“A modern transport infrastructure is the real road to Russia’s future,” said then-President Putin to a gathering of highway construction workers in the city of Krasnoyarsk in late 2007. And yet, not a single highway or expressway and only a smattering of smaller roads have been built in Russia over the past two decades. By comparison, China has laid more than 40,000 thousand miles of high-volume roadways over the same amount of time. “Naturally,” said Latynina, “this raises the question: Has anything been built in Russia with this money? And if yes, then what?”

It turns out that something was.

“For example, the presidential residence in the city of Yekaterinburg, which cost 1.2 billion rubles [about $40 million] to construct, and which President Medvedev has stayed in once,” said the journalist. A similar example was Konstantinovsky Palace in St. Petersburg, a crumbling historic landmark that Putin ordered be renovated in 2001 for use as a presidential residence. The official cost of renovation: $250 million.

There were more. One new presidential residence was constructed just two years ago. Another called Lunnaya Polyana is now in the works, blocked off from public view. An Olympic residence in Sochi is also planned for construction. All in all, said Latynina, Russia has built thirteen official residences for its president. Compare this, she proposed, to the number of official presidential residences in America: there are but two. And neither the White House nor Camp David is anything to rival the grandeur of Konstantinovsky Palace. “My point is that if you consider the number of residences, then Russia is a superpower and the United States just gets these two little things,” the journalist said.

On the topic of superpowers, Latynina questioned Putin’s declaration that Russia is a superpower in the raw materials market. “It’s very interesting to compare Russia with the production of natural gas in the United States,” she said, and followed to rattle off a list of figures: In 2008, Russia extracted 640 billion cubic meters of gas, 550 billion of which were from the state-owned company Gazprom – the latter figure being the more telling, as that’s what gets sold abroad. American production of gas totaled 582 billion cubic meters during the same year – less than Russia, but more than Gazprom. Then there’s the revenue: American gas sales totaled $185 billion in 2008, while Russian sales to Europe, its primary source of export, totaled only $47 billion. In addition, Russian production fell in 2009 to 575 billion cubic meters of gas, with 460 from Gazprom. America’s grew to 620 billion. “So why is Russia called a raw materials superpower?”

Russia, Latynina explained, has virtually no chemical industry. The United States, on the other hand, has the world’s most highly developed chemical industry. Thanks to its more energy-efficient facilities, she explained, the States are able to sell gas at a much higher price than Russia with its long, cold, ineffective pipelines. Meanwhile, instead of building more effective facilities, Gazprom built an exact replica of Konstantinovsky Palace for its CEO, Aleksei Miller. “I invite you to think about the philosophy of the matter,” said Latynina. “Bill Gates could not allow himself to build a Konstantinovsky Palace, because it’s a different philosophy of life… But Aleksei Miller could.”

Frivolous spending on the part of the Russian elite brought about the question of why the Russian government tells its citizens that “the West doesn’t love us.” If that were true, asks Latynina, then why would Deputy Prime Minister Igor Sechin, Putin’s right-hand man, keep his plane in Helsinki and buy three different villas in Sardinia? Why are oligarch Roman Abromovich’s yachts registered in the West, including the $50 million one he gifted to Vladimir Putin? Why do all of the people who tell Russia’s citizens that the West doesn’t love them send their children to study in England? “Why don’t they keep their money in the banks of Iraq, North Korea, Venezuela, or the other wonderful countries that are friendly to Russia and love us a great deal?” asked Latynina.

In some cases, they do. On October 17, 2009, Prime Minister Putin announced the government’s decision to make a $500 million purchase of microprocessors with 90 nanometer process technology from the primarily government-supported French-Italian firm STMicroelectronics. Two weeks before this happened, Intel had announced that they were going to begin producing microprocessors with 32 nanometer technology. What was the point of buying something so expensive that was already out of date? According to Latynina, it was simply a way of transferring money abroad.

“In fact, for me it turns out to be a very sad story,” she went on. “It’s the story of the technical degradation of the foundation that we had from the Soviet Union.” While the STMicroelectronics purchase was sure to hinder the pace and efficiency of Russian industry and development, other instances of such degradation represented more direct threats to the safety of ordinary Russians. Poor construction and shoddy upkeep lead to the deaths of 75 people on August 17, 2009, when an old turbine in the Sayano-Shushenskaya hydroelectric dam spun out of control, breaking open the ceiling and flooding the facility. On the night of December 4, 2009, more than 150 people died in the Lame Horse club in the city of Perm when, having violated “every single possible fire safety regulation,” it shot up in flames. But most of the dead bodies dragged out of the club, Latynina pointed out, had no burn marks: the victims died almost instantly from smoke inhalation and carbon monoxide poisoning that resulted from burning foam polystyrene insulation. A commission set up to investigate the fire released its findings on March 9, concluding that the club’s own management was to blame. “But the scariest part is that it said in this report, verbatim, that ‘we cannot establish how harmful the foam polystyrene insulation was, how chemically harmful it was for people, for the reason that there was a lack of men on whom we would have liked to conduct experiments.'”

Really? “After the fire in the Lame Horse,” Latynina went on, “the government made quite a big fuss, especially President Medvedev. He loves to stomp his feet, crying ‘I’m going to deal with it,’ he always yells in future tense. ‘We must put an end to terrorism; we must put an end to corruption.’ I still haven’t heard that we’ve put an end to it, so it’s always in future tense.” It was clear, Latynina said, that the government wanted the situation to go away, and suppliers of construction materials had paid off the commission to keep silent about the foam. “So it turns out that they don’t have any men,” she said. “The president stomps his feet.”

Thus, in a nutshell, was Latynina’s dour prognosis of Russia’s current state of affairs.

During the questions that followed, Latynina was asked who would make a worthy Russian president. Her response: “Khodorkovsky,” the former oil tycoon currently sitting in prison. And what is to become of him? “He’ll sit in prison as long as Putin is in power.”

Latynina played down the audience’s fears that her safety was at stake for criticizing the Russian government. Arguing that Russia lacks internet censorship (as opposed to China) and allows Ekho Moskvy radio to broadcast whatever it wants, Latynina linked fears that free speech was being suppressed to the legacy left over from Soviet times. Back then, she said, people were arrested or murdered for speaking out against the government. “The maximum now is that they turn off the broadcast.” When numerous members of the audience objected that Russia figures as the third most lethal country in the world for journalists, Latynina countered that Russia was a lethal country for everyone. “It’s more dangerous to be a citizen of Russia than to be a journalist,” she said. “If you drive down Leninsky Prospekt and meet Lukoil Vice President Barkov, he’s not going to ask if you’re a journalist or not.”

That said, Latynina was skeptical of the effectiveness of initiatives by the Russian opposition, including a petition calling for Putin to resign that has so far gathered more than 18,000 signatures.

Asked for her opinion on Moscow’s plan to put up posters of Josef Stalin for Victory Day celebrations in May, Latynina replied: “Every person who wants to has a right to march for Stalin, because unlike Hitler, Stalin was never sentenced for having committed any crime – there are no laws saying that he was a criminal. But when it’s state-sponsored… You know, when dealing with these situations, I always think: What would Stalin do with Putin? He would put him up against the wall!”

It became apparent during the question and answer session that Latynina’s cynicism had frightened at least some members of her audience into considering the prospect that democracy in Russia was simply not possible, leaving Putin’s regime as the only viable choice. She was quick to dispel this notion, and delivered a more hopeful version of events then one might otherwise have come to expect. “First of all, I maintain that democracy in Russia is of course possible,” the journalist said in response. “But, you know, democracy is like a refrigerator. You can’t say that a certain refrigerator doesn’t work in Russia; it’s just that in Russia the electricity flows different. No – the refrigerator works in Russia if it has the particular electrical wiring for the place where you want it to work. If it doesn’t have the wiring, then it isn’t going to work.”

Unfortunately, Russia’s redevelopment is hindered by an inept state and unfathomable levels of corruption.  Even as the government raked in record windfalls from energy sales in recent years, roads were left to rot, and infrastructure projects were not initiated.  Russia is falling behind, Inozemtsev argues, and for the moment, the path to modernization looks bleak unless a drastic change is made.

Read more about Russia’s crumbling roads from the LA Times.
—

Modernization.ru: Billions in Asphalt

Vladislav Inozemtsev
07.14.2009
Vedomosti

In order to modernize the economy, a series of conditions are necessary, and one of the most important is the condition of infrastructure.  Accelerated development is unthinkable without a network of roads, accessibility of power and communications, and the ease of mobility for workers.

All countries that have successfully modernized ran into this limiter of economic growth in the early stages, and decisively took to amending the situation.  One can confidently say: only those who managed to jump this barrier succeeded in modernizing.  Those who threw in their hands were left in the past.  Russia, sadly, had nothing to brag about here.  From 1995 to 2008, the length of the auto and rail network hardly expanded (comprising 750,000 and 755,000, and 87,000 and 86,000 kilometers [respectively]; Russia by numbers.  Official publication.  Federal State Statistical Service, 2009, chart 18.9).  From 1989 to 2008, the volume of overseas transport fell by 4.8 percent, and the number of airline passengers- by 2.1 times;  housing stock put into operation fell by 34%, and connecting to the power grid became a nationwide problem.  Leading countries, on the other hand, behaved in a completely different manner.  Its customary now to compare Russia with the other BRIC [Brazil Russia India China] countries – and the comparison here is staggering.  In Brazil, the length of the road network grew by 65% from 1988 to 2005; the volume of overseas transport by 90%; and the number of airline passengers more than doubled.  It’s better not to recall China: in only the last five years, 3.1 billion square meters of housing were built, 480,000 km of automotive and 19,000 km of rail routes; 16 large new airports have been put into operation, the first high-speed trains have been launched, six Chinese ports entered the list of the top 12 sea gateways of the world (moreover, the least busy of them handles more cargo than all of Russia’s ports combined), and connecting to the electrical grid now takes 19 days.

Russia is losing in this competition as result of the incompetence and corruption of the government, which does not set complex development goals as a priority.  The less authorities interfere with infrastructure development –the better the end result.  In 2000, the revenue from providing mobile telephone services was three times lower than services for stationary local and long-distance telephone communications.  In 2008, it was four times greater.  Yet there is no competition in road construction, and there are no results: in 2008, just 2300 km of motor ways were built (in China, this much is built in 10 days!), and the Avtodor state corporation (which was recently granted fiduciary management over 18,000 km of roads) will sooner work to change them into paid toll roads than build new ones.

What is the reason for the failure of Russia’s infrastructure modernization?  In our opinion, it’s clear: unlike the Chinese, Korean of Brazilian, the Russian government is incapable of lodging firm demands on its contractors and optimally organize production.  Today, 1 kilometer of four-lane highway costs $2.9 million in China, $3.6 mln in Brazil, and in Russia – $12.9 mln (for the section of highway from Moscow-St. Petersburg, the figure from the 15th to the 58th kilometer amounts to $134 mln for 1 km; for the Western High-Speed Diameter in St. Petersburg – $142 million for 1km, for Moscow’s Fourth Transport Ring – around $400 mln for 1 km).  The cost of building warehouses and commercial real estate in Russia is higher than in France or Germany, and exceeds the Brazilian figures by 2.4 times, and the Chinese by 3.2 times.  With that said, 1 square meter of area in a residential home expends .9 cubic meters of concrete and 90 kilograms of reinforcing metal, although in developed countries this is 2 times less (in turn, the equivalent of 210 kilograms of fuel oil is spent to produce 1 ton of cement, which is used to make concrete.  In the European Union- 125 kg).  In Germany, 65% of highways are built by laying precast concrete pads, in PRC [China] – 38%, in Russia – 0%.  After all, these coverings do not require repair for 20 years or more, and we spend 5.5 times more funds on repairing existing roads than laying new ones.

The Russian government overpays builders by tens of billions of dollars and throws away capital in even larger sums, simply because those who associate themselves with the government are not “statists,” but “feeders.”  It would not be an exaggeration to say that Russian infrastructure projects in recent years have become the site of the most widespread, non-transparent redistribution of wealth in the world (in 2006-2008 around $230 billion was expended without any visible material result).  Unsurprisingly, this market is completely closed to foreign companies, and the cost of work is growing each year by 25-40%.

Modernization presupposes a rigid system of rule- a true vertical, that can impose terms.  It succeeds where such a system has been built, and falters where bureaucrats act like businessmen.  And since the latter is visible in Russia much more distinctly, then as long as the situation does not change, one can’t expect a more modern infrastructure or modernization as a whole in the country.

The author is the director of the Center for Research of Post-Industrial Studies;   publisher and editor-in-chief of the Svobodnaya Mysl (Free Thought) magazine.

translation by theotherrussia.org

For every perceived Putin victory, analysts point out serious failures and new problems that have emerged, including rising levels of inflation and widespread corruption. Furthermore, critics question the significance of Putin’s economic plan, and suggest that factors beyond the president’s control, like sky-high oil prices and reforms under Boris Yeltsin, contributed more to the economy.

As the Economist magazine explained in a recent article, GDP growth began before Putin even took office, reaching 6% in 1999 and 10% in 2000. Since then, it has leveled around 7% –an impressive result when compared to Western industrialized nations, but just average when compared with other former communist countries in Eastern-Europe. And unfortunately, much of Russia’s expansion is associated with little more than sky-rocketing energy and natural resource prices.

The Institute of Economic Analysis shows that the share of oil and gas in Russia’s GDP rose from 12.7% in 1999 to 31.6% in 2007. Natural resources constitute 80% of the country’s exports. Russia is now heavily dependent on world commodity prices, and has failed to use cash flows to diversify and improve other domestic industries. Foreign Direct Investment in sectors other than energy actually fell (from 1.6 to 0.65%) since Putin took office. Russian infrastructure, such as roads, remains disastrous and outdated, and unnecessarily raises the costs of doing business. State take-overs of privatized companies also dealt a blow to efficiency. Since Mikhail Khodorkovsky’s Yukos was dismantled early in Putin’s reign, growth in oil output fell drastically from a rate of 9% to 1% by 2007.

According to RIA Novosti, a further issue has been a widening gap between Russia’s rich and poor, which has skewed wage and income statistics. In 2007, the incomes of the top 10% were 17 times higher than the incomes of the bottom 10%, up from 14 times in 2000. Aside from a small class of the very wealthy, most Russians have felt their incomes rise quite gradually. Moscow, by some estimates the world’s most expensive city, overtook New York this year to house the most billionaires in any world city. Yet the per capita monthly wage in 2007 was just 30,000 rubles (€820 or $1,250). According to Rosstat, Russia’s statistics agency, incomes in the rest of the country are one tenth of that. More than 21 million Russians, or 15% of the population, remain below the poverty line.

The government has also been unable to conquer steady inflation, which reached double digits in 2007 and has eaten into growth. Prices on all consumer goods and services shot up in recent months, as much as 4 percent in some Siberian regions in January and February of this year alone. Some staple food items have grown by 20 and 25%. The Kremlin’s response has been largely ineffective, and the most notable methods used to deal with inflation have been fixed prices on certain goods.

Unprecedented levels of corruption and subservient courts have also emerged under Putin. Russia now ranks among the world’s worst countries for corruption, according to rankings from the World Bank, Transparency International, Freedom House and the World Economic Forum. The Kremlin’s uncanny destruction of one of Russia’s most open companies, Yukos, has removed any impression that businesses are protected by the rule of law.

The Economist quotes Vitaly Naishul, who tracks Russian institutions:
“The problem is not that the Russian legal system is weak. The problem is that it does not exist. The Russian justice system has as much to do with justice as the Soviet system of trade with trade.”

When Dmitri Medvedev formally takes over in May, with Putin as his prime-minister, he will stand at the helm of a formidable economic power. But a slight change in world energy or commodities markets could quickly reverse Russia’s fortunes, as continuing corruption pushes investors away.

Until serious reforms sweep the country, then, a crisis will always be just around the corner.

Thousands have taken to the streets of the Dagestani capital, as widespread power outages continued across the region. As the Kavkazsky Uzel (Caucasian Knot) Information Agency reported, demonstrators blocked traffic in the city center, and built barricades, even as temperatures reached negative 15 degrees Celsius.

Participants told reporters that they are preparing an appeal to President Vladimir Putin, and are calling for the retirement of both the city and regional leadership. Makhachkala’s mayor, Said Amirov, accused city residents of political provocation.

Russia’s Ministry of Emergency Situations has stepped in with an urgent warning of possible failures in the public utility systems of Dagestan, as well as the electrical grid. Frequent power cuts have shaken the region since late December.

On January 13th, the agency’s regional head, Murtuzali Gadzhiev, announced the launch of a formal investigation into the recurrent outages, RIA Novosti reported.

According to Dagestan’s Deputy Prime Minister, Rizvan Gazimagomedov, Makhachkala suffers up to eight failures in its electrical network each day. He noted that the crisis was highlighted by the public utility companies, which shift responsibility and blame for the problems on each other.

So far, the Republic’s leadership has pledged 132 million rubles (€3.67 or $5.4 million) toward the replacement of the network, while admitting that any fix to the city’s infrastructure problems will take long-term efforts.

For now, temperatures in the region remain frigid, with no thaw expected for several days.

 Update:

The energy crisis continues in Dagestan.  As of January 18th, 30,000 residents remain without power and heat in Makhachkala.

Several recent articles review this ongoing disaster, including this one by Daria Solovieva at the World Politics Review. The New York Times had a long piece on oligarch playboy Mikhail Prokhorov and how he was reigned in by the Kremlin after one of his disgustingly ostentatious parties in the French Alps drew the attention of the police to possible prostitution charges. Prokhorov was punished by being forced out of his stake in Norilsk Nickel, where Vladimir Potanin, one of Putin’s favorite oligarchs, now dominates.

Rather than expropriating assets outright, Mr. Putin’s government has exploited minor legal infractions at the target companies to force sales. Either government-controlled companies, or companies run by men seen as loyal to Mr. Putin’s Kremlin, are the beneficiaries.

In 2003, for example, prosecutors went after Mikhail B. Khodorkovsky, chairman of Yukos Oil, then Russia’s largest private company, on accusations of tax evasion. Mr. Khodorkovsky was sent to a Siberian prison, and Yukos went bankrupt. The state company Rosneft later acquired most of Yukos’s assets. Last fall, it was environmental infractions in pipeline construction that forced Royal Dutch Shell and Japanese partners to sell a controlling stake in their $22 billion Sakhalin II oil and gas development to Gazprom, the state gas monopoly.

Then, this June, BP’s local joint venture, TNK-BP, sold its share of a huge gas development after regulators threatened to revoke the license because the field was developed too slowly, which was a technical violation of the terms of TNK-BP’s license. Gazprom, again, was the beneficiary.

This is what Putin called “the ideal environment for foreign investment.” Ideal for the bank accounts of the Kremlin insiders, perhaps.