Kozak the joker in reshuffle of Russian cabinet

By bne IntelliNews September 27, 2007

Graham Stack in Moscow -

Dmitry Kozak's Ministry of Regional Development has taken on a new persona to match its new heavyweight boss. What was once the hapless Ministry of National Questions, and then a sinecure for former St Petersburg mayor Vladimir Yakovlev, has now been turned into a major conduit for state funds to flow into infrastructure investment, and a powerful administrative force.

The first section of the presidential decree on reorganization of the government, signed by President Vladimir Putin in September after a week of intense speculation, dealt exclusively with equipping Kozak's new powerhouse: by assigning it the State Investment Fund for public-private partnerships, replete with budget of $12bn for 2007-09.

The Investment Fund was transferred from the Ministry of Economic Development and Trade, nicknamed the Ministry of Reform in Putin's first term, when it developed a raft of laws that put Russia on the road to capitalism. Together with the loss of its high-profile minister German Gref and the inclusion of the ministry in Alexei Kudrin's new remit as deputy prime minister, the Economic Development Ministry is the main loser of the reshuffle - and the Regional Development Ministry the winner.

This encapsulates the shift in government policy from promoting institutional change to pushing infrastructural investment.

Kozak's ministry will also supervise Federal Target Programmes with a "regional component." What exactly constitutes a "regional component' has been left largely to the imagination, and Kozak's lobbying weight is likely to capture a large slice of this pie, significantly larger than the Investment Fund itself.

Adding to Kozak's weight is his ministry's new remit for budget transfers to regions and municipalities, despite protests from the Finance Ministry. This connects with Kozak's authorship of the municipal reform: in 2009, the number of municipalities is set to more than double from 11,000 to 27,000, and Kozak's new post will make him responsible for their financial viability in practice, not just in theory.

Kozak himself on the day of his appointment described his ministry's portfolio in quite modest terms as covering, "all regions demanding special attention from the federal centre," and highlighted the South, the Far East and the strategically important Kaliningrad enclave, which geographically is in the EU.

Sochi effect

However, the immediate focus of his work is likely to be the South, with which he has become closely acquainted with over the past three years. In particular, he will be looking to maximize spin-offs for the North Caucasus from the investment that is pouring into Sochi. With Sochi turning into Courchevel-sur-Black-Sea, the contradiction between the resort's new wealth and the situation in nearby Chechnya, Dagestan and Ingushetiya could become literally explosive.

Beyond this, his ministry will be responsible for selecting and approving public-private partnerships (PPPs) Russia-wide. Of the 12 PPP projects approved in 2006, worth a total of $50bn, 10 were transport-related: especially railroad links and toll roads. This raises the issue of the relations between Kozak's ministry and the Transport Ministry. Viktor Zubkov on being named prime minister expressly criticized the poor coordination between these two ministries in implementing infrastructural projects.

Transport Minister Igor Levitin will be outgunned by Kozak, who in the past has been tipped as Prosecutor General, PM and even president. A future informal or even formal subordination of the Transport Ministry to Kozak would seem likely. Levitin, from the railway sector, negotiated the reform and corporatisation of Russian Railways, but this work is done, and Putin's friend Vladimir Yakunin is now firmly in charge.

A further potential conquest for Kozak could be the Federal Agency for Special Economic Zones, currently supervised by the Economy Ministry. The agency was created as part of the same raft of measures aimed at diversifying the economy that gave rise to the Investment Fund, and has an obvious regional component.

With Kozak entering the cabinet alongside Ivanov, Medvedev, Zhukov, Kudrin and Naryshkin, the new cabinet now packs a political punch that quite belies its low-profile PM The surprising result of the cabinet reshuffle is thus that the government has suddenly become a political powerhouse, eclipsing the Kremlin administration. Why, and for how long, is anybody's guess.

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