been replaced • Sacked many City hall bureaucrats • At Davos, promised to transform Moscow unto a business-friendly financial center free of corruption and red tape • A November poll (VTsIOM), found that 63% of Musovites appproved his work

43. Sobyanin Stumbling? • Late December Levada poll found that 46% of residents said Sobyanin left a “neutral” impression on them; 23% positive • Opposition to his crackdown on kiosks • Neither poll captures raising of communal service charges by 10% on January 1 • Criticized for lack of planning and competency (kiosk campaign) • Many dismissals may be for show. Resin and Kuzmin, construction barons, remain • Many projects which threaten historical sites continue

44. Deluzhkovization: Symbolic • Plans to remove a Peter the Great statue commissioned by Luzhkov and widely despised by Muscovites

45. Deluzhkovization: Symbolic • Peter the Great to Sobyanin: “What are we going to do with the statue?” (Yelkin, 10/30/10)

46. Deluzhkovization: Cadres • Sobyanin has been systematically replacing officials in City Hall and neighborhoods • Some holdovers remain, however, including Deputy Mayors Vladimir Resin and Ludmila Shvetsova. • These may be those deemed “irreplaceable” or part of a deal between the Mayor’s office and the feds • Unclear whether Resin and Shvetsova still retain real power

47. Cadres decide everything: Changes in Moscow city government as of October 26, 2010 • The caps show Luzhkov-era holdouts; the eagles show new cadres

48. Sobyanin and his team, February 2011 • More deputy mayors (11 versus8). • Mayor’s office includes people from: • Business (Golodets, Sharonov) • Federal agencies (Lyamov, Rakova, Sergunina) • Regions (Khusnullin—was in Tatarstan) • Proportion of Luzhkov-era cadres has sunk to 40% (Shvetsova, Biryukov, Resin and Shukshin). • More women (4versus 2)

50. Luzhkov-era holdouts Vladimir Resin, chief of Metro construction commission