Artful Regional Leader Slips Moscow's Grip

NABEREZHNYE CHELNY, Russia ? On the banks of the Kama River here lies a beached, sick whale of Russian industry. Mountains of wheel hubs and tentacles of steel pipes feed into the cavernous assembly lines of Kamaz, the largest heavy-truck factory in the former Soviet Union.

Once a state enterprise run from Moscow, Kamaz has been foundering since the Soviet Union's collapse, saddled with debts, huge losses, staggering energy bills, slumping demand for trucks and a restive work force. Last year, the Kremlin tried to put Kamaz out of its misery, demanding $24 million in back taxes -- and threatening to force it into bankruptcy.

But Moscow lost the fight to Mintimer Shaimiev, a shrewd regional potentate. Shaimiev, president of Tatarstan, a semiautonomous, oil-rich internal Russian republic, will soon scoop up the giant Kamaz truck factory like a piece on a Monopoly board. In exchange for paying its bills and pumping millions of dollars into the ailing company, Shaimiev's government will obtain control of the largest block of Kamaz stock.

That Shaimiev is taking over this gigantic factory is only the latest evidence of a fundamental shift in Russia's post-Soviet balance of power.

The Kremlin's might is waning, giving rise to new barons of business and politics. Among them are regional bosses like Shaimiev, 60, who rose from a Tatar village to become a Soviet Communist Party functionary and a post-Soviet power broker. He has built a small personal empire within Tatarstan, a landlocked, multiethnic republic of 3.7 million people in the Volga-Urals region, 450 miles east of Moscow.

Tatarstan is one of 21 republics inside Russia, most created in the early Soviet years to recognize strong ethnic groups. In all, there are 89 Russian republics and regions, roughly equivalent to states.

Shaimiev rules Tatarstan with formidable authority. "It is the total power of a monarch," said Ivan Grachev, who heads a liberal opposition bloc and serves in the Russian parliament. "He holds the whole republic in his hands and leads it where he wants it," said Yelena Chernobrovkina, political editor of the independent newspaper Vechernaya Kazan. Shaimiev has so dominated the political scene that he ran unopposed for president last year -- and won 97.5 percent of the vote.

His power has been felt well beyond the borders of this Russian heartland republic. After the Soviet collapse, Shaimiev wrested considerable autonomy from Moscow, without going to war. He negotiated an unprecedented power-sharing treaty with the Kremlin, signed in 1994, which allows Tatarstan to keep much of its earnings from oil wealth, and tax revenues, at home. Tatarstan flies its own flag, peddles its own weapons abroad at arms bazaars, has opened its own foreign trade offices, and follows its own economic policy.

"Tatarstan has become master of all our riches," Shaimiev said in a recent interview in Kazan, the capital.

Shaimiev's Way While the breakaway republic of Chechnya fought a war against Russia for independence, Shaimiev took a more pragmatic route. He bargained for tax breaks, but not full independence. Shaimiev sits in the upper chamber of Russia's parliament, the Federation Council, but not all laws passed there are followed in the republic. Tatarstan has no separate army, currency or postage stamps. These are all Russian.

To demand a complete break with Russia, Shaimiev said, would have led to war.

"And I am afraid it could be a war without any results," he added, pointing out that after the bloody conflict in Chechnya, which claimed more than 40,000 lives, no other country in the world recognized Chechnya as an independent state. "I couldn't support this idea of independence before the people, knowing in advance that it couldn't be realized."

But Shaimiev's treaty unleashed a profound change inside Russia, triggering similar demands from other regions. At first, the Kremlin refused. But now, 24 of the 89 subdivisions have bargained with Moscow for their own power-sharing deals. Russia's political map now looks more and more like a patchwork quilt of unequal states. Some are rich, some destitute; some are nearly independent, and others survive on Moscow's subsidies.

Valery Zubov, head of the vast Krasnoyarsk territory, speaking for 19 Siberian governors, recently warned Deputy Prime Minister Anatoly Chubais: "If the federal authorities do not have enough willpower to establish equal relations with all the regions, then count Siberia out."

Although the prospect of violent secession has dimmed with the Chechen peace agreement, some experts think the sinews of the Russian Federation are degenerating. In the worst case, a breakup could have frightening repercussions, especially if it came with a violent shudder that triggered wars and unloosed nuclear materiel. But others see this as less likely than a gradual erosion of central authority. Still others say the Tatarstan "model" is a temporary device to prevent a more disorderly and dangerous unraveling.

"The centrifugal force is too great with these treaties," said Grachev. "If Russia wants to be preserved, it will be compelled to end these treaties one by one. Gradually, these treaties will be voided." But, he acknowledged, "the treaty with Tatarstan can't be quickly undone."

As the Kamaz truck factory suggests, the momentum is in Shaimiev's favor, if only because the center is weak. Gripped by a devastating budget crisis, the Kremlin's power over the regions is limited. Moreover, in the last year, the majority of regional governors have been directly elected for the first time, giving them popular legitimacy beyond that of governors who were appointed -- and fired -- by the Kremlin. President Boris Yeltsin is now grappling with the possibility of firing one rebellious governor in the Far East, but it could be difficult.

Raphael Khakimov, political adviser to Shaimiev and an intellectual champion of Tatar sovereignty, said the republic's treaty with Moscow has already survived three attempts to repeal it in Russia's parliament. Meanwhile, Tatarstan is continuing down its own path, seeking still more economic independence from Moscow. For example, it is preparing a liberal land-ownership law, which doesn't exist in Russia. Khakimov said someday Tatarstan may have its own passports. "In order not to annoy the center," he said, "we are moving very gradually."

When Yeltsin visited Kazan in August 1990, he urged the republics to grab "all the sovereignty you can swallow." The words have haunted him.

Shaimiev, then a regional party boss, took Yeltsin literally. Shaimiev harnessed a rising Tatar nationalism -- critics say he also instigated it -- and used it to survive the upheavals of the era. "He understood when it was time to sit on the Tatar nationalist horse," said Vladimir Belyaev, head of the Social Democratic Union.

Not long after Yeltsin left Kazan, Tatarstan began to pull away from Russia. The Tatar Supreme Soviet issued its own declaration of sovereignty in August. Then, in 1992, Tatarstan's voters overwhelmingly approved a referendum on sovereignty over Moscow's vigorous protests. By year's end a new Tatar constitution, which barely mentioned Russia, was approved.

The Tatar suspicion of Russia is rooted in history. The Volga Tatars, a Turkic-speaking, Sunni Muslim people, were swept up in the conquests of the Golden Horde in the 13th and 14th centuries. Later, they formed a distinct Tatar dynasty, the Kazan Khanate, which lasted more than a century until it was stormed and destroyed by Ivan the Terrible in 1552, beginning what Tatar nationalists regard as a long period of Russian and then Soviet colonization and cultural oppression.

Mixed Population Over the years, Russian and Tatar populations mixed. The republic is now about 48 percent Tatar and 43 percent Russian. Intermarriage is common and there appears to be little ethnic tension, although when president Mikhail Gorbachev reawakened national aspirations across the Soviet Union, extreme nationalists took to the streets in Kazan demanding an independent Tatar state.

Shaimiev steered a middle course. Boris Zheleznov, a law professor, recalled the frenzied throngs gathered in front of parliament in the center of Kazan, demanding independence. "It was quite frightening," he said. "I was afraid events might grow into a civil war. It was happening right in the center of Russia, not somewhere on the border like Chechnya."

"I think we could have had a Chechnya here," said Chernobrovkina, the political editor. "We were on a razor's edge. Our republic was very near declaring its independence. If Shaimiev had wanted to declare an independent state, he could have. But he was smart enough not to. Moscow could have sent tanks to Tatarstan, too."

Shaimiev's 1994 treaty with Moscow gave the republic extensive responsibility. While Russia kept control of the defense factories and higher education, and agreed to pay for half of the police costs, Tatarstan got just about everything else, including the republic's lucrative oil and petrochemical industries, the sole right to collect taxes, and control over key appointments.

The treaty effectively gave Tatarstan -- one of a handful of rich "donor" republics -- a big break. Instead of sending money to Moscow and hoping some would come back in subsidies months later, if at all, as in other regions, Shaimiev kept much of the money under his own control. According to the Russian Finance Ministry, Tatarstan keeps half of the revenues from the value-added tax, while other regions keep only 25 percent. The result is that Shaimiev does not have to rely on the whims of Moscow.

Shaimiev said, "How can I explain to our taxpayers that we are donors, the money has been given away in taxes, and I cannot get anything back? Is that logical? No!"

With the treaty in his pocket, Shaimiev became ever more powerful at home. While the rest of Russia was going through the painful stages of economic "shock therapy," Shaimiev's population was cushioned. Using Tatarstan's oil revenues, Shaimiev preserved the social safety net. He stalled privatization, controlled prices and said Tatarstan would make a "soft entry" into the free market.

Shaimiev became popular, but the economic results are in dispute. Shaimiev said factories and farms are in better shape than elsewhere in Russia; General Motors has launched an ambitious plan to build Chevrolet Blazers in Tatarstan. But critics said the republic has been treading water, doling out subsidies and postponing the transition to free markets. Businessmen complained in interviews that taxes are still high, and the state retains a big share of many firms.

"The soft entry into the market was in fact a slow fall," said Ildus Salakhov, a mathematician who became active in the Yabloko party, a centrist Russian bloc.

The Monitor Co., an international management consulting firm based in Cambridge, Mass., warned Shaimiev last year against the republic's nearly total reliance on oil and petrochemicals, saying Tatarstan had become an "advanced, backward economy," not a modern one.

However, there are signs that Shaimiev has started to move more quickly toward a market economy. "Shaimiev has grown. He saw how people live in the West," said Salakhov, noting that Shaimiev's political clansmen are becoming businessmen. "The basic question is the question of property. Shaimiev and his clan have become owners of property -- oil, industrialists -- and they can't have a bad attitude toward it. That is a fundamental point of difference."

Shaimiev rose to power in the Soviet years as the epitome of the nomenklatura, the Communist Party elite. He had been a specialist on a collective farm, and later minister of irrigation, and finally the top party official and prime minister of the republic. He was known as a conservative provincial boss, a villager who loved horses but knew little about the outside world.

Shaimiev did not break stride when hard-liners in Moscow organized a coup attempt against Gorbachev in August 1991. Shaimiev endorsed the putsch, which collapsed after a few days.

In the years since, Shaimiev has edged out both extreme nationalists and liberal reformists. Shaimiev shows tolerance of press criticism but he has no serious competition or rivals in public life.

A turning point came in the March 1995 elections to the new 130-member Tatar parliament, the State Council. Grachev's liberal opposition bloc has charged that Shaimiev's political machine falsified the election returns to keep out the liberals. Although the bloc enjoyed a grass-roots following, only one of its 46 nominees got elected, according to executive director Ildus Sultanov.

Shaimiev's machine came to the rescue of Yeltsin in his 1996 reelection campaign, too. According to Sultanov, initial reports showed Yeltsin losing to Communist leader Gennady Zyuganov in the first round of voting in Tatarstan. But Sultanov claims that 47,000 votes were added for Yeltsin to help him eke out a narrow victory by the next morning. Sultanov said he has been denied access to the vote records. Six international observers in Tatarstan also faulted the elections for irregularities.

Asked about the charges of falsification, Shaimiev said it was sour grapes by the losers. "I haven't seen a single case after the elections, if somebody loses, and he was pleased. Neither in Tatarstan, nor Russia, nor in America or France."

"How can you silence the opposition?" he asked. "Over all the years of perestroika [economic restructuring], there hasn't been a single case in Tatarstan when the authorities closed down a magazine or newspaper or radio or television."

Taking Over Kamaz Alarm bells went off in Tatarstan last autumn. The Kremlin's young reformer, Chubais, went hunting for tax revenue with a special "emergency" commission, putting big companies like Kamaz on a hit list -- and threatened bankruptcy if they didn't pay.

After a devastating 1993 fire, Kamaz had millions of dollars in debts to Russia that it could not repay. But the company, which primarily makes heavy-duty trucks, is the lifeblood for Naberezhnye Chelny, Tatarstan's second-largest city. Shaimiev stood up to Chubais. "It is impossible to declare Kamaz bankrupt," he recalled saying.

The Kamaz plant had been in the midst of a complex restructuring and investment deal with the Wall Street firm of Kohlberg Kravis Roberts & Co., in which blocks of stock would be gradually transferred to a joint venture in exchange for new investment. But Kamaz was not meeting one goal of the deal: to break even. Losses were mounting. Now that Shaimiev has agreed to cover what one source estimated to be about $600 million in debts and needed investment, he will effectively control Kamaz with 40 percent of the stock, taking a large block that had been set aside earlier for private investors.

At its peak in 1991, the Kamaz factory churned out 130,000 trucks a year. This year the break-even target is 23,500. No one knows whether Shaimiev will have more success than others who have watched the plant sink into red ink, but Moscow has clearly lost interest, leaving the fate of Kamaz to Tatarstan.

"Russia did not need us, but Tatarstan needed us," said Ivan Kostin, the new general director. "The last time when Shaimiev asked me, not long ago, if I believed it is possible to get Kamaz out of the fix which it is in now, I said 'Yes -- together with you!'"

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REPUBLIC WITH ITS OWN MIND Tatarstan is one of 21 internal Russian republics among Russia's 89 regions, some with considerable autonomy. One republic, Chechnya, unilaterally declared independence from Russia. The internal republics are distinct from the former union republics, such as Georgia and Uzbekistan, which became independent nations when the Soviet Union dissolved.

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Population: 3.7 million. Ethnic groups: Tatars 48%, Russians 43%. Size: Roughly the size of Ireland, 27,100 square miles. Industry: Oil is mainstay of economy; a petrochemical and refining center; was center of military-industrial complex during Soviet years. Signs of independence: Tatarstan flies its own flag; keeps its oil and tax revenues in the republic; follows its own economic policies at home; sells its own weapons abroad. Plans: A liberal land-ownership law; republic to take over giant truck company.