Putin Said Ready to Revamp Inner Circle as Ally Yakunin Goes

Kremlin and River

(Bloomberg – bloomberg.com – Irina Reznik, Ilya Arkhipov, Olga Tanas – August 18, 2015)

Russian President Vladimir Putin’s ready to start replacing long-serving allies in his inner circle after the sudden departure of OAO Russian Railways chief Vladimir Yakunin as head of the country’s largest employer.

Putin intends to bring in trusted younger people to shake up his team ahead of the 2018 presidential election as he seeks to drag Russia’s economy out of recession, an official said Tuesday, speaking on condition of anonymity because he isn’t authorized to discuss appointments.

Yakunin’s exit marks “a radical change, a very strong breach in the balance of the inner circle,” Gleb Pavlovsky, a former political adviser to Putin, said by phone on Tuesday. It may be “a signal of the high level of instability at the top” of the regime, he said.

Yakunin said by phone that his decade-long tenure as chief executive officer of the state railway operator, the second-largest in the world, was ended at a meeting with Putin. Blacklisted by the U.S. last year over Russia’s annexation of Crimea, the former Soviet diplomat was Putin’s neighbor in an elite collective of dachas, or country homes, founded in the mid-1990s outside St. Petersburg. He took charge of the rail company in June 2005 after working in the Russian Transport Ministry for about five years.

“Life goes on,” said Yakunin, 67, who confirmed plans to seek a place in the Federation Council, the upper house of parliament, representing the Kaliningrad region.

‘No Money’

“It was his choice” to leave and become a senator, Putin told reporters during a visit to Sevastopol in Crimea on Tuesday. Yakunin was successful at the company and they’ll meet again when he returns from holiday, the president said.

The most high-profile departure from within Putin’s inner circle since he returned for a third term as president in 2012 comes as Russia battles its first recession in six years. Wages and disposable incomes are falling amid plunging oil prices and a 45 percent slump in the ruble’s value against the dollar in the past year.

“The inner circle has ceased to be a management tool” for Putin to run the country, Pavlovsky said. While the Kremlin previously relied on lavish funding for inefficient state companies, “now there is no money, which means they should be managed better and the railways are a glaring example.”

‘Loyal People’

State companies may lose more top officials in the fall as the Kremlin seeks to revive the economy by improving their performance, Igor Yurgens, vice president of the Russian Union of Industrialists and Entrepreneurs, said by phone on Tuesday. “Now they must work and not just be run by loyal people,” he said. “Otherwise, the economy will simply become catastrophic.”

The need to avert economic collapse by raising efficiency may put “the titans of Putin’s circle at risk,” Igor Bunin, director of the Moscow-based Center for Political Technologies, said by phone on Tuesday. “He has a generation of younger, more effective people who can replace them.”

Even seemingly “untouchable” figures such as Rosneft chief Igor Sechin and Gazprom CEO Alexey Miller are under pressure, Konstantin Gaaze, a Moscow-based political analyst, said by e-mail Tuesday. “If they are too pushy in asking for more help from the state budget, they can share Yakunin’s fate,” he said.

Regime ‘Renewal’

Putin criticized Sechin publicly for the first time on Feb. 4 for changing his position on issues, including oil-tax breaks, since moving from the government as deputy prime minister to be Rosneft CEO. Gazprom may have spent $40 billion on unnecessary projects under Miller, who has led the energy giant since 2001, Vedomosti newspaper reported in July.

Barred from borrowing in the West under sanctions, Russian Railways has been asking for billions of dollars in assistance from the state’s $75 billion National Wellbeing Fund. Yakunin said in March last year he was honored to be sanctioned by the U.S. authorities and has also said the measures weren’t hurting the company, which has almost 836,000 employees.

Amid worsening tensions with the U.S. and the European Union over the conflict in Ukraine, Putin has shrunk his inner circle from dozens of confidants to a select group of security officials, two longtime associates said in January. The core group includes Security Council Secretary Nikolai Patrushev, Federal Security Service head Alexander Bortnikov, Foreign Intelligence Service chief Mikhail Fradkov and Defense Minister Sergei Shoigu, according to Sergei Markov, a Kremlin-linked political analyst.

Potential Successors

Yakunin’s potential successors may include Putin’s aide on transportation, Igor Levitin, and Oleg Sienko, CEO of Russian tank maker Uralvagonzavod, according to two people familiar with the situation, who asked not to be identified discussing appointments.

Other candidates may include Russian Railways deputy chief Alexander Misharin and Deputy Prime Minister Arkady Dvorkovich, who chairs its board, as well as the company’s former chairman Kirill Androsov, Transport Minister Maxim Sokolov or his first deputy Oleg Belozerov, officials close to the company said.

Residents of the Kaliningrad region, a Russian exclave on the Baltic Sea wedged between Poland and Lithuania, will vote on Sept. 13 in gubernatorial elections, according to the regional administration’s website. Acting Governor Nikolai Tsukanov, who is running in the election, has said he plans to nominate Yakunin as a senator should he win, RIA Novosti news service reported.

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