[I do not recall publishing this anywhere, but found it in my files while on vacation and thought it worth publishing as it could be useful for anyone doing research on early Putin-era St. Petersburg and federal-regional politics]
TRIP REPORT: ST. PETERSBURG, August-September 2001
by Gordon M. Hahn, Visiting Scholar, Hoover Institution, Stanford University
ST. PETERSBURG AND PUTIN’S FEDERAL REFORMS
Neither St. Petersburg Mayor Vladimir Yakovlev, his administration, nor the Legislative Assembly has emerged as harsh opponents of President Vladimir Putin’s federal reforms. This reflects the emergence of an apparent, perhaps temporary truce, even modus vivendi between Putin and Yakovlev. There is little if any resentment on the part of Yakovlev, Smolny, or the Legislative Assembly of Putin’s efforts to put an end to the unofficial, non-institutionalized side of Russia’s asymmetrical federalism by attempting to bring regional laws and constitutions (and charters) into conformity with federal law. St. Petersburg was not a major violator of federal law, but like many other regions, it has been tardy in bringing its laws into compliance and continues to adopt new laws which violate federal law. In March it was one of four of the NorthWest Federal Okrug’s (SZFO) eleven regions that Deputy Prosecutor-General for the SZFO Vladimir Zubrin singled out (along with Pskov Oblast and Komi and Karelian Republics) for presenting “serious difficulties” and ignoring prosecutors’ demands to change laws that violate federal legislation. The Legislative Assembly only recently brought the city’s law on state service and state servants into compliance with federal law. In August Zubrin had to protest a new order of Yakovlev’s on the creation of the city-owned St. Petersburg Electrical Grid (SPbES).
St. Petersburg’s elite is less concerned about the second wave of Putin’s federal reforms intended to tackle the “official asymmetry” established by bilateral federal-regional treaties and agreements signed by Moscow and some 46 federation subjects between 1994 and 1999. St. Petersburg’s own agreement with the center brought it few, if any concrete benefits. Petersburg’s politicians hold to the now generally held consensus that the bilateral treaties have served their purpose by preserving the unity of the federation in the wake of the collapse of the Soviet Union and that now they should be modified, if not abrogated.
Some deputies in the Legislative Assembly — in particular the ‘Yabloko’ faction — who are active on issues of state-building and the division of powers between the federal, regional and local levels have raised several issues in response to the center’s offensive. While acknowledging that it is inappropriate for the regions to pass legislation that violates the Constitution or federal laws, the chairman of the Yabloko faction and member of the assembly’s Budget and Finance Committee, Mikhail I. Amosov, criticizes the federal authorities’ growing tendency to centralize tax revenues. The federal government has been trying since 1994 to centralize tax revenues in Moscow. Under Putin, this policy has been pursued more aggressively. According to a study by the Legislative Assembly’s Yabloko faction, in 1993 the federal/Petersburg ratio was 36/64 in the northern capitol’s favor. The distribution of tax revenue between the federal and Petersburg’s budget for 2001 will reach the national average of 58% for the federal and 42% for the regional budget. St. Petersburg estimates a R6 billion loss for its budget (14% of total revenues) as a consequence of the 2001 change by the federal government of the federal/regional ration. Centralized funds are to be transferred to the regions on needs-tested basis, in part on the assumption that federal bureaucrats are more honest than regional apparatchiks, who routinely divert funds to projects for which they have not been designated. Amosov doubts the soundness of this assumption, questioning the honesty of Moscow bureaucrats and the efficiency of the federal bureaucracy. He argues that centralization of tax revenues is depriving the regions of the wherewithal to address their socio-economic problems and development challenges.
Moreover, Amosov is also demanding that federal authorities adhere to their own laws, in particular those pertaining to inter-budgetary issues. He argues that the federal government, in particular the Finance Ministry, using contradictions and loopholes in the law, has consistently violated its own budget legislation, infringing on the rights of the regions in the process. The Budget Code is written such that funds designated for a region can be sequestered or cut unilaterally by the Finance Ministry despite budget parameters, recalculated at the end of the fiscal year, or re-designated for different goals by decision of Finance Ministry’s main distributor to the tune of as much as 10% of the region’s designated transfers. The city has been victim of chronic failure by federal authorities to transfer monies designated in the federal budget for social security and other benefits for veterans and invalids and for reconstruction of the Kirov-Vyborg branch of the Petersburg metro, which collapsed in 1995 and cut off half a million people from the city center. Even after State Duma deputy from St. Petersburg, Sergei Popov, won a court case in 1999 against the Finance Ministry for such practices, the city never received the funds, which the court had ruled were illegally withheld.
To address such problems, the Petersburg Legislative Assembly’s Yabloko faction is sponsoring a draft federal law ‘On Guarantees for the Budgetary Rights of the Subjects of the Russian Federation’ to be submitted to the State Duma that would amend the Budget Code. The amendments require that all transfers for each region be delineated with functional classification in a separate sub-section of the federal budget and that a “special regime” be set up to execute budget transfers. That regime requires quarterly reporting on fulfillment of transfers such that a fourth of the funds will be transferred to the regional budgets every quarter. Federal obligations to regional budgets may be reduced only in accordance with a precise regime for the reduction or redirection of expenditures established in the Budget Code. Any re-direction of funds intended for regional budgets to a purpose other than that stipulated in the federal budget could be undertaken only with the permission of the executive body of the federation subject and would have to be compensated for in full.
The appointment of St. Petersburg’s representatives to the reconstituted Federation Council still needs to be completed with election the executive branch’s representative, who will replace Yakovlev. In June the Legislative Assembly elected its vice-speaker Sergei Mironov as its senator to Moscow. Interviews revealed that the Kremlin attempted to influence the selection of the Legislative Assembly’s representative by telephoning deputies. This is likely to be true of the executive representative’s selection given the relative ease with which a single chief executive’s choice can be swayed as compared to a body of 50 lawmakers. Thus, the Council’s new membership is proving to be the result of federal-regional inter-elite bargaining, limiting the degree to which the new senators represent their region’s elite, no less its electorate.
St. Petersburg in many ways dominates the SZFO created along with six other FOs in Putin’s effort to restore Russia’s “executive vertical.” It composes about half of all budget revenues produced in the SZFO, which includes ten other federation subjects. While expectations were high that relations between Governor Yakovlev and SZFO Presidential Representative Viktor V. Cherkesov would be contentious, this has not turned out to be the case thus far as compared with the conflictual relations between Sverdlovsk Governor Eduard Rossell and the Urals FO’s Presidential Representative Pyotr Latyshev. In large part, this is because Cherkesov is seen as having been largely ineffectual and the okrug is viewed as being little more than a feeding trough for lesser bureaucrats and scholars. In this regard, Peterburgers frequently mention the SZFO’s Institute for Strategic Research, modeled on Russian Economic and Trade Minister German Gref’s Moscow institute of the same name.
Yakovlev put up no argument against Putin’s reform, which put the appointment of regional police chiefs back under federal control. MVD Chief Boris Gryzlov’s critical comments on crime-fighting in St. Petersburg in introducing the new MVD Deputy Chief in the SZFO sent shock waves throughout the city’s political elite. Gryzlov’s attack on the city’s failure to root out the Tambov organized crime group was seen as a warning to Yakovlev, who is viewed by some as the group’s protector. With his parliamentary immunity set to expire by the latest on 1 January by which time he must surrender his seat in the Federation Council, Yakovlev is vulnerable to investigation. The threat or beginning of an investigation would be a useful weapon for Putin in dissuading Yakovlev to forego any effort to rearrange current legislation that forbids him from running for a third term.
At the same, the groundwork for a war of kompromat between Smolny and the SZFO has been laid. A division of the city’s media into organs loyal to Smolny or the okrug has been played out since the SZFO’s creation. Yakovlev’s administration controls or enjoys the support of the local television and radio company TRK “Peterburg”, the city’s daily Sankt-Peterburgskie vedemosti, Peterburg-Ekspress, and the largely apolitical Vechernii Peterburg, the national newspaper St. Petersburg supplements Izvestiya SPb and Komsomolskaya pravda, and the news agency RosBalt. The SZFO has taken control over the Petersburg broadcasts of Russia’s state television and radio company VGTRK (RTR & Radio Rossii), the Petersburg branch of ITAR-TASS, the weekly newspaper Petersburgskii chas pik (whose editor is Cherkesov’s wife), the daily Nevskoe vremya, and Chas Pik Publishers. In addition, Boris Berezovskii has been using his dailies Kommersant and Nezavisimaya gazeta against Yakovlev or at least to foment conflict between Smolny and the SZFO to further his own as yet unclear ends. There have been rumors that Berezovskii intends to enter the St. Petersburg media market aggressively. He has recently added a St. Petersburg supplement to editions of Kommersant sold in the city and purchased Radio ‘Modern’, a popular city music channel.
While there has been no major outbreak of kompromat between the okrug and the administration, this may be due to the intercession between elections. With the Legislative Assembly elections now set for late 2002, it is likely that after the New Year preparatory artillery strikes will begin. The degree of Smolny’s involvement will be a good barometer of Yakovlev plans to orchestrate a third term.
PETERSBURG’S ELECTORAL POLITICS
Yakovlev’s decision will have an important impact on St. Petersburg’s future and relations between the federal and northern capitols. His prospects for a victory will be crucial in shaping that decision. At present, his approval rating is at about 60 percent. His rating will be determined in large part by the socio-economic condition of the city, given the increasing tendency of “economic” voting behavior even in less democratic-oriented regions. The in-part federally funded drive to give the city a complete facelift before its 300th anniversary celebrations in May 2003, a year before the gubernatorial elections, could give the city a boost sufficient to rub off on Yakovlev. Thus, in addition to federal assistance, the draft 2002 St. Petersburg budget devotes nearly R4 billion for the anniversary makeover.
The facelift is an extensive one. One cannot walk anywhere in the city without confronting road repair, restoration and construction projects. There are currently some 50 large-scale building reconstruction or construction projects going on in the city center. Construction of the new city circle road (MKAD), a central part of this drive, has been plagued with financial problems and work delays and is badly behind schedule. In September, around the clock drilling and other construction activity within tens of meters from houses around the city’s outskirts provoked a public protest and court appeal. The Russian Supreme Court mandated that the city had to provide alternative housing, otherwise the project would be ruled illegal. This is a harbinger of what could come should reconstruction projects not be completed on time or yield unsatisfactory results. Public consternation will only be compounded should reports continue to come out about misuse of funds. The fund that Yakovlev recently set up for the 300th anniversary is a potential feeding trough that may replicate the corruption that plagues the city. Cherkesov and the SZFO’s Audit Chamber and Prosecutor can be expected to watch the use of these and federal expenditures on the anniversary.
Petersburg was recently ranked the fifth most corrupt federation subject, according to data from a research institute affiliated with the Prosecutor-General’s Office published on 7 September. The city has been rocked by several major corruption scandals over the last few months. Vice Mayor Valerii I. Malyshev has been forced temporarily to leave his post, accused by prosecutors of taking bribes in return for his appointment of EKSI Bank as depository for the city’s R200 million non-devaluated rubles account for St. Petersburg’s 2004 Olympic Committee in 1996. There is speculation that these charges are part of a struggle between Malyshev and Vice Mayor Yurii Antonov to succeed Yakovlev. In part because of its reputation for crime and corruption, the city lags behind neighboring Leningrad Oblast in attracting foreign investment. This persists despite Putin’s efforts to draw foreign dignitaries and businessmen to the city by holding summits or escorting foreign guests there.
Several mid-term elections and the Legislative Assembly elections likely to be held in late 2002 also will influence Yakovlev’s efforts to finagle a third term. The campaign for the State Duma deputy’s mandate in the 209thdistrict formerly held by Audit Chamber Chairman Sergei Stepashin may be an unfortunate political harbinger for Yakovlev. The joint support for Yedintsvo’s candidate, the dean of St. Petersburg State University’s Philosophy Department Yurii Solonin, by Otechestvo, SPS, Yabloko, and Volya Peterburga holds out the prospect of an anti-Yakovlev coalition in the city legislature elections and the 2004 gubernatorial elections. The leaders of St. Petersburg Yabloko (the last party to join the coalition), including Amosov and Chairman of its Political Council Dmitrii N. Lenkov, do not deny the possibility of such a coalition even including the Communists. Petersburg Yabloko’s willingness to make this alliance is a clear departure from national Yabloko leader Grigorii A. Yavlinskii’s isolationist strategy. In interviews with Lenkov and others, Yavlinskii was criticized for this, and some sympathy was expressed for those in Moscow who have challenged Yavlinskii’s leadership.
THE DESANT OF MOSCOW OLIGARCHS
A wave of Moscow oligarchs has been descending on the northern capitol. PromStroiBank is the most powerful St. Petersburg bank with ambitions to become a countrywide player; ambitions that enjoy the favor of close relations between Putin and bank chairman Vladimir Kogan. A year ago the MVD sent troops into PromStroiBank’s headquarters on Nevskii Prospekt in what was condemned as an illegal search by Kogan. Then MVD chief Vladimir Rushailo is said to be an agent of Berezovskii, who apparently has designs on Petersburg. PromStroiBank’s leading position on the Petersburg financial stage now is under pressure from Berezovskii-allied oligarch Aleksandr Mamut’s MDM Bank. It has purchased several Petersburg banks and taken a controlling stake in the city’s Petrovskii Narodnyi Bank. It lured from PromStroiBank a top executive, Olga Kazanskaya, among others, to take over at Petrovskii.
Muscovites are invading Petersburg’s telecommunications market as well. While Moscow’s Mobile TeleSystems (MTS) has expanded into more than ten regional markets, it is just entering the Petersburg market. It recently purchased the second largest standard signal licensee in the SZFO, Telecom XXI, to compete with Northwest GSM, the most lucrative holding of St. Petersburg-based Telecominvest. While there are political consequences from economic competition, Peterburgers like Amosov, Lenkov, and St. Petersburg Deputy to the State Duma Aleksandr V. Shishlov discount any political motive in Muscovites’ advance.
Still, St. Petersburg has issued an asymmetrical response to Moscow by challenging YeES’s plans to monopolize electricity distribution under the reform plan initiated by YeES Chairman Anatolii Chubais and backed by the government. In September St. Petersburg Deputy Governor in charge of fuel and energy, Aleksandr Smirnov, confirmed that the city’s creation of SPbES was aimed at blocking Moscow’s control over the city’s grid under the reform, declaring it “is incorrect when distribution grids belong to generating companies.” SPbES director Sergei Milokhin disclosed that significant funds were being invested so SpbES could expand.
The descent of Moscow oligarchs on Petersburg mirrors the much larger and well-known descent of Petersburg bureaucrats on Moscow, as Putin tries to build a loyal team. This trend is depleting the ranks of talented administrators in Petersburg, while simultaneously raising the ire of Muscovites who lose out to the newcomers from the north.
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About the Author –
Gordon M. Hahn, Ph.D., is an Expert Analyst at Corr Analytics, www.canalyt.com. Websites: Russian and Eurasian Politics, gordonhahn.com and gordonhahn.academia.edu
Dr. Hahn is the author of the new book: Russian Tselostnost’: Wholeness in Russian Thought, Culture, History, and Politics (Europe Books, 2022). He has authored five previous, well-received books: The Russian Dilemma: Security, Vigilance, and Relations with the West from Ivan III to Putin (McFarland, 2021); Ukraine Over the Edge: Russia, the West, and the “New Cold War” (McFarland, 2018); The Caucasus Emirate Mujahedin: Global Jihadism in Russia’s North Caucasus and Beyond (McFarland, 2014), Russia’s Islamic Threat (Yale University Press, 2007), and Russia’s Revolution From Above: Reform, Transition and Revolution in the Fall of the Soviet Communist Regime, 1985-2000 (Transaction, 2002). He also has published numerous think tank reports, academic articles, analyses, and commentaries in both English and Russian language media.
Dr. Hahn taught at Boston, American, Stanford, San Jose State, and San Francisco State Universities and as a Fulbright Scholar at Saint Petersburg State University, Russia and was a senior associate and visiting fellow at the Center for Strategic and International Studies, the Kennan Institute in Washington DC, the Hoover Institution at Stanford University, and the Center for Terrorism and Intelligence Studies (CETIS), Akribis Group.