MOSCOW BLOG: The long fall of the beekeeper

By bne IntelliNews September 29, 2010

Ben Aris in Moscow -

I was sitting in the front row of the Fatherland party press conference as the results came in. It was the night of December 19, 1999 and Russia was electing a new parliament. Yuri Luzhkov, Moscow's mayor and the world's most famous beekeeper, had made an overt move into federal-level politics and was sitting in the headquarters of the Otechesvo party that he had co-founded, flanked by former prime minister Yevgeny Primakov, who headed the All Russia party, and George Boos, who was until recently the governor of Kaliningrad.

In a relatively short time, these men had put together an opposition party that had genuine appeal and threatened to take a major share of the seats in the government that was to serve under acting president Vladimir Putin.

Reports on the TVs dotted around the room flicked over to show the big board in the central election committee headquarters that were in a huge building somewhere up Leningradsky shosse as the results came in. It was nearly midnight and I had already fielded two calls from the foreign desk at the Daily Telegraph, who were holding the front page open for the results.

As the bar chart showing the distribution of votes came up on the screen, Luzhkov's face fell. He knew that he had been stitched up and the electricity went out of the room. He should have learnt his lesson then - you can't beat the Kremlin at its own game.

The Communists had won the most seats, 113 out of a total of 450, with pro-power Unity in second place with 73 and the Fatherland-All Russia coalition coming in a poor third with 67.

Dangerous days

The following year was a scary time for everyone in power. Oligarch Vladimir Gusinsky and his Most Group (that had become City Halls' baker of choice) was first arrested and then driven into exile. Boris Berezovsky soon followed. The mayor found himself under an onslaught by the Kremlin and backtracked fast as he faced the real danger of losing his job. Putin was moving incredibly fast to consolidate his power, catching everyone else off balance. Luzhkov's defeat was complete when he agreed to a merger between the Unity and Fatherland-All Russia parties in December 2001 to create the biggest party in the country, which has dominated the Duma ever since.

The 1999 election was as close as Russia has come to having a pluralistic government and Luzhkov would have been a major player in federal level politics if he had not been outmanoeuvred during this brief window of opportunity. He was effectively stripped of this political platform, a platform with real appeal to the population, which was then turned over to Putin's use in the form of the newly created United Russia (which was actually Berezovsky's brainchild, according to bne sources).

The creation of United Russia was supposed to be (and in fact was) the end of Luzhkov's political ambitions to move beyond the mayor's office. With no political body to back him, the mayor was castrated as a politician.

Painted corners

Luzhkov's sacking on Tuesday, September 28 is the end of an epoch and my best reading of the reasons for his ousting is that both Luzhkov and Russian President Dmitry Medvedev had painted themselves into a corner where only one could emerge as a victor.

The Kremlin has been trying to coax Luzhkov into playing for team ZAO Kremlin (the joint closed stock company that combines explicit control over the state-owned enterprises with nominally privately owned companies). But he didn't want to pick up the ball. Moscow is his city and he appears to have become increasingly disillusioned with the Kremlin's sticking its finger into his business.

The clash has been building slowly over the last year or so, but in the last month it reached a point that Medvedev was forced to act or else lose face, which would have turned him into a lame duck president.

In Medvedev's press conference where he explained why he had "lost confidence" in the mayor, he went to great lengths to emphasise that he was president and it was his choice who was mayor of Moscow in what looked like a damage-control exercise. (Where are the Kremlin learning all these media skills from?) The whole justification for Luzhkov's sacking is patently risible, as he is obviously one of the very few competent bureaucrats in Russia.

Like the fight between Yukos and Putin, Luzhkov had the option to stop the escalation, but like Yukos' Mikhail Khodorkovsky he seems to be sufficiently pigheaded that he just kept going.


The Kremlin has been playing poker with its political rivals again. As described in bne's recent piece on the battle with Yukos owner Mikhail Khodorkovsky, the way this game works is that the Kremlin shows all its cards to its opponent at the start of the game and holds all the cards bar one. It then leads low cards and slowly reveals progressively stronger cards until it gets into the picture cards; in Khodorkovsky case, the King was jail, in Luzhkov's it was a sacking.

Khodorkovsky's card that he can play over and over again is to embarrass the state in the international media. Luzhkov's is a bit weaker; all he can do is refuse to retire in the hope that he is so well entrenched that the Kremlin wouldn't dare sack him. It is the same mistake that Khodorkovsky made - when push comes to shove and the Kremlin is fixed on asserting its power over domestic politics, it has shown time and time again that all other considerations go out the window. The Kremlin never loses this game. It holds all the aces.

Luzhkov's miscalculation could be put down to nearly two decades of being in charge. He has faced down many critics as mayor, the most recent being the opposition groups that insist on demonstrating on the 31 of every month that has a 31 in it to highlight their constitutional right to public assembly. And Luzhkov's fight against the gay pride movement is distinctly personal. And when he is attacked in the press, Luzhkov has proven to be, along with Boris Berezovsky, amongst the most litigious of all Russia's politicians (and he usually wins his cases).

Indeed, Forbes magazine was put in a very embarrassing position when the management of the Russian issue were forced to recall one issue that had a quote from his wife, Yelena Baturina, on the front cover, "My protection is guaranteed", in December 2006, after she filed lawsuits against both the magazine and its editor Maxim Kashulinsky for defamation; so much for western standards of freedom of speech.

However, Luzhkov took a step too far when he launched lawsuits against state TV after it ran a polemical documentary about his life last week (which apparently was thrown together in a single day). It even got the Financial Times to agree to print an apology for a piece on the whole story before the piece even ran (the FT correspondent mentioned he was writing the story up on the radio the evening before).

This wasn't a clever strategy. The burly couple can't bully the Kremlin. It is one thing to turn the screws on a US magazine that is dependent on advertising revenues from companies you have in your pocket; it is another thing to take on the boys from behind the mustard yellow walls of the fortress that sits in the heart of Luzhkov's city.

Upping the ante

The documentaries brought the whole showdown into the Klieg lights of the international media, but the pressure has been building on Luzhkov all year.

Moscow Deputy Mayor Alexander Ryabinin was accused of corruption in the spring - specifically that he had accepted a free apartment for his daughter in exchange for a construction permit - but the investigation was nixed by the Moscow branch of the newly established Investigation Committee, after it ruled that there was "no evidence."

However, the Investigative Committee's head, Alexander Bastrykin, sacked the boss of the Moscow branch and reopened the investigation in the summer. And in August, Ryabinin reportedly fled the country in face of arrest. However, he phoned Interfax on September 8 to say he was in Russia on holiday near the village of Bestuzhevo in the Arkhangelsk region

This whole affair is reminiscent of the arrest of Platon Lebedev, director of group Menatep, a major shareholder in Yukos in July 2003, just three months before Yukos owner Mikhail Khodorkovsky was arrested, and represented the beginning of the end for Yukos.

Luzhkov sought to defuse the tension by going on holiday earlier in September. However, it seems he badly miscalculated. He came back and went to work on Monday. Of course a journalist asked him if he would go and was told that he would "never resign." And that was it. It seems the Kremlin were waiting to see what Luzhkov did on Monday - and even at this late date he could have climbed down and saved his job - but once he nailed his flag to the mast, the decision was made; like Khodorkovsky, he was rapidly taken out.

Still, Luzhkov's sackings raises many questions. There is now talk of Luzhkov coming back as part of the opposition, but that is a non-starter - he is no liberal. He has the support of the Moscow population, but they like him for his practical successes of making the city function and their lives more tolerable, not for any idealistic reasons. The Muscovites are suitably impressed by a functionary that could make anything work in the 1990s and grateful for Luzhkov's competence, but they are not blind to what else he was doing. This fight is not over politics, as after Luzhkov lost control of Fatherland he was politically defanged.

This fight is also reminiscent of the ousting of Rem Vyakhirev, former CEO of Gazprom, who Putin sacked in May 2001. Like Luzhkov, Vyakhirev was in charge of a Soviet-era honeypot and also seemed unassailable. Putin took about a year to prepare the ground before striking to regain control over the biggest taxpayer in the country.

But this fight isn't over money. The companies in Moscow pay their taxes to the federal government, not the city government, and so changing the mayor is not going to change the governments tax take. The leakage is, if anywhere, in the real estate sector, not in taxes.

Moreover, the Kremlin seemed willing to try to work with Luzhkov; Putin reappointed him as mayor for a fourth term in 2007, because of his obvious ability and popular appeal. He didn't have to do that.

Given that Luzhkov's current term would expire anyway next year, why bring the fight to a head now? Some commentators are saying this was a chance for Medvedev to look strong ahead of the 2012 presidential elections and that Luzhkov was weak following public criticism over his inaction during the summer's fire.

But looking at the details, the simpler explanation was he overestimated the strength of his position and talked too much, provoking a show of strength by Medvedev. If he had come to work on Monday and made some conciliatory noises - as he did in 2000 -- he could have retired with all the honours that he actually deserves and to the luxury of his wife's fortune that he doesn't. But that is the thing with bees: they sting once and then they die.

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