Publication: Monitor Volume: 7 Issue: 130

Russia seems to have made great strides in reversing the highly negative image it gained with the August 1998 financial collapse and to have convinced major players in the international economic community that it is on the road to reform and thus a good bet for investment. Jean Lemierre, head of the European Bank for Reconstruction and Development (EBRD), said on July 7 that Russia had achieved greater “political visibility,” if not “stability,” given the fact that it now had a “pilot”–meaning President Vladimir Putin, who, Lemierre said, was making the right moves to restore investor confidence. Lemierre, who made his comments following a meeting of the Group of Seven finance ministers, which was also attended by Russian Finance Minister Aleksei Kudrin, noted that Russia’s economy was growing for a second year in a row and that the rapid growth of its Central Bank’s hard currency reserves meant that it had “a certain cushion for the future” (Reuters, July 7).

Likewise, World Bank President James Wolfensohn said during a visit to St. Petersburg that he fully supported the steps Putin was taking to turn Russia into a “very serious competitive state.” One of the most important of Putin’s initiatives, Wolfensohn said, was his judicial reform effort. Wolfensohn was convinced, he said, after speaking with the Russian head of state that Putin was moving seriously in this area. Putin, through deputy Kremlin administration chief Dmitry Kozak, is pushing measures aimed at, among other things, reducing the Soviet-era powers of country’s prosecutors while increasing those of judges and widening the rights of lawyers and defendants.

At the same time, several recent incidents are likely to be less than reassuring to potential foreign investors. One involves Alstom SEMZ, a Yekaterinburg plant producing power-distribution equipment for factories and public transportation that is a joint venture of the French-German Alstom industrial group. Last week, former Alstom SEMZ director Anatoly Kuznitsin, who was fired in March, seized the factory using a group of armed security guards. Kuznitsin was acting on the ruling of a Sverdlovsk Oblast arbitration court, which ruled earlier this year that that the enterprise had been improperly privatized eleven years earlier and thus could be renationalized. That decision went into effect on June 21, after an appeal was denied. Kuznitsin has also won local court cases contesting his removal by Alstom, which has accused him of setting up a company within Alstom in order to strip Alstom of its assets. A group of fifty to seventy security guards led by Kuznitsin seized the factory on June 2, reportedly beating a number of the factory’s own security guards and welding shut the steel door of the office of Alstom SEMZ general director Peter Jaerisch, a German national. Kuznitsin and his guards, however, were confronted by 150 of the factory’s employees, who tried to keep the invaders from getting access to its computer data bases, after which local police rapid-reaction forces were called in, who took control of the factory. Alstom, which has accused the local administration of complicity in the takeover, has filed criminal charges against Kuznitsin for the armed seizure (Regions.ru, July 2, 5; NTV.ru, Moscow Times, July 6). Andrea von Knoop, director of the German Economic Union in Russia, said she has warned the German government that Sverdlovsk Oblast, headed by Governor Eduard Rossel, is a particularly hostile environment for foreign investment (Die Welt, July 6).

In a similar incident, the Tyumen Oil Co (TNK), recently sent armed guards to secure an oil producing facility in western Siberia belonging to company called Yugraneft, which is 60-percent owned by Norex Petroleum Ltd., a Canadian company. Norex’s shares in Yugraneft were frozen by an arbitration court in the Khanty-Mansiisk region, and late last month a TNK subsidiary that also owns a stake in Yugraneft called a meeting of Yugraneft shareholders and installed its own general director as head of the company. Norex’s chief, Alex Rotzang, denounced the takeover as typical of “gangster capitalism,” saying it showed that “Russia’s heralded dictatorship of the law doesn’t exist,” while Graham Rush, minister-counselor for commercial affairs in the Canadian embassy in Moscow told Toronto’s Globe and Mail newspaper the incident looked like an “illegal confiscation of assets” and was “a major negative signal to Canadian and foreign investors” (Moscow Times, July 3). TNK, it should be noted, is controlled by the Alfa Group, headed by Mikhail Fridman, a leading oligarch who reportedly enjoys Putin’s favor.