the European Voice by Russia Beyond

Economy

Health

Arkady Dvorkovich, economic adviser to the president, explains why reforms are progressing so slowly

Russian doctors and their patients wonder if new state money will finally deliver badly needed improvements

PAGE 4

PAGE 8 BEN ARIS

A paid supplement from Rossiyskaya Gazeta (Moscow, Russia), which takes sole responsibility for the contents

Distributed with European Voice

THURSDAY, 28 APRIL 2011

PHOTOXPRESS

Economy Medvedev’s plan aims to curb corruption and sell off state-owned enterprises

EDITORIAL

The Kremlin is open for business

Time to grow up

Shunning rhetoric, President Medvedev outlines ten priorities to build trust and improve the investment climate.

sia is experiencing a lack of trust, and money is continuing to flow out of the economy.” Medvedev said that in order to achieve his wide-ranging modernisation goals, it is essential to increase the flow of investment “multiple times”. But due to rampant corruption, he said, not everyone believes that a hitch-free business undertaking is possible in Russia. The president has made the fight against corruption one of his top priorities since assuming office three years ago. He said corruption remains a factor that influences the entire economic situation. “Corruption’s grip is not weakening, it has the whole economy by the throat,” Medvedev said. “Until we make our country attractive to business and private investment, we will not solve the main problem: we will not be able to change the quality of people’s lives.”

TAI ADELAJA

DMITRY AZAROV_KOMMERSANT

RUSSIA PROFILE

In a highly symbolic gesture, President Dmitry Medvedev travelled east last month, to the steel city of Magnitogorsk in the Ural Mountains. There he delivered what some experts have dubbed the ‘Ten Commandments of Investing’, designed to help keep investors and their money safe in Russia. While Russia’s needs have always been mammoth and manifold, Medvedev singled out lingering wariness about Russia as a safe place to invest as the greatest obstacle and challenge to his modernisation project. “We need technology, we need money ... We need the confidence and interest of domestic and foreign investors,” Medvedev said, according to an official transcript. “Unfortunately, Rus-

Deputy Prime Minister Igor Sechin has obeyed a presidential order and stepped down as chairman of Rosneft. Energy Minister Sergei Shmatko (left) may also relinquish posts.

CONTINUED ON PAGE 4

Corruption A public-private alliance against graft

Energy Deal of the year on the rocks

An executive activist is born

BP-Rosneft swap clinging to life

Yana Yakovleva’s company was raided and she went to jail. She is now fighting corruption on behalf of vulnerable private businesses. VLADIMIR RUVINSKIY

FROM PERSONAL ARCHIVES

RUSSIA NOW

In 2006,YanaYakovleva was an ambitious co-owner of a chemicals company called Sofex. By all accounts a savvy executive, she was no neophyte to the ways of Russian business. Still, she was shocked when a special police drugs unit came to her office with a scheme to get kickbacks from her

Yakovleva spent many months in jail on fabricated charges.

company.The police seemed to think they were taking what was theirs by right. Yakovleva, young and principled, refused to pay up. That brave move got her arrested and thrown in jail. Before she knew it, she was teaching exercise classes to down-and-out women in a female detention centre. “Some government officials consider businesspeople in Russia to be criminals first of all,” she said. “They can approach anyone, open a criminal case and begin extorting money. And the entrepreneur should understand that they will have to fight the bureaucratic machine to the death.” Now 39, Yakovleva spent seven months in jail awaiting trial. CONTINUED ON PAGE 2

MONTHLY SUPPLEMENT ABOUT Politics, economics, business, comment and analysis

The UK and Russian oil majors are still hopeful of saving their planned alliance as a consortium keeps raising its price to sell out. OLGA SENINA SPECIAL TO RN

A last-minute reprieve granted by the Stockholm Arbitration Court to BP in its struggle to push through a $16 billion (€11.2bn) share swap with Russia’s Rosneft state oil corporation has dramatically fired up the saga of the year’s biggest oil deal. With the extension to 16 May of the deadline to resolve the

dispute with Russian partners in the TNK-BP joint oil venture, the pressure is on to find a solution. The AAR partnership, a consortium of Alfa, Access and the Renova Group, successfully argued that the share swap breaches the TNK-BP shareholder agreement. And with AAR effectively now having these giants over an oil barrel, Rosneft President Eduard Khudainatov had little more to say after the deadline extension than that he was “hopeful of a quick resolution to the arguments”. CONTINUED ON PAGE 4

Vladimir Ruvinsky EDITOR

t is now three years since President Dmitry Medvedev declared a crusade against corruption. Up to that point, corruption had been viewed as one of Russia’s ‘growing pains’. In an inefficient system of public administration, corruption served as a substitute for the absent rule of law and, consequently, boosted economic growth. However, with the state’s increased presence in the economy and public life, corruption has become systemic, a feature of everyday life, to the point where officials refuse to implement laws without a bribe. The interests of the bureaucracy have become more important than the interests of the state. Medvedev’s corruptionfighting plan counts on taking the bureaucracy down a notch. Naturally, the bureaucrats are not happy about this. As a result, the steps he has taken against corruption are far from radical, and even those limited measures have been resisted by many officials.The success of the president's anti-corruption battle will depend on whether he is able to secure broad public support on this issue.

COMMENT

Officials out of business NIYAZ KARIM

Medvedev has ordered top officials to leave stateowned companies’ boards. Who will replace them? SEE PAGE 6

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THE NUMBERS

RIA NOVOSTI

Executive activist takes on official crime

Fighting back

A company taken away

One of the first cases the centre took on involved Galina andYevgeny Konovalov, husband and wife entrepreneurs from Krasnodar whose company was taken away by local officials. “In 2008, we learned that population the company’s owner had of Russia been mysteriously replaced and, when we went to court, my husband was illegally arrested on fabricated criminal charges,” Galina Konovalov jailed said. for ‘economic’ The lawyers told her crimes the case was hopeless people but this year the couple in prison won two major victories: one court ruled in February that there had been several breaches in the crimiDoing time for eco- nal case against Yevgeny, nomic crime while another court in March returned the comStatistics on ‘economic’ pris- pany to the Konovalovs.The case againstYevgeny, howoners are not public. State ever, has not been closed, Duma deputy Yevgeny Fyand the real estate belongodorov says they number ing to their company was 444,000, or half of those sold during the court probehind bars. ceedings.

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Five years later, Yakovleva is probably the most prominent business activist working against corruption; she cooperates with start-up businesses and works with the Russian parliament. There are tens of thousands of people in pre-trial detention charged with whitecollar crimes, according to activists; no official statistics are maintained. Few are acquitted.

created her own organisation called Business Solidarity to support entrepreneurs who suffer as a result of the illegal actions of officials and law enforcement agencies. Recently, Yakovleva was asked to co-chair a centre set up by Delovaya Rossiya (Business Russia), the country’s largest public association of non-oil and gas companies, to aid entrepreneurs in the fight against bureaucratic raids. “This is a union of two forces – those authorities that are against corruption and business,” said Delovaya Rossiya head Boris Titov, who chairs the centre jointly with Yakovleva.

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potential corruption cases were investigated by prosecutors in 2010, up 42% from 2009

drop in criminal cases for the most serious money laundering offenses

rise in average amount of bribes in 2011, police say. The typical bribe is now €1,500.

Enforcing the new laws More amendments to the criminal code, effectively softening the penalties for economic crimes, took effect last month. “A lot of good laws have been passed, but the problem until now has been enforcing them,” Yakovleva said, citing the Konovalov case as an example.

“This is an instance of typical raiding and we are trying to help them get their property back now,”Yakovleva said. Titov says the centre is the first real attempt by businesses to fight corruption,

percent

“The amendments are effective and create the prerequisites for improving the investment climate, but more work is needed, in particular the introduction of rules under which a criminal case would only be pursued at the request of the victim,” said Andrei Nazarov, the deputy chairman of the legislation committee in the State Duma. In reply to a request from Nazarov, the interior ministry said the number of criminal cases brought on economic charges declined by 35% in 2010. The Kremlin is currently preparing the third and most radical revision of the legislation on economic crime. It is expected that the majority of economic crimes will be made punishable by a fine instead of prison time. These days,Yakovleva keeps a diverse set of confidantes, from oil CEOs to Sovietera dissident Lyudmila Alexeyeva. “Before my arrest I didn’t think that business should have societal obligations, or that it shouldn’t keep silent, like most people,” she said.

INTERVIEW KREMLIN OMBUDSMAN

People power is key to civil reforms The Kremlin’s Human Rights Council, headed by Mikhail Fedotov, is due to submit a programme for building civil society to Russia's president. VYACHESLAV KOZLOV MOSKOVSKIE NOVOSTI

What sort of document are you going to send to the president? It should be a massive programme for creating the right conditions to develop civil society and human rights safeguards.The measures should help create the mental outlook required for the country’s modernisation, which is impossible without modernisation of civic consciousness, social relations and behaviour patterns. The [pre-1991] totalitarian state produced certain types of behaviour reflecting people’s dependence on government. Can a person with such a mindset become a moderniser? Of course not. The Soviet system collapsed 20 years ago, but these stereotypes did not go away. What recommendations will you make? It is important for people to, first, have access to genuine

RIA NOVOSTI

The Moscow native languished behind bars, she told Russia Now, because she refused to take part in the scheme.“I could not believe what was happening to me. Everything I worked for, my reputation, everything was suddenly threatened. Instead, I sat in a detention centre. I have never been so frightened in my life.” She lived in a women’s centre where conditions were rough.“There was no shower, no refrigerator; we kept groceries on the windowsill, boiled water on a heater and made a TV antenna out of it,”Yakovleva said. Her case drew the attention of human-rights activists in and outside of Russia, as well as the attention of President Dmitry Medvedev. The police had tried to extort her on the basis that the industrial solvent her company manufactured could be considered a controlled substance, according to Yakovleva. The charges were dropped when a court struck down the rule that had made it a controlled substance.Yakovleva filed a complaint, but the police denied wrongdoing.

It is not only foreign investors who worry about rogue police and officials demanding bribes, arresting executives without cause, and taking over businesses. According to recent research conducted by the Russian government, corruption is one reason why 17% of Russian businessmen intend to emigrate. Even the possibility of such an exodus jeopardises the president’s plans to modernise the country. Medvedev has repeatedly said that business must be supported to boost the economy, move away from dependence on raw materials and create new jobs. Instead of leaving Russia altogether,Yakovleva chose a bold course of action. She

percent

a threat whose grip, as Medvedev stated on 30 March, “is not weakening and has the entire economy by the throat”. “Each year approximately 70,000 enterprises throughout the country are targets of raider attacks. Up to 10% of a business’s expenses go towards meeting the corrupt requests of officials. It is effectively a fully developed racket on a governmentwide scale,”Titov said. Yakovleva says that criminal law is currently the main channel for seizing businesses. “It used to be arbitration courts, but the quality and independence of the judges increased there,” she said.

A security forces commander, Major Alexander Hodych, 34, was arrested in November 2010 in southern Russia on charges of banditry and extortion. He has been released on bail of €350,000.

CONTINUED FROM PAGE 1

thousand

Mikhail Fedotov, the head of the Kremlin’s Human Rights Council.

justice; second, to know the truth about what is happening around them; and third, to feel themselves to be free. An awareness of justice, truth and freedom is essential, because sometimes a person simply does not understand that he is free, has no sense of this and is unable to escape from the labyrinth of unwritten taboos. How quickly do you hope to be able to eradicate the stereotypes that have taken shape over centuries? Actually, the Bolsheviks managed to do it very quickly. Behaviour stereotypes in tsarist Russia were very dif-

ferent from those that prevailed in the first 20 years of Soviet rule. Now we have to restructure public awareness just as drastically while offering it a totally different moral content, methods and goals. We should not herd people into the kind of democratic, social, law-governed state that our constitution describes. We should instill in them self-discipline, self-organisation, a readiness to act rather than sit around idly. Are you sure that Russian society seeks such independence? Sponging is still strong in society. All around you can hear “give us money”,“give us houses”.We want to see a change of motivation and, consequently, in the nature of the demands. What is needed is freedom of initiative, resources for independent provision of social services and responsibility for the quality and scope of such services. It is important to encourage people to come forward and assume management in the running of society, and only ask from the state what they cannot obtain by themselves. Originally published in Moskovskie Novosti Read full version at www.rbth.ru/12667

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Society Building the tourism industry is seen as crucial for the north Causasus economy

In North Ossetia, efforts to make this diverse area attractive to local and foreign visitors may yet pay off. ARTEM ZAGORODNOV RUSSIA NOW

The road from the airport into Vladikavkaz, the capital of North Ossetia, passes by the graveyard in the village of Beslan and the monument to over 330 people, most of them children, killed during the tragic 2004 school siege that shocked the world. “A horrible tragedy, several of my relatives are buried here,” said Oleg Karsanov, the 43-year-old local minister of tourism, walking by the graves on a misty afternoon. Yet Karsanov, who earned his MBA in London, is determined to re-imagine his native North Ossetia and turn the mountainous republic into a magnet for tourists despite some deep scepticism that the turbulent region can attract large numbers of visitors. Karsanov, an amiable but somewhat stoic character, has been cultivating tourism for four years, long before the federal government’s recent involvement in the region’s tourism. “We have gone from under 30,000 tourists a year to

about 100,000 a year, thanks to the work that’s been done,” he said. Soon his initiatives will be supported by an ambitious federal development plan revolving around Mamison, a €700 million ski resort about two hours southwest of Vladikavkaz that is currently under construction. The resort will have more than 100 kilometres of slopes of all difficulty levels at altitudes between 2,000 and 3,000 metres. “Mamison will offer our countrymen the opportunity to experience world-class skiing without leaving the country,”said Karsanov, who noted that the government also plans to build hiking trails through the surrounding mountains, which offer dramatic beauty. The ski resort is part of a broad €10 billion federal programme to develop resorts across the north Caucasus, an effort that has drawn a few raised eyebrows because of the threat of terrorism in the region. Russian officials hope the 2014 Winter Olympic Games in Sochi, which lies to the west, will revitalise this area of Russia as a ski destination, both for Russians and foreigners. But terrorism is still a threat. In 1999, an explosion that killed 62 peo-

RUSLAN SUKHUSHIN

Tourism where terror struck

A local resident near the abandoned medieval village of Tsemeti.

“What we need is for people to come, have a good time, and recommend it to their friends.” ple rocked Vladikavkaz’s central market. In 2010, a smaller attack hit the city. The region’s reputation as a tourist destination remains damaged. “It all sounds a little utopian to me,” Galina Gokashna vili, a teacher in Vladikavkaz, said of the tourism development.

Officials are aware of the degree of difficulty they face.“When people look at a map and see we’re only millimetres away from places like Chechnya, they are discouraged,”said Oleg Kalayev, first deputy prime minister of North Ossetia. “But when we had Western experts examine the location ... they said the potential was there.” Indeed, several new hotels are under construction, the infrastructure has improved, and some Russians are already coming to ski and take in the local hos-

pitality. “It’s been fun,”said Alyona, who came as part of a tour group from St Petersburg. That kind of endorsement is priceless, local leaders say. “We have to change the image of the north Caucasus in the long term,” said Taymuraz Mamsurov, president of North Ossetia.“We can’t do this through a barrage of advertising. That will only have the opposite effect. What we need is for people to come, have a good time, and recommend it to their friends.”

Regional observers agree that building up tourism is a legitimate way of injecting money into the local economy and boosting other sectors such as construction and services. “But it won’t resolve the problems it’s designed to fix,” said Nikolai Petrov, a scholar in residence at the Carnegie Moscow Centre. “Even if jobs are created, they most likely won’t be suited for the local population,” he added. Most people in the region do not have the experience to provide high-quality services, according to Petrov, which most likely means much of the talent may have to be imported. An alternative is to open a school for tourism and hospitality to train local youth, analysts have suggested. In North Ossetia, it falls to Karsanov to get the word out and people in. He is relying not just on megaprojects but on small-scale tourism efforts centred on the local population. With the average salary at around €350 a month, locals do not mind the opportunity to make extra cash. “I’d be happy to open a guest house or shop right along the road here,” said Elbrus Elkanov, 51, a farmer who does construction work on the side. Elkanov lives along the valley road outside the village of Fiagdon, about an hour’s drive west from Vladikavkaz. “But right now there are too few incoming tourists,” he said.

Migration Russia has experienced many waves of emigration since the Bolshevik Revolution. This time, it’s different

Young Russians are leaving the country for ‘breath of fresh air’ It is clear that young Russians want to work outside Russia, but how many of them will come back? MAX SEDDON RUSSIA NOW

Although he is already a manager at a major oil company’s Moscow headquarters – a position he admits it would take him years to reach in a Western country – Anton, 25, is considering taking a lesserpaying job or continuing his education in London. “Russia is just so depressing sometimes, especially in winter,” he says. For many educated young Russians, Western countries seem to have an indelible allure, whether because of work opportunities, a better educational system or simply nicer weather. While this last reason may seem trivial, many students are beginning to wonder if the grass truly is greener on the other side. “Each year, I ask my master’s students where they see themselves three or four

THE POLLS

“Would I leave forever?” PUBLIC OPINION SURVEYS SHOW THAT FOUR IN FIVE RUSSIANS PLAN TO STAY AT HOME

The number of would-be Russian emigrants has not risen since 2000, Levada Centre data shows. But twice as many under-35s now seek to leave. Fewer respondents cite career opportunities and higher pay as the main reasons for wanting to emigrate, while more stress culture and a better life overall.

THE NUMBERS

192

thousand: number of immigrants to Russia in 2010, primarily from CIS countries. 33,500: emigrants in the same period, mostly to the West. Source: Federal Statistics Service.

years from now,” Moscow State University economics professor Alexander Auzan said recently at a conference.“In September 2010 roughly half said they envisaged themselves working abroad: not just anywhere but quite specifically in Germany, Britain, Ireland or Argentina.” Uncomfortable truths are part of any world leader’s job, but few could have

been more sobering than the one facing Russian President Dmitry Medvedev before his first G8 summit in July 2008. Just as he was about to start his ambitious program of economic ‘modernisation’, the white-collar professionals so crucial to it were prepared to jump ship – a staggering 57% of them, according to a Levada Centre survey. Medvedev’s response was characteristic of the optimistic Western-style rhetoric he has employed throughout his presidency. “We have to create favourable conditions for our citizens,” he said. “When there’s a lack of such conditions, people want to go somewhere else.” But Russian professionals remain unconvinced. At least, that’s the conclusion it is possible to draw from the latest migration figures: More than 1.25 million Russians have left the country in the last few years. At first, this seems the latest in a long line of emigration waves stretching back to the October Revo-

lution. Since then, Russians have left the country in droves whenever circumstances forced them. Some did so to avoid state-sponsored persecution, as during Stalin’s purges or the anti-religious campaigns in the 1960s and 1970s. Others, particularly in the last two decades of the Soviet Union, left in search of civil liberties in Europe, Israel or the United States. Most, however, did so in search of better material conditions, as with the ‘sausage emigration’ that accompanied production shortages during perestroika, or the 6 million Russians who left in the turbulent 1990s. Conditions now are quite different, and that is what has many worried about the current trend. Indeed, Russia is coming off a decade of unprecedented growth. During Vladimir Putin’s presidency, GDP increased six times, poverty was halved, and the economy grew by an average 7% a year. Instead, many liberal commentators see the change as something primarily atmospheric. Journalist Dmitry Oreshkin wrote in a recent article for the opposition-minded newspaper Novaya Gazeta, “It’s harder and harder for a

free, self-sufficient person to breathe in Putin’s Russia. There’s no place provided for him here.” It is far from clear, though, what is creating this mood: In a poll accompanying Oreshkin’s article, 62.5% of readers chose “all of the above” from a list of reasons explaining the increase in emigration. LiveJournal, a blogging site enormously popular with Russians, has a community called ‘Time to go?’ where users keen to emigrate seek advice from the like-minded. However, some professionals have suggested that spending time abroad makes it easier to advance in their careers once back home. Anna, 32, a senior curator at a major Moscow art institution, has apprenticed at several prestigious organisations in Europe, but ascribes her success to her return to Russia once and for all. “Paradoxically, there are more possibilities for a career here, as long as you’ve got the desire to have a career,”she says.“The fact that leaving Russia for a period of time is unambiguously helpful, in terms of getting some fresh air, is another matter entirely – but then, in the majority of cases it’s worth coming back.”

Economy

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Energy Russian shareholders ebullient in struggle against BP plan to swap shares worth $16bn with Rosneft

BP-Rosneft deal hanging by a thread CONTINUED FROM PAGE 1

BP stands to lose the most if the conflict with Russian investors is not resolved.

REUTERS/VOSTOCK-PHOTO

“Together with Rosneft we made a fair offer,” BP’s CEO, Robert Dudley, said at the company’s annual general meeting in London. Sources close to BP say the sum offered for 50% of TNK-BP was $27bn (€18.8bn). Sources close to AAR called this offer – in terms of both price and assets – “not serious”, and raised the stakes. At first the private Russian owners were ready to sell their share to BP for $30bn (€20bn), then for $35bn (€24bn). Now they are talking about $40bn (€28bn), though on the Russian stock exchange the whole of TNK-BP is worth only 1.3 trillion roubles (€32bn). Officials at Rosneft are incensed by the demands, which they slammed as “market speculation”. BP stands to lose the most if the conflict is not resolved, analysts say: Russia accounts for a quarter of BP’s oil reserves, so it must remain there at all costs to avoid being swallowed by competitors. Meanwhile, there are signs that Rosneft is keeping its options open in its quest to form a strategic alliance and realise its ambition of becoming one of the world’s top five oil and gas concerns. Speaking on condi-

BP’s Robert Dudley was in sombre mood after the arbitration ruling, while Mikhail Fridman and his AAR partners were ecstatic.

tion of anonymity, sources close to Rosneft’s board said another foreign company might be found to replace BP. But if anyone is keen to explore Arctic oil deposits as BP aims to do,“they are not banging down Rosneft’s doors to swap shares”, Valery Nesterov, an analyst at Troika Dialog, said. The BP-Rosneft alliance was to be effected in two stages. By 14 April, the companies were due to have finalised the share swap of 9.53% of Rosneft and 5% of BP. The second stage envisages the joint

exploration of three areas on Russia’s Arctic shelf. Cue AAR, which, fronted by such formidable figures as Alfa Group’s tycoon chairman Mikhail Fridman, successfully blocked the way. Aside from causing palpitations in boardrooms, the share-swap saga undermines a widespread notion about doing big business in Russia. The history of the planned alliance arguably shows that the influence of politicians over private business is greatly exaggerated. Neither the presence of Prime Minister Vladimir

Putin at the signing of the co-operation agreement, nor the support of President Dmitry Medvedev and the chairmanship (until recently) of Rosneft by the powerful deputy prime minister, Igor Sechin, could save the deal from the claims of the Russian shareholders: in February, the High Court in London imposed an injunction on the deal. The optimal solution to the conflict was allowed to slip away, observers say:“At the very beginning of the confrontation, there was hope that the sides would settle

Economy Government ministers are to leave corporate boards by June

The Kremlin is open for business CONTINUED FROM PAGE 1

a timetable for the privatisation of large stakes in state-owned companies over the next three years. He reiterated the intention to open a direct investment fund this autumn, with an initial capital of $2 billion (€1.4bn), that would allow the government to co-invest with foreign funds into the Russian economy.

€179 €79 billion: net outflow of capital from Russia since the global economic crisis began

billion: foreign investment in the Russian economy in 2010, up 40% year on year

REUTERS/VOSTOCK-PHOTO

THE NUMBERS

Dmitry Medvedev speaks in Magnitogorsk.

A brief chat with the premier BP CEO Robert Dudley arrived in Moscow on 15 April and held a two-minute meeting with Prime Minister Vladimir Putin. Dudley apparently did not use his trip as an opportunity to meet with the Russian shareholders in BP’s TNK-BP joint venture or top officials at Rosneft. Government press secretary Dmitry Peskov said that Dudley and Putin “talked about business”, but declined further comment. According to financial analyst Valery Nesterov,

Dudley probably wanted to ask the prime minister about a more detailed discussion of the proposed share swap with Rosneft. The Russian authorities, however, have already made it clear that relations between BP and the Russian shareholders in TNK-BP constitute a corporate conflict in which they do not intend to interfere. Dudley should not expect any administrative support from the Kremlin, Gazprombank’s Alexander Nazarov said.

out of court,”Nesterov said. “TNK-BP’s Russian shareholders would receive some form of compensation – money or assets – in exchange for withdrawing their objections to the deal.” AAR has long wanted to enter foreign markets, but the variants proposed by BP (including Arctic exploration) did not suit the consortium. TNK-BP can now either buy back the Russian partners’ stake for cash or shares, or sell theirs. BP might be able to find $40bn – at the end of last year it

had $18.5bn (€12.7bn) on its accounts, while Rosneft had $4.1bn (€2.8bn), said Boris Denisov, an analyst at the Bank of Moscow. But it now has to sell assets to pay compensation for last year’s oil spill in the Gulf of Mexico. Shareholders are unlikely to appreciate such sacrifices. BP was not planning to offer “large” amounts or significant shareholdings to AAR, Dudley said in a bid to calm BP’s British shareholders. What happens in May could show whether they are still keen on the Rosneft alliance.

EXCLUSIVE INTERVIEW ARKADY DVORKOVICH

“We are competing globally” There is a lot of talk about reforms, but why are they going so slowly?

NIKOLAY KOROLEV

The president said he wants government ministers out of the corporate boards of state-owned companies by June, a move some experts say is tantamount to unravelling part of the power vertical put in place by his predecessor, Russian Prime Minister Vladimir Putin. After successfully wresting control of the government from the oligarchs in the early 2000s, then-President Putin established tighter state control over the economy through the appointment of state ministers that serve as the ‘eyes and ears’ of the government on the boards of large state corporations. Before his election as president in 2008, Medvedev served as the

company information. “If the minority shareholders are not provided with information, this means one thing: It means that there is something to hide,” he said. Medvedev reaffirmed Russia’s commitment to privatising state stakes in key companies, and said the government must publish

chairman of state-owned gas monopoly Gazprom, simultaneously serving as deputy prime minister. Another practical announcement by the president was his decision to give the Ministry of Economic Development the authority to quash any regulations that could hamper the conduct of business.“The ministry will be given the authority to present proposals to the justice ministry for removing administrative regulations that, without justification, make it difficult for business and investment operations,”Medvedev said. The president also called for equitable treatment of minority shareholders in public companies by giving them more access to vital

THE FACTS

Arkady Dvorkovich is an economic adviser to President Medvedev.

Maybe the biggest complaint about Russia is the high level of corruption. Has any progress been made in the anti-corruption drive? There has been a positive change, but it will not be finished in a year. Bribes are going up, but that is partly because the people that take bribes can see that it is not going to last too long. They want to catch the last train. But this is a systemic issue, as this is not just a bunch of criminals. Corruption exists at all levels and comes back to the state’s involvement in the economy: If we can reduce this, then the potential for corruption will also fall. Corruption is connected to the preferential treatment stateowned companies receive.

The reform drive has slowed because there is a lack of focus. This is such a big system that if people know there is a political focus on an issue they follow up on it, but if not then they go back to doing the same things they did before the reform. We have made progress in cutting red tape, but there is not enough focus. The problem is made more difficult because we have to try to combine the federal initiative with active participation by regional administrations if we are to improve the investment climate. A huge responsibility rests on the governors and mayors. We need to introduce best practices across Russia, but we cannot impose this from the top down. One of the main problems we face is that people don’t realise that we are already competing globally, but now – after the crisis – people are starting to understand this more and more. They realise that we can’t rely on our own market. Prepared by Ben Aris Read full version at http://rbth.ru/12684

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Equities Exchange-traded funds attract overseas cash but increase volatility in already jittery markets

ETFs bring mixed blessings to Russia’s rising market

REUTERS/VOSTOCK-PHOTO

ETFs now account for around half of the €14bn tied up in Russia-dedicated funds.

Emerging markets are hot – partially because they rebounded strongly from the global market meltdown in 2008. BEN ARIS BUSINESS NEW EUROPE

After ignoring the rise of the fastest-growing economies for much of the 1990s, mainstream investors have woken up to the huge gains that can be earned in relatively quickly from these markets, and have turned to the exchangetraded fund (ETF) as their vehicle of choice. However, long-term investors into the biggest emerging markets warn that these funds are effectively ‘hot money’ and can destabilise the fastest-growing stock markets. Russia’s stock market has been the star per-

former this year, but as the economy is increasingly dependent on oil, analysts worry that the increased importance of ETFs means any correction could be sudden and sharp. The appeal of ETFs is that, unlike a mutual fund, these funds are traded on an exchange and can be traded like a stock. But, like a mutual fund, ETFs are based on a basket of stocks that give the diversity that is the cornerstone of any long-term investment into a risky asset class. “In many ways, the parallel development of exchangetraded funds and the investment case for emerging markets has been a happy coincidence,” said Chris Weafer, head of strategy at UralSib in Moscow. “ETFs

fund tracker EPFR Global says flows of new money into Russia-focused funds in the last week of March amounted to $486 million (€340m), up from $139m the week before. By the end of March, assets under management in Russia-dedicated funds hit a new all-time high, breaching the $20 billion (€14bn) mark, according to UralSib. Half of this is now in ETFs. “ETF investors continue to increase exposure to Russia. Notably, almost all inflows into Russia funds came from country ETFs, which is a continuation of the trend of large inflows into country ETFs which began late last year,”Weafer said. However, thanks to the stocklike nature of ETFs, fund managers say they add to the volatility by acting like hot

have enjoyed a huge wave of interest from investors wanting to tap into high-growth markets.” Emerging-market investments have done very well over the past two years as developed markets buried themselves in a deep debt hole, and Russia’s market has been one of the best-performing in the world, up about 150% in 2009 and 22% in 2010. The leading RTS index passed the psychologically important 2000 mark in March as the valuation of Russian stocks overtook their pre-crisis highs for the first time in two years; the RTS is expected to pass its alltime high of 2487.92 later this year. Russia is now attracting considerable overseas cash, and

money – highly speculative investments looking for short-term gains. The point was brought home in the middle of March when stock markets in emerging markets experienced a sell-off as developed markets started to show signs of revival. “The Russian market is currently standing apart from this trend. As a difficult EM [emerging market], Russia received a disproportionately low share of the portfolio investment that fled the West following the credit crunch. Having absorbed much less Western hot money, Russia has been less susceptible to the profit-taking and the more general sentiment shift away from EM and back towards the developed world,” said Liam Halligan, chief economist at Prosperity Capital Management, a dedicated Russia fund. “ETF inflows [to Russia] reflect the fact that Russia is now being increasingly cited among mainstream professional investors as a market with good prospects during 2011 and beyond,” Halligan said. In the meantime, however, investors are expecting a choppy ride as worries over

turmoil in the Arab world and, subsequently, international oil prices dog fund managers. If the ETFs take fright, their collective exit could cause a sharp correction in Russian share prices. “These fund flows are very sensitive to oil and other commodity price trends.That sustains a positive backdrop for Russia and Brazil for now, but increases the risk of greater market volatility when commodity prices stabilize or fall,”Weafer said. In a worrying early sign, the Market Vectors Russia fund, the biggest US-listed Russian ETF, sharply increased its short selling of Russian funds at the end of February. Other investors point to the still-cheap valuations: Russian stock valuations on a price-to-earnings base are the lowest among 21 major emerging markets, according to Bloomberg.“Russia is in pretty good shape at the moment,” said Julian Mayo, a London-based money manager who helps oversee about €2.4bn in developing nations at Charlemagne Capital Ltd. “I think it will continue to outperform.”

Equity market swings, February-March

Energy Pipeline troubles strengthen the case for LNG projects in the east, north and south of Russia

Russia to add new liquidity to global gas market BEN ARIS BUSINESS NEW EUROPE

As prices of fossil fuels have surged due to recent events in north Africa and Japan, Russia is moving to strengthen its export operations with construction of new facilities to produce liquefied natural gas (LNG). Transported by special freezer ships, LNG has the potential, if used in large enough quantities, to free both producer and purchaser from the tangled politics involved in building permanent pipelines. Russia already has one LNG plant on the far eastern island of Sakhalin that sells much of

its output to Japan. In March, the Kremlin announced plans for a similar processing plant on Russia’s northern coast. Building an LNG plant on theYamal Peninsula, which taps into the vast reserves of western Siberia, is an alternative to supplying natural gas to Europe via pipelines. But it also underpins prospects for Russia’s South Stream pipeline project to southern Europe by broadening supply options, according to Energy Minister Sergei Shmatko. “Russia does not face a bottleneck in its obligations under the South Stream project, but has several alternatives,” Shmatko told Prime MinisterVladimir Putin in a recent report. Uniting Russia’s semi-state gas giant Gazprom with Germany’s BASF and Eni

of Italy, South Stream would pipe Siberian gas to southern Europe. But the project is ranged against the rival Nabucco pipeline promoted by the European Union, which, if built, would skirt Russian territory and link Europe directly to the gas reserves of the Caucasus and central Asia. Recent revolutions in north Africa have bolstered South Stream by raising fears of the unrest spreading east, but both pipelines have been embroiled in geopolitical wrangling by countries along their routes. The planned LNG processing plant on the Yamal Peninsula would break the deadlock, as liquefied gas can be shipped to anywhere that has a port and facilities to offload it. Overall, exports of LNG fromYamal,

ergy minister to study the possibility of building an LNG plant on the Black Sea coast, close to Russia’s main oil export ports and the planned undersea route of the South Stream pipeline, which will come ashore in Bulgaria or Romania. Gas is coming back into focus after oil prices soared

Canned to go: a sample of liquefied natural gas.

Russian gas exports are estimated to rise this year by 10bn-15bn cubic metres.

Sakhalin and the Shtokman gas field in the Barents Sea should move up to 85 billion cubic metres of gas annually to Europe and Asia, Shmatko said last November. Putin also ordered the en-

due to the north African political turmoil, plus the impact of Japan’s earthquake and tsunami and the ensuing nuclear accident. VTB Capital estimates that, with the disruption of oil supplies to Europe caused by

PHOTOXPRESS

Russia is ramping up the development of liquefied natural gas as an alternative supply option to politically sensitive pipelines.

the Libyan conflict, Russian gas exports could this year grow by 10bn-15bn cubic metres, or 7%-10% of Gazprom’s total exports. Prices on European gas spot markets also spiked after the earthquake in Japan. “We believe the increase in the spot price reflects the market’s anticipation that LNG demand will be significantly more than previously expected, as Japan strives to make up for the loss of nuclear power generation capacity,”VTB analyst Lev Snykov said. Meanwhile, leading private gas producer Novatek spent €361 million on a 25.1% option on the planned Yamal LNG plant. Novatek already owns 51% of the project and has a call option on another 23.9% stake, should the plant go ahead.

Comment

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MEDVEDEV’S GAME OF MUSICAL CHAIRS Aleh Tsyvinski, Sergei Guriev THE MOSCOW TIMES

NIYAZ KARIM

n recent days, President Dmitry Medvedev has moved against some of the most powerful men in the government, including Deputy Prime Minister Igor Sechin, who is perhaps the closest among them to Prime Minister Vladimir Putin — and who until 11 April was chairman of Rosneft, Russia’s largest oil firm. Medvedev signed a decree to strip Sechin and others of their chairmanships of some of Russia’s biggest state-owned companies.The stated purpose of the decree was to improve the country’s investment climate, but the purge may reflect other, more important goals. Medvedev has in the past recognised the need to attract Russian and foreign investment and criticised the country’s dismal investment climate. But this time, his actions truly matched his rhetoric as he outlined specific measures to be taken and set deadlines for implementing them. And with some of the measures bound to face stiff opposition from powerful interest groups, the reforms are set to be a major test of Medvedev’s real strength — and of his plans to run for another term as president. Even partial success would allow a Medvedev re-election campaign to be built around themes of corruption-fighting and transparency. Corruption and government accountability are probably the single most i m p o rt a n t i s s u e s fo r Medvedev’s electoral base

among the country’s rising middle class and ‘protest voters’. The ruling United Russia party’s recent poor performance in regional elections shows that the electorate is fed up with the status quo and is ready to vote for an alternative. The success of leading anti-corruption activist Alexei Navalny is another wakeup call for Medvedev. Notably, many of the measures proposed by the president are similar to those recommended by Navalny: removing government officials from the boards of state-owned companies, ensuring access to corporate documents for minority shareholders and developing a way to respond to

We are going to see a major test of Medvedev’s real strength – and of his plans. a l l e g a t i o n s m a d e by whistleblowers. Medvedev made a simple and convincing argument: Those who fear transparency are those who have something to hide. This is not an abstract accusation. Navalny’s repeated requests for the minutes of several state-owned companies’ board meetings generated huge resistance. Two companies even tried, unsuc-

cessfully, to change the law to reject shareholder requests for information. The most controversial of Medvedev’s measures is the removal of key bureaucrats from corporate boards. His orders list 17 state-owned companies and the powerful ministers and deputy prime ministers to be removed from board chairmanships by 1 July. He promised a longer list by 1 October. The president’s logic is straightforward: A government official in charge of an oil company or a bank faces an inherent conflict of interest. The chairman of a board must serve the interests of the company, but a government official

CHARTING A PRAGMATIC PATH THE MOSCOW TIMES

rime MinisterVladimir Putin’s comparison of the coalition bombing of Libya to mediaeval crusades has reasonably been criticised as the latest example of a confused Russian opportunism. It seems rather cynical to bash a coalition that has been so careful to present the right kind of image. It is also disingenuous given that the Kremlin gave implicit support to the bombing through its abstention from the UN Security Council vote authorising the use of force. The critics of Putin’s comment might be operating from the moral high ground, but they are also missing the point. Putin did not criticise the West because he wishes to side with Muam-

mar Qaddafi or even because he finds it amusing to annoy the United States. Instead, his comments reflect an evolving pragmatism in foreign policy based on economic self-interest. After two decades of trying to define itself with regard to the West, Russia is finding a role for itself on the international stage. One of the main difficulties that Russia has faced since the Soviet collapse is that the country has been at the bottom of several peer groups simultaneously. It has been the defeated superpower, the slow-growth member of BRIC, the odd man out in the Group of Eight and the black sheep of Europe. The foreign policy that has emerged in recent years attempts to avoid boxing in Russia to any particular classification. A combination of improved econom-

ics, a period of relative stability at home and the epiphany in 2008 that much of the Western model was not sustainable in the West – and all the more so in Russia – seems to have generated a new strategy, both domestically and abroad.

There are several components to this strategy. The first component is a golden rule: Make no enemies – or at least as few as possible. Russia is building relationships across a wide spectrum. The improvements in relations with the

must have the necessary skills and integrity. It is often said that Medvedev does not have his own team, but his appointees to these positions will show whether that is true. Second, it is uncertain whether the new board chairs will actually run the companies. Russia’s legal system is imperfect, and even serious violations of corporate governance are difficult to punish. It is not unthinkable that management will simply ignore the boards. Finally, while some board members are truly independent, others receive ‘directives’ from the government on certain issues. Therefore, it matters whether the new board chairs run their boards independently or according to the Kremlin’s orders. In the latter case, the new – and quite expensive – chairs would be treated as government proxies, making a mockery of the entire exercise. The good news is that Medvedev’s chief economic adviser, Arkady Dvorkovich, has said that government directives“will be reformed” as well. Whether these improvements in corporate governance are actually implemented will be clear to all. We will know soon – certainly before 1 July – whether Medvedev can implement even a part of his agenda and whether he is willing and able to build his own power base in the process.

United States and Europe have tended to attract most of the headlines. Treaties on nuclear weapons reductions, better co-operation with the West on Iran, progress on World Trade Organization negotiations, and providing a steady gas supply into Europe all reflect significant improvements in relations. The growing ties with the emerging world have been

invested into Russia. In 2010, China became a larger trade partner for Russia than Germany. Compare that with trade with the US, which now accounts for less than 4% of Russia’s trade turnover. Asia and the Persian Gulf determine the price of Russia’s major exports. The West is no longer viewed as a reliable source of long-term financing. The 2008 crisis emphasised the need for as diverse a range of investment and finance as possible. It is against this backdrop that Putin’s unhelpful comments should be taken. Russia has never got very far by defining itself as either pro- or anti-Western. It is now attempting to be more pragmatic. It may look cynical in London or Washington, but this might reflect the recognition in Moscow that the world has changed.

Russia has never got very far by defining itself as either pro- or antiWestern.

DMITRY DIVIN

Roland Nash

must pursue the public interest, which includes preserving a competitive environment in the oil or banking sector. Removing officials from state-owned companies’ boards has been an important aim for Medvedev for several years. He introduced the idea in his presidential campaign speech in Krasnoyarsk in 2008 and has made certain that dozens of independent directors have been appointed to the boards of stateowned companies. Yet board chairmanships remain the domain of the bureaucracy. Not a single state-owned company has an independent chairman. And the chairmanship is a vital position, as its occupant sets the agenda and controls discussions. It is difficult to talk about standards of corporate governance in Russia’s stateowned companies since most do not even have regularly scheduled board meetings, owing to the unpredictability of government officials’ schedules. This may seem little more than an annoyance, but it has a key implication: when there is no regular schedule for board meetings, many independent directors – especially foreigners – often cannot attend. If the board chairman is not a government official and can commit to an annual schedule, highly skilled independent directors from around the world could be attracted. As usual with such initiatives, implementation matters. First, it is not clear who will replace the bureaucrats as board chairs. Given their importance, the new chairs

just as significant. Russia is developing ties across Asia, Africa and South America. Yekaterinburg hosted the first BRIC conference last year. For the first time, the emerging countries are providing a significant proportion of new capital being

Sergei Guriev is rector of the New Economic School in Moscow. Aleh Tsyvinski is professor of economics at Yale University.

Roland Nash is chief investment strategist atVerno Capital.

Opinion

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EU ENERGY PACKAGE: LET THE GAS BUYER BEWARE Konstantin Simonov EXPERT

NIYAZ KARIM

he European Union pins particular hopes on the so-called third energy package. After initial approval in 2007, fierce debate with national governments and especially with European energy concerns delayed full approval of the package of legislation until September 2009. It finally came into force in March. The European Commission is promoting the package as a cure-all for the union’s energy problems. It is supposed to bring competition to the European gas market and consequently send prices down. This in turn is supposed to goad gas producers into vying with each other for the European buyer, resorting to aggressive cost-cutting and making do with small profit margins. However, although the package would liberalise natural-gas owners’ access to gas transport infrastructure it does not follow that there will be a lot of gas at the system’s input. Indeed, it does nothing to contribute towards that end. The third package may help the European buyer, but only if supply exceeds demand in the market. The trouble is that the package does nothing to stimulate supply. The core of the legislation is unbundling different

types of activities within the vertically integrated natural-gas companies. The extracting or marketing structures would either forfeit ownership of the gas transport and distribution infrastructure (including storage facilities and liquefied natural gas terminals) or renounce control over their infrastructure and even any say in decision-making concerning their activities. As a result, the gas transmission infrastructure would be run by independent companies. In addition, the EU intends to increase the number of gas pipelines; at present, in terms of the length of the transmission network, it lags far behind the United States, which liberalised its market long ago. All well and good, except

Freeing up gas owners’ access to the system will not ensure increased supply. for one thing: When supply is short, a liberalised market is a very bad market for the buyer, as highlighted by Britain’s experience in the winter of 2005-06 when domestic production fell short even as completion of the new Langeled pipeline from Norway was delayed. Overall, shortfalls in gas supply as a result of redirection to other markets or a drop in production capacity have posed the main risk for European energy policy in recent years.

The risks are high, with at least four factors playing against European consumers. The first is the decline of domestic production. Where in 2000, the EU imported half of the gas it consumed, by 2010 the share of imports to the enlarged union had risen to 62%. Even the UK, once the EU’s leading gas producer, has become a net importer. Germany and Italy depend on imports for over 90% of their needs. Production in the UK keeps falling; Denmark, for now still a net exporter, is expected to see its reserves depleted within two or three years. Then there is the Fukushima factor. The EU will now have to shut down some of its nuclear plants. Germany has already declared it will do so. The only envi-

ATTACKING THE ENTRENCHED CULTURE OF CORRUPTION Kirill Kabanov EXPERT

ussia’s ubiquitous corruption is not a novelty that arose at the dawn of the Vladimir Putin era in 2000, as some experts and politicians claim. Corruption was already a serious problem in the Soviet Union’s waning years, when personal enrichment became the main ideology for part of the political and economic elite. Post-Soviet Russia, lacking a well-grounded sense of social and moral values, still cannot grasp the importance of reputation, including one’s public reputation. Based on this, bureaucrats have made personal enrichment their one and only goal. A contributing factor is that since the early 1990s no real administrative reform has

been carried out to meet the new challenges facing the country. To all intents and purposes we have today a Soviet-style bureaucracy, only still more bloated, unscrupulous, greedy, criminalised and uncontrolled. Corruption in Russia began to inflate rapidly in the early 1990s, during the privatisation period. If one of the main forces that keeps corruption at bay is political competition, then in this view the development of Russia’s political environment was dwarfed by the take-off of corruption. A tangible blow was dealt to political competition during the 1996 presidential elections, which led to an increase in the bureaucracy’s impact on all spheres of society and state administration. The parliamentary system began to grow weaker and the courts

began to be less and less independent. In 2000, with members of the security agencies being brought into the executive and legislative branches of power, the situation worsened. Meanwhile, a majority of the population had

Corruption is the most lucrative and best-organised business in Russia. been duped into a false sense of stability with a wave of material goods. At this point, the interests of most of the bureaucracy and of society coincided on a number of points, such as a lack of interest in socially active independent media (which are the basis for fighting cor-

ruption) and in political competition. The bureaucracy’s strength, which in such a system was gradually increasing, led to society’s deterioration. As a result, we got a government in which corruption is essentially different from its Western counterpart in that it is stirred up by bureaucracy and the conditions it creates. New kinds of corrupt shadow corporations have emerged, for instance. They are practically uncontrolled because they are represented by the law-enforcement, supervisory and judiciary bodies. The corruption market in Russia is estimated at €210 billion a year, embezzlement of public funds stands at about 30% and kickbacks at €25bn. In other words, corruption is the most lucrative and best-organised business in Russia.

ronment-friendly alternative is natural gas.The shutting down of nuclear plants in Germany alone could increase gas consumption by 35 billion cubic metres. The third factor is the political turmoil in the Arab world; this could dramatically reduce alternative sources of natural gas. The fourth is Qatar, which will hit peak production this year. Much of its abundant gas will be claimed by Japan to make up for the loss of Fukushima. Qatar has declared a moratorium until 2014 on the building of new capacity through development of the North Dome gas field, the world’s biggest. If there is not enough gas input, the third package will favour the gas owner for one simple reason. He would be able to sell directly to the buyer while the transmission system owner will just offer transit services without any claim to owning the gas. So, given a shortage of gas, Russia will do well with this package. Gazprom will be able to sell gas to consumers without investing in the development of the European infrastructure. Provided, of course, the EU plays by the rules. Theoretically, the third package permits exceptions. A gas system operator may deny third parties access to the pipeline, storage facility or terminal in the absence of free capacity if necessary to meet the operator’s social obligations or if the company could sustain financial losses under ‘take or pay’ gas supply contracts. But the main exceptions to the rules may have to do with the new infrastructure. The legislation says that interconnector pipelines, LNG terminals and storage fa-

In 2008, President Dmitry Medvedev became practically the first leader to give an objective assessment of corruption in Russia. He spoke about government posts being bought, corruption in the judicial system, and the state and law-enforcement authorities being used as mercenaries to seize businesses. He publicly defined corruption as the main threat to Russia’s development and went on to submit legislation and a national strategy to suppress it. A number of practical measures have been taken to amend criminal law and administrative rules. Work has begun to reform the judiciary and law-enforcement bodies. In addition to legal measures, important as they are, the president underlined the need to restore and develop real political competition and transparency. He is using new methods and in some ways is independently establishing a dialogue with society. But why are all these initiatives stymied? The reason has been stated above:

cilities may be excluded from regulation. As a result, the system will be much more liberal for some gas producers than for others. The biggest long-term risk of the package is if investments in the development of the market infrastructure are suspended. Given liberalised access to transmission, it is unclear who will invest in the development of the gas transport system. True, the Commission inserted provisions that make it mandatory for transport system owners and operators to invest. This is part of the ten-year development goals of the package. But it is still unclear what these goals are, whether they will be fulfilled and how they will be financed. The UK's experience shows that a liberalised market does not always react to market changes in a timely and efficient manner, because gas transport projects are so costly and the payback period so long that market mechanisms perform poorly. The rules of free access can recoup the project cost only in very liquid markets with a large number of suppliers, and that is something few European markets can boast. Thus, the new rules create additional risks for European gas consumers, while paradoxically providing new opportunities for Russia. The EU is painting itself into a corner because it does not understand that liberalisation alone is not enough to bring prices down. What is needed is a serious gas supply surplus, something this energy package is unable to deliver. Konstantin Simonov is the head of the National Energy Security Foundation.

Russians and society as a whole are generally content with being mere onlookers. Fear and lack of confidence stemming from centuries of suppression prevail in people’s minds. Public debate has been eliminated, including in parliament. Any real action against corruption is seen as a challenge to the authorities. The corrupt elite are trying to mitigate as much as possible the harm anti-corruption initiatives can cause them. And yet change, including in the public consciousness, is possible, even within the next year or two. President Medvedev is no corruption-fighting version of Don Quixote; he is a man who is skilfully and carefully building up his anticorruption strategy, preparing the legal tools that may in due course take on practical relevance. But for that to happen, several conditions need to be in place, the main one being the public’s trust and support. Kirill Kabanov is head of the National Anti-Corruption Committee.

Health Care

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Health Doctors and nurses are badly underpaid, while public hospitals lag far behind the private sector

Medical care you can live with Russian doctors and their patients wonder if new reforms will finally help them get the medical infrastructure and health care they deserve. GALINA MASTEROVA

WhenYevgeniya Ivanovna’s mother went into the hospital recently, her daughter, Zoya, knew intuitively that she should pay the nurse something extra in cash – even though the hospital is not private. She handed over 500 roubles (€12). It is not the size of the ‘fee’ that is the problem, sociologists say. It is the nature of it. On paper Russians have a health system that is free. That paper is the Russian constitution, written in 1993, which states that free health care is the right of all Russian citizens. In reality, Russia has a split system with a mix of private medical care and a state system that lags far behind.Years of underfunding have left the healthcare system in a precarious state with decrepit hospitals staffed by demoralised and woefully underpaid staff.

PHOTOXPRESS

SPECIAL TO RUSSIA NOW

Staff at the St. Petersburg Cancer Hospital check equipment.

experienced surgeon with a worldwide reputation. He could be practising anywhere, and there must be days he wishes he was anywhere but here. “Are you prepared for a daily fight to be a highquality doctor? I fight for my equipment. I fight to fix the leaking walls in my operating theatre. I fight for everything! Society itself must deliver a message,” Pushkar said. “What does it mean to be a doctor? Society means everyone, the president, the prime minister, workers. A united society must say that we un-

Doctors expect a daily struggle Dmitry Pushkar, 47, is Russia’s chief urologist and an

derstand what it means to be a good doctor and how important it is.” The Russian government is embarking on a huge reform which will see an influx of cash, 300 billion roubles (€7bn), to outfit the country’s hospitals with new hitech equipment, better salaries and, it is hoped, improved care. The dire state of Russian health care and its precarious mortality rate have acted as catalysts. “Russia has a birth rate characteristic of developed countries – low; and a death rate of a developing country –

THE NUMBERS

51.6

% of Russians die of cardiovascular diseases, 24.4% from cancer, 10.2% from accidents, murder or alcohol.

2015

target year set by the government to halt the population decline. By 2025 the population could rebound to 145m.

high,” Masha Lipman, an analyst at the Carnegie Centre in Moscow, said.“There are several causes for the death rate, and one of them is an inferior quality of health care.” The most dire warnings by demographers predict that Russia’s population could drop from 142 million to 100m by 2050. But no trend is irreversible: Russians who anticipate longer and healthier lives may be inclined to have more children. The government is building a series of health centres around the country with a focus on cardiovascular disease and cancer. The reforms will place an emphаsis on preventative care and will include the retraining of doctors, the health minister, Tatyana Golikova, stated in a government report. The Soviet system, which was free for everyone, concentrated on specialist and hospital care, ignoring preventative care. In Russia, cancer is still often diagnosed when the disease has spread to a late stage, Golikova said.

Growth in private insurance Russians have little confidence in the existing healthcare system, and some are opting for private insurance.

Health Russian health professionals are recognising the urgent need to communicate

Improving health, text by text A new collaboration between Russian and American NGOs hopes to improve the health of babies. RUSSIA NOW

Over the past few years, Russia has experienced a baby boomlet, thanks in part to the 2007 legislation introducing the ‘mother’s capital’ – a cash payment to women who have more than one child. Prime Minister Vladimir Putin recently announced an initiative to modernise medical facilities – including maternity hospitals. It is clear that encouraging more births is an important part of the government’s plan to combat

GETTY IMAGES/FOTOBANK

EMMA BURROWS

Can cell phones help solve Russia’s population decline?

the falling population. What happens, however, when the baby comes home? Enter Text4Baby. This programme, pioneered in the United States, targets women who might otherwise not have access to the

best healthcare information. Mothers who sign up for the text message service receive three texts per week containing information on topics such as pre-natal care, immunisation and car-seat safety. In September, Text4Baby

will start operating in Russia in a bilateral collaboration that staff hope will replicate the project’s great success in the US, where over 135,000 subscribers signed up in the first year alone. Russia could prove to be fertile ground for the programme, as it has some of the highest levels of mobile-phone penetration in the world. And, importantly, the project has attracted strong support from the Russian government. Experts from the health ministry will take a leading role in order to address the most pressing health issues facing Russian mothers. Judy Twigg, an expert on health care in Russia and a professor at Virginia Com-

monwealth University in Richmond,Virginia, said that in Russia,“Public-health information, education and communication are the critical things – important, if not more important, than just changing the health-care system in isolation.” Naturally, there are challenges facing the implementation of the programme. Co-ordinating the involvement of governmental, nongovernmental and professional organisations has been difficult. Language experts were also needed to reduce long and complicated Russian phrases into short, but coherent, text messages. Perhaps the biggest challenge, though, has been trying to get Russian doctors and their patients to rethink how health-care services should be provided to mothers and babies.

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The insurance industry is predicting double-digit growth in the next few years. Some Russians say they save for three things: money to keep their sons out of the army, money in case anyone in their family is arrested, and money to pay the doctor if they get sick.These are not considered bribes so much as unofficial fees for underpaid people doing a favour. As Zoya found out, it is standard practice to pay this unwritten tax that has no price list and no official recognition. “The minute you arrive you pay everyone.You pay nurses, the people who clean the floor. The doctor and the surgeon. The only way you know how much to pay is by asking the people around you,”Lipman said, emphasising the informality of the process. The reforms will raise doctors’ salaries by up to 30%, but with wages so low, the medical profession is not yet impressed with that, said Kirill Danishevsky, an independent health expert. Pushkar, the urology chief, said that part of the solution is moral as well as financial. “It’s impossible to reform in a month or a year but we can start by saying that there are good doctors and bad doctors,”Pushkar said. “We should provide the good with total support.”

ONLINE

Protecting orphans

RIA NOVOSTI

The Russian government is finally getting serious about controversial adoptions of Russian children by foreigners. A milestone will be the scheduled signing in May of a bilateral agreement between Russia and the United States. But monitoring international adoptions is only part of the solution: changing the system within Russia is also essential. Read more at www.rbth.ru/12692

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