Energy-rich states moving away from democracy, report claims

Jun 13, 2006, 16:13 GMT

Budapest/Berlin - A pronounced shift away from democracy in energy-rich Russia and some former Soviet satellites is a major cause for concern and could endanger Europe's energy supplies, a Freedom House study released on Tuesday claimed.

The annual Nations in Transit study by the Budapest-based organization claimed that nations such as Russia, Azerbaijan, Kazakhstan, and Turkmenistan have shown an 'alarming' decline in accountability and democracy.

'These countries appear not to understand that improving accountability would provide what citizens want - prosperity and the rule of law - and give their states more options internationally,' Nations in Transit Editor Jeannette Goehring said.

'Instead, they are taking advantage of high energy prices by building authoritarian regimes that are unresponsive to their citizens and unreliable in the international sphere,' she added.

The report said that the while the states were increasing their economic power, they were displaying deteriorating governance standards, worsening media and judicial freedom, and rising corruption.

Russia's overall democracy score dropped by 0.14 to 5.75 (on a scale of 1 to 7, with 7 being the worst). Freedom House blamed President Vladimir Putin's centralization of control and efforts to counter previous democratic developments as the main reasons.

Azerbaijan's democracy rating fell to 5.93 and Kazakhstan's to 6.39, but Freedom House rated Turkmenistan as the worst, with a rating of 6.96.

However, according to the report authors, Russia warrants special attention because of the huge implications for the former Soviet region.

'In Russia, the new oligarchy is state officials,' said Ivan Krastev, contributor to the study and chairman of the Sofia-based Centre for Liberal Strategies.

'The transition has been from a one-party state to a one-pipeline state,' he added, referring to the state takeover of Yukos, a major oil company.

The Russian tax authorities in 2004 controversially bankrupted Yukos for allegedly failing to pay taxes, and the government then sold Yukos's main production unit to state-owned Rosneft.

The move against Yukos was suspected of being a Kremlin ploy to punish Yukos founder Mikhail Khodorkovsky for his political ambitions. Khodorkovsky is currently serving a nine-year jail sentence for fraud and tax evasion.

US-based Yukos shareholders have now filed proceedings claiming that Russia used the unfounded tax claims to transfer the company's assets to Rosneft, which also owns a controlling stake in Gazprom, Russia's gas behemoth.

Putin at the time defended the takeover as 'perfectly normal.'

However, Rosneft on Monday announced a flotation of 10-15 per cent of its stock on the London and Moscow stock exchanges, which would take it out of total state control.

The flotation is expected to be one of the largest in the world and could raise around 10 billion dollars, which the company will apparently use to pay off loans taken out to buy the stake in Gazprom.

However, Anita Orban, deputy director of the Budapest-based International Centre for Democratic Transition (ICDT) and a speaker at the Freedom House report launch, dismissed the move as insignificant.

'This is a great PR move considering Russia is under pressure from the G8 to let others into its energy market,' she told Deutsche Presse-Agentur dpa. 'However, it makes very little difference and I doubt the shareholders will have any influence.'

'Regarding the need to sell shares to pay off the loan, I would ask where the money they have been making from high oil prices has gone,' she continued.

Orban warned that energy centralization could pose major problems to energy consumers.

Gas supplies to Europe suffered a major shock earlier this year when a dispute between Gazprom and transit country Ukraine saw supplies to some European nations drop by up to 40 per cent.

Freedom House and its associates are also worried about the effect the power and money floating around in the energy industry will have on democracy.

'In the next decade one of the biggest enemies of democracy will be energy,' said Orban.

'Corruption is a large disease. When a substantial portion of a country's income comes from the sale of one natural resource and the price is high, there is always a considerable risk and temptation in this regard.'

The participants at a briefing in Berlin urged German, European, and Trans-Atlantic leaders to consider policies to encourage good governance and regional reliability in these countries.