The future of Putinism and the Russian rentier state Andr Mommen (22 November 2012)

In order to maintain political power, the Putin administration had to establish a regime of authoritarian rule based on the popular vote of broad masses of people depending on welfare benefit and subsidies coming from the state. On the other hand, the more educated middle classes and elites in the big cities are contesting Vladimir Putins regime because of its corruption and authoritarian rule. They are in favour of a Western-style political system and liberal political ideas, i.e., democracy, fairness and equality, while the supporters of Putin are backing his nationalist rhetoric and populism and they are socially and politically conservative. Mass mobilization and large protests during and after the State Duma elections on 4 December 2011 were not sufficient to prevent Putin to win a new term in March 2012. This antagonism in public opinion in public opinion tracks with Russias recent economic growth and social modernization. During the first decade of the Putin rule, household incomes rose by 140 percent. The average monthly wage adjusted for purchasing power parity, nowadays exceeds already US$1,000 and this wealth spread broadly among the masses. However, poverty had not been eradicated. In 2011, about 13 percent of the population had an income of less than US$2 a day.1 Notwithstanding increasing income, most Russian have nonetheless remained more traditional in their behaviour and attitudes, which may explain their support for Putin and his party United Russia at the polls. However, the countrys dependency on exports of hydrocarbons is hampering balanced economic growth and widespread corruption and obstructive bureaucratism are discouraging potential investors to start up new businesses. 2 All this is also inciting well-educated young people to emigrate. With regard to the urban opposition, the Putin administration dismisses the protest movement as an elitist initiative, mostly unrepresentative for the Russian public opinion and unfit to deal with the economic and challenges Russia is facing. Furthermore, the Kremlin denies the suggestion that the country needs substantial economic and political reforms in order to boost

economic growth. But as long as oil and gas revenues are still accounting for up to half of state income Putin may hope that he can easily meet the rising expectations of his voters. The latter are trusting in Putins redistributive income policy and his ability to finance the welfare state inherited from the Soviet past. Hence, Putins regime is depending on its ability to raise enough funds to modernize the economic system and its welfare programmes. Tax reforms and sustained economic growth evenly spread over in all regions are therefore urgent policy issues on Putins political agenda, because they will determinate Putins success or failure during his six-year presidential term (2012-18). From 2001 until 2007, the Russian economy was constantly growing with more than 7 percent a year. In 2008-09 the world economic crisis hit when global demand for energy and industrial production plummeted, but already in 2010 the Russian economy recovered due to increasing oil prices and later on by stronger domestic demand. The economy expanded 4.8 percent in the second half of 2011, but due to a slowdown in global demand Russian exports economic growth declined in the beginning 2012. The rapid economic growth in the beginning of the Putin era was an instrument in the war on poverty. However, a more rapid and balanced economic growth is needed in order to develop the welfare state. Non-market services, typically driven by the political authorities in the poorer regions, are still expanding the public sector payrolls to compensate for the absent social safety net. In the first half of 2012, the non-tradable sector accounted for around 80 percent of GDP growth, similar to 2007.3 Today, natural resources constitute over 80 percent of Russias exports. The importance of the oil and gas industry is so overwhelming that it determines the governments economic and fiscal policy. As Russias economic growth continues to be dependent on high world-market prices of hydrocarbons, it has become more and more integrated into the world economy as well as a provider of hydrocarbons to Central and Western Europe and China. Due to these revenues fuelling state expenditures. Thus one can call Russia a rentier state because a large share of the Russian state budget is provided by external rents4 provided by the oil and gas sector.5 This enabled Putin to shape a more or less stable oligarchic network of rentier capitalists supporting his presidential regime. In the mean time, the distribution of smaller parts of rents to the population was possible in order to buy popular support.

Russian firms are using trading companies in order to market their output. They avoid taxes by selling their products to their own trading companies at below-market prices and pocket the difference in tax havens abroad or in regions were corporate taxes are low. The firms use transfer pricing to move unreported revenues from the industrial subsidiary to the trading subsidiary as well. The same trick can be used by firms facing sector-specific taxes: they are moving their profits to their trading subsidiaries if the latter are taxed at lower rates. Transfer pricing thus cuts tax payments for the production companies and inflates revenues of trading companies. The effect is that profits or value added are moved from the industrial sectors to the trade of services sector. This explains why almost one third of Russian GDP and half of all profits in the economy are generated by the trade sector and why the basic prices received by the producing firms are so low. Of course, net taxes on products (VAT, excises, export taxes) go to the government, but the trade margin goes to the trading firms. In Russia the trade margin is ten times larger than the reported transport margin, it accounts for about one fifth of GDP and is especially large in oil refining, oil extraction and natural gas trade. Types of transfer pricing concern transactions between related firms, barter, cross-border transactions and transactions with important price fluctuations for identical goods or services within a short period of time. Given the fact that transfer pricing rules in force since 1999 were almost inoperable because of their vague wording, poor court practices on this matter and a lack of knowledge from the Russian tax authorities forced the Russian authorities to close several legal loopholes. Until 2002, 60 percent of taxes were levied on mining operations (about US$1.3 billion). They went to the budgets of the mineral-producing regions. As a result, the per-capita tax revenues of the three principal oil-producing regions exceeded in 2001 by almost five times the average tax revenues of other Russian regions. Hence, the federal government decided to alter the sharing arrangement between the Moscow Kremlin and the regions in its advantage. Nowadays the federal government is keeping all oil and gas taxes for itself, the government can use them to decrease regional disparities and to equalize the budgetary revenues of the regions. The share of the Mineral Extraction Tax (MET) on oil accruing to regional budgets fell from 60 in 2002 to 20 percent in 2004. This share declined to 15 percent in 2005 and dropped to zero in 2010. Nowadays the federal government is keeping all oil and gas taxes for itself. Hence, the government can use these revenues to decrease regional disparities and to equalize the budgetary revenues of the poor regions. Part of these equalization grants is granted by 3

means of a sophisticated formula limiting the possibility of the regions to influence resource allocation. A Stabilization Fund instituted in 2004 was collecting the volatile revenues from the export of raw materials. The fund accumulated revenues derived from export duties on oil and from MET on oil production exceeding US$27 per barrel. Because considerable amounts of resource revenues had been accumulated, the impact of the 2008-09 global financial crisis on the national economy could be limited. In 2008 the Stabilization Fund was split in two. The Fund was replaced by a new budgeting procedure. Oil and gas revenues (export duties and MET on hydrocarbons) are thus separately accounted from other revenues in the federal budget. A Reserve Fund is collecting a share of the tax oil and gas revenues in order to compensate the federal budget for revenue losses in a period of low oil and gas prices. Residual oil and gas revenues are flowing to the National Wealth Fund which has to keep the pension system afloat. The Stabilization Fund is thus a financial cushion created for hard times. Its accumulated liquidities are not used for financing investment, but transferred to (foreign) bank accounts. In 2004 the right of local authorities to concede profit tax concessions was also restricted. However, industries were still using transfer pricing as a legal means in combination with shell trading companies to avoid VAT and general taxes. Transfer pricing of vertically integrated companies shifts tax revenues to downstream regions. Multi-regional companies offset profits of well performing branches against losses of poor performing branches in other regions. Firms moving their large profits to tax havens had a very strong interest in maintaining this non-transparent system of book keeping. Exporting firms had a major interest in exporting their produce at a low price in order to dodge taxes. About 80 percent of the countrys 100 million metric tons of annual export of coking coal sales were made via transfer pricing schemes.6 The mighty lobby of the exporting industries could successful postpone any thoroughgoing reform until in February 2010 the Russian State Duma adopted a draft law on transfer pricing being applied by 1 January 2012. These new tax rules are now supposed to follow the OECD standards.7 The approach of the OECD is based on the concept of the arms length price, i.e., the price that has been or would have been freely negotiated between independent parties. But it still remains unclear whether the government will be prepared to properly implement the new rules and whether the fiscal authorities will gain the necessary knowledge and experience in making transfer pricing adjustments under the rules. Moreover, the burden of 4

proof lies with the taxpayer. The current transfer pricing rules refer to prices prevailing on the basis of the interaction of supply and demand on the market for identical or similar goods under comparable conditions. The tax regime for oil and gas underwent in the past several modifications since its establishment. Currently, the tax regime includes a MET and an export duty calculated on any ton of crude oil or cubic meter of natural gas. A number of tax benefits were, however, introduced to firms extracting oil that is exceeding a certain level of sulphur content. Those fields are mostly concentrated in East Siberia. Resistance to the new tax bill of 2010 came, of course, from the exporting monopolised sector. In a letter to Prime Minister Putin Gazproms CEO Alexei Miller asked for exempting his firm from the transfer pricing law, but Deputy Finance Minister Sergei Shatalov (a former World Bank economist) opposed this request.8 The transfer pricing control will be exercised on cross-border transactions with oil and oil products, ferrous and non-ferrous metals, mineral fertilizers, precious metals and stones and cross-border transactions with foreign entities registered in certain low-tax jurisdictions according to a list established by the Russian Finance Ministry, provided that the total revenues under these transactions exceed 60 million roubles (approx. US$2.1 million) in total in a given calendar year.9 This does not mean a heavier taxation of big firms. General tax rates continue to be relatively low, because Russia primarily uses flat tax rates. Corporate income tax rates are not higher than 20 percent and possibly they will be reduced to 15.5 percent. The personal income tax rate is 13 percent for residents and VAT rates 18, 10 and 0 percent. Russias budget revenues can immediately fall short when export earnings decline because of falling world-market prices. Because of its high export earnings, the Russian state remains financially weak and depending on its hydrocarbon business. The latter requires, however, also huge investment in exploration and exploitation facilities the state-controlled firms are unable to finance. For many years, the Russian government has therefore adjusted taxation to foreign demand and price changes or investment requirements in the hydrocarbon sector. The Russian government is therefore attracting Foreign Direct Investment (FDI) by promising tax holidays. In 2011, Russia was seventh in the world in terms of attracting FDI,10 mainly in the hydrocarbon sector.11 New natural gas fields, which are currently under development, could be entitled to MET. Here, the Russian government could opt to follow the same path as with oil tax cuts or a universal formula could be worked out, Deputy Finance Minister Sergey Shatalov pointed out at a press conference on 15 October 2012 in Moscow.12 Taxing oil and 5

gas exports is therefore a hazardous exercise because it may endanger budget revenues. For instance, at a news briefing during the Ninth Asia-Europe Meeting (ASEM) Summit in November 2012 hosted by the Laos government in Vientiane, Shatalov told reporters that tax earnings had fallen by US$1.6 billion since the transition to new crude and product export duties in October 2011. The Russian government originally expected that the new system would not affect budget revenues, but the government was not ready to revise it in time.13 The Russian state is also threatened by the extreme weakness of its overall economic structure. In periods of an export boom the rouble will easily appreciate which raises the value of the exports, but weakens the competitive strength of a major part of the Russian economy. On the one hand, lower oil and gas prices will cause serious problems in the economy as a whole and to the state budget in particular. On the other hand, cheap domestic energy resources permit the government to postpone structural changes in the energy-intensive Russian industry and housing sector and to provide the consumer market with imported goods. High oil prices are also responsible for a lack of foreign direct investment. In order to develop new oil and gas fields in remote Siberian areas, the government introduced tax holidays. The government may even reduce to zero the export duty on crude oil from Eastern Siberia and impose a Tax on Additional Income (TAI) instead of MET. Enlarging the tax base of the Russian state is still a key issue in Russias fiscal policy, but until now little progress has been made. For several years, the Russian authorities have been discussing the issue of the introduction of a luxury tax. Initially, the State Duma decided to decline this initiative coming from the Communist Party and Just Russia, but in 2011 the idea of the luxury tax was nonetheless approved by Prime Minister Putin. Officials of the Finance Ministry then said that the rate for such a tax would make up one percent. Should luxury be taxed in Russia, the economic effect from the new tax would nonetheless be minimal, thus not increase the state budget considerably. As for the notion of luxury, it goes about the property worth more than 300 million roubles (US$10 million).14 Increasing the tax on luxury cars and expensive real estates is an idea defended by officials of the Ministry of Finance as well. The new tax would touch some 20,000 owners of luxury cars. Nearly 8,000 of them are nowadays living in Moscow region. They are driving luxury cars as Mercedes, BMW, Aston Martin, Maserati, Lamborghini, etc.

The reform of the welfare state is a second important issue also linked to sustained economic growth. However, the Russian welfare state will only be able to ensure social solidarity and political stability under condition of sustained oil-led growth and high hydrocarbon prices.15 Because of its aging population and the growing pension burden the Russian government has to reform of the pension system. Compared to most European countries, the retirement age in Russia is nonetheless very low, with men retiring at the age of 60 and women at the age of 55. Raising step by step the retirement age to 65 year is a project the government has already in mind. As the average life expectancy of men in Russia is not more than 63 years old, this would create the possibility of increasing the average monthly pension by 30 percent. In the mean time Russia is studying an overhaul of the pension system by also proposing a reduction of the mandatory contribution rate to the funded pillar and making this pillar voluntary. With an aging population of about 140 million people, the Russian government has to support about 39 million pensioners and some 18 million disabled persons, war veterans or other beneficiaries of state benefits. This dependency on the central government may explain why the Putin regime can still trust on the confidence of a majority of the voters. But in de provinces, the population is also depending on local initiatives and patronage networks. This may explain why the erosion of the support for Putin is more important in the big cities. But, on the other hand, most citizens are also looking for political leaders solve their everyday problems. They remain immune to abstract rhetoric praising new political values or ideological changes. Especially in the poor regions, where government transfers are of a crucial importance, conservatism is deeply rooted. Together with the pensioners the population of the poor regions have become of decisive importance to any candidate running for the Presidency. Today, only nine of the countrys 83 regions together are producing more than half of Russias wealth. In 2010, 41 of the regions received more in federal aid than the combined net profits of all their local enterprises. This also means that pressure coming from the poor regions for obtaining a larger share of national wealth will grow in the near future. The Putin regime will also depend for its popular survival on its capacity of mobilising funds for the poor regions. It is estimated that the total amount of transfers passed on from the federal budget into the regional budgets comprises roughly half of the total federal revenues from oil and gas. Grants are covering also a fixed share of regional social expenditures.16 Only about 20 percent of regional governments are considered to be self sustainable.

Before the slump of 2008-09, the Russian economy grew at more than 7 percent, but since then growth has slowed to less than 4 percent (see Figure 1). The long-term outlook is, however, less advantageous. Russia faces grim prospects, because oil prices are triggered by concerns about the euro and an economic slowdown in China. This could lead to a further flight of capital and a drop in tax revenues, a weaker current account and lower economic growth. But due to disturbances in the Middle East the price for Urals crude oil rose in March 2012 above US$125 per barrel. If oil prices were to remain high, this would boost economic growth and help to maintain a fiscal surplus. Bolstering economic growth will also require a raise in productivity in order to strengthen the competitiveness of the Russian economy against the backdrop of a shrinking labour force. Together with a a greater exchange rate flexibility discouraging speculative capital inflows and banking supervision, the economy can be made more stable and bolster economic growth. Though Russia made a substantial economic progress during the Putin era, it has nonetheless to ensure more macroeconomic and fiscal stability. Russias vulnerability to adverse external shocks can be limited by a policy of low inflation and a more robust financial sector. In addition, strengthening public sector governance and raising the quality of public spending can create the room to invest in growthenhancing infrastructures.17 Figure 1: Russias GDP Growth

Source: World Bank.

However, Russias increasing dependency on hydrocarbon exports hampers the countrys development. This is often referred to in the literature as a resource curse, or also the Dutch disease. Russia displayed, indeed, some symptoms of the Dutch disease18, i.e. the appreciation of the rouble in real terms and the rise in the services sector. Several theories have been proposed in order to explain this phenomenon. High resource exports distort the price of tradables relative tot non-tradables in a way that non-resource sectors are placed at a competitive disadvantage. In the long run the natural resources industries will drain away financial and human resources from the other sectors which are assumed to have higher potential spillovers.19 Because of a lack of backward and forward linkages to the rest of the economy, these growing exports are not constituting an engine of diversification. Moreover, the gas and oil industry has limited spillover effects to the other sectors.20 As the Russian oil and gas sector still show double-digit annual export growth and represents about 65 percent of Russias exports value, export growth outside this sector should be a target. Export diversification is thus hard to obtain. Russian firms having emerged from non-oil sectors have huge difficulties to establish a foothold in a market outside of Russia. During the period 19992009 their export survival rate was 57 percent, while in the case of China the export survival was over 70 percent. Even Brazil and India performed better than Russia. Russias total exports therefore remained stagnant at around 4-5 percent in the 1998-2008 period.21 The Russian government is well aware of all these bottlenecks. Already in the mid-2000s, the Moscow Kremlin started four so-called national economic modernization projects to be financed with hydrocarbon revenues. These oil revenues were also used to compensate for investment costs and to reduce state debts or to accumulate financial funds. A group of independent World Bank advisors presented on 16 March 2012 a report on economic reforms.22 Then, President Putin signed on 18 June 2012 the Executive Order on long-term economic policy in order to step up the rate of sustainable economic growth, which also means increasing labour productivity and making of Russia a leader in science-intensive sectors. A Council presided over by Putin was established to facilitate economic modernization and innovative development in Russia and improve state management in this area. Meanwhile the Presidential Commission for Economic Modernization and Technological Development was abolished.23

Pressures for economic reforms and modernization are nonetheless growing. Commentators are frequently suggesting that Putin will not be able to serve out the full six-year term that he had just won. 1. The Putin regime is in the first place defending the status quo in order to protect the property distribution. Policy decisions on energy issues are made by a small group of individuals, usually associates of Putin who have direct access to him. Top managers of leading companies often play a role in this process. 2. Under Putin, who acts as a supreme arbiter or mediator, rivalries and conflicts often take place in public so that they can be overseen and controlled by Putin.24 This form of divide and rule underlines Putins considerable personal importance to the functioning of the system and it constitutes a source of his power. 3. The natural resources-based economy requires a tight control of all levies of state power ensuring that there is no economic base for political pluralism. Meanwhile, many reformers and modernizers have quit the Putin administration. Among them are previous ministers such as former minister of Finance Alexei Kudrin or minister of Economy German Gref. Around Dmitry Medvedev there are still reformers left, but their influence during Medvedevs four-year presidency (2008-12) was, after all, rather limited.25 One by one they are removed from office. The main reason behind President Putins decision to remove Defence Minister Anatoly Serdyukov26 and the subsequent firing of Chief of Staff General Nikolai Makarov and other senior defence officials and military officers in Russias Ministry of Defence in November 2012 was an other example of purges regularly carried out in the power structure. The shakeup was not only due to corruption, but rather to a power struggle over who should control the distribution of the US$700 billion that Putin pledged in February 2012 to spend on new weapons purchases by 2020. The Russian military-industrial complex wants these funds without impediment. Throughout his years in office, however, Serdyukov along with other Defence Ministry officials constantly castigated the defence-industrial sector for producing outdated and overpriced weapons. Under his reign, Russia bought Israeli drones, French amphibious assault vessels and Italian armoured vehicles. He also refused to sign defence contracts without guarantees of higher quality and cheaper prices and declined to buy Russian weapon systems that had not been fully tested or for which no identified military requirement existed.27 10

As long as the hydrocarbon can deliver enough financial resources, economic growth will continue and make it possible that state spending on defence is not endangered. If energy prices drop, it will become more difficult for Putin to finance his social programmes. Meanwhile the current opposition of well-educated people in the big cities cannot present a realistic alternative to Putinism as long as the mainstream media are firmly controlled by the Kremlin.28 However, reforms currently on the agenda are technically and politically difficult to implement as long as they meet resistance of powerful vested interests in the hydrocarbon and raw material sectors which are also financing the expansion of the domestic manufacturing and services sectors. Hence, the reported increase in activities outside the natural resource sectors did not mean an independent revival of Russias domestic industries, but has to be considered as a secondary effect of high hydrocarbon prices. Sustained economic growth in the different sub-sectors of the industry can only by obtained by investment in production facilities for new consumer and capital goods.

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In 2003 about 31 million people were living below the official poverty line. Russian Economic Report. February 2004, No. 7. www.worldbank.org.ru. 2 Today, two decades after the fall of communism, small and medium-sized firms account for only 20 percent of jobs in Russia. 3 The World Bank in Russia. Russian Economic Report. Reinvigorating the Economy, No 28, Washington, DC, World Bank, Autumn 2012. 4 Andreas Heinrich and Heiko Pleines, The political challenges of an oil boom: the resource curse and political stability in Russia, in Russian Analytical Digest, No. 113, 15 May 2012, pp. 2-8. 5 Russia has proven reserves of about 130-160 million tons of crude oil. Natural gas reserves stand at around 46.8 trillion cubic meters. Li Lifan, Friction and reconciliation: the path of contemporary Sino-R ussia energy cooperation, in Russian Analytical Digest, No. 113, 15 May 2012, pp. 14-16. 6 http://www.themoscowtimes.com/business/article/stricter-rules-eliminating-transfer-pricing-schemes/402557.html 7 Alex Krylov, Boris Nemirov and Yulia Sinitsyna, Transfer Pricing in Russia: The Bear Awakens, Report. Moscow, Deloitte, January 11, 2012. 8 http://www.russianlawonline.com/content/gasprom-will-not-be-exempt-transfer-pricing 9 http://www.russianlawonline.com/content/baker-mckenzie-russia-adopts-transfer-rules-effective-2012 10 According to statistics provided by Rosstat, FDI increased from 4.4US$ billion in 2000 to 27.8US$ billion in 2007 and 27.1US$ billion in 2008, but declined in 2009 to 15.9US$ billion and to 13.8US$ billion in 2010, but recovered to 18.4US$ billion in 2011. http://www.gks.ru/wps/wcm/connect/rosstat/rosstatsite/main/ 11 Konstantin Borisov and Timothy Frye, Perspectives of Russian-American investment cooperation: tendencies, mechanisms of support, recommendations, in Russian Analytical Digest, No. 119, 21 October 2012, pp. 17-24. 12 http://www.rbcnews.com, 16 Oct 2012. 13 http://www.zoominfo.com/people/Shatalov_Sergey_167726739.aspx 14 http://english.pravda.ru/business/finance/03-05-2012/121010-luxury_tax-0/ 15 Alfio Cerami, Welfare state developments in the Russian Federation: Oil-led social policy and the Russian Miracle, Social Policy and Administration, Vol. 43, No. 2, pp. 105-20. 16 Galina Kurlyandskaya, Gleb Pokatovich and Mikail Subbotin, Oil and gas in the Russian Federation, Framework Paper, Conference on Oil and Gas in Federal Systems, March 3-4, 2010, World Bank, Washington, DC. 17 The World Bank in Russia. Russian Economic Report. Moderating Risks, Bolstering Growth, Washington, DC, World Bank, No 27, April 2012, p. 29. 18 Victoria Dobrynskaya and Edouard Turkisch, Is Russia sick with the Dutch disease?, Document de travail. Centre dtudes Prospectives et dInformations Internationales, Paris, No 2009-20, September. 19 Donato De Rosa and Mariana Iootty, Are Natural Resources Cursed? An Investigation of the Dynamic Effects of Resource Dependence on Institutional Quality, Policy Research Working Paper, Europe and Central Asia Region, Financial Sectors Development, The World Bank, Washington DC, July 2012. 20 Russian Federation. Export Diversification through Competition and Innovation: Overview, World Bank, Washington, DC, April, 2012. 21 Ibid., pp. 2-3. 22 The report was prepared by a World Bank core team consisting of Sergei Ulatov (Economist), Karlis Smits (Senior Economist), Stepan Titov (Senior Economist), Victor Sulla (Economist), Kate Mansfield (Consultant), and Olga Emelyanova (Research Analyst), under the direction of Kaspar Richter (Lead Economist and Country Sector Coordinator for economic policy and public sector in Russia). David Tarr (consultant) authored the focus note on WTO accession, Shane Streifel (Consultant) provided the box on the global oil market, and Dilek Ayku (Senior Economist) provided the assessment on the global outlook. Advice from and discussions with Michal Rutkowski (Country Director for Russia), Yvonne Tsikata (Director for Poverty Reduction and Economic Management in the Europe and Central Asia Region), Benu Bidani (Sector Manager for Russia, Ukraine, Belarus, and Moldova), Lada Strelkova (Country Programme Coordinator for Russia), and Carolina Sanchez (Lead Economist and Regional Poverty Coordinator) are gratefully acknowledged. http://pt.scribd.com/doc/89175094/2012-Russia-Economic-Report-WB 23 http://eng.news.kremlin.ru/acts/4043 24 http://www.chathamhouse.org/media/comment/view/184793 25 Mikahil Dmitriev and Daniel Treisman, The other Russia.Discontent grows in the hinterlands, in Foreign Affairs, Vol. 91, No. 5, 2012, pp.59-72. 26 The dismissal of Anatoly Serdyukov was a surprise because he had married the daughter of one of Putins close allies, the chairman of state-run natural gas giant Gazprom. Media reports suggest that Serdyukovs alleged philandering angered Viktor Zubkov and may have been a factor in the sacking. Vladimir Isachenkov, Putins defense minister forced out. Concord Monitor, 7 November 2012. http://www.concordmonitor.com/news/livebreakingnews/2677338-95/militaryserdyukov-defense-putin

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http://www.worldpoliticsreview.com/articles/12495/global-insights-russias-defense-industry-purges-reformers? utm_source=Weekly+Headlines&utm_campaign=86b97239ea-WPR_Weekly_111612&utm_medium=email 28 Robert Orttung, Can Putnism evolve?, in Russian Analytical Digest, No. 110, 16 March 2012, pp. 4-7.