Oil fight shows Putin's tighter grip

The trial of Russia's richest man began yesterday in a controversial case widely seen as a Kremlin effort to establish further control over vast assets held by a handful of oligarchs - and over Russia's civil society.

Handcuffed to guards while arriving at the cramped courtroom, oil magnate Mikhail Khodorkovsky is facing seven charges listed in an 840-page document that include fraud, tax evasion, and embezzlement. The former CEO of Yukos, the country's largest oil company, was joined in the dock by associate Platon Lebedev. Even the tycoons' lawyer yesterday predicted a guilty verdict.

"I am expecting nothing more than I've seen in the past," said Robert Amsterdam, Mr. Khodorkovsky's lawyer. "This is a country that destroys its finest company while its senior members languish in jail illegally."

Moscow tax authorities are also expected to rule tomorrow against the Yukos oil company on past tax bills of $3.4 billion.

This high-profile case is one of many fresh signs that President Vladimir Putin - inaugurated for a second term just six weeks ago after a landslide election victory - is moving aggressively to tighten his authoritarian grip.

Despite Mr. Putin's frequent promises to create a "free society of free people," the Kremlin-dominated State Duma on Friday rushed through approval of constitutional changes that make it all but impossible to hold a referendum on Putin's rule, or on painful social reforms expected to be in play in coming months that could spark street protests.

"The trend in shrinking the political space that really accelerated in the fall of 2003 seems to be continuing unabated," says Andrew Kuchins, head of the Carnegie Moscow Center. "If you're concerned about the status of democracy and civil society in Russia ... it's hard to point to any heartening signals."

The moves exhibit "so little trust in the people," says Mr. Kuchins. But in the afterglow of the presidential vote, they also seize the "best window of opportunity for the Putin administration to move aggressively on a reform program, and remodel the system as they want it."

The new bill increases the total number of signatures required to initiate a referendum. Currently 100 signatures are needed; the new law requires 4,500 names spread equally across 45 regions. As well, in late May Putin shepherded through a bill that partially limits public rallies.

With no clear sign of how far the Kremlin will push the Yukos case - or whether other oligarchs will be targeted for misdeeds committed while carving their fortunes and assets from the remnants of the Soviet Union in the 1990s - Kremlin moves are spooking investors and Russian liberals alike.

Shares in Yukos hit a two-year low on Tuesday, even as the government refused a Yukos offer to make a deal on the tax bill for 2000. Outstanding bills for other years could raise the stakes to $10 billion and bankrupt the company.

"The only thing that is crystal clear is that state influence in Yukos will be much larger in the future than it's been in the past," says James Fenkner, head of research for Troika Dialog. "The market is still trying to digest what that means."

The case fits a broader pattern of political consolidation, and is in fact popular in Russia, where one-fifth of the population lives below the poverty line and oligarchs are seen as thieves.

"Over the last four years, Putin's methodology has been to gather strength," says Mr. Fenkner. "The only group that so far remains beyond his grasp - it's been the TV, the Duma, the Federation Council, regional governors, you name it - are the Chechens. That's the only battle he has yet to win."

"In the beginning, consolidating power was a survival instinct," adds Fenkner. "What could be dangerous is if it becomes a set policy."

The referendum appears that way to some analysts, who say the Duma has extended its session by a month, through July, in order to push through unpalatable reforms - in education, pensions, housing, and others - during the quiet summer months.

A taste of the street response - even though Putin himself still rates roughly an 80 percent approval rating - came last week, when several thousand people across the country protested government plans to replace certain subsidies with cash handouts.

Though Putin declares the aim of reducing poverty in Russia by half, pensioners and the disabled fear that the cash payments will not cover utility costs, at least, which are due to rise in the future in line with Moscow's deals with Europe. Union leaders threatened to call a nationwide strike in September if changes aren't made. Other reforms, which analysts anticipate will be painful to many, are to be raised by then.

"We can see the degradation of democratic procedures as a whole," laments Andrei Kolesnikov, a political commentator for Rossiskaya Gazette and gazeta.ru website. "The institution of elections, of the parliament, have been degraded. [The referendum] is one more piece. The main word for the Kremlin is 'control.' "

Even before Friday's bill, there were "informal barriers" that made it difficult to mount a citizen's referendum, says Irina Khakamada, a liberal candidate who ran against Putin in the March poll and is creating a new party called Free Russia. Her efforts to mount a referendum in Moscow on water shut off and housing rules has been rebuffed in the courts.

"In Russia the key problem is not just the law, but how it is being enforced," says Ms. Khakamada. "I'm not very optimistic. In the future, Russia is facing a serious conflict because the authoritarian character of [leaders] oppress the initiative of the people."