Nikolai Petrov’s weekly bulletin
March 13-17, 2023
  • Nikolai Petrov

    Independent scholar
A short summary of the most important political developments by Nikolai Petrov.
Show for an audience of one and administrative mess

Putin’s long-awaited speech at the annual congress of the Russian Union of Industrialists and Entrepreneurs (RSPP) on March 16 gave the impression of harmonious relations between government and business. The discussion was calm and civil. It would have been impossible to guess that the country was in the midst of a bloody war in Ukraine that is dragging into its second year, had you not known. Still, compared to before the war, significant changes have taken place.

Big business: Independence is over

The RSPP congress was held at the House of Music – “this is such good music,” Putin noted in his speech. As has become customary since the beginning of the pandemic, he sat 30 meters from the public. In addition, there were two platforms on the stage: one for Putin and RSPP head Alexander Shokhin, who, as is standard, had quarantined before, while the other platform for other speakers was 20 meters away.

From time to time the camera showed the gloomy faces of the biggest Russian businessmen: German Khan, Viktor Vekselberg, Vladimir Potanin, Alexei Mordashov, Teimuraz Bolloev, Oleg Deripaska. There were far fewer familiar faces than usual at RSPP congresses. Sanctioned oligarchs (the attendees of last year’s meeting, held on the day the war began on February 24, were all sanctioned) prefer not to stand out, while some have even announced that they are not in business anymore and want “as little publicity as possible.”

Shokhin tried to explain the absence of many of the largest Russian businessmen differently: “We decided to show that the RSPP is not only the biggest Russian companies, but also medium and small ones. Our slogan is: ‘We unite business in the interests of Russia.’ We are ready to bring together all of business.”

Big business is fading more and more into the shadows. The RSPP was once considered “the oligarch trade union,” but now 15 people, among the richest businessmen in the country, have left its board, including such figures as Alisher Usmanov (USM), Leonid Fedun (Lukoil), Dmitri Konov (Sibur) and Araz Agalarov (Crocus Group). Now, the front men of the RSPP are either bureaucrats, like Shokhin and the heads of RSPP regional branches who asked Putin questions at the congress, or top managers (but not the owners of companies), who are also trying to escape the limelight because of sanctions.

Before Putin, government leaders spoke, including Deputy Prime Minister Denis Manturov, Minister of Education Sergei Kravtsov, Minister of Economic Development Maxim Reshetnikov, Minister of Finance Anton Siluanov and Minister of Construction Irek Fayzullin. Prime Minister Mikhail Mishustin was not among them – in reality, it is Putin’s government, his men, not Mishustin’s.

Siluanov spoke about the upcoming windfall tax on Russian business for 2021-22, over which the government butted heads with the RSPP for more than a month. It will affect only companies whose pre-tax earnings in 2021-22 amounted to RUB 1 billion or more. The tax rate on windfall earnings in 2021-22 will be approximately 5%, with the total amount that the government expects to recover set at RUB 300 billion.

The dispute between business and the Ministry of Finance was not so much about the size of the tax, which will not at all break the bank for big companies, but about its status – whether it was a “voluntary contribution” (which would mean business sharing responsibility with the state for the current political line and thus the war in Ukraine) or a tax. Business had sought to reduce its culpability and call it a “tax,” while the government, on the contrary, had wanted to “smear” business more and make them accomplices, though in the end they nevertheless agreed to call it a “tax.”

Putin admonished like a father: “A responsible Russian entrepreneur is a true citizen of Russia who understands its interests and acts in its interests, does not hide assets in offshore accounts, but registers companies here, in our country, and does not become dependent on foreign authorities.” He did not repeat his usual mantra about reducing pressure on business by the siloviki – he had done that the day before at the meeting of the Prosecutor General’s Office Board.

Business, and especially big business, even with all its dependence on the state, had nevertheless remained, perhaps, the last somewhat independent player, disagreeing with the regime in some ways and demanding something from it. The latest RSPP congress clearly showed that the residual independence of business is over. No one asked a single uncomfortable question. The businesspeople applauded Putin devotedly when he gloatingly reminded them that opportunities for them in the West were now closed off: “You know, I often – I have known many people in the audience for many years now, and I often heard them say, ‘It is safer there.’ How about now?”

Putin spoke to the businesspeople in a patronizing tone. He praised those who stayed for their contribution to making Russia “stronger, more successful, more competitive” and assured them (and himself) that Western sanctions, if they are hurting Russia at all, are insignificant and, most importantly, are opening up new opportunities for development. He claimed that despite the difficulties, everything is not so bad with the economy and will get better while persistently insisting that business should take on large-scale social obligations.

And in that insistence, as well as the overdone submissiveness of the richest people in the country, it was visible how the situation had changed in the past year.

Administrative mess

Unlike the RSPP congress, last week’s meeting on developing Far East cities was not without friction. From the capital of Buryatia, Ulan-Ude, Putin hosted the remote meeting, which was attended by high-ranking federal officials, heads of several state-owned companies, and several governors and mayors.

Why Ulan-Ude? For one, Buryatia was included in the Far East Federal District in 2018, while Ulan-Ude is one of the five cities the master plan for which was prepared and discussed at the meeting. In addition, Putin has been visiting defense complex enterprises in recent weeks, and Ulan-Ude Aviation Plant was one of them.

Like the North Caucasus, the Far East is a long-standing Putin schtick, and he has always devoted much public attention to its development. The policy of pivoting to the East, markedly accelerated by Western sanctions, has only reinforced that trend.

The meeting was on the development projects for Chita, the Yuzhno-Sakhalinsk and Ulan-Ude agglomerations, Tynda and Severobaikalsk under the program to develop Far East cities announced at the Eastern Economic Forum in 2021. Everything was going smoothly until the very end, when Deputy Prime Minister and Minister of Industry Denis Manturov suddenly recalled that Chita Northwest Airbase, where Defense Minister Sergei Shoigu gave the green light for construction work, is used not only by the Ministry of Defense, but also by the FSB and Rosgvardiya, while most importantly, an aviation repair plant is based there that fulfills important military orders. The fact that even the interests of different parts of the government were not taken into account in the plans, which entail massive government expenditures and had already been submitted to the president, is evidence of an administrative mess at the highest levels of government.

More evidence of haste and lack of coordination was Siluanov’s concluding comments that the governors’ proposals on developing regional cities, the price tag for which Siluanov roughly put at RUB 400 billion, had not been agreed with the Ministry of Finance. In response, Putin instructed that the proposals be finalized and coordinated by September 1, 2023.

Of particular note was the speech of Vladimir Litvinenko, the rector of St Petersburg Mining University, under whom Putin defended his dissertation in 1997 and with whom Putin has maintained a close relationship ever since. While the meeting focused on urban development, Litvinenko recalled that Russia is a country of natural resources, which are its main competitive advantage. Thus, in Litvinenko’s view, though the development of Far East cities is necessary, the main thing is to provide for mining as the region’s economic base. A shortage of engineers (mining enterprises, according to Litvinenko, have just 20% of the engineers they need) must be addressed, growth of reserves ensured and effective state control over the use of mineral resources tightened. To do all that, he proposed expanding the power of governors and providing them with a “second key” in terms of regulating natural resource extraction.

The meeting, supposed to demonstrate the progress made on long-term development plans, showed that these plans are Potemkin villages, crumbling before our eyes. Each individual link of the administrative apparatus salutes and claims to have fulfilled the instructions it got from above, but the links themselves are not connected with one another, and efforts to make them work together to produce something only highlight the fatal lack of coordination.
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