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PARTY LINES: Soros Changing His Tune

"I see the situation very positively. The [Putin] administration is very serious about ? reducing arbitrary influence in business." f George Soros on Tuesday, on Ekho Moskvy.

Soros, the world's most famous financier, was talking up Russia this week. To his credit, Soros is not offering blind praise: He is put off by President Vladimir Putin's proposed "dictatorship of law" f he would prefer rule of law minus the dictatorship. And he is alarmed by the thuggish harassment of NTV television, and by the ugliness in Chechnya.

But it's interesting to note the timing: Soros is gushing about how the Kremlin is "reducing arbitrary influence in business" less than three weeks after his most famous investment here, Svyazinvest, became the beneficiary of some very arbitrary influence by the new St. Petersburgers in government.

Three years ago, Soros made what he later characterized as "the worst investment decision of my career:" buying a 25 percent stake in Svyazinvest, a state-owned telephone holding company. As someone who plays to win, Soros found a strong partner in Vladimir Potanin's Uneximbank f a bank so masterful at winning sweetheart deals over the years that sometimes the government asked Uneximbank itself to run privatization auctions. Uneximbank would dutifully set about soliciting bids, evaluating them and proclaiming itself the winner.

Sure enough, Soros-Uneximbank won Svyazinvest f with the highest bid ever seen in Russian privatization, around $1.9 billion (of which Soros paid half). But Soros is also a philanthropist, with a public-spirited and philosophical bent. So when losing rivals alleged the auction had been fixed, Soros acted hurt. To this day he argues that he paid "a fair price" f a subjective term, given an auction where only Cyprus-based shell companies linked with an oligarch could play.

A year later came the crash of August 1998. Soros took a bath. Afterward, he was harshly critical of Russia's political and economic system f and particularly of Boris Berezovsky. In his latest book, Soros recounts trying "to convert Berezovsky from robber capitalist to legitimate capitalist."

"I had lunch with Berezovsky at his 'club,' which was decorated, deliberately or not, in the way Hollywood would present a mafia hangout. I was the only guest," Soros wrote. Soros says Berezovsky sought his help in taking over Gazprom, but Soros declined. "This got Berezovsky very angry ? I literally felt that he could kill me."

Soros goes on to argue that Berezovsky and others may have conjured up the war in Chechnya and perhaps even the apartment bombings to install Putin as Boris Yeltsin's successor:

"Berezovsky [had] regaled me with stories of how he had paid off the military commanders in Chechnya and Abkhazia. So when [Shamil] Basayev invaded Dagestan, I smelled a rat. ? From Berezovsky's point of view it made perfect sense. ? It would give him, Berezovsky, a hold over Putin. So far, no evidence has surfaced that would contradict this theory."

There is a logical inconsistency in arguing:

a) the war was high theater (and high treason) engineered to keep corrupt interests in power via Putin, and

b) Putin's Kremlin is working to reduce the unwarranted influence of corrupt interests.

So what has changed for Soros between a) and b)?

Here's one possible answer: In the fall, Putin put the top people at St. Petersburg Telephone, or PTS, in charge of the Communications Ministry and of Svyazinvest. On May 19, former PTS deputy director Leonid Reiman was confirmed as communications minister. Within hours, the ministry handed a coveted mobile phone license to Sonic Duo, a company majority-owned by Svyazinvest, now run by Reiman's old boss, former PTS general director Valery Yashin.

Amazingly, there was no auction. One former PTS executive hands a telecommunications license to another former PTS executive. In other nations, this happens at open auctions that raise millions, or even billions.

So Svyazinvest has gotten a sweetheart insider deal at the expense of the public f one that benefits Soros. And suddenly Soros is saying he'll invest again in Russia. Fine. But since he is Soros, he can't just take advantage of a lucky break and invest to make money. No, he must claim to have higher reasons. And so the Kremlin, once a font of "robber capitalism," is now "reducing arbitrary influence in business."

Matt Bivens is the editor of The Moscow Times.

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