Publication: Monitor Volume: 6 Issue: 177

In what some observers are interpreting as a sign that Anatoly Chubais is in political trouble, the erstwhile Russian reform icon and privatization architect who now heads United Energy Systems (UES), Russia’s electrical power grid, has reportedly left Russia to take a month-long management course at a Swiss business school. His decision to leave Russia for such a long period simply to improve his professional qualifications looks particularly peculiar in light of the fact that the country is entering winter and the current period is critical in UES’s preparations for supplying power to provide heating (Segodnya, September 25). Chubais’ reported departure follows an announcement last week by Russia’s tax police that at the end of August it had launched a criminal probe into allegations that UES had failed to pay 3.2 billion rubles ($115 million) in taxes. A UES spokesman subsequently admitted that the company owned the back taxes, but said that they were being paid off as agreed to with the tax authorities. The spokesman said the new probe involved Chubais’ decision following the Kursk submarine sinking to donate 4.2 million rubles (US$151,000) to a charitable fund for the sailors’ families. Tax officials have said that money should have been used to pay off UES’s tax debt (Reuters, September 21; Moscow Times, September 22).

Several analysts of the Russian market said last week that the new probe was probably little more than another attempt by the authorities to show who is boss. But news of the investigation and Chubais’ reported departure for Switzerland appears to be another sign that his relations with the authorities are growing increasingly precarious. In July, the Audit Chamber, an independent state agency charged with monitoring the use of federal budget funds, began an investigation into whether a stake in UES had been illegally sold to foreigners. Chubais charged that the Audit Chamber investigation was politically motivated and an attempt to “destroy the basis of the state system” by “those who need things to be bad and unstable in the country” (see the Monitor, July 14). While this sale took place before Chubais became the head of UES, it did occur while he was overseeing Russia’s privatization process. The Audit Chamber completed its investigation into UES earlier this month and handed its findings over to the Prosecutor General’s Office (Russian agencies, September 19). Those findings have not yet been made public.

Ironically, the Audit Chamber allegations concerning the illegal sale of UES shares to foreigners came on the heels of a revolt against him by many of those very same foreign shareholders who had been crucial in ensuring his accession to the post of UES’s top manager. They charged that Chubais’ plans for restructuring UES by selling off the company’s power generating assets would destroy shareholder value and was responsible for the sharp drop in the price of UES share prices which began in March of this year (see the Monitor, June 16).

On top of all this, Chubais stirred some controversy earlier this month when he began carrying out a threat to cut off energy users who had payment arrears to UES. In one case, a UES subsidiary in the Invanovo region cut off power to a Strategic Missile Forces base for not paying its energy bills. Officers at the base responded by sending troops to capture the local power station (Moscow Times, September 13). Following this and other similar incidents involving delinquent customers, Prime Minister Mikhail Kasyanov ordered a ban on cutting power to strategically important installations (Segodnya, September 25).

Another sign–albeit indirect–that Chubais’ position may be shaky was Putin’s meeting last week with Aleksandr Solzhenitsyn, the Nobel prize-winning author and Soviet-era dissident. Solzhenitsyn and his wife met with Putin in the Kremlin on September 20, at the president’s invitation. The following day the writer praised Putin for being cautious and careful in his judgment, having a “lively mind,” having “no thirst for personal power” and being “guided by the interests of the state” (Globe and Mail [Canada], September 22). Last year, Solzhenitsyn gave similar praise and support to Yevgeny Primakov, strongly criticizing Primakov’s removal as prime minister (see the Monitor, June 4, 1999). Immediately after returning to Russia from exile in 1994, Solzhenitsyn strongly criticized the economic reforms launched under then President Boris Yeltsin, singling out privatization, which was masterminded by Chubais, for having empowered and enriched a new criminalized ruling class. In an interview in July, Chubais warned that Putin had fallen under the influence of Solzhenitsyn, whose ideas, Chubais claimed, “today fully coincide with the most reactionary part of the Russian secret services and the Communist Party” (Vlast, July 28). Last year, at the start of the latest Chechen war and during parliamentary elections, and again this year, during presidential elections, Chubais unequivocally supported both Putin and his policies.

While the latest investigation against UES does not necessarily mean that Chubais is doomed to be fired as the electric monopoly’s top manager–something his enemies, particularly those in the Communist Party of the Russian Federation, have been seeking for some time–it may mean that he will be unable to move allies into key positions if, as some analysts expect, there is a ministerial shake-up later this autumn. Some observers have predicted that Mikhail Kasyanov would be removed as prime minister and replaced either by Sergei Ivanov, secretary of the Security Council, or Deputy Prime Minister Aleksei Kudrin. Ivanov is a close Putin associate who, like the head of state, is a KGB veteran, while Kudrin is a long-time member of Chubais’ “St. Petersburg team.” Chubais’ current problems may make it less likely that Kudrin moves up the ladder.