The resignation of the head of Russia’s main railroad company might have important implications for the future of Putin’s brand of capitalism.

Russian President Vladimir Putin, left, meets with Russian Railways president Vladimir Yakunin at Novo-Ogaryovo residence, October 29, 2014.Photo: RIA Novosti

The economic system that has taken shape in Russia under Putin is often described as “crony capitalism.” This system lives by the principle that can be best characterized as “to friends everything, to enemies the law.” The infallibility of this principle has been convincingly proved to both opponents of Putin (former oligarch Mikhail Khodorkovsky, opposition leader Alexei Navalny) and his friends, who undoubtedly include the president of Russian Railways, Vladimir Yakunin. This week Russian media reported about his resignation. 

Like many members of Putin’s inner circle, Yakunin’s career during the Soviet era was linked to the KGB. However, he was not acquainted with the future president at that time, meeting him only when Putin was an advisor to the mayor of St. Petersburg. Yakunin headed the board of directors of an international business center in the city.

Most likely they initially struck up a business relationship, which quickly developed into a personal one. How else to explain why, in November 1996, Yakunin was among the founders of the renowned dacha cooperative “Ozero” (together with six other members).

After Putin was elected as president of Russia, Yakunin worked for some time in the Ministry of Transport and the Ministry of Railways, whereupon in 2003 he moved to JSC Russian Railways, becoming president of the company two years later. Along with Gazprom and Rosneft, Russian Railways is one of the primary anchors of Putin’s state capitalism.

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But whereas Alexei Miller, the head of Russia's largest gas company Gazprom, and his counterpart from the Rosneft oil giant, Igor Sechin, were handed their companies on a silver platter (Gazprom and Rosneft were already lucrative), Yakunin had to work hard to turn the enterprise he inherited from the Ministry of Railways into a profitable business. Having liberalized rail freight, Yakunin made the company a profitable venture by 2005.

Like all Putin’s friends entrusted with state-owned companies, Yakunin is alleged to have feathered his nest. In the summer of 2013, opposition leader Alexei Navalny published a plan of Yakunin’s country house on which one of the rooms was marked “fur coat repository.” The Russian Railways chief refutes the information, asserting that neither he nor his wife wear fur, but the fact that Yakunin, together with Miller and Sechin, persuaded Putin to allow them not to declare their income speaks for itself.

In May 2015 Yakunin told the press that his remuneration varies from 4 to 5.5 million rubles ($80,000-$110,000) a month. That is far less than not only Sechin (four times) and Miller (three times), but also top managers of other state-owned companies.

However, Yakunin is known to the general public not only for his “fur coat repository,” but also his claim to be a political thinker and the source of most streams of state ideology. In 2007 he became a doctor of political science and in 2011 headed the Department of Political Science at Moscow State University. In his vision of the prospects for Russia’s development, Yakunin was far ahead of his Ozero comrades, appealing to “traditional Orthodox values” and the need to “support the Russian world abroad” long before the events in Crimea.

Yakunin’s status as one of Putin’s inner circle is confirmed at the international level: In March 2014 he was placed on the U.S. sanctions list after the Crimean referendum. Although he escaped European sanctions, Russian Railways, along with other Russian state companies, was deprived of Western loans.

At times Yakunin’s position seemed unshakable. In June 2013 Russian news agencies reported his resignation, but retracted the information a few hours later when the statement from the government press service was declared a forgery. Yet it was rumored that the message was true: Yakunin had been saved by the fact that at that moment he had been dining with Putin and had literally begged the president to override the decision, which Prime Minister Dmitry Medvedev had long sought.

Two years later, on August 17, 2015, word leaked out that Yakunin had agreed to be included in the list of possible members of the Federation Council in the event that the governor of the Kaliningrad region, Nikolai Tsukanov, was reelected. The head of Russian Railways essentially confirmed his readiness to vacate his position, since membership of the Federation Council is incompatible with commercial activities.

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What on earth happened? Why did Yakunin hang on like grim death only to walk away without a fight two years later? There may be several explanations.

First, starting in the first quarter of 2014 Russian Railways ceased to be a profitable company and its presidency became less of a tasty morsel.

Second, in the current climate proximity to Putin has turned from being a plus into a minus. As long as Yakunin is on the sanctions list, the company cannot get Western loans. It is not certain that the situation will change if someone else heads Russian Railways, but with Yakunin at the helm it certainly will not.

Third, the saga of cancelled suburban trains last winter could have been a factor. One of the ways Yakunin chose to deal with the problem was to allocate suburban trains to separate companies, which as of 2015 have been financed mainly by regional administrations.

Yakunin’s empire makes a profit only from freight transport: passenger trains are run at a loss, and suburban routes are the most unprofitable of all. These losses used to be offset in part by the federal budget and in part by Russian Railways’ profits from freight. Shifting the burden of financing to the regions, which struggle to make ends meet as it is, led to a hike in ticket prices and the cancellation of a significant number of routes.

Public discontent forced Putin to intervene and oblige the government and Russian Railways to restore most routes (ticket prices, however, were not cut, and the number of carriages fell from ten to five and even four in some cases). Apparently, the thinking goes, Putin could not forgive Yakunin for such a blow to his presidential prestige.

What’s more, Putin never takes decisions that could be interpreted as caving in to public opinion. He tends to bide his time, waiting for the heat to die down before making his move. It is possible that such is the case today.

In any case, Yakunin’s resignation has been presented as an honorable exile. And it is not ruled out that he could be handed a top post in the Federation Council. Of greater interest, however, is that we are essentially witnessing the start of the unraveling of crony capitalism. Yakunin is going because he became too costly for his company. In more plentiful years no one would have paid attention, but times have changed.

But Yakunin does not cost his company nearly as much as Sechin does Rosneft, which is burdened with crippling debts, or Miller does Gazprom, which is heading cheerfully into the red. Are they next in line? If so, Yakunin will be said to have launched the countdown for the end of the Putin-engineered economic system.

The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.