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Russian portfolio values tumble as fear returns What unites Britain and Russia to world The ambassador sets out equity his vision for co-operation markets
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Energy The Baltic pipeline is ready to connect with Europe, but EU rules delay progress of the larger Black Sea link
Gas pipeline is ready to flow The first Nord Stream gas pipeline is ready to deliver gas to Northern Europe, but building of the South Stream project has been put on hold. Nikita Dulnev russia now
It plans to start delivering gas this autumn through the 1,224km (760 mile) pipeline, which will carry 27.5 billion cubic metres of gas a year. Construction of the second Nord Stream pipeline is still in progress, and is expected to be complete by the end of 2012. When complete, Nord Stream will carry 55 billion cubic metres of gas to Europe – around 36pc of the gas that EU members buy from Russia.
Growing demand
As the International Energy Agency has pointed out, the world has entered“the golden age of gas”.To further meet the West’s growing demand,
Russia is planning to build the South Stream pipeline through the Black Sea, via Italy, to deliver gas to southern European countries by 2014.When built, it will carry 65 billion cubic metres of gas. A major advantage of both Nord Stream and South Stream is that there will be no transit costs, which should reduce the end price.
EU regulations
The European Union’s Third Energy Package, a set of regulations governing the price and supply of gas to Europe, has recently come into force. Their aim is to encourage competition and improve choice for consumers. How-
ever, they are controversial because of the control they give to countries on the gas route. The Nord Stream, project has been granted an exception to the regulations; but other pipelines linking Nord Stream with various parts of Europe are not exempt. For example, NEL, which links the Russian pipeline to the German gas transport system, has not been granted an exemption. As yet, the South Stream project does not have an exemption either, but high level discussions are being held to try to resolve these problems. Some experts believe that unless an exemption to the Third Energy Package is
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Five years after the murder of the campaigning journalist Anna Politkovskaya, who investigated human rights violations in Chechnya, police have arrested a man suspected of organising the killing. Lt Col Dmitry Pavlyuchenkov, was then chief of a secret Moscow police unit, one of whose functions was outdoor surveillance. The Russian Investigative Committee (SKR) has established that “Pavlyuchenkov was commissioned to organise the killing of Politkovskaya for a fee, and he set up a criminal group [for this purpose]”, said SKR spokesman, Vladimir Markin. The police chief, who has since retired, was a witness
in the case and allegedly tried to mislead the investigation concerning his invovement in Politkovskaya’s murder, according to the murdered journalist’s newspaper Novaya Gazeta. Mr Markin said that Pavlyuchenkov was suspected of organising surveillance of the journalist.“[He] acquired the weapon, worked out the plan and determined the role of each of the accomplices in preparing and carrying out the murder.” Investigators suspected four Makhmudov brothers from Chechnya of involvement in the murder. Dzhabrail and Ibragim were charged but acquitted in February 2009, along with a retired police officer, Sergei Khadzhikurbanov, who was accused of supplying the murder weapon. However, the verdicts were overturned by the Supreme Court, which ordered a retrial. Charged in absentia, Rustam Makhmudov, who was suspected of firing
Murdered: the writer uncovered human rights abuses in Chechnya
the fatal shots, was arrested in Chechnya this year. Pavlyuchenkov, according to Mr Markin, had provided the brothers with information on Ms Politkovskaya’s move-
Package.” But when the South Stream project was presented in Brussels in May, energy commissioner Günther Oettinger promised the European Commission would support it without no strings attached. The Russian energy minister, Sergey Shmatko, expects preliminary results of talks with the European Commission on special status for the project to be announced in the autumn. One option is to recognise the pipeline as part of the Russian gas transportation system. If both projects are implemented, then Russia will become Europe’s biggest energy supplier.
Exemption is unlikely
However, Mikhail Krutikhin, a partner with RusEnergy, believes Europe is unlikely to make an exception solely for the sake of transporting Russian gas: “There is no rhyme or reason in that. Under European laws, crossborder pipelines within the European Community have to comply with the principles of the Third Energy
Anniversary The Arctic convoys
ments. She was killed by four shots from a pistol on October 7, 2006, in the lift of the building where she lived on Lesnaya Street in Moscow. Who commissioned the crime remains the key question. Some have blamed the Chechen leadership, which she targeted in her hard-hitting articles about people disappearing and being tortured in Chechnya. Mr Markin said:“The investigation has information about the person suspected of commissioning the crime but deems it premature to disclose this information.” The journalist’s colleagues at Novaya Gazeta are conducting their own investigation. Deputy editor-in chief Sergei Sokolov says the investigative committee’s announcement was “just one theory”, and that the newspaper“has its own theories”. “I think there was a chain of middlemen, and the key question is how long it was,”he told the ITAR-TASS news agency.
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granted for the South Stream project, it will not be built.“The South Stream pipeline will go ahead only if it is awarded priority project status,” says investment company analyst Vitaly Kryukov.
Friendships forged on the cruellest sea Seventy years ago last week, the first Arctic convoy left for Russia. Churchill called it ‘the worst journey in the world’; 3,000 British sailors had died by May 1945. But two nations found friendship in adversity. Roger Williams
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A visitor to the 2012 Olympic yachting events in Weymouth who strays into the Nothe Fort museum might be surprised to see a Soviet sailor’s hat. It’s a gift to the Dorset museum from Eric Alley, a local resident who was presented with it in Armenia in 1989, when he was working there for a United Nations disaster relief team after an earthquake. At a dinner on Mr Alley’s last night in the country, his host asked him if he had ever been to the Soviet Union before. “Yes, in 1941,” he replied. After a brief pause, the host said: “But that was in the
Smoking in public to be snuffed out
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The Russian health ministry is to outlaw smoking in public places, starting with a ban on public transport, including airports and train stations, in time for the Sochi Winter Olympics in 2014. It will be followed by a ban on smoking in hotels, cafés, restaurants and nightclubs in 2015. The ban will include hookah pipes, which are often smoked in cafés. To encourage smokers to kick the habit, the price of cigarettes will be increased under measures driven by the World Health Organisation’s Convention on Tobacco Control, which Russia ratified in 2008. A survey last year showed 60.2pc of Russian men and 21.7pc of women smoke, more smokers per head than any other country.
In this issue HISTORY Ewen Weatherspoon
Pipe dream: The Nord Stream pipeline will deliver gas to the UK from Russia
Politkovskaya suspect held vladimir ruvinsky
The third-highest political post in Russia could soon be held by a woman for the first time in the country’s history. The governor of St Petersburg,Valentina Matviyenko, resigned last week so that she could stand as a candidate for the role of speaker of the Federation Council, upper house of the Russian parliament. Ms Matviyenko has won a seat on the Federation Council, and now faces an election within the council for the speaker’s role. Ms Matviyenko, 62, a member of the United Russia party, has run St Petersburg for eight years. She is backed by the Russian president, Dmitry Medvedev. The speaker’s post became vacant in May, when Sergei Mironov of the Just Russia party was ousted by the ruling United Russia party after criticising Ms Matviyenko.
Fyodor Bondarchuk, one of Russia’s most successful young film directors, has begun filming a new drama, Stalingrad. The action takes place during the Battle of Stalingrad in 1942-43, one of the most bloody battles in history and a turning point in the Second World War.“It is a touching and dramatic love story. Of course, there will also be battle scenes,”says Bondarchuk. The movie, which will be shot in 3D technology, has a budget of $30m and is due to be released in 2013.The director’s The 9th Company (2005) took $20m (£12.2m) at the box office, a record for post-Soviet Russia.
Crime Officer at secret police unit ‘organised murder of journalist’
A retired police chief has been accused of organising the murder of journalist Anna Politkovskaya. But whoever ordered the killing is still at large.
Ex-governor for first female speaker
Stalingrad to hit the big screen in 3D
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Nord Stream is ready to start delivering Russian gas to Europe through the first of its pipelines: the final weld connecting the onshore and offshore sections was completed last week. The pipeline, which will supply Germany, France, Holland, Denmark and the UK with gas, will now be connected to the European gas grid. “The pipeline through the Baltic Sea has already been pressure tested, drained and dried and, since August 22, completely filled with nitrogen, which serves as a safety buffer between air and gas,” said Dr Georg Nowack, Nord Stream AG project manager for Germany. The Nord Stream project has been under development since the late-Nineties. Then, the European Union wanted to minimise transit risks in the supply of oil and gas to EU countries, as differences between Russia and the former Soviet republics, Belarus and Ukraine, had caused interruptions. Because relations between the neighbours are often unpredictable, the route under the Baltic Sea was chosen to ensure that supplies would not be disrupted. The Nord Stream company, which was founded in 2005, is a joint project between Russia, Germany, the Netherlands and France. The Russian energy giant Gazprom owns 51pc, Germany’s Wintershall and E.ON Ruhrgaz command 15.5pc each, with the Netherlands’ Gasunie and France’s GDF Suez both owning a 9pc stake. The former German Chancellor Gerhard Schroeder is chief executive of the company.
News in Brief
Eric Alley at a convoy remembrance ceremony
Great Patriotic War. Where were you?” Mr Alley grins at this point in his story and says:“Murmansk.”“Ahh,”said his host as the penny dropped. “The Arctic convoys.” From that moment, Mr Alley was a firm friend. He was given the hat and made an honorary member of the Soviet navy. Arctic convoys don’t continued on PAGE 6
THE BEAR RETURNS
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After the coup
Yeltsin takes on the mantle of radical reformer TURN TO PAGE 7
CAN NEW OLYMPIC MASCOT UNITE THE NATION?
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OPINION
Planning Office workers will leave the city centre for new district
Moscow’s bureaucrat army to receive new barracks
Ignore the scare stories, Russia will not break up Leonid Radzikhovsky
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s the elections for the State Duma draw nearer, Russian politicians are playing on people’s fears to help them win votes: it is suggested that Russia will fall apart if there is a change of government. After the events from 1917 to 1991, Russians are once bitten, twice shy, when it comes to the collapse of regimes. Add to that our subconscious guilt about our vast, underdeveloped areas, and it’s clear why the fear of the disintegration of Russia holds the same place in society today that nuclear war used to hold in the Sixties and Seventies. But when you look closely, it is an empty scare tactic. One of the predictions is that one or more regions or republics will withdraw from the Russian Federation, leading to its collapse. But there is currently no legal way for a region to withdraw from Russia. Seceding from Russia is also impossible geopolitically. The vast majority of Russia’s regions and republics are surrounded by the Russian Federation. Those that have an external border are surrounded by former Soviet republics or China – neither of which would be likely to risk war with Russia to support a separatist republic. Everything that China needs is easily purchased in Russia, and war would be too costly in financial terms. And the vast majority of Russia’s regions are subsidised by the federal government, so independence from the Russian budget would not be especially advantageous for them. Russian people like to grumble about Moscow, but they wouldn’t dream of seceding from Russia. So long as Russia has a central government, individual regions cannot break off. But what if we did away with Russia’s central government? Then could we completely dissolve the country? The answer is no. It would not be legal to dissolve an entire country. In contrast to the Soviet Union, Russia is not a union of dif-
A new area for government offices and staff to be built on the outskirts of the Russian capital will cover 160,000 hectares and create a ‘Greater Moscow’. ANTON MAKHROV
Bureaucrats are to move out of central Moscow en masse into a vast new administrative centre on the outskirts of the capital. The idea was announced by President Dmitry Medvedev at the St Petersburg Economic Forum in June, and the Mayor of Moscow, Sergei Sobyanin, recently unveiled more detailed plans which officials had been given a month to prepare. The new bureaucratic centre is to be built on a 160,000 hectare (395,000 acre) plot in the south-west region. The current boundaries of Moscow encompass 107,000 hectares, so the new area will, in effect, more than double its size. Within it, 45 million square metres of offices and 60 million square metres of housing are to be created – the equivalent of what Russia usually builds in two years. The local governments of Moscow and the Moscow Region have already approved the ambitious project. Mr Sobyanin has set a time frame of a year to finalise plans for staging the move. And an international competition for developing the concept of Greater Moscow is soon to be announced.
Choosing to relocate
As the experts are quick to point out, many governments have moved their staff outside their capital cities in the past, for varying reasons. Brazil, for example, built its capital from scratch in the middle of the jungle. Although not the most convenient place to build, the move helped to sever the corrupt links between government officials and members of the elite classes, by replacing them with new people who had no connections to old, often criminal, schemes. Government offices are also relocated for more practical reasons, such as streamlining
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RUSSIA NOW
Gridlock: officials hope that moving government offices out of the city centre will help ease Moscow’s traffic congestion
administration.This was why France created its high-rise district, La Défense, on the edge of Paris. Mr Medvedev seems to be thinking more along the lines of streamlining rather than replacing officials, as the proposed site is within commuting distance of central Moscow. It is also hoped that the move will help to relieve traffic congestion in the city. Journalists were quick to ask Mr Sobyanin how much the new city for bureaucrats would cost. His answer was crisp: “The cost is not yet known because there are no concrete projects.” Finance minister Alexei Kudrin said that the relocation would“cost nothing”.He said the movement of the bureaucratic staff would free up premises, property and other assets in the city centre. If these buildings were reused effectively, the cost could turn out to be zero. But Konstantin Kovalyov, managing partner with the estate agents Blackwood, says that the final bill will be considerable.“Every government official needs 12-15 square
metres, each costing $3,000 (£1,800). And one has to bear in mind that the officials will be accompanied by secretaries and staff who need space, too. So it may cost between $50,000 and $100,000 to relocate a single government official.” As the president of the Mos-
Residents of the suburban south-west areas of Moscow joke that soon they will live in the city centre cow Architects’ Union pointed out:“Top federal executive bodies are not only about the offices in which the bureaucrats sit. Housing, a social and transport infrastructure, and commercial services are needed too.” As in most cases when offices are relocated, it is always inconvenient for some staff. One bureaucrat probably spoke for many others when she said:“I personally like the atmosphere of the old Moscow city centre and would prefer not to move out.”
According to a recent survey published by the Levada Centre, 61pc of Moscow citizens support the idea of moving government offices out of the city centre, while 26pc object. But equal numbers both approve of and object to Moscow expanding in size (both 41 per cent). The other survey respondents were undecided. Some Muscovites, though, are seeing the funny side of the development. Residents of the suburban south-west districts of Moscow joke that soon their homes will be located in the city centre.
Moscow’s expansion zone
Building on experience
Previous attempts to build a replica of La Défense in Moscow have met with little success. In 2005, the cabinet of the former Moscow mayor, Yuri Luzhkov announced a plan to build an administrative district on an 800-hectare plot of land north west of the city’s business centre. As around 100 industries located there would have had to have been moved out of the area, the total cost of the project was
estimated at $80bn. Consequently, it never got off the ground. Planners and developers, though, may have plenty of time to avoid making the same
mistakes. According to the Property Market Indicators analytical centre, the president’s grand scheme will take at least 10 to 15 years to come to fruition.
ferent states, so a total collapse of the government would not follow the 1991 model, but rather the 1917 model, which involved the dismantling of all laws. Of course, nobody supports this course of action. There would be total economic chaos in the territory of“the former Russia”. Who would be in charge of Gazprom, Sberbank, Russian Railways, Rosneft, and other companies that are mostly owned by the Russian state? Economic turmoil would force millions of people to flee – but to where? This scenario would be a repeat of the years from 19171920, but with nuclear warheads. It would be the complete and irreversible destruction of the state of Russia and a direct threat to the survival of the human race. And for what? For Russia to dissolve in 1917, it required the illegitimate rise to power of extremists who eliminated private property and sparked a civil war. Are there any extremists today who might seize power in Moscow and make life
The real threat is the continued deterioration of our basic social institutions impossible for its people? There are none among the legitimate political parties. So who? Nazis? Anarchists? Just someone crazy? The limits of human stupidity have yet to be established, but individual fanatics can’t just take over, as the army and intelligence agencies are there to stop them. And, as a whole, the people of Russia are not prone to collective suicide. That’s why I think all of this talk of the collapse (or selfdissolution) of Russia is nothing more than vicious fraud. It’s not a threat to us.The real threat is the continued deterioration of our basic social institutions – health care, education and the government apparatus. But why think about that? It’s more glamorous to espouse theories about the apocalypse, and easier, too, as it doesn’t require any action. Leonid Radzikhovsky is a political commentator for Rossiyskaya Gazeta.
Leisure Run-down 300-acre Moscow site is to be transformed into a modern tourist attraction
Abramovich cash helps perk up Gorky Park RUSSIA NOW
Once a crown jewel of the Soviet Union, Gorky Park has fallen into a sad state of disrepair. But the billionaire businessman and Chelsea FC owner Roman Abramovich, along with the Mayor of Moscow Sergei Sobyanin, plans to rebuild and modernise the park with the aim of attracting up to nine million visitors a year. Designed by the Soviet avantgarde architect Konstantin Melnikov in the Twenties, the park was supposed to be a place where the Soviet public could relax and learn. With its theatre and huge cinema, it drew large crowds of Muscovites. “It was one of the few things which was well run in the Soviet era,” says Alexei Klimenko, an independent adviser to the city. “It’s a national monument; but a
New lease of life for Olympic site
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Park life: the facelift will include restoration, renovation and a number of new attractions
(£1.2bn) over the next two to three years.
Out with the old...
One of the park’s attractions was the test unit for the Soviet space shuttle, the Buran, which had been turned into a rather feeble fairground attraction. Its removal by boat along the Moscow River marked one of the first stages of the ambitious plan to revive the park.
New features include a skateboard park, and Olive Beach, an upmarket cafe where visitors can sunbathe by the river. The entrance fee has been scrapped and there is now Wi-Fi available throughout the park. More than 50 of the kiosks selling fast food and other goods were illegal constructions, and Mr Kapkov has had them removed in the past two months. Much of the asphalt that was
laid in the park over the years will also be removed, and a lengthy promenade will link the park to Sparrow Hills, one of the highest points in Moscow. The jewel of the renovation will be the restoration of the brick Hexagon cinema back to its former glory. A constructivist gem designed by Ivan Zholtovsky, it was once Europe’s largest cinema, but now lies in ruins.
An important recreational area of central Moscow, the Luzhniki Olympic Complex, is to be redeveloped. Built in 1956, its Grand Sports Arena will be renovated to prepare for the 2013 World Athletics Championships. The arena will reportedly be completely rebuilt to meet Fifa’s requirements for hosting the World Cup in 2018. This spectacular 145-hectare complex could also become an important cultural centre. The cinema
Better than Hyde Park
Ilya Oskolkov-Tsentsiper of the Strelka design and architecture institute is a consultant on the project. Impressed with the speed at which progress is moving, he says this could only happen in Moscow. “Gorky Park is bigger than Hyde Park and can be better,” he says. The comparison with Hyde Park began in 2009, when President Dmitry Medvedev
would result in skyscrapers being built in the park.
A park for everyone?
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GALINA MASTEROVA
criminal element crept in.” The park, which in winter is best known for its massive outdoor ice rink, became emblematic of the Soviet Union when Western readers fell in love with Martin Cruz Smith’s 1981 thriller Gorky Park.The novel, which opens with an atmospheric tour of the rink, introduced readers to the fictional detective Arkady Renko, who fought corruption among the elite. But there was no Renko for the real park. With its rickety-looking fairground attractions, unregulated food stalls, crumbling infrastructure and criminal activity, it had an unsavoury reputation with the locals. Mr Abramovich’s close aide Sergei Kapkov, who previously ran the billionaire’s National Academy of Football which funded Russian football development, has been put in charge of the renovation works. He has already promised a London Eye-type wheel for Gorky Park instead of its current Mount Rushmore fairground ride, and investment of up to $2bn
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Illegal food stalls and tacky fairground attractions will be replaced by features inspired by London landmarks in an ambitious renovation project
and concert hall housed in the huge Rossiya Hotel, which was demolished in 2006, may be rebuilt on the site.
says: “I was in London not long ago and had a look at that Hyde Park. It looks great of course. We need to speak to the Moscow powers that be and let them build their own Hyde Park.” Plans to revive Gorky Park were first discussed in 2006 under then-mayor Yury Luzhkov. They were shelved after some expressed worries that Mr Luzhkov’s close ties with the construction lobby
The park’s new upmarket restaurant Olive Beach has led many to ask if the redesign will price out most ordinary Russians. Olive Beach is run by Ginza Project, a chain with few, if any, budget family-style restaurants in Moscow. Ginza Project will be in charge of all the food outlets in the park. Mr Kapkov says that the park has to appeal to a wide variety of people, and accommodate those who already use it. They include the JRR Tolkien fans who enact battles from the English writer’s books there; the ballroom dancers who dance by the river at weekends; and the outdoor table tennis players who have been coming to the park for decades. Mr Klimenko adds:“It’s very important the park should be a public zone and work in society’s interests.” A competition is to be held to select the architect who will redesign the park.
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section sponsored by rossiyskaya gazeta, russia Distributed with THE daily telegraph TUeSDAY_AUGUST 30_2011
03
diplomacy alexander Yakovenko ambassador of the russian federation to the united kingdom of great britain and northern ireland
We are united by the threats we face 21.6
billion dollars of investment made Britain the sixth-largest investor in Russia in 2010.
200
thousand Britons visit Russia every year and approximately the same number of Russian citizens make tourist trips to the UK.
8.5
billion dollars of exports came from Russia to Britain in 2010, of which 75pc were mineral fuels.
Speaking as a diplomat, whose job it is to observe the workings of Great Britain, I have concluded that many of the threats and challenges we both face actually unite us
Thought exchange: Russia and Britain have much to gain from ‘open and honest conversation’
initiatives and consolidating the country’s legal framework to overcome the corruption that is obstructing economic development and hampering social progress. In the UK, people are debating the ideas behind David Cameron’s“Big Society”, which are intended to lighten the load on government structures by decentralising the way the country is run and creating the necessary conditions for citizens’ bold ideas to come to fruition and to alleviate social tension.
United by challenges
Speaking as a diplomat, whose job it is to observe the inner workings of the UK, I have concluded that many of the threats and challenges we both face actually unite us. Recognition of this common ground is what forms the basis of the political connections that have recently been resumed between our countries. And are we not united by the problems of international terrorism and the proliferation of WMD, the drug trade, organised crime and illegal immigration? Do we not need to have an open and honest talk, albeit from different historical perspectives, about the
future of democracy and sustainable models of socioeconomic development in the 21st century? How can we collaborate in our response to criminals’ use of digital technology? These are just the first in a catalogue of intergovernmental issues requiring immediate and daily responses. And all this is happening when, with every technological breakthrough, with every new tourist visiting our cities, and with every new cross-cultural marriage, our societies are becoming closer. The estrangement at an official level has become ever more out of touch with this reality. This has started to be recognised in the British capital. Hence also the conclusion drawn by President Dmitry Medvedev following his conversation with Prime Minister David Cameron in June 2010 in Huntsville, when he said:“UK-Russia relations require adjustment and toplevel attention.” Over the past year or so, some foundations have been laid in the area of Russian-British relations that allow us to look to the future of our partnership with guarded optimism. Authorised Russian and British government bodies are
now collaborating in the fields of sport, culture, space, justice, the fight with the illegal drug trade, and many other areas.
Mutual respect
Our most immediate task is to build on the level of co-operation that has been achieved through a dialogue of mutual respect, and to expand significantly the scope of our collaboration. The co-ordinated response of Moscow and London to the challenges of our time and the ability of the countries’ leaders to understand and identify with one another will have a major impact on the harmonisation of our own relations and modern international relations as a whole. Russian-British collaboration in the sphere of trade and investment is an exceptionally important element in the whole set-up of our relationship. Its momentum has hardly been affected by the political situation, and the negative effects of the global financial crisis are being successfully overcome. I would especially like to note that today, probably as never before, Russia and the UK are at a stage where their paths are converging. This is a par-
The common strategic aim is to encourage economic growth through modernisation and innovation, to expand foreign trade and attract capital from abroad ticular instance of the global tendency towards synthesis and fusion.The common strategic aim is to encourage economic growth through modernisation and innovation, to expand foreign trade and attract capital from abroad. Both countries, like many of our other partners in the northern hemisphere, need to find sources of growth and new ways of increasing their competitiveness.
Fiscal consolidation
The UK is currently going through a phase of rapid fiscal consolidation, which is a key component of the Coalition Government’s strategy for promoting sustainable independent development of the country in conditions of crisis. The wheels of state are trying to cut expenses and increase income to eliminate the budget deficit. Budgetary injections to support the momentum of developments in the markets and various sectors, as used in the first years of the crisis, are now virtually non-existent, as they would lead to further rapid growth of government debt. And I do not need to remind you how much consideration economists and experts are currently giving
the problem of sovereign debt. In Russia, the situation is different. Here, the budget deficit and government debt is substantially lower than that of many Western countries. But our foreign trade, and in fact the economy as a whole, continues to be dependent on the export of raw materials and energy resources. Trade figures between our two countries are indeed a very clear illustration of this – in 2010 around 75 pc of Russian exports to the UK were mineral fuels, amounting to around $8.5bn (£5.1bn). In Russia, it is widely understood that there cannot be a modern trade structure unless the economy is diversified; that we must not be content with inorganic methods, and that we need a systematic technological breakthrough. Hence our determination to develop the innovation sector, including biomedicine and nanotechnology. The projects for the Skolkovo innovation centre and the international financial centre in Moscow – these are all component elements in the modernisation agenda for Russia.
Modernising together
I do not consider Russia and the UK to be competitors in the sphere of innovation. The idea that“the early bird catches the worm” does not work in this context. We are very capable of moving on along the path of modernisation together. For example, what could stop companies from working in Skolkovo and the equivalent hi-tech centre in London’s Shoreditch at the same time? Both these centres have their advantages. For example, we have a large educated and well-qualified workforce and low income tax. And modern communications allow companies to work together effectively – regardless of borders and time zones. There are good prospects for collaboration in the field of energy efficiency, which would not only help tackle the challenges of climate change, but also help us to be more competitive. There are also other areas where our interests coincide, and where we can achieve substantial results by combining our efforts. In 2009, the governments of the two countries resumed a bilateral economic dialogue on a high level
in the form of the Intergovernmental Steering Committee on Trade and Investment. In particular, six key areas were identified as the most promising for the future development of our co-operation, requiring special attention from both parties: the financial services sector; the sphere of high technology; the energy and energy-efficiency sector; strategies for improving the business climate, including access to markets; the promotion of small and medium-sized businesses and the expansion of regional cooperation, and finally, the Olympic legacy and the successful development of a sports infrastructure. It seems obvious that all of these areas, without exception, are important not only for developing bilateral cooperation, but also for multifaceted modernisation in our countries. A good example of co-operation in the most modern fields is the links established between Roscosmos and the UK Space Agency. A collaboration programme has been approved, and this was given particular symbolism by UKRussia Year of Space, which took place on a large scale, culminating in the unveiling of the statue ofYuri Gagarin in the centre of London on the 50th anniversary of his trip to England. It was a real celebration which allowed us to relive the mutual feelings of joy at his success, which became an achievement for all mankind. I especially want to focus on the importance of cultural ties and contacts between people overall in modern diplomacy and in Russian-British relations. On the one hand, promotion of these is one of the ultimate aims of foreign policy, as access to culture and freedom of international connections is a vital condition for the successful development of any society. On the other, it is human links which, to a very great degree, enable the growth of mutual understanding between nations and create a positive background for relations at an intergovernmental level, as they strengthen mutual trust.
Beatles to Hamlet
The way Russian people think of the UK is largely shaped by the images formed at a young age – ranging from the Beatles to Hamlet to Sherlock
Holmes. Russian culture has also become part of the fabric of everyday life for ordinary Britons, and is just as much loved by them. A recent survey of British actors showed that they rate Anton Chekhov as the best playwright after William Shakespeare. I am sure that in Russia no one would argue with the fairness of this judgement. Tours by Russian theatre companies in the UK are met with invariable success, and the names of Tolstoy, Dostoevsky and Tchaikovsky are dear to every educated person. Russian contemporary art also attracts an audience here, and we, along with our British partners, are working hard to encourage this. Every year more than 200,000 Britons visit Russia and about the same number of Russian citizens make trips to the UK. These are quite impressive figures, but we would like them to be higher. Personal impressions are much stronger than crude stereotypes, and every direct contact will help to dispel mutual prejudices which were inherited from the previous era.
Removal of visas
It is in the interests of Britain and Russia to make joint steps towards the alleviation, and, eventually, the removal of visa restrictions between our countries. This is the direction in which we are moving in our relations with the European Union. Significant progress has already been made with a whole range of other countries, including the United States. I think it is important that Russian-British relations should not fall behind this general trend in modern international relations which, in this way, are taking on a human face in the full sense of the word. Finally, we should not forget that there is a new and very different competitive environment forming in the world. The fight for a “place in the sun” in the international community is not being fought with dreadnoughts and warplanes; instead, nations are strengthening their own development potential and network diplomacy to build relationships of co-operation with the maximum number of partners. This is, most probably, the foremost priority of modern foreign policy today.
ria novosti
Globalisation in general and the current crisis in particular show with great clarity that in the 21st-century, Russia and the UK have no reason to stand apart but, of course, a healthy competition remains. The complex character and unprecedented nature of the problems every government faces are dictating the overall agenda of the day, which has to be implemented despite the current misunderstandings and disagreements on some issues. But it is also important to remember the special role of our countries in international affairs, as Russia and the UK are permanent members of the UN Security Council, Group of Eight, and the G20. It is time we openly admitted that the cooling of RussianBritish relations has not only impaired bilateral contacts; it is in stark contrast with the active co-operation between Moscow and London on a broad spectrum of international problems in the various multilateral forms. The mistrust needs to be overcome by the combined efforts of the governments with the wider involvement of civil society. Interestingly, the mindsets of the political classes of our countries run parallel on a number of issues. In Russia, people are starting to think about ways of mobilising civil
THE numbers
lilia zlakazova_rg
“What is most lacking in the human body in the 21st century?”, an illustrious Russian surgeon was asked during the celebration of his 100th birthday. “Optimism”, answered the doctor, ever young at heart. “Optimism cures.” It looks as if Russian-British relations need a good dose of optimism in order to fully recover. Alexander Yakovenko, Russian Ambassador to the United Kingdom, calls this dose “guarded optimism.” A career diplomat, academic, international lawyer and writer, Dr Yakovenko handed in his credentials to the Queen in March. Prior to his appointment to London, Dr Yakovenko was deputy foreign minister of Russia for five years. In the mid-Nineties, as deputy director of the Russian Foreign Ministry International Technical Cooperation Department, Dr Yakovenko headed up the Russian delegation at the negotiations on the International Space Station. He recalled later that an unprecedented level of openness had been achieved during this work. As it went along, certain regulations that impeded the “link-up” of space co-operation had to be amended, but “as a result, we had the most vivid example of how countries can co-operate for common good.” Probably the only serious obstacle to a full link-up between Russia and Britain on the way to mutually beneficial co-operation is the impasse caused by the welldocumented extradition disputes. Perhaps the two countries’ diplomats will be able to set a new precedent of openness that will take us down a straight path to mutual prosperity. Here, Dr Yakovenko outlines his strategy for progress.
Nations united: the monument to Yuri Gagarin, the first man in space, is unveiled in the Mall, London, on July 14. Guests included Alexander Yakovenko, left; Prince and Princess Michael of Kent, centre; Nataliya Koroleva, daughter of Sergei Korolev, Soviet lead rocket engineer, second right, and Elena Gagarina, daughter of Yuri Gagarin, right
Business relations David Cameron’s proposed visit to Russia next month is a great opportunity to develop stronger ties
Time for us to to take a few practical steps to a better future The potential for more collaboration between Britain and Russia in business is huge... if only there were a little less bureaucracy and a bit more awareness. Stephen Dalziel
special to russia now
The visit to Moscow in September by the British Prime Minister, David Cameron, will be the first official visit to Russia by a leader of the British Government for five years. But the mere fact of the visit is not enough to declare the opening of a new chapter in Russian-British relations.We
need concrete results which indicate a real improvement, or this will be little more than a box-ticking exercise. Relations cooled after the apparent warmth generated by the state visit to London by then Russian President, Vladimir Putin, in June 2003. The the British Prime Minister, Tony Blair, began to have doubts about the relationship when his advisers raised questions about Mr Putin’s democratic credentials and Russia’s human rights record. The political relationship went into deep freeze after the murder in London in Novem-
ber 20 06 of Alexander Litvinenko. Business relations suffered, too, as the British Government insisted on the extradition of those they ac-
Give business what it needs in terms of legal changes to ease procedures and it will look after itself cused of the murder, and the Russian side refused. Something had to be done to break the deadlock, and business held the key. In Novem-
ber 2008, Lord Mandelson, as Business Secretary, visited Moscow to restart the dialogue of the Russo-British Intergovernmental Steering Committee (ISC), which aims to improve business relations between Britain and Russia. The committee has identified areas of co-operation, notably financial services; hi-tech and nanotechnology; energy efficiency; the Olympic legacy; small and medium-sized enterprises (SMEs); and the overall business environment. But while discussion continues, business is frustrated by a lack of practical action.
For example, in the SME strand, issues of concern to UK businesses have been raised, such as product standards, customs procedures and
Most British business people dealing with Russia... enjoy the experience and make good profits filing procedures with Companies House in London. “Standardise standards!”has been the cry from UK manufacturers. If a company is pro-
ducing goods to UK, European and world standards, why should it have to spend more time and money proving that its products are good enough for Russia? And Companies House should be more aware of the problems of filing details of Russian firms, rather than rushing to impose penalties for overdue filing. So while the fact that the ISC is meeting regularly again is encouraging, there is frustration that it is still dominated by government and thus bureaucracy.When British businessmen come up against bureaucratic processes left over from Soviet times, it is often easier to decide to do business with new markets, such as Brazil, India and China. Give business what it needs in terms of changes in legislation to ease procedures and it will look after itself. Mr Cameron should pay close attention to one aspect of An-
glo-Russian business relations which has a great future if given proper support. Britain is particularly strong in financial services. Many foreign companies, among them many Russian firms, choose to list on the London Stock Exchange ahead of other international options. There have been serious developments in the past six months in the plans to develop Moscow as an international financial centre (IFC).Where better to look for a partner than the City of London? Significant progress was made when the Lord Mayor of the City of London, Alderman Michael Bear, visited Russia in June. The City does not see Moscow’s development as an IFC as a threat to its own position, and much can be gained on both sides by co-operation. But the City cannot afford to be complacent. Other international centres are courting
Moscow, and it is not enough for the City simply to believe it is the best potential partner for Moscow. The City has to prove its case and Mr Cameron ought to underline this. The British Government has made much of the fact that it sees the encouragement of sound business and trade relations as an important element of foreign policy. There is much in British business practice which can be an example for a market economy as young as Russia’s. It is expected there will be a significant business delegation accompanying the Prime Minister. If it plays an active part in discussions about the future of affairs between Britain and Russia, then this visit may signal a fresh start in bilateral relations. Stephen Dalziel is executive director of the Russo-British Chamber of Commerce.
04
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Proud Aeroflot not content with ‘best of the rest’ label http://rbth.ru/13296
Copyright Downloading reform plea
E-commerce KupiKupon in $66m expansion plan
Bargain boom: rise and rise of a discount site
The pirates who would rather pay than plunder
With offers on everything from haircuts to holidays, Russia’s version of Groupon is proving a big success with internet bargain hunters.
The Russian Pirate Party wants to fight illegal downloading, but the authorities remain unmoved by their proposals.
ben aris
business new europe
“Voodoo People” reads the sign taped to a door in the new building for KupiKupon, Russian’s answer to the discount retail site Groupon. “That’s the room for the guys responsible for the content,” says Djasur Djumaev, one of the four young Uzbek founders of the company. The building near Paveltskkaya in Moscow is so new that workmen are still installing windows, and bits of the lift are lying about in their plastic wrappings. The move was needed because the company, which was started in May last year, has grown so quickly and now has a staff of more than 200. From behind large Mac screens, a few staff are putting the company’s latest deals on the website. Today, an 85pc discount for “noninvasive liposuction in the hips or abdomen” is available in a Moscow clinic for 3,600 roubles (£75), instead of 24,000 roubles (£500). The room is more than half empty.“Most staff don’t turn up until near the end of the day. They like to work late. The office usually fills up at about 6pm, and then someone is here until 2am or 3am,” says Mr Djumaev. Along the corridor, another door says “Miami Police”
Grabbing market share
The explosion of broadband over the past two years has made Russian e-commerce a highly lucrative market. And the potential customer base is growing, as the number of Russians online is doubling every 18 months or so and is now well over 50 million people – over a third of the Rus-
The company is now in 52 Russian cities and in Kazakhstan, Belarus, Ukraine and the Baltic states sian population. According to financial corporation Uralsib, 69pc of the population will be online by 2015. KupiKupon saw revenues grow from nothing to $400,000 (£240,000) in its first seven months of operation. This year, the company expects to turn over $30m, rising to $110m by the end of 2012. However, this upstart company has only a 20pc share of the group deals market. This is because of the loom-
Alexander Vostrov
getty images/fotobank
ing presence of its direct competitor, Groupon, which entered the market after Russian businessman Yury Milner, the owner of Mail.ru, bought a 5.13pc stake in the US company for a reported $75m. Mail.ru is a giant, servicing about eight out of every 10 emails sent in Russia, and the exclusive advertising that Groupon gets as part of this partnership has allowed the company to streak ahead in Russia. However, according to market rumours, this arrangement is due to expire this September. If true, this will throw the field wide open. “We don’t need new money to get growth, but simply to keep ahead of the competition,”says Mr Djumaev.“The three main players [in the group deals market] are all growing very fast, but we are eating into an untapped market. There is a ceiling on this non-competitive growth, and there are about two years left until it is all gone. Then the only way to grow will be to eat into each other’s market share.” KupiKupon has already managed to raise $6m worth of funding, and is negotiating to raise another $10m, which it expects to receive by September, mainly from investors in the former Soviet Union. Then the company plans to go overseas to raise a further $50m at the start of next year to pay for expansion to fill out the corners of the market.
(legal department);“We make money”(deal team 1) and“We make the big money” (deal team 2). And, further reflecting the youth of the partners, who were all in their 20s when they set up the business last year, there is a playroom – a kitchen-cum-gym which will soon be kitted out with Sony PlayStations and table football.
special to russia now
Saving grace: KupiKupon was an instant hit and now offers deals from 20 leading retailers
THE numbers
30m
Expected turnover of KupiKupon this year in dollars. Founded in May 2010, it made $400,000 in its first seven months of operation.
69pc
of the Russian population are expected to be online by 2015, according to Uralsib. Currently, more than 50 million (over a third) are online.
The regions and beyond
Mr Djumaev and his partners have enjoyed an instant hit with KupiKupon.“At first we set up a basic website where customers could buy a simple coupon,” says Mr Djumaev. “The first deals were from companies like
beauty salons offering a facial or haircut at a discounted price. Initially, we had a deal every three to four days, then we had one every day, and now we get dozens a day.” Mr Djumaev has struck deals with 20 of Russia’s leading retail chains. From the very beginning, the company began hiring staff in the regions to target the wider market, not just the 15 million Muscovites, before quickly moving into other countries. Russia represents a strong market of 100 million people, and if you include the Russian-speaking former republics, this rises to 200 million. With the rapidly increasing numbers going online, the potential market is growing all the time. The company is now in 52 Russian cities and in Kazakhstan, Belarus, Ukraine and the Baltic states. It launched in Estonia in April this year, and was the second largest company in the market with a $400,000a- month turnover by July. It has also launched in Fin-
land, and plans to build up the business in Scandinavia over the rest of this year.
Finding online customers
Thanks to the as yet underdeveloped online retail business in Russia, customers are fairly easy to sell to: the hard part is finding them. In the West, online companies buy contacts from costper-action (CPA) networks, which are intermediates that buy lists of email addresses from websites with well-defined users. CPA networks are only just starting to appear in Russia, so they are still very cheap to use. “We can buy leads like confirmed emails for half the price we would buy them from social media sites,”says Mr Djumaev. “In the US, it costs about $7 per subscriber to your website, and $15 per real customer (one that buys something from your site). But in Russia the cost of a subscriber is about $2, and the cost of getting real customers is about half of what you pay in America.”
Aviation Stealth fighter makes troubled debut as helicopters and civil aircraft steal the show at MAKS 2011
Contracts for more than $10bn were signed at the MAKS 2011 International air show held outside Moscow this month.
the development phase.When complete in 2015, the aircraft will take part in active service with the Russian and Indian air forces. The contracts signed at the show for fixed-wing aircraft were worth a record $10bn (£6bn) but all were for civil aviation. Several deals between the Russian Army and the Russian state holding company OAK (which includes all aviation manufacturers in the country) were pushed back indefinitely because of pricing problems.
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The unveiling of the fifthgeneration stealth fighter jet T-50 was the most eagerly anticipated attraction of the international MAKS 2011 airshow this month. A prototype of the jet performed its inaugural public flight at the five-day show in the outskirts of Moscow. The display was repeated every day for the audiences, but on the final day, the T-50 suffered an engine problem and had to abort takeoff. Experts point out that the T-50 is a rather crude prototype, and its engine is still in
Cargo market pledge
The lack of orders for military aircraft was disappointing for many, but OAK tried to smooth things over by promising that Russia will have at least a quarter of the world market in cargo air-
ria novosti
Record plane sales brighten the skies
Testing time: the T-50 managed one successful flight
craft by 2025. Of the civilian aircraft at the show, the new Irkut MS-21 accounted for $6bn of the contracts signed with a total of 78 sold. Russia’s answer to the Airbus A320, though, still exists only on paper. Its first test flight
is scheduled for 2014, with mass production beginning in 2016. The Sukhoi SuperJet 100, a regional aircraft, received only 22 orders – 12 from an Indonesian company, and 10 from the Russian company
The survey also indicates that the UK is Russians’ third most popular place to spend money, attracting 8pc of its overall spend, following the US (16pc) and Italy (11pc). Russians spend the most on hotels, followed by clothes and shoes, particularly from Italy and the UK. Russian spending on jewellery and luxury goods is also increasing. The study used data on purchases made abroad by Citibank’s clients with credit cards between January 2007 and June 2011. It was based on a sample of 50,000 random respondents.
These findings are supported by the latest consumer confidence survey by the Federal Statistics Service, Rosstat, whose consumer confidence index rose to - 9pc (from -13pc) in the second quarter of this year.
Gazpromavia. Two of the jets are flying for commercial airlines. Still, no European company has shown interest in the 100-seat plane that must compete with Brazil’s Embraer and the Canadian company Bombardier. Aerospace companies are hesitant to use an aircraft that has had operating problems and is still being produced at very low volumes – just one aircraft a month. Certification from the European Aviation Safety Agency, due before the end of 2011, and the successful resolution of operating problems should help interest European buyers. France buys helicopters
Russian Helicopters (Vertolety Rossyi) stood out from the rest, and signed deals for
Business in brief
Russian consumers are now spending more abroad than they did before the financial crisis began in 2007, according to a Citibank survey. The bank predicts that by the end of 2011, Russians will have spent $40bn (£24bn) abroad with their credit cards this year alone, representing 3pc of the country’s GDP.This includes internet purchases.
alamy/legion media
Russians are big spenders abroad again
“Since the beginning of 2011, we have witnessed a substantial growth in consumer activity that is exceeding the pre-crisis period,” says Michael Berner, head of consumer lending at Citibank.
Murdoch sells ad company The embattled media mogul Rupert Murdoch has sold his Russian advertising company News Outdoor to the state-owned investment bank VTB Capital. News Outdoor is a big play-
er in the billboard business. The massive ads that dominate Moscow streets each cost between $400 (£245) and $4,000 a month. The former Moscow mayor Yury Luzhkov, who was ousted last year, was criticised for his inability to control the explosion of billboards, and efforts to limit their numbers have only been partly successful. Announcing the deal, VTB Capital said that the new management would “interact with authorities to implement programmes aimed at improving the appearance of cities”.
79 civilian aircraft (Mi-8AMT and Mi-171), as well as 450 aircraft for the military. The firm’s head, Dmitri Petrov, proudly noted that the French Mistral assault ship would probably be equipped with Ka-28 (anti-submarine) and Ka-52 Alligators (attack) helicopters, made by the company. Mr Petrov also told Russia Now that two helicopters produced by the firm had a good chance of success on the European market. “Spain and Portugal have already purchased about 20 of our Ka-32A11BC firefighting aircraft. This helicopter is equipped with unique horizontal water cannons that can put out fires in skyscrapers,” he said. India and China remain the company’s biggest customers for military aircraft.
Piracy is believed to be the reason that many games and films do not reach Russia in their licensed forms. But the Russian Pirate Party, which is part of the international piracy movement, wants to change this situation. It is calling for reforms that would benefit both users and creators of these media. Stanislav Shakirov, head of the party, explains: “There are websites, such as ivi.ru, which has a free collection of licensed movies (supported through advertising), and fidel.ru which charges for watching a certain number of films (its subscription is about $20 (£12) per month). “Many of my friends and I would gladly pay [to see licensed content], for example, through pay-per-view or any other system if it is simple, convenient, and a reasonable price.” The problem is that the number of users on torrents (large file-sharing networks where people download files from each other for free) is constantly growing in Russia, whereas licensed online websites cannot boast such impressive figures. A song by Russian rapper MC Donatello features the line:“Why on earth have they launched ivi. ru? Did they forget about torrents?”Mr Shakirov believes that this attitude is at the root of the problem. “We have no normal payment culture... If you download a game from a Western torrent, the description of the game will certainly have a paragraph saying, ‘If you like the game, go and pay its creators.’ Western users do so in most cases. Russian users will never even think of such an idea: why pay if you’ve already got what you need?” The Pirate Party wants to revise the current system of cash-flow distribution, both to help protect users’ rights and to help authors earn more than they do today. The RAO (Russian Authors’ Society) is an organisation set up to support authors which lobbies the govern-
ment. According to Mr Shakirov, one of its ideas is to levy taxes on each blank disc imported into Russia. But he says that authors would get only 45pc of these fees, while the rest would be used for RAO operations.“It turns out that this organisation acts for anyone’s benefit but the authors’,’’he says. Russian pirates believe there is an alternative. They want to see more competition.“The world is changing,” says Mr Shakirov.“Rights holders understand they have to look for new business models to profit – ones that would not infringe the rights of users and secure a trouble-free life for authors. For example, Mosfilm opened a licensed channel on YouTube – this is really cool, they’re profiting from advertising without paywalls. But the RAO is filing hundreds of lawsuits because music is allegedly being played illegally in restaurants through it.” The pirates want support from the state, particularly the abolition of criminal prosecution for breach of copyright. Boris Turovsky of the International Pirate Party says:“Russian officials ignore international free licences such as Creative Commons, GFDL, BSD and others.They
Pirates want support from the state: the abolition of criminal prosecution for breach of copyright should help implement them in full. Otherwise, the current policy sets a double standard.” Mr Shakirov agrees:“This is a case where a comprehensive set of reforms is needed. Only then will the RAO monopoly be shaken, competitive business models emerge and users understand what to pay and to whom.” But the Russian government is sceptical about such initiatives and seems not to be taking the party seriously. Not long ago, the Ministry of Justice denied the Russian Pirate Party official registration because of its name: it referred to Article 227 of the Criminal Code which describes piracy as “an attack against a ship or riverboat”.
Most popular Russian torrents Torrent tracker website rutracker.org lostfilm.tv tfile.ru novafilm.tv nnm-club.info
Approximate number of users 2010 4,560,000 1,345,000 900,870 560,000 500,450
2011 5,300,000 2,100,000 1,400,500 1,100,900 700,080
GLOBAL RUSSIA BUSINESS CALENDAR 2011 Yaroslavl global policy forum september 7–8, yaroslavl, russia
This year’s event will explore the role of “The Modern State in the Age of Social Diversity”. Guests include Irina Bokova, Unesco director-general, John Laughland, director of studies at the Institute of Democracy and Co-operation, and Lord Robertson, former secretary general of Nato. The forum will include discussions on global income
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inequality, security issues and democracy in multi-ethnic societies. It will take place in one of Russia’s oldest cities, 1,000-year-old Yaroslavl. ›› › http://en.gpf-yaroslavl.ru/
6th Russia-Singapore Business Forum (RSBF 2011) september 25–28, marina bay sands, Singapore
The forum is the leading networking platform for business elites from Russia, the Commonwealth of Independent States and the Asia-Pacific
region. This year, the forum focuses on emerging markets, with a session dedicated to opportunities in the greater China growth area. RSBF 2010 attracted more than 800 participants; judging by the many joint ventures arising from RSBF, the forum has become a significant event in the business calendar. ›› › www.rsbf.org.sg
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MOSCOW BLOG
FIRST PERSON Kirill dmitriev
Governments must learn when to let go of business
CEO Russian direct investment fund
Ben Aris
business new europe
President Dmitry Medvedev has launched a drive to improve Russia’s investment climate and is putting $10bn (£6bn) of state money where his mouth is: in the Russian Direct Investment Fund (RDIF). This new sovereign wealth vehicle aims to attract the world’s leading funds to co-invest in major projects. The hope is that it will reduce the perceived risk of doing business in Russia by dramatically increasing private equity investment. The appointment of Kirill Dmitriev to run the fund is a testament to the commercial nature of the project. One of Russia’s new generation of rising business leaders, Mr Dmitriev cut his teeth working as a manager at Delta Private Equity Partners, a US-government backed investment fund designed to promote capitalism by financing the growth of independent business in Russia. He then set up the highly successful Icon Private Equity — a $1bn fund that invested in projects across the Commonwealth of Independent States. He also founded the Russian Association for Venture Capitalists and advised the government on the creation of the Russian Venture Company, a state-backed fund promoted by Prime Minister Vladimir Putin to kick-start the country’s venture capital sector. “I am not a politician. I am a fund manager, and the primary goal of the RDIF is to earn returns for the investors,” says Mr Dmitriev. “We thought long and hard
foreign investors have about investing into Russia. Such worries are illustrated by the Russian stock market, which has been the best-performing significant market in the world over the past decade, but is still stuck with an average price-to-earnings ratio below seven – a stark con-
The appointment of Kirill Dmitriev to run the fund is a testament to its commercial nature
‘I am not a politician. I am a fund manager, and the primary goal of the RDIF is to earn returns for investors’
ing more than $10,0 0 0 (£6,000) a year has tripled in the last six years. I’m not saying that everything is good, but rising incomes have led to an incredible amount of change in a remarkably short time.” The structure of the RDIF is designed to allay the fears
trast to the early teens enjoyed by other major emerging markets. Russia also performs far below its emerging market peers in both incoming portfolio and direct investment volumes. So a major focus for the fund, is to offer investment firms some reassurance. With the
state limited to a minority stake, investors will not only have the security of a controlling stake but, more importantly, the state will share the risks and be subject to the same rules and corporate governance practices as its co-investors. The structure of the fund is also designed to allow it to tap into the expertise of the best investors in the world – whom it also wants to attract. An investment committee, which will meet as needed, can approve deals up to $250m and will feature professional investors from Russia and around the world. The supervisory board, which will meet four times a year, will determine the strategy and also approve deals of up to the $500m maximum. Government officials will join that board, but international institutional investors and professionals will make
Moscow markets not immune to the global panic bug The Russian equities market lost everything it had gained over a year this month as investors sought security in cash and bonds. IGOR VYUZHNY
getty images/fotobank
russia now
Taking the plunge: the RTS dollar index fell by 18pc
‘Everything was plunging: Gazprom one day, Sberbank the next and Uralkali the day after’ assets marked as risky in their portfolios – shares, that is – and moving them into the dollar and bonds with lower, but presumably guaranteed, yields. Simultaneously, the markets have moved into a period of greater instability, with daily Micex fluctuations reaching
Special to Russia now
H
ow much involvement should the state have in the economy of an emerging market? While most agree that the private sector is the most efficient manager, academics say that, during the transition period, state involvement is crucial. “All emerging markets follow a similar pattern,”Professor BernardYeung of the National University of Singapore said during a presentation at the European Bank for Reconstruction and Development in K a z a k h s t a n i n M ay. “At the start of the process, the state has to engage in a big push to get the wheels of commerce turning, because it is the only entity with the resources to do anything. But once the economy is up and running, it must step back and adopt more of a nurturing strategy.” Prof Yeung was joined on his panel by Professor Sergei Guriev, director of the New Economic School in Moscow. Prof Guriev said that when the economy is healthy, the state should give the job of driving economic growth to entrepreneurs and small- and medium-sized enterprises. Prof Yeung added that a key element of nurturing was“creative destruction”– where inefficient companies go out of business to allow their resources to be put to better use elsewhere. Indeed, a lack of creative destruction leads to stagnation. But this is where it starts to get tricky, because government lobbies and vested interests are set up in order to protect companies from being downgraded or sold off. It can be argued that Russia’s economy has already reached the point where
Safety first: RDIF manager Kirill Dmitriev has a reassuring message for would-be foreign investors
THE numbers
$10bn
The amount of state finance allocated to the RDIF – limited to no more than 50pc (-1) per project.
$90bn
The amount of private equity the Kremlin is hoping the fund will attract from co-investors around the world.
up the majority. The final level of supervision will be an international advisory committee, composed of representatives from the leading global funds, which will meet once a year. “There will be some nobrainer investments as the primary goal of the fund is to produce returns, but we also want to leverage the expertise of our partners,” explains Mr Dmitriev. Among the international investors that have expressed
8pc. This has prompted experts to compare these leaps to the volatility of the market in 2008. Mr Kukk attributes the wild fluctuations to speculative investors. “Every spike has been initiated by short positions on any good piece of news from any country,” he says. Institutional investors risk less, trying not to lose anything. This will continue, he thinks,“until market players make up their minds about whether they are included in the current share prices”. According to Mr Kukk, four
main factors influence investors on the Russian stock market:“Fear of sliding into a second wave of global recession; fear of a worsening debt crisis in Europe; instability on the currency and commodity markets, and geopolitical instability.” Mr Osin points to one more factor: media reports with “a deliberately negative macro-economic and financial character that were reflected in the business climate indicators and investor mood on the market.” Mr Kukk says investors
6th
Russia’s rank by size among world economies. The number of people paid over $10,000 a year has tripled in six years.
an interest and will probably end up on the international advisory board are: Goldman Sachs, Blackstone, the Abu Dhabi Investment Authority, Kuwait Investment Authority, China Investment Authority, Permira and Caisses des Depots. The point of roping in these big names is to create the same sort of creative discussion found at events like the annual Davos forum, with the difference that RDIF can actually act on their insights.
its government can afford to become less involved. But while Russia has made a lot of progress, the needs of its economy are mixed. A joint survey conducted in May by the Moscow Higher School of Economics and the Russian economics magazine Ekspert found that since 1991, levels of both income and consumption per household have soared. Those sectors that have benefited from the boom in retail spending are the clear winners, and the state now needs to do little more than nurture their growth. However, not all manufacturing sectors are selfsufficient. While the state’s involvement in the power and automotive sectors of the economy has been very successful, the shipping, avia t i o n a n d m e t a l l u rg y sectors have a way to go.
At the start of the process, the state has to engage in a big push to get the wheels of commerce turning. But once the economy is up and running, it must step back The Kremlin has relaunched the privatisation process, and is planning to raise up to one trillion roubles (£21bn) in the next three years. The stakes are high: Russia used a lot of its spare capacity in the economic crisis, and slower growth of about 4pc may not be fast enough to stop the country's ageing infrastructure slowly crumbling away. Even if the government stays on course, it still has to get the speed of transition – from the big push to nurturing – correct, which will not be easy. Ben Aris is the editor and publisher of Business News Europe.
Retail banking Furniture giant to cash in on credit boom
Equities Investors shedding risky assets cause plunge in share values
Alongside world stock exchanges, the Russian stock market has lost, on average, one-sixth of its capitalisation since the beginning of August. By August 25, the RTS dollar index had dropped by 18pc, and the Micex index, denominated in roubles, by 15pc. “The Russian market has now stabilised,”according to Evgeny Osin, chief economist with the Finam managing company. He expects it to rebound late in the third quarter or perhaps the fourth quarter of 2011. The slump on the Russian stock market was triggered by Standard & Poor’s downgrading the US credit rating. Micex and RTS beat the 2008 record daily falls by 5.33pc and 7.56pc respectively. The market bounced back 6pc between August 10 and 17, before plunging again. “Everything was plunging: it was Gazprom one day, Sberbank the next and Uralkali the day after”,says Andrey Kukk, Uralsib’s chief trader. The main reason was that investors were shedding
Ben Aris
should rethink risk assessment:“What we see is a debt crisis, while investors move from shares to bonds, which is a paradox.” Some market players think the stock market is on the way to a slow recovery. Big investment banks have accumulated lots of money in their accounts, notes Pavel Dorodnikov, head of trading with Rye, Man & Gor Securities – but are not doing anything with it. The policy of the US and European regulators remains committed to supporting economic demand recovery, which implies rising share prices, including in Russia, Mr Osin points out. “The recovery may be rapid, considering that the EU and US have managed to resolve the situation, although it may have involved market shocks,” he says. Analysts with the Alfa-Capital investment company think current Russian share prices are attractive for longterm positions. Mr Osin agrees: “Today, against the background of a stabilising market, we see a certain very gradual increase in the number of those wishing to open a long position.” So far, investors have no pointers in this country or abroad and many volatile days may lie ahead. Alexey Dolgikh, vice-president of Troika Dialog, says: “There is still a lot of uncertainty. Big investors are confused and are sitting on cash. So, there will be a lot of volatility; the market is emotional, but we do not expect a slump.”
Ikea plans to furnish Russian shoppers with bank loans The Swedish retailer’s familiar blue-and-yellow logo could soon be appearing on credit cards in its Russian customers’ wallets. tim gosling
business new europe
Like most Europeans, Russians are used to finding the Ikea brand stamped on their tables, chairs and meatballs, but they could soon find the ubiquitous blue-and-yellow logo displayed on their credit cards as well. The Swedish retailer is reportedly considering creating its own retail bank, joining a host of other shops and car manufacturers aiming to take advantage of expanding consumer credit. While retailers enjoy the sales boost that credit schemes offer, the costs can add up if they leave the running and risk of the loans to a contracted bank. Credit Europe Bank currently provides the loans at Ikea’s stores across Russia, but analysts told The Moscow News that the company could cut its total costs by up to 2pc by setting up its own finance operation. The Russian daily Kommersant reported that Ikea would now set up its own bank in partnership with Ikano Finance, which is part of a group spun off from the retailer in 1988, but still controlled by Ikea’s owner, Ingvar Kamprad, and family.
photoxpress
about the best form for the fund, to make it as attractive as possible to investors. The state finance will be limited to a minority role of no more than 50 per cent minus one share in any project. It means the co-investor doesn’t have to invest into anything they don’t believe will earn returns. I don’t see the RDIF as a political initiative. However, the political goals of the government will be achieved from these investments – but as a by-product.” Mr Dmitriev is currently hiring staff, mostly Russian professionals, and the first $2bn will be released by the state in September. The first investment is anticipated by the end of the year. After that, Vnesheconombank, the stateowned development bank, will release another $2bn each year over the next four years. The Kremlin hopes that the fund will also attract $90bn from private coinvestors. “Russia is a very attractive investment destination. People have to some extent lost sight of what the country has to offer,”says Mr Dmitriev. “It’s the sixthlargest [PPP adjusted] economy in the world – even Russians forget this fact – and the number of people earn-
ben aris
Less risk for more reward One of the stars of Russia’s new generation of business leaders explains how the new fund will attract the best investors in the world.
05
Branching out: Ikea may go into banking following the trend set by other firms
However, while retailers worldwide run their own credit operations, in Russia, only licensed banks can offer such services, so Ikano Finance would have to apply for a banking licence. And after going through all the trouble it takes to be given a banking licence, it doesn’t make much sense to stop at offering loans to your own customers. For the moment, Henrik Jensen, managing director of Ikano Finance Russia, says that a final decision has yet to be made: “Ikano has been considering different opportunities, including setting up a local bank, but so far we have not applied for bank registration,” he said. Other retailers, however, have set up their own finance operations, following the trend pioneered by a range of international car manufacturers, including GM, Volkswa-
gen and Toyota. The French food retailer Auchan is expected to import its Banque Accord Group to Russia in the near future, while electronics retailer Svyaznoi teamed up with Promtorgbank to launch Svyaznoi Bank last year. The company hopes to develop Svyaznoi Bank into one of the leading financial institutions in the country. It has already issued 500,000 credit cards with loyalty schemes. The lure for these companies is the huge potential of Russia’s under-leveraged consumer. Consumer credit – particularly at the point-of-sale and via credit card – is expanding again as consumers regain their confidence and turn to upgrading their homes and cars. But income and wage growth remains somewhat sluggish, which means that the growth in retail sales numbers is increasingly being driven by consumer loans. “Retail sales increased 5.5pc year-on-year in May, almost unchanged from 5.6pc in April, despite the continuing decline in disposable income (down 7.7pc year-on-year) and subdued real wages growth (up 2.6pce year-on-year),”said Alexandra Evtifyeva, an economist at VTB Capital. “The robust consumption growth is supported by an acceleration in retail lending (up 22.8pc year-on-year in May) in a tightening labour market.”
06
Arctic convoys
Russia now www.rbth.ru
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section sponsored by rossiyskaya gazeta, russia Distributed with THE daily telegraph TUeSDAY_august 30_2011
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Heroes of the world’s worst journey continued from PAGE 1
Pride and sadness: convoy veteran Jock Dempster joined the Navy at 16; he enjoyed socialising with the Russians
figure on the school curriculum in Britain’s classrooms, but the story of the British and Allied sailors who braved what Sir Winston Churchill described as“the worst journey in the world” has been taught in Russian schools since the war ended. It was Churchill who proposed the convoys, following Operation Barbarossa, Germany’s invasion of Russia. He promised to supply Stalin“at all costs”, knowing that, had Russia fallen, the full weight of the Nazi machinery would have been directed at the West.War Cabinet documents now available in the National Archives called for sending“the maximum this country could afford… We must supply her with munitions to the limit of our ability. To do less would increase the dangers of Russia’s making a separate peace.”
Celebrating the memory
Ewen Weatherspoon
The first convoys
Mr Alley, originally from Preston in Lancashire, was on the first Arctic convoy, code-named Operation Dervish, which left Hvalfiourdur in Iceland on 21 August, 1941. By then, Norway and the Baltic states had been overrun by Germany, and the only way that supplies could reach Russia was through the ports of Murmansk and Archangel, which are both inside the Arctic Circle. He had twice tried to join the navy since war broke out but it wasn’t until his 18th birthday that he could be accepted. He volunteered for the first active role that came along, which was for a radar operator, and after three weeks’ training he joined the destroyer HMS Inglefield. Between August 1941 and March 1943, Mr Alley would make 15 convoy journeys to Russia in his ship from its base in Iceland. On that first journey to Archangel, HMS Inglefield was deployed as part of the screen for the convoy. “Most of the merchant ships were very ancient,” says Mr Alley. Their cargo included 10,000 tons of rubber, 3,800 depth charges and magnetic mines and 15 Hurricane fighter planes. That summer, the weather was kind, and they reached Archangel on August 31. “Operation Dervish was dead simple,” Mr Alley recalls as he sifts through his boxes of memorabilia in the study of
There is a continuing mutual feeling of gratitude, and a team of 11 specialists from St Petersburg recently came to London to repair the masts of HMS Belfast, the surviving Arctic convoy ship which is now part of the Imperial War Museum. The £250,000 project was a donation from the Russians in appreciation of the convoys, though Britain had benefited from them just as much as Russia.
his Weymouth flat. “There were no rough seas or any action, and there was virtually 24 hours of daylight. The Germans didn’t wake up to what we were doing. We all thought that this was going to be easy.” “But after Dervish, the Germans did wake up to what was happening. The Luftwaffe and U-boats moved to northern Norway, so the convoys had to keep as far north as possible.”
had to be picked off at every spare moment, no matter the weather, as it was capable of capsizing a ship – and no one lasted long in the water. Four merchant ships sank purely through bad weather. Tales of fires, of terrible deaths and miraculous survivals were legion, some involving sailors as young as 14. Even when there was no action, with hatches and portholes closed, life was far from cosy. “We were warm in our radar cabin, but the mess decks were terrible,”says Mr Alley.“From leaving Iceland to the Russian ports, we kept our hammocks up, and food and clothes were stacked in the hammock nettings under the mess table, in the officers’ cabins, even in the engine room. The mess decks smelled and they were awash with water filled with dried peas and flour and other things. And practically everybody on board smoked.”
Extremes of weather
Over the coming months, conditions grew increasingly grim. Convoys in winter sailed through almost complete darkness in temperatures so low that skin was flayed from bare fingers if they touched any part of the exterior of the ship – something that happened to Mr Alley when he grabbed a ladder rail. He recalls the high seas, with waves as high as cliffs, that would set the ships on great roller coasters. Waves landed on decks as solid ice, which
Disaster strikes
Working in the radar room, Mr Alley didn’t actually see
Medal recognises Britons’ bravery Every 10 years since 1985, Russia has struck a commemorative medal to give to the British Arctic convoy veterans in formal recognition of the critical role they played in carrying vital supplies to Russia. In Ocober 2006, the Brit-
ish Government issued veterans with the Arctic Emblem to show its gratitude for the heroism they displayed in the face of terrible hardship. The emblem can be worn on the lapel but cannot officially be worn alongside campaign medals.
much action, though he could hear events on the radio. Most appalling was the fate of Convoy PQ17, the largest that had ever sailed. In July 1942, while HMS Inglefield was searching for the German battleship Tirpitz, PQ17 was ordered to scatter because of reports that German warships were being refuelled so they could intercept the convoy. Unprotected, the ships were picked off one by one in the worst setback of the campaign: 24 of 35 cargo ships were sunk. “We heard ships call for help and could do nothing about it,”Mr Alley recalls sadly. “We had our own job to get on with.”
In March 1943, after a year and a half of constant convoy work, HMS Inglefield was sent to the Mediterranean, where she was sunk by a German glider bomb off Anzio in Italy. Mr Alley was rescued, but 33 of his comrades died: their bodies remain in the hulk of the heroic Arctic convoy ship, which still lies at the bottom of the Mediterranean.
Death toll
Britain’s Arctic convoys, based in Iceland and at Loch Ewe in Scotland, continued their journeys until May 1945. A total of 78 convoys delivered more than four mil-
THE numbers
78 101 200 The number of convoys that made the gruelling journey to Russia.
Number of convoy ships lost between August 1941 and May 1945.
Number of Arctic convoy veterans alive today, from a total of 17,000.
Navy ship go down, because there would be so many on board,” says convoy veteran Jock Dempster, who managed to enlist in the Merchant Navy at the age of 16. Although he was young then, he says:“We appreciated the great dangers.”
lion tons of cargo, including 7,000 planes, 5,000 tanks and other vehicles, as well as medicine, fuel and raw materials. In all, 101 ships were sunk, and some 3,000 Merchant Navy and Royal Navy seamen were killed by explosions, fires and freezing water. The death toll among merchant ships was lower because their crews were far smaller. They were lightly armed and their guns were manned by the Royal Artillery. The RAF provided them with fighter pilots and planes that were catapulted from the decks, but with no way of returning. “We hated to see a Royal
Mutual gratitude
Mr Dempster, who is now chairman of the Russian Convoy Association (Scotland), enjoyed his contact with Russians. “One time in Murmansk we gave away everything we had – we ended up without a stitch. We weren’t asked to, we just wanted to help.”
There were no official ceremonies in England to mark the 70th anniversary of the first Arctic convoy, but in Scotland a dozen veterans celebrated the event with a service at the Loch Ewe memorial, organised by Mr Dempster and attended by Prince Michael of Kent and the Russian consul from Edinburgh. This was followed by a meal in the handsome Pool House Hotel at Poolewe, the former headquarters of the Loch Ewe naval base, where guest rooms are named after navy ships. In Aultbea, on the east side of the loch, a museum dedicated to the convoys is soon to be built by the village hall. Year by year the number of Arctic convoy veterans decreases, from a height of 17,000 to around 200 today. Like many of his comrades, Mr Alley couldn’t attend the Loch Ewe memorial. Long retired from his career as an emergency planning officer, for which he was appointed OBE, he is in good spirits, but is recovering from a hip operation, making long journeys difficult. Plus, his wife Peggy, who was a Wren when they met during the war, has Parkinson’s disease. Steeped in memories of his Arctic experiences, though, he is writing a book about them. Fewer Christmas cards are exchanged with the Russians he met, but he has warm memories of his visits, and maintains an interest in contemporary Russia. He can find information about the convoys on the internet, including videos of HMS Inglefield that have begun to appear on YouTube. “The children and grandchildren of many of the veterans have become interested in what we did, and they’ve kept the memories going,”he says.“It’s gratifying to think that the Arctic convoys will still be talked about in the years to come.”
Arctic convoys A sailor on a Russian icebreaker recalls how his vessel steamed ahead of the convoys, helping to keep the vital supply lines open
Clearing the way for cars, tanks, planes... and caviar russia now
Alexander Kurganov is showing a photograph of a group of elderly people dressed in naval jackets: “This is a captain – he sailed for a long time. He was a good fellow, now dead. This one sailed with different ships and could tell many stories. He’s dead, too.”Then, as if it had just occurred to him, he says with some dismay:“Of all of them, only five of us are still alive.” Now 83, Mr Kurganov lives in a flat in Murmansk, in the extreme north west of Russia within the Arctic Circle. He became an assistant engine driver for the Lenin steam icebreaker in 1944, aged 15. The vessel cut a path through the ice for transport convoys travelling on the hazardous route across the White Sea to Archangel. Weapons, ammunition and food supplies transported on the ships by Russia’s allies saved many lives and helped win the war. It was a chance meeting that led to Mr Kurganov’s recruitment. “There were seven of us kids, and we lived with our mother in a village near
Following orders
After some brief training at a school for young sailors in Archangel, Mr Kurganov was selected to work on the icebreaker. Soviet Russia had obtained the ship from England: the vessel was built in 1917 in Newcastle.“The military valued this icebreaker and tried not to put it at risk. It was only 7,000 tons, allowing it to sail in shallow water, which came in very handy when we were taking transport ships to Archangel. The steamer did a good job then,” the veteran recalls. If any of the crew fell overboard, the ship was not al-
Looking back
Several years ago, at a meeting of veterans, Mr Kurganov met a British man who had been on a warship that had sailed with the convoys. He was very happy to meet Mr Kurganov, saying: “Oh, I
‘The foreigners dressed better than us... they wore denim jackets and coffeecoloured trousers’
Trading cigarettes
Poignant memories: Alexander Kurganov joined the crew of the Lenin icebreaker in 1944
lowed to stop. He could only be picked up by the next vessel, and only if he was in its path. If not, the man was doomed to die. Mr Kurganov recalls a traumatic incident when the icebreaker led a transport steamer from the ice into open waters: “After three farewell horn blasts, we returned to the ice where German submarines could not reach us. Suddenly, just half an hour later, the transport ship sent an SOS signal – it
had been torpedoed by a submarine. There were people dying, but we couldn’t go and rescue them since we had orders to retreat into the ice as far as possible. Everyone on that ship died.”
Foreign friendships
The icebreaker accompanied warships as well as transport ships through the ice. The convoy operations were coordinated by a special team of American and British signallers, radio operators and
pilots – about 15 people in all, according to Mr Kurganov. “We worked, ate and went onshore together. And what’s interesting is that almost all of them spoke Russian. The radio operators were actually fluent, since they needed to be for their work. Of course, the foreigners dressed better than us. If we went out dancing or to a club, we were all in pea coats and simple flannel uniforms, while they wore denim jackets and coffee-coloured trou-
The transport ships led by the Lenin icebreaker carried planes, tanks, cars – such as American Dodges and Studebakers – tractors and locomotives. They also brought food, such as canned meat, and tobacco. “We even had caviar,”says Mr Kurganov. In Archangel, all the sailors received cigarettes with their rations:“We boys traded our cigarettes with the adult sailors for condensed milk.” He says the allies were generous with food, which was then transported inland by rail, saving many lives. “At that time, the British and the Americans were a great help,” the veteran adds. In return, the Soviet Union supplied their allies with timber, ores and apatites (phosphate minerals). Deliveries from the United States and Britain along the Arctic convoy routes continued even after the Second World War had ended, right up until 1946. Mr Kurganov’s icebreaker was in service until 1953, and he remained
remember your icebreaker, it cut the way for us.” Another anniversary meeting of convoy crews was organised this year in Archangel, also attended by British and Americans. But Mr Kurganov decided not to go.“My health isn’t so good now. Here, I have my doctors who know my illnesses and can always help,” he says. His health is also the reason he
has stayed in Murmansk, as his doctors recommend a cold climate for him. In his 83 years, this man has seen war, the heyday and collapse of the USSR, and the rise and fall of the navy – his life’s work. He has survived a stroke and a heart attack, but you wouldn’t know it from looking at him. He has a calm, clear mind and a good memory. At home, he wears a warm sweater: it is cold but there is no heating in summertime. Over coffee and sandwiches in his small kitchen, the pensioner says he is quite happy – he still has his wife, with whom he’s lived for several decades, and his two sons, as well as his grandchildren. There is something in the appearance of this retired sailor that evokes Moses, as he is usually depicted. “I have done my job, and now I would like to pass away without much suffering, quickly and painlessly,”he says calmly, as if speaking of something he cannot quite settle with God. He has, after all, taken care of everything else.
Archangel honours those who died
lori/legion media
vladimir ruvinsky
Rostov. One day, a naval officer from Archangel came to our village on a business trip. He suggested that I should become a sailor,”says the veteran. At that time, only children, the elderly and women were left in the village – all the men were at war. Those who stayed behind ploughed the land, harvested crops and dug anti-tank ditches – six metres deep and nine metres wide. Mr Kurganov was a tractor driver and very good at handling equipment, which attracted the officer’s attention. There was a shortage of crew for convoys, as professional sailors were at the front. Consequently, teenagers were often recruited to work on the ships.
vladimir ruvinskiy
Veteran Alexander Kurganov tells of the dangers of life at sea and remembers fondly the foreign allies he met as his ship led the convoys.
in the north of Russia sailing with icebreakers and various other ships until his retirement.
sers. They had money, too.” The Germans attacked the convoys from their bases in nearby occupied Norway, but the there were fewer raids by mid-1944. “Towards the end of the war, German pilots took fewer risks: they would drop their bombs 100200 metres away from us and then fly home,”Mr Kurganov recalls. He says that German planes were afraid to get close to civilian ships as even they had proper weapons on board: “We had three American-made anti-aircraft machine guns – two by the stern and one at the bow of the ship.”
Archangel: destination port
A monument to the victims of the Arctic convoys with the inscription “To those who did not return from the sea” is to be erected in Archangel, one of the convoys’ two main destinations. At the time of going to press, the winning entry in the design competion had not been announced; the result was scheduled to be revealed at the four-day 70th anniversary celebrations at the end of August.
History
RUSSIA NOW WWW.RBTH.RU
MOST READ Two decades after Russia’s spring: why pushing back the reactionary coup was the easy part http://rbth.ru/13273
SECTION SPONSORED BY ROSSIYSKAYA GAZETA, RUSSIA DISTRIBUTED WITH THE DAILY TELEGRAPH TUESDAY_AUGUST 30_2011
07
20th anniversary How the failed coup against Mikhail Gorbachev hastened the demise of the USSR and ushered in an era of dramatic change Slideshow at www.rbth.ru/13233
Power play: After standing firm against the plotters, Boris Yeltsin salutes the expectant crowd in Moscow
A time of fear and expectation REUTERS/VOSTOCK-PHOTO
Different generations of Russians express their feelings about the coup attempt that changed history, and its aftermath.
lived in Magadan in Russia’s Far North in 1991 and is now a stylist in Moscow. Twenty years ago this month, between August 19 and 21, Communist hardliners attempted to topple Mr GorANASTASIA GOROKHOVA AND VLADIMIR RUVINSKY bachev and thereby halt his RUSSIA NOW reform programme, which Like many Russian children was known as perestroika, in August 1991, Ilya Poliveev and his proposed reworkexperienced the drama of ing of the documents govthe failed coup against So- erning the Soviet Union. viet leader Mikhail Gor- But the attempted putsch bachev through his moth- failed, and Muscovites raler’s shocked expression, as lied around BorisYeltsin, the the family watched televi- president of the Russian Resion news and his parents public, who famously defied anxiously exchanged whis- the hardliners by standing on a tank outside the White pers. “I can still recall lots of im- House, the seat of the ages from the news: the Rus- Russian government. sian White House with black Mr Gorbachev was placed burn marks and the look on under house arrest in CriGorbachev’s face, which was mea, but returned to Mosthe same as my mother’s,” cow after Mr Yeltsin’s sucrecalls Mr Poliveev, 26, who cessful stand. However,
been achieved in the intervening years, and the current trajectory of their country. And that now colours their view of what happened in 1991, and whether the victory is worth celebrating. A mere 8pc of Russians look back on the events of August 1991, and the subsequent collapse of the Sovi-
Gorbachev was fatally weakened as a leader, and the dissolution of the Soviet Union began almost immediately.“The thing I most remember is fear,”says Svetlana Prudnikova, who was a teacher in her 40s at the time.“But it was also a very active and promising time. Everything felt very real and energetic.” Vera Grant remembers digging for potatoes at her grandparents’ dacha (second home) near Moscow, and the adults intently listening to the radio, even in the fields. “The tension was thick,”says Ms Grant, now a 26-yearold concert promoter. But two decades after the founding of a new state, one that began with great hopes for democracy and prosperity, Russians are deeply ambivalent about what has
Russians are deeply ambivalent about what has been achieved in the intervening years et Union, as a democratic revolution, according to the Levada Centre, an independent polling agency. Echoing the sentiment of Russian prime minister
Vladimir Putin, 36pc describe the fall of the Soviet Union as a tragedy, and 43pc dismiss what many see as a seminal moment in Russian history, the failure of the August coup, as nothing more than a power struggle among bureaucrats. “It was the illusion of freedom and the illusion of change,” says Philip Bochkov, now an art director. He recalls that his family crawled around their Moscow apartment during the coup because it was near the White House and his neighbourhood was alive with rumours that snipers were on the roofs and randomly targeting people. “Today, no one fights for anything, but rather everyone is just always against something,” says Mr Grant. But he adds:“It’s important that
THE POLLS
The 1991 crisis: what Russians think now Russians are divided along generational lines over the coup attempt, a recent poll by the Levada Centre shows. The over-50s tend to see it as tragedy that led to the collapse of the country and sent politics in the wrong direction, while younger people generally see it in a more positive light.
The coup attempt brought the nation to a standstill, and the world watched in disbelief as the rebellion was finally abandoned. ALEXANDER YEMELYANENKOV SPECIAL TO RUSSIA NOW
Like many others on that memorable morning, I was roused by a telephone call. “Turn on the radio,” a colleague gasped into the receiver.“There’s a coup!” I dashed over to the radio to hear the impassioned presenter say:“Guided by the crucial interests of the peoples of our motherland, all Soviet people are to introduce a state of emergency... a state committee (GKChP)... will be set up to govern the country.” The names of the committee members followed. When it came to the Soviet minister of defence, DmitryYazov, I recalled a conversation I had recently had with him.The minister was indignant when asked about rumours of a military coup being planned in the Soviet Union:“Why revolt against Gorbachev?” he exclaimed. “Our deputies can sack him if he is not up to the job. We need no coup; we can achieve everything by constitutional means.” The printing office Pravda Publishing House, where my
magazine, Sobesednik, was published, received the order to “suspend until further notice” printing of all newspapers and magazines except Pravda, and some other publications controlled by the government. Telephone calls and fragmentary messages arrived at the printing office showing growing confusion both among or-
Tank drivers on barricades began hugging protesters and mocking the rebellious generals dinary citizens and leaders at different levels.The most zealous hastened to swear allegiance to the GKChP, sending their telegrams of support; but most adopted a wait-andsee stance. Meanwhile, columns of tanks and trucks full of soldiers were rolling into the capital. Under their cover, the GKChP members gave a press conference for foreign and Soviet journalists. Vice-president GennadyYanayev announced that Mr Gorbachev was in poor health, but his nervousness and insincerity were clearly audible.
During the coup attempt, Yazov did not leave his office – with Gorbachev in isolation, he was the only one left in control of the Soviet nuclear arsenal. Like the rest of the country, the army was split, andYazov did his best to keep the armed forces from becoming directly involved in the standoff. At the same time, he knew that elite combat units, controlled by the KGB chief Vladimir Kryuchkov, had received orders to advance on Moscow.Those units stationed in Moscow had been placed on alert. During those three jittery days, no one could say for certain how events would unfold. ButYeltsin led the way when he and his supporters stood on the top of one of the tanks surrounding the White House to denounce the coup attempt. Tank drivers on barricades began hugging protesters and mocking the rebellious generals. And two KGB divisions advancing on Moscow were stopped and turned back.The GKChP realised it didn’t have the support it needed and the coup collapsed. In August 1991, Alexander Yemelyanenkov was deputy editor-in-chief of the Sobesednik weekly and a deputy of the Soviet parliament.
EYEDEA
Three turbulent days that shook the world
Fallen idol: Mikhail Gorbachev, with wife Raisa and granddaughter Ksenia, returns to Moscow, a broken man
things do not become like they were before.” Natalia Moshkina recalls a sense of jubilation in the crowds when her grandmother and mother took her to the White House for a rally after it was clear the coup had failed. “There was a sense of excitement, democracy, of social ferment,” said Ms Moshkina, now a 34-yearold advertising executive in Moscow. But looking back 20 years later, Ms Moshkina says that she remembers the time with a sense of despondency: “I have a feeling that the country missed a great opportunity. “As for me personally, I have become both more pragmatic and more cynical.” According to Boris Dubin, head of social and political studies at the Levada Centre,“most Russians now see the Nineties in a negative light, associating the decade with economic collapse, chaos, cultural degradation… while a minuscule number of the most socially active people talk about receiving basic freedoms.” He also notes that public hostility to the Nineties has been stoked by the Russian media, which has consistently described the decade as a period of unremitting chaos. “People became increasingly more disillusioned,” he says. “But democratic rhetoric has seeped into people’s pores.” The idea that democracy is a good thing has persisted as the principal legacy of the collapse of Communism. And Russians still hope that the promises of 20 years ago will be realised, even if they are unsure how, or even if, they can be achieved. Fo r I r i n a Po t a p ova , a 51-year-old masseuse who lives near Moscow, Russians still need to develop a civic awareness. Too often, she feels, public service is seen as a cash cow instead of a calling. “In politics,” she says, “corruption should be rooted out.”
COMMENT
It’s time to exorcise the ghosts of the totalitarian era Valery Vyzhutovich
SPECIAL TO RN
No matter how daring the hopes of that August in 1991, it was to be expected that life, in the words of the poet Joseph Brodsky, “would swing to the right after swinging to the left”. And so it happened that the pendulum of Russian history swung from exciting reforms to the post-reform hangover; from the destruction of an ideology to its partial restoration and modernisation. After August 1991, it seemed to some people in Russia (including those who were at the top levels of power) that if we had only taken an axe to the visible signs of the Soviet epoch – the hammer and sickle, flags with the red star and portraits of Lenin – then the country would have been transformed overnight. Even today, some people are inclined to think that the reason the country has returned to some Soviet-style methods of governing is only because, 20 years ago, the country failed to settle accounts with its totalitarian past. For example, those who worked in the Soviet security services or held leading positions in the Communist Party were not deprived of their rights and continued to work in government. Although there were talks at the time about enacting such a ban, it didn't come about. Had this happened, it would have split society. The country wasn’t ready to draw a decisive, unambiguous line under its totalitarian past and that is why even today the longing for order is still present in society. After the Nineties (or the Yeltsin era), the era of Putin, which began in 2000, brought about stability. The landmarks of this period are: the end of
the hopes and illusions of the first post-Soviet years; the crisis of ideology and persistent yet futile attempts to find a national identity; the strengthening of the state and its institutions by the creation of the so-called power vertical (which was about centralised control); and the increase in nationalism and its subsequent metamorphosis into xenophobia. Putin’s high approval ratings, combined with high oil prices, should have made it possible to start reforms. But social concerns, such as the pension system, housing and communal services, the army or administrative management, have not been addressed. How long will the current period last? The simplest answer is that it will end at the moment when the price of oil and gas falls dramatically. But it is too one-dimensional to believe that at this moment both the economic and social spheres will be free from the excessive attention of the government and everything will evolve. If oil and gas prices fall, it could trigger a severe economic crisis that would destroy everything that has been cultivated by state capitalism or sovereign democracy, and we may again face liberal reforms like those proposed by Yegor Gaidar and Anatoly Chubais. Reform of the country will still continue one way or another, but in response to new challenges and new political, economic and social needs. Will the movement towards real modernisation begin after the presidential elections in 2012? It must. Otherwise the stability achieved by sacrificing reforms will turn out to be an end in itself.
Valery Vyzhutovich is a political commentator for Rossiyskaya Gazeta.
Then and now: the winners and the losers While some yearn for a return to the times of fixed wages and cheap bread and vodka, a new study shows most Russians are better off now than 20 years ago. BEN ARIS
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In the months after the fall of the Soviet Union, Western goods long banned by the Communist Party began to flood into the country. Street vendors stocked their kiosks with soft lavatory paper, Levi’s jeans, good shoes and foreign-made cigarettes. But the irony was that most people could not afford them. “Many people yearn for a bygone era, the symbols of
which were vodka for 3.62 roubles (7p), sausages for 2.20 roubles (5p) and bread for 13 kopecks (less than 1p). Today, you cannot buy anything for a rouble. But has our existence worsened because of this?” asked Margarita Vodyanova in Obshchaya Gazeta. The minimum monthly salary in 1991 was 548 roubles – then worth, at business exchange rates, around $395 (then around £200), according to Yevgeny Gavrilenkov, chief economist at Troika Dialog. However, this was still enough to have a decent life, as the state provided housing, education, utilities, health, child care, holidays
and retirement homes. None of this was of particularly good quality, but it was universally available, and it was all free. Back in 1991, the minimum salary could buy
In terms of possessions, Russians have much more now than they did 20 years ago 74 loaves of bread or 6.2kg (14lb) of meat or 3.5 litres of vodka. A recent survey, conducted by the Higher School of Economics and the magazine Ek-
spert, on changes in Russian living standards between 1990 and 2009 found that income per head had increased by 45pc, while the volume of consumption per head had more than doubled, according to GDP-based consumption figures. If you measure quality of life in terms of possessions, Russians have much more now than they did 20 years ago. In 2008, you could buy 70 per cent more durable goods, 25pc more food, and two to three times more cigarettes, vodka, cars and clothing than in the Soviet era. At the same time, however, household spending on childcare and education has in-
creased substantially, along with spending on health care. The survey noted that the World Health Organisation found that Russian spending on private health care was now 40pc of total health-care spending – a level well above the EU average. The amount of living space that Russians have has also risen by about 40 per cent over the past two decades, to an average level of about 237 sq ft per person. But all these figures are averages. Another recent survey showed that one in five Russians today lives below the poverty line, and is worse off now than they were under the Communist regime.
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From bulldozer to auction block: a London gallery celebrates the radical art of the Soviet underground http://rbth.ru/13120
Royal history Exhibitions at Buckingham Palace and the V&A show close links between ruling families
The Tsar’s gifts: a London treasure hunt From Fabergé artwork to the St James’s Park pelicans, the Russian royals brought many remarkable gifts for their British counterparts.
which led to its subsequent demise. Now lined with council flats, Czar Street in Deptford, was so-named because of his visit. A statue of Peter the Great on the river bank to the east of Sayes Court Park serves as a grander memorial of his visit. Created by the sculptor Mikhail Chemiakin, the tsar stands on a platform flanked by cannons, between a throne and a laughing dwarf. Grand Duke Michael and his family moved into Kenwood House, on a beautiful slope of Hampstead Heath, in 1909. Despite the favourable location, he was unhappy because of his exile from Russia and his unsuccessful attempts to gain a British title for his morganatic (non-royal) wife. George V wrote to Nicholas II complaining about “that good fool Michael”, and told him regretfully: “I have not the power to grant a title in England to a foreign subject, and it is still more impossible in the case of a Russian Grand Duke.” Clarence House, official residence of the Prince of Wales, was once home to Prince Alfred in the late 19th century. His wife, Grand Duchess Maria, daughter of Alexander II, once had a Russian chapel built there. It no longer exists, but a similar chapel survives at 31 Welbeck Street (now home to upmarket offices). GeorgeV attended a memorial service there for Nicholas II in 1918. With its dome, paintings and
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Imperial style: above, the royal collection of Fabergé, currently on display at Buckingham Palace; right (from top), a copy of the silver-gilt leopard, bought by Tsar Mikhai from Charles I, at the V&A; statues above the door to Westminster Abbey include the Russian Grand Duchess Elizabeth (far right); Queen Victoria at Balmoral with Edward, Prince of Wales, right, Tsar Nicholas II of Russia, and Tsarina Alexandra holding her baby daughter, Grand Duchess Tatiana
Fabergé artwork became the perfect inter-dynastic gift for the monarch who had everything
Several of London’s finest houses served as refuges, party venues or hotels for royal Russian visitors
where you can explore royal Russian connections or admire imperial bling – which is just as well, since entry tickets, which cost nearly £20, are selling fast. TheV&A museum is an ideal budget alternative for a Russian royal treasure hunt.You can see the gleaming blue and gold plates of the Krem-
lin Service, silver vodka cups and heraldic snuff boxes. The jewellery collection, which includes Fabergé, is particularly elegant. It contains a ruby-studded bouquet from the Russian imperial collection, and Catherine the Great’s dress ornaments, with their intricate silver leaves covered with brilliant-cut
diamonds. These were sold off by the Bolsheviks after the 1917 Revolution. But exchanges went both ways: the V&A has a copy of a silvergilt leopard that Charles I sold to Tsar Mikhail in 1627 (the original is still in the Kremlin).
cholas II on top of the safe reinforces the store’s royal connections. There are imperial chairs, upholstered in yellow, and cases full of smoked crystal or jade, with price tags that would buy a small house.
Antique treasures
Several of London’s finest houses served as refuges, party venues or hotels for royal Russian visitors. A party for Nicholas I at Chiswick House in 1844 involved guests being ferried over the lake to admire four live giraffes brought in for the oc-
You can also admire antique Russian jewellery at the historic Wartski store near Berkeley Square. It is planning a special exhibition of Fabergé in May next year to celebrate the Queen’s Diamond Jubilee; a signed photo of Ni-
Royal residencies
The young British maestro with a Russian soul FACT FILE AGED FOUR Marius Stravinsky starts playing the violin. AGED SIX Joins the Moscow Central Music School.
JACOB GORDON
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AGED 10 Attends the Yehudi Menuhin School for musically gifted children in Surrey.
FROM PERSONAL ARCHIVES
“There’s something in here,” says Marius Stravinsky, pointing at his chest. “They talk about the russkaya dusha, Russian soul. It’s very strong.” British-educated Stravinsky, chief conductor of the Karelia Philharmonic Orchestra (KPO) at the remarkably early age of 32, is explaining why he feels Russia may now be his home. “When I came to Russia at the age of 23, I thought I’d be in Russia for about a year to get my technique. But I found I couldn’t leave, and I thought there must be a reason for that. I really love it, and I think of myself as Russian. I just can’t see myself going back to England in the near future.” Stravinsky, who is one of the youngest conductors ever to hold the KPO post, was not even 30 when he was appointed in 2007. A British cit-
AGED 13 Becomes the first former Soviet student to secure a scholarship in music at Eton. Begins his conducting training at the same age.
England’s glory: Stravinsky is a fan of Elgar and Britten
izen, he was born in Kazakhstan but his family moved to Moscow, and then to Britain when he was 10. Educated at Eton, and a graduate of the Royal Academy of Music, he studied conducting with Vladimir Ponkin in Moscow, and has worked with orchestras in Russia and Europe, including the Royal Philharmonic. As the cultural ambassador for the Petrozavodsk-based KPO, he has become something of a local celebrity, and
is known for his advocacy of British music, which is rare in Russian concert programmes. “When I first arrived in London, my music education in Moscow had already [given me] the idea that English music is not of high quality; I had been taught that Russians and Germans were the best,”says Stravinsky.“Then I actually listened to some Elgar, and fell in love with it. It’s great music, but they really don’t know it here in Russia. I can’t believe I
brought the Elgar Enigma Variations [to Karelia], because it’s so well known. The same was true of works by Walton, Vaughan Williams, and Britten.” Stravinsky’s pride in his orchestra is obvious. “The Karelia Philharmonic is one of the best regional orchestras in Russia,”he says.“We’re also one of the poorest, since we don’t get any support from big business. But the musicians are so good they keep things moving along.
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The musicians make the majority of the effort. The conductor is there just to show the way. I think conductors these days have a lot less responsibility in terms of how the orchestra actually sounds. Over the past 50 years, orchestras around the world have improved so much. Now I think it’s important to have an artistic vision more than anything else. Musicians respond better when they’re guided lightly.” Having conducted orchestras all over the world, these days Stravinsky prefers to work in Russia because he feels there is a sense there that anything is possible. “In Russia, you really can do anything you want if you set your mind to it, which is really important to me. I can programme the British composer Thomas Adès, Bartók, Stravinsky, or Mahler. Of course, career-wise, you must never take your eyes off the ball in terms of trying to work with the best musicians available, who are actually based in the West. So it’s always a balance.” When asked how he has managed to come so far so fast in a profession which is traditionally associated with older musicians, he states that he still has much to learn:“There’s no such thing as a young conductor. I’m not as good as anyone who’s 40 or older.”
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A martyr immortalised
Above the door to Westminster Abbey is a row of statues commemorating modernday martyrs who died in circumstances of oppression and persecution. One is of Grand Duchess Elizabeth. A granddaughter of QueenVictoria, she founded a religious house in Moscow after her husband was assassinated in 1905. Ms Dimond says it contained “nuns from all walks of life, who cared for the poor and the sick”. In 1918, Elizabeth was murdered by being thrown down a mine shaft. (The White Army later found her body and buried her in Jerusalem.) The connections between the two royal dynasties means that the Duke of Edinburgh walks beneath a statue of his great-aunt whenever he visits the abbey.
Pelicans: first migrants from Russia Next time you take a stroll in St James’s Park, take a look at the fish-guzzling pelicans. They are the descendants of the 17th-century pelicans brought to London as a gift to Charles II from Tsar Alexei (Peter the Great’s father). Read more about Russia-related places in London at www.rbth.ru/13172
BIBLIOPHILE
Music Conductor introduces his beloved English composers to Karelia
Born in Kazakhstan, but trained at elite institutions in England, Marius Stravinsky is a cultural ambassador with a unique musical vision.
casion. One of the giraffes was said to have waded over towards the party to join them. The future Alexander III also stayed there with his family when on a summer trip in 1873. Peter the Great stayed in London in 1698. The young tsar, drawn to the Netherlands and England by his passion for shipbuilding, moved to Sayes Court in Deptford, where he rented the mansion that belonged to the diarist John Evelyn. In the manner of modern-day, rock stars, Peter and his entourage trashed the house,
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You no longer need to travel to Russia to taste its history. This year, visitors to Buckingham Palace are being treated to displays of both British and Russian royalty. Not only can you see Kate Middleton’s wedding dress eerily suspended in the ballroom, but the royal collection of Fabergé is also on show until October. The collection by the great Russian goldsmith Peter Carl Fabergé contains some intriguing objects. Queen Victoria’s silver-gilt notebook, a present from Tsar Nicholas II, is signed by all the European kings and queens who came to Buckingham Palace for the Diamond Jubilee in 1897. From then on, British royals (especially Queen Alexandra) amassed a fine collection of miniature tea sets, clockwork elephants, platinum-whiskered mice, quartz pelicans and diamond-studded eggs. There are also highly decorated examples of the kovsh, a traditional Russian drinking vessel, including one with an enamelled copy of a painting of Cossacks by Ilya Repin. Fabergé artwork became the perfect inter-dynastic gift for the monarch who had everything, and the gifts highlight the close ties between the Windsors and the Romanovs. The exhibition also contains some delightful photographs illustrating these ties, including an 1896 glimpse of Queen Victoria and the future Edward VII with Tsar Nicholas II and the Russian Imperial family at Balmoral. Nicholas II was a cousin of King George V as his mother was the sister of Queen Alexandra. Buckingham Palace is only one of many London venues
Cyrillic inscription, it now makes a beautifully incongruous setting for business meetings and conferences. According to Frances Dimond, former curator of the Royal Photograph Collection, these visits from Russian royals exemplify“the links that have been there for centuries between Britain and Russia, going on quietly even when officially the governments were at war”. She adds:“I like the idea that London was a meeting place for these people… it is fascinating to imagine them here, moving about among familiar places.”
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Street-smart view of urban alienation TITLE:
ROOFTOP ANESTHESIA AUTHOR: PAVEL KOSTIN PUBLISHER: GLAS
Y
oung Russian novelists are now offering a contemporary dimension to the country’s celebrated literary tradition. Unburdened by the Soviet baggage of their forbears, but uncertain about Russia’s future, younger writers are looking honestly at their surroundings. In his short novel Rooftop Anesthesia, which is now translated into English, Pavel Kostin does just this. Set in a decaying urban landscape of skyscrapers and street lamps, it follows the introspective Peter in his attempts to escape the pressures of modern life by scaling the tallest buildings in his home town by
night. He soon finds his hobby, which he calls “urban extreme”, turns into a cult, but then it is turned into a commercial enterprise. Peter talks passionately about his concept of “blithe fury” which involves him battling through rainy streets and pushing back the wind. But by the time the internet-savvy Nemo – aka Alex – and the businessminded Sergei have commercialised his hobby, there is no longer any space for the passion that drove Peter out into the stormy nights. To produce a marketable video, they must wait for a sunny day. The narrator uses the summer heat of a provincial Russian city as a metaphor for the conformism of the “urbanites” around him; to be “normal” is “to smile in the orange air of July”.This rejection of social conventions appeals particularly to
the booming young-adult market. One enthusiastic teenage reader described the novel as “imaginative, gripping, original and lyrical”. For older readers, there is an intriguing freshness in the raw innocence of a writer still finding his voice. The book is vaguely reminiscent ofVenedikt Erofeev’s iconic prose poem, Moscow Petushki, the rambling 1969 monologue of an alcoholic intellectual on a train. The playful, postmodern style of Rooftop Anesthesia switches from philosophical rhetoric to the science of alcohol decomposition in the liver. Both works share the same underlying message that, ultimately, the only sane reaction to living in an insane world is to attempt to escape. The English translation of Rooftop Anesthesia is published together with Andrei Kuzechkin’s Mendeleev Rock – another serving of youth alienation and group dynamics in the city, with side orders of violence, incest and rock’n’roll. Andrew Bromfield, who is well known for translating Boris Akunin’s successful historical whodunnits, has provided serviceable renditions of both authors’ use of street slang and of their streams of consciousness. Phoebe Taplin
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