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. Last Updated: 07/27/2016

Klebanov Demoted To Just a Minister

Ilya Klebanov was relieved of his job as deputy prime minister Monday. Although he will continue to oversee the defense industry and remains the minister of industry, science and technology, the demotion is seen as a possible first step toward his ouster from the government.

President Vladimir Putin, acting on the recommendation of Prime Minister Mikhail Kasyanov, signed the decree stripping Klebanov of the powerful post on the same day that the commission investigating the Kursk nuclear submarine disaster completed its work.

Since the sinking in August 2000, Klebanov had been the government's point man on the Kursk, for which analysts believe he was awarded the Industry, Science and Technology Ministry post last October.

Putin's press secretary, Alexei Gromov, was quoted by Interfax as saying that Klebanov, who was in charge of the armament program that Putin signed off on Jan. 23, will focus on resolving issues involving the military industrial complex and improving its cooperation with the Defense Ministry on state arms procurement.

Klebanov will lose his control over the Railways, Nuclear Power and Communication ministries, which will now come under Kasyanov's direct supervision. "Reforms in the Railways and Nuclear Power ministries require constant attention from the prime minister," Gromov said.

The deputy head of the government apparatus, Alexei Volin, was quoted by Interfax as saying that Kasyanov will soon reassign the responsibilities to his remaining deputies. Volin also said that Klebanov will continue as deputy head of the commission on the military industrial complex headed by Kasyanov.

It was unclear Monday whether anyone would be named to replace Klebanov as a deputy prime minister.

Some in the military industrial complex have been less than happy with Klebanov since he was appointed deputy prime minister and put in charge of the sector in June 1999. He undertook a major drive to carry out a long-overdue overhaul of the mammoth sector inherited from the Soviet Union by halving the number of enterprises from 1,700 and shaping them into holdings as a way of concentrating scarce resources to focus on the development of new-generation hardware.

Last year, the Security Council approved the basic principles of defense industry reform, albeit against opposition from governors of regions where defense enterprises are major taxpayers.

The industry's other gripe against Klebanov has been his insistence that projects such as the development of a fifth-generation fighter jet should be financed from companies' export revenues. The $1.5 billion development project has been contested by the Sukhoi and MiG fighter manufacturing firms.

With hardly any orders coming from the Defense Ministry, the sector has been 90 percent dependent on export revenues, the majority of which comes from China and India. Last year, Russia received $4.4 billion from arms exports.

Some industry players and observers said Monday that Klebanov's handling of both those issues could have cost him the deputy prime minister seat.

"The industry is jubilant. The president made the right decision," said one source in the defense industry who spoke on condition of anonymity. "Everything that he has been doing in the past was against the industry's interests."

The source said that although Klebanov is still in charge of defense industry matters, having lost the position of the deputy prime minister, he can no longer control export revenues, and therefore his position is considerably weaker. Meanwhile, within Russia, arms procurement is the prerogative of the Defense Ministry.

Klebanov's assurance that arms procurement was fully financed last year will soon come under scrutiny from the Audit Chamber. The State Duma asked for the review Friday based on information provided by an association representing defense enterprises. (See story page 3.)

Alexei Mukhin, an expert with the Center for Political Information, said Klebanov, part of the group from St. Petersburg that surrounds Putin, got into trouble by lobbying on behalf of certain companies.

"He was summoned to bring the industry under the control of Putin's group. He did that but at the same time he lobbied the interests of some companies," Mukhin said.

"He has to resolve the problems in the industry that he has himself created," he said, adding that by demoting Klebanov, the president was sending him that signal.

The last straw, Mukhin said, may well have been the evolving conflict around a $1.4 billion deal to deliver two destroyers to China. When the deal was announced in early January, it was widely believed that it would be carried out by St. Petersburg-based Severnaya Verf shipyards, which had built such destroyers before.

But after a Duma deputy alleged that Severnaya Verf had failed to pay $300 million to the budget for two destroyers delivered to China previously, a goverment tender was called. Another St. Petersburg firm, Baltiisky Zavod, was selected for the contract. Audit Chamber officials set off for Severnaya Verf on Monday to look into the allegations.

Media reports have said the maneuver was not appreciated by China and could cause the disruption of an important contract. "The media have put the blame on Putin and this cannot be forgiven," Mukhin said.

"Klebanov's position in the St. Petersburg team [of security officers and officials close to Putin] is very weak. He is a loner. He has been delcared the weakest link and will be ousted, though gradually," Mukhin said.