Oil and gas in the capitals

	Vol. 229 No. 7
JACQUES SAPIR, CONTRIBUTING EDITOR, FSU

Putin and Medvedev: Trading places, dividing power?

Not surprisingly, the Russian electoral cycle ended as planned. Dmitry Medvedev, a man who had been working with Vladimir Putin since 1994, was elected president with a large majority, and Putin was soon appointed as the new prime minister. This move gave birth to two completely different interpretations among outsiders. Some people are eager to point to the new power given to a “liberal” Medvedev, and expect Russia to turn toward a more Westerly course. Others, pointing to a major shift of power from the presidential administration to the new prime minister’s office, describe changes in the Russian power structure as purely cosmetic.

Duality of power is never simple to manage. However, it requires a lot of wishful thinking to describe Medvedev as a “liberal” compared with Putin. As the second man in power at Gazprom, Medvedev was instrumental in the big fight to put the company solidly back into government hands. In 2004, Medvedev was also largely involved in dismantling Yukos when the company’s owner, Mikhail Khodorkovsky, became the target of Putin’s wrath.

By the way, to call Putin a pure “statist” would be to deeply misunderstand the man. Putin time and again has called the Soviet system a thing of the past. He has repeatedly advocated a strong basis of efficiently managed private enterprises to transform Russia into a modern and competitive global power. At the same time, he acknowledged that private entrepreneurs are frequently unable to give economic and industrial development the impulse they need. Putin described deep involvement of the Russian state in the economy as a necessary second-best approach. On this point there is no reason to think that Medvedev harbors different feelings.

That is not to say that Medvedev is Putin’s clone. The age difference of slightly over ten years between them is culturally significant. Putin entered the KGB when the Soviet Union was still a superpower. His early adult life was lived under Soviet rule. Medvedev left Leningrad State University as the Soviet Union was already crumbling. His formative period was during Boris Yeltsin’s momentous and chaotic years. It is also significant that Medvedev is a lawyer by training.

It is not surprising, then, that the two could have different views on the Russian reality, even if they most probably share the same aim to return Russia to its place as a major global power in the shortest possible timeframe.

Also important is the restructuring of the government since Putin moved out of the Kremlin. Under Yeltsin, the presidential administration grew quickly, to the point of becoming the real center of power. Even more than the 1993 Constitution, it is the respective size of presidential and prime minister’s administrations that best suggests where the actual power is. Putin did not change this trend, at least until 2007. When Viktor Zubkov was appointed prime minister, he was allowed to expand his administration. This trend was considerably strengthened this May, after Putin’s appointment as prime minister.

Putin has created a “government inside the government,” composed of himself, two “first deputies,” three “deputies” and nine “members”-eight of whom are ministers of various departments (Finance, Health and Social Development, Economic Development, Agriculture, Foreign Affairs, Interior, Defense and Regional Development) along with a chief of the government staff (Sergei Sobyanin, previous head of the presidential administration). This 15-person “presidium” will stand above the other 10 ministers that, with them, make up the full cabinet. The presidium is to meet every week, while the full cabinet meets only monthly. The strengthening of the prime minister’s staff clearly alters the previous balance of power between the president and the prime minister.

The presidium’s first deputy/deputy core is manned by Putin’s loyal servants, four of whom can be described as committed to a quite interventionist economic policy. One of the new deputy prime ministers, Sergei Ivanov, recently told the Russian media that investment in infrastructure is to grow to 4.0% of GDP from 2.5%, acknowledging the sore situation of Russia’s infrastructure. This statement indicates that the current interventionist line will not soon be reversed. The emphasis President Medvedev has placed on improving Russian energy efficiency-another very sore point, and an area where major short-term progress could be made to increase the country’s energy export potential-points in the same direction. In fact, summing up investment funded directly from the state’s budget, investments made by state-owned enterprises (either directly or through loans to other enterprises) and the contribution of state-owned banks to the investment process, the state share in total investment is probably between 40% and 45%. Steps taken since the government reorganization indicate that this share will not decrease in the near future.

To be sustainable, such a policy will require both strong state control of the energy rent and serious developments in prospecting and exploitation. Tax policies announced for 2009-2011 include strong incentives for companies to increase their efforts in both activities. Oil duties will also be lowered. The current row about the TNK-BP leadership, whatever the Russian government says, is another clear signal that the state is increasing its control on the oil sector.

Putin’s very first moves in his new position are clearly in line with his previous policy. At the same time, nothing he’s done runs contrary to Medvedev’s known priorities.

It is still uncertain if the new president will pardon former oligarch Mikhail Khodorkovsky, whose arrest for fraud and tax evasion in 2003 was widely seen as representing Putin’s tough approach toward business leaders. In prison, Khodorkovsky has become a martyr to some who oppose the government’s interventionism. A pardon would not have much impact, first because Khodorkovsky’s company, Yukos, has been thoroughly dismantled, and second, because he faces new charges brought by the prosecutor-general’s office.

Whatever Medvedev’s decision, commentators should be careful not to jump to political conclusions about strife between Putin and the new president.