Kremlin Takes Insincere Steps to Decentralize State Corporations

Executive Summary:

• In early August, the Kremlin began discussing a project to move approximately 170 large state corporations from Moscow to the regions where they extract profits, primarily from natural resources. 
• Putin’s “de-Moscowization” moves remain nominal, as state corporations maintain executive offices in Moscow and resist relocating to resource-producing regions, continuing to siphon regional natural wealth while the regime neglects local infrastructure like Sakha-Yakutia’s Lena River bridge in favor of expansionist spending projects.
• The Kremlin is taking symbolic but insincere steps to decentralize state corporations in an attempt to appease regional critics, while avoiding genuine economic federalism, which would threaten Kremlin power by enabling regional political autonomy. 

In early August, the Russian government began discussing a project to move about 170 large state corporations from the capital to the regions (Vedomosti, August 1). Most of these companies extract natural resources from the regions, but are still headquartered in Moscow, far from their primary source of profit. Despite Russia continuing to officially call itself a federation, it is economically centralized to a far greater extent than other federations such as the United States and Germany. Even pro-Kremlin political scientist Dmitry Solonnikov notes:

We cannot continue to support only the capital at the expense of taxes from the entire country. This is a dead-end option—it will lead to the country being empty, without money and without people; everyone will move to Moscow (Svobodnaya Pressa, August 1). 

Opposition regionalists are no longer the only ones criticizing the sharp contrast between Moscow, which lives in relative luxury, and the “subsidized” majority of the Russian Federation’s subjects. Government officials are also beginning to think about economic decentralization to “maintain stability.” The Sakha Republic, which is rich in resources including oil, gas, gold, and diamonds, requires the third most federal subsidies of any federal subject to survive (Reytingi & Novosti, February 13). The Sakha Republic has been unable to build a bridge across the Lena River that it has needed since Soviet times because the bulk of its resources and tax revenues go to Moscow (Vostok.Today, May 11, 2022). In 2014, the Kremlin sent funds intended for the Lena River project to build the Crimean bridge, reflecting that Moscow prioritizes territorial expansion over the development of its own territories (Region.expert, August 12).

Russian President Vladimir Putin instructed the government to submit relocation proposals for state-owned companies by October 1, 2024, following a “de-Moscowization” discussion at the 2024 St. Petersburg International Economic Forum (President of Russia, July 22, 2024; Vedomosti, July 24, 2024). The order, however, has so far remained an empty promise. According to Vladislav Onishchenko, the General Director of the Agency for Transformation and Development of the Economy, large-scale implementation of this project could not occur earlier than 2030–2035 (Vedomosti, August 1).

There are several pinpoint exceptions, including Gazprom’s move from Moscow to St. Petersburg in 2021. This move to the “northern capital,” however, did not solve the fundamental problem that decentralization of Russian corporations is meant to solve—bringing their headquarters closer to the location of production. Gas is not produced in St. Petersburg. Even with the historical “Europeanness” of the city, hundreds of employees of Gazprom’s Moscow office quit instead of moving there from Moscow (Vedomosti, December 14, 2017). If Gazprom corporate employees had been forced to move to Khanty-Mansiysk or Naryan-Mar, the capitals of Russia’s main gas-producing regions of Yugra (Khanty-Mansi Autonomous Okrug–Yugra) and Yamal (Yamalo-Nenets Autonomous Okrug), located in northwestern Siberia, the number of resignations would probably have reached the thousands.

Ever since Soviet times, the “Muscovite” has been a kind of Russian “upper caste.” Less than two percent of Moscow residents of draft age are fighting in the Kremlin’s full-scale invasion of Ukraine, while in other regions the Kremlin is turning military-age men into cannon fodder en masse (Window on Eurasia; Komsomolskaya Pravda, August 26). In just one example, the Kremlin mobilized men from Buryatia, a relatively poor region in eastern Siberia, at rates up to three times higher than the average across Russia. Soldiers from Buryatia have been killed at the front at an average of seven times more frequently than the Russian average (see EDM, October 19, 2023, July 16, 2024; Meduza, July 11, 2024; see Promethean Liberation, July 29).

The social status and high standard of living in the capital mean that Russian companies are in no hurry to leave Moscow in earnest. For example, the office of the corporate secretary of Novo-Lipetsk Iron and Steel Works (NLMK) is based in Lipetsk, but the corporate finance and investor relations directorate remains in Moscow (NLMK, accessed September 8). RUSAL, one of the world’s largest aluminum producers, registered in the “special administrative district” of the Kaliningrad region in 2020, but still lists its Moscow address and phone numbers on its contacts page (RUSAL, September 25, 2020, accessed September 8). Norilsk Nickel, a Russian nickel mining company, is officially registered in Dudinka, Krasnoyarsk krai, but its headquarters are in the Moscow City business center (Nornickel, accessed September 8).

Dispersing corporations across the subjects of the Russian Federation is not politically tenable for Moscow. Economic decentralization would cede a significant degree of political autonomy to Russian regions with large stores of raw materials. Putin has not been building his “vertical of power” for a quarter of a century to suddenly weaken the Kremlin’s power (see EDM, April 12, 2005, May 25, 2006). State corporations often claim to be relocating their offices to the regions and investing in their development. In reality, state corporations continue to “make deals” with federal officials to keep the core of their upper management in Moscow. Officials and businesspeople in Moscow who profit from resource extraction from the regions are unlikely to risk the economic and political losses of moving state corporations to regions far from Moscow and granting them economic self-government.

The rapid Russian military-industrial buildup since the Kremlin’s full-scale invasion of Ukraine in February 2022 requires strengthening administrative centralization. Letting corporations go on a “long leash” and become more integrated with the authorities of the regions where they are registered would run counter to Putin’s expansionism. The Kremlin values imperial pursuits over economic stability, demonstrated in their willingness to prioritize Putin’s war against Ukraine over maintaining trade ties with Europe that they established in Soviet times via oil and gas pipelines.

Current Russian hyper-centralism has a religious dimension in addition to political and economic aspects. Russian religious centralism is based on messianic ideas of Moscow as a “Third Rome,” and the Orthodox Church of the Moscow Patriarchate uses its sacred authority to feed Kremlin power (International Center for Defense and Security, October 23, 2018). Any ideas of decentralization in Russia, even those that are purely economic and rationally justified, inevitably lose because the bearers of messianic beliefs centered in Moscow view decentralization as an attack on their religion that would undermine the unity of the Russian Federation. These believers are right in a way—if Russian corporations more than nominally move from Moscow to the regions and pay taxes where they extract profits, regional political projects with ideas of autonomous self-government will follow.

Without the Kremlin’s dictate, the Urals, Tatarstan, and Siberia would have no reason to finance the imperial war against Ukraine and send their soldiers to die there. If autonomous today, they would have a new goal—their own regional development. Of course, all Russian corporations, state-owned or not, finance Russia’s war against Ukraine to one degree or another, so they would still be obligated to pay a degree of reparations. Still, if free from the international isolation driven by Moscow’s aggression, regional resources within the Russian Federation have the potential to return to the open world economy.