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Analysis & Opinion
10.04.08 The Spoils Of Success
By Yelena Biberman

“Being successful in Russia is risky,” Georgy Satarov, president of the INDEM Foundation and the presidential representative in the State Duma under Boris Yeltsin, said in response to the latest controversy surrounding the renationalization of the Domodedovo International Airport. Satarov noted that the more successful a company is in Russia, the greater are its chances of becoming illegally taken over by the government. The case of Domodedovo supports this logic.

On March 20, a Moscow court backed an order forcing East Line Group, the operating company of Domodedovo International Airport, to return 16 pieces of state property to the Federal Property Management Agency. The agency argued that the property was illegally privatized in the 1990s. East Line has operated the Domodedovo Airport since 1997, and its lease is scheduled to expire only in 2072.

High-flying business

The Domodedovo International Airport is a lucrative target for reverse privatization. In 2007, it was rated the best airport in Eastern Europe by ACI Europe in terms of passenger traffic growth.

The airport served over 800,000 international passengers in March, which constitutes a 24.5 percent increase compared to March of last year. The number of Domodedovo clients flying domestically (roughly 650,000 passengers) saw a similar 23 percent increase. In the first three months of this year (as compared to last year), Domodedovo served 1.7 times the number of passengers traveling to the top ten destinations, which included St. Petersburg, Krasnodar, Bangkok and Vienna.

The number of take-off and landing operations at the airport is significantly growing as well. It was 14.3 percent higher this March than during the same month in 2007.
On April 1, Germany's Lufthansa Airlines, a leader among foreign airlines operating in Russia and the CIS, moved its Moscow passenger flights from Sheremetyevo to Domodedovo. Lufthansa thereby joined the six other Star Alliance members already operating at Domodedovo – SWISS, Austrian Airlines, bmi, Singapore Airlines, Thai Airways and Spanair. Among the special services that Lufthansa made available to their Domodedovo clients is free check-in at the Paveletskiy train station.

Too big to support

The moves against East Line demonstrate that the state is attempting to cash in on its own corruption. The same forces that allowed (and benefited from) the illegal privatization of state properties have returned to reclaim them from a company that has invested over $1 billion into making Domodedovo the leading international airport in Moscow in terms of passenger and cargo traffic.

Most striking about this controversy is its timing. The court ruling came at a time when Russia’s top executive leadership appears to be focused on creating better conditions for business by combating state-sponsored corruption.

Satarov was not surprised by the timing. He argued that the coming of a new president is causing corrupt state officials to scramble to take whatever spoils they can, before the window of opportunity closes.

However, considerable damage is a likely consequence for big business in Russia as well, currently undergoing a transformation “from black to white” –increasingly legalizing by obeying an increasing number of laws.

Doing better than that

The order of renationalization of Domodedovo petrified the Russian business community. The country’s leading business lobby appealed to President-elect Dmitry Medvedev to enforce property rights. If he does not deliver, the aforementioned business legalization process may suffer a severe setback.

In theory, Medvedev stands against what the Federal Property Management Agency is doing. According to Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs, the case of Domodedovo Airport was mentioned at the April 8 meeting with Medvedev. While he did not address this case directly, the president-elect condemned the government’s attempts to forcefully gain back privatized property.

In practice, Medvedev will have to do better than his predecessor. He is not the first to condemn unlawful renationalization. President Vladimir Putin also spoke in support of East Line back in 2005, when the company faced a similar challenge, but to no avail.
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