World

The Velvet Surrender

By and

Václav Klaus, the president of the Czech Republic, is legendary for his lack of manners. When his country assumed the rotating presidency of the European Union in 2009, Klausa stocky and vigorous man with close-cropped white hair and a fastidiously trimmed moustachegot into a scrap with a group of European politicians because he had refused to fly the EU flag above his office in Prague Castle. Nicolas Sarkozy pronounced the snub “hurtful,” yet Klaus was anything but contrite. Instead, he used his first address to the European Parliament to compare the EU to the Soviet Union. Tales of his unsubtle jabs at his political opponents are legion. Visiting the United States during the 2008 presidential campaign, Klaus, known and embraced by many Western conservatives as a fellow partisan, remarked to a reporter that he assumed Barack Obama wasn’t much of a beer man but “might drink those, how do you say? ... piña coladas.” His predecessor, Václav Havel, worked with him for many years and in his memoir described him variously as “utterly unbearable,” “this annoying fellow,” and “radiating a negative energy.” The British historian Timothy Garton Ash called Klaus “one of the rudest men I have ever met.”

Yet even by Klaus’s standards, the fuss he kicked up over the Lisbon Treaty was impolitic. It was October 2009, and after eight numbing years of negotiations and referenda, every EU member had signed the agreement that would give the organization a president. Every country, that is, except the Czech Republic. Its parliament had approved the treaty, and Klaus was required by law to sign it. But he was refusing to answer his telephone.

Instead, Klaus chose that moment to travel to Moscow to promote his latest book, itself a middle finger directed at the European consensus. Blue Planet in Green Shackles dismisses man-made climate change as a myth and claims that the greatest threat to freedom in the twenty-first century is the “ambitious, arrogant, unscrupulous ideology of environmentalism.” While European officials fretted and fumed, Klaus was received in style at the Kremlin. For weeks, it appeared as if the entire European project could be derailed by a single obstinate politician with a continent-sized chip on his shoulder.

Klaus eventually signed the treaty, and many of his critics assumed he’d been holding the accord hostage in a crude play for publicity. But among close observers, his trip to Moscow raised eyebrows for another reason: He appeared to be acting in Russia’s interestsand not for the first time.

An economist by training, Klaus, who is 69 years old, has served as prime minister or president for all but five years of the Czech Republic’s life span. A zealous free-marketerhe has been called the “Margaret Thatcher of Central Europe”he oversaw the transformation of a centrally planned economy into one of the former Soviet bloc’s most successful markets, before emerging as the leader of the right-wing Civic Democratic Party. Nevertheless, ever since the Czechs shook off the communist yoke, Klaus has come down on Moscow’s side in almost every major political debate.

As prime minister in the 1990s, he reportedly pushed hard for his country to sign oil and gas agreements with Russia. In 1999, he bucked Havel to join the Kremlin in rebuking nato for bombing Serbia. Almost a decade later, as president, he refused to condemn Russia’s invasion of Georgia. The Russian energy giant Lukoil paid for his book’s translation into Russian. His recalcitrance over the Lisbon Treaty put Klaus on the Kremlin’s side yet again, this time in line with one of Moscow’s fundamental foreign policy goals: fracturing European unity.

Klaus has supported Moscow so consistently over the years that a well-worn joke in Prague has it that he has been a secret Russian agent all along. These days, such jibes are tinged with more than a little unease. That’s because Klaus is not the only Czech politician whose interests have drifted closer to Russia’s. More than 20 years after the end of communism, over four decades after the Red Army extinguished the Prague Spring, the Czech Republic is again in danger of falling under Moscow’s shadow. This time, the threat comes not from Russia’s tanks, but from its creeping dominance of the global energy market. Russian energy interests are financing Czech political parties and seeking to dominate entire sectors of the country’s energy industryand, in the process, undermining the last 20 years of hard-won post-communist history.

Thanks to the baroque splendors of its central core, Prague has become a popular tourist destination, although much of the city remains surprisingly gritty, slow to shed its communist past. But above the curving Vltava River, near the looming castle immortalized by Franz Kafka, villas line the leafy streets of one of Prague’s most charming neighborhoods. Here, Russian companies operate inside ornate mansions, grocery  shops sell delicacies from the motherland, and one often hears Russian spoken in the streets. Nearby is the Russian embassy, inside a sprawling palace that also houses a Russian Orthodox church and at least 60 Russian intelligence officers and agents, according to the Czech intelligence service, BIS. In June, the agency warned of an “aggressive” Russian espionage campaign in the Czech Republic, one that was increasingly zeroing in on the energy sector.

Unlike the recent U.S.-Russian spy scandal, this is serious business. Russia has the largest energy reserves in the world and, after Vladimir Putin was elected in 2000, Moscow began an aggressive push into European oil and gas markets. Putin started seizing back the energy assets that the government had privatized in the 1990s, and, before long, some of the most powerful Russian energy players were practically indistinguishable from the state. Putin saw the means to pursue his long-cherished goal of restoring Russia to the ranks of the great powers, which he had outlined in his doctoral thesis. The logic was simple: The more countries depended on Russia for their energy needs, the more leverage Russia would have over them. Moscow initially set its sights close to home, on the Eastern and Central European countries it had once controlled, and where it could still draw on a network of useful connections.

Instrumental to this effort was a handful of Russian energy giants either owned by or closely aligned with the government. In the natural-gas industry, the most powerful player is Gazprom, the most profitable company in the world and the single largest contributor to the Russian national budget. (The state owns a controlling stake, and the current Russian president, Dmitri Medvedev, was the chairman of its board until 2008.) Over the past decade, Gazprom and other Russian firms have seeded a number of firms in the Czech Republic, connected via an impenetrable web of shell companies around Europe. BIS concluded in its 2009 annual report, “It is highly likely the complex ownership structure is aimed at camouflaging links to the Russian Federation.”

One example is Vemex, a purportedly Czech firm that sells Russian natural gas. Since it emerged in 2001, seemingly from nowhere, it has captured around 10 percent of the Czech retail gas market. Its ownership structure is essentially indecipherable. To wit: Vemex is owned by companies based in Switzerland, Germany, and Austria, one of which is Centrex Europe Energy & Gas, which was founded by Gazprom’s financing arm and registered in Austria, and, according to the European Commission, owned by two companies, one registered in Cyprus and another controlled by Gazprom’s German subsidiary.

Between these kinds of shadowy entities and major contracts with companies like Gazprom and Lukoil, the Czech Republic relies on Russia for nearly 80 percent of its natural gas. “A lot of Russian firms are under the influence of the state, especially in the energy sector,” Karel Schwarzenberg, a pipe-smoking Habsburg prince and leader of a center-right party called top 09, said in an interview earlier this year. (Schwarzenberg has since become the foreign minister.) “And Russia is  increasingly turning into an authoritarian state. There’s always a danger that economic influence turns into political influence.”

Czech politics are a messy and opaque affair, even at the best of times. This year, elections brought to power a centerright coalition, headed by the Civic Democratic Party and including top 09, after the previous center-right coalition collapsed. The new prime minister, Petr Nečas, has vowed to fight the widespread corruption that critics say Russia has ably exploited. So did the previous prime minister, Mirek Topolánek, under whose leadership the Russian presence flourished.

On the right, Klaus’s sympathies are assured: He was key to Lukoil’s expansion in the country, according to Czech media, meeting in secret with the company’s CEO. Schwarzenberg, the foreign minister, is an outspoken critic of Russia, but in the ruling coalition, he is somewhat of an outlier. Russia also has powerful friends on the left. Earlier this year, Respekt, a well-regarded investigative magazine, reported that Lukoil was financing the new left-wing Citizens Rights Party, headed by a popular former prime minister, Miloš Zeman. The party denies the accusations, but admits taking money from Russian-linked lobbyists, such as Miroslav Šlouf, a former communist youth leader and Zeman’s longtime chief adviser. Zeman, a blunt, hard-drinking pol who hopes to succeed Klaus as president, bridled at questions about his connections to lobbyists. “Let me give you a lesson in political science,” he said. “They’re engaged in a respectable job.” Lukoil and other Russian companies declined to give interviews, but Sergei Mikoyan, the Prague-based representative of the Russian Chamber of Commerce, said that Lukoil is simply seeking to grow its business like any other company.

According to Respekt’s Jaroslav Spurny, one of the country’s most prominent investigative journalists, Lukoil has set its sights on acquiring the Czech Republic’s only non-Russian source of oil by gaining control of the pipeline that brings in supplies via Germany. “That would make us fully dependent on Russian oil again,” Spurny said, “which would mean a kind of dictatorship.”

Elsewhere in the former Soviet bloc, Russia’s massive energy resources have given it significant sway. Bulgaria gets about 90 percent of its gas from Russia; Slovakia is 100 percent dependent; and Gazprom controls Serbia’s entire oil and gas industry. In the winters of 2006 and 2009, Gazprom shut down the flow of gas to Ukraineaccounting for two-thirds of its domestic energyostensibly because of a pricing dispute. But it was hard not to notice that the row flared soon after Ukraine’s Orange Revolutionwhich produced the country’s first-ever pro-Western governmentand that Russia’s energy policy suddenly softened after Ukrainians elected a pro-Moscow president this year. In April, Russia slashed natural-gas prices for Ukraine by about 30 percent, and Kiev agreed that Moscow could maintain a naval fleet in the country until 2042. A few months later, Ukraine dropped nato membership from its foreign policy agenda.

 

Amid the euphoria following the Velvet Revolution in December 1989, Václav Havel delivered one of his most memorable speeches. The most harmful legacy of communism, he said, was not the ravaged economy, or even the political repression that had occurred, but rather the “contaminated moral environment” that had overcome the country. “Our main enemy today is our own bad traits: indifference to the common good, vanity, personal ambition, selfishness, and rivalry,” he continued. “The main struggle will have to be fought on this field.” His Civic Forum Party promised a transparent, democratic government and to return Czechoslovakia to the West. It was a popular message. More than 95 percent of the population participated in the first free elections in 1990, which the Civic Forum won decisively. (Czechoslovakia split into the Czech and Slovak republics in 1993.) That the Czech Republic now appears poised to dismantle some of the gains of its peaceful revolution seems truly mystifying.

After the inaugural elections, Klaus spearheaded a period of rapid privatizationfirst as finance minister in the Civic Forum Party, and then as prime minister of his right-wing splinter Civic Democratic Party. At first, the results were impressive. But critics soon pointed out that Klaus had focused only on stripping controls from the economy, without devoting equal attention to building strong democratic institutions and a sound legal system. Without such safeguards, the corruption that had been a way of life under the old system permeated the new Czech Republic. In 1997, Klaus himself was forced to resign after his government was brought down by a campaign finance scandal. Shortly afterward, Havel delivered a blistering speech in parliament in which he indirectly criticized Klaus for taking the transition from communism only halfway. As a result, he said, an increasing number of Czechs “are disgusted with politics.”

Despite Havel’s entreaties, corruption has continued to color Czech life in ways large and small. Lack of competition and mandatory bribes and kickbacks to officials drive up prices in every layer of the economy. Although the country remains poor by Western European standards, basic goods and services cost more here than in many wealthier EU nations. (Last year, Transparency International ranked the Czech Republic as one of the worst EU countries on its corruption perceptions index.) The major anti-corruption drive promised by the new government appears to have run into trouble: Already, the opposition has blocked a proposal to prevent anonymously owned companies from winning large public contracts.

In short, Czechs are jaded about their government, with the heady idealism that followed the Velvet Revolution now a distant memory. And so, even though many Czechs remain suspicious of Russiaolder people who know Russian often refuse to even speak the language of their former oppressorsapathy and cynicism, rather than any conscious policy choice, have enabled Moscow to muscle in. Václav Bartuska, who was, until June, the government’s envoy for energy security, believes the country has reached a decisive turning point. “We can go the way of Ukraine, a phony  democracy with a few people who are rich,” he said. “Or we can go back and try to be a normal boring European country in which law is law.”

 

In the region of South Bohemia, an hour south of Prague by car, four smooth, gray cooling towers loom over miles of flat, green farmland. This is the Temelin nuclear power plant, which generates 10 percent of the country’s electricity. About 60 percent is produced by coal, but the Czech Republic is phasing out its oldest and most polluting coal facilities. The plan is to make up the shortfall by building two reactors at Temelin, and possibly more elsewhere. The contract will be one of the biggest business deals in Czech history and will pit the pro-Russian forces in Czech politics against those fighting to keep the country oriented toward the West.

Three companies are expected to bid for the Temelin contract, which is worth as much as $30 billion: Westinghouse (a U.S.-based division of Toshiba), Areva of France, and a Russian state-controlled company called Atomstroyexport. Atomstroyexport oversees foreign projects for Russia’s nuclear energy ministry and is widely expected to submit the lowest offer. If awarded the bid, it has promised to subcontract up to 70 percent of the construction work to Czech companies, but this pledge isn’t exactly on the level: A Russian state-controlled industrial conglomerate owns the Czech nuclear engineering firm that would be the main beneficiary of the subcontracted work.

Initially, the decision over the Temelin reactors was to be made by CEZ, the state power giant that owns the plant. There is perhaps no better illustration of the cloudy boundary between government and business in the Czech Republic. CEZ is the largest utility in Central and Eastern Europe, and contributes funds to both major political parties. In May, the Green Party alleged that CEZ stands at the center of “a network of mutual dependency and kickbacks” that includes “courts, police, prosecutors, regional governments and political parties”a point that is so unsurprising to Czechs that some wryly refer to their country as the “CEZ Republic.”

Then Bartuska, the energy envoy, got involved. CEZ was far too vulnerable to Russian influence-peddling, he argued, and this would give Atomstroyexport a dangerous advantage. In his airy office in the seventeenth-century palace that houses the foreign ministry, Bartuska, who had been a student leader in the Velvet Revolution, explained his reasoning. “Russian companies export corruption,” he said bluntly. One example is an $80 million contract awarded by the government last year to build a storage facility at Temelin for spent nuclear fuel. The winning bid was submitted by ceei, a company that is believed to be Russian-controlledits ownership structure is typically labyrinthine. Even more alarming, one of its directors was sentenced to prison last year for trying to kidnap another in an alleged extortion attempt. “It’s a civilization choice,” Bartuska concluded. Thanks to his lobbying, the Temelin decision will be made by the government, not CEZ.

Jiri Kominek, an analyst with the Jamestown Foundation, says Moscow is putting “unprecedented”  lobbying pressure on the Czech government, and Klaus has already endorsed Atomstroyexport, although he has no formal role in the process. Vice President Joe Biden advocated for Westinghouse when he visited Prague last winter, but proWestern politicians in Prague say the United States has been slow to grasp Temelin’s significance. (The American embassy in Prague and officials in Washington declined interview requests.) “I don’t think they care a bloody damn about us,” said Schwarzenberg. 

Among the former states in the Soviet bloc, the Czech Republic has always been one of America’s staunchest allies. In the republic’s early years, the relationship was particularly warm: Czechs remembered that Americans had supported the dissidents and took note when Havel addressed Congress to a series of standing ovations. More recently, the Czech government was one of a small handful of European countries to support the invasion of Iraq. But as Moscow’s influence has grown, it has gained new power with which to oppose American policy goals. Recently, Russia successfully rallied public opinion against the construction of a radar base in the Czech Republic that was to have been part of the U.S. missile-defense shield. And it has pressured other European countries, such as Germany, to oppose putting former Soviet republics on a path to nato membership. “It’s still a power game,” said the former Green Party leader, Martin Bursík. “It’s still a battle between nato and Russia.”

 

Václav Havel is now 73 years old. Since leaving the presidency, he has maintained an energetic schedule of speaking and writinghis latest project is a film version of one of his plays, which is widely seen as an exploration of his relationship with Václav Klaus. Perhaps for this reason, the policies pushed by his old arch-rival seem to be weighing heavily on his mind.

Twenty years ago, Havel stood at the center of an extraordinary historic moment. The Czech people, who had for so long been beaten down by the Soviet regime, decided that they wanted something different for their countryan open society, free from foreign control. Inspiring and channeling this outpouring was the great achievement of Havel’s life, and over the past year he has been repeatedly warning, in speeches and letters and public appearances, that it is in danger of slipping away.

Last year, as Czechs took to the streets for the Velvet Revolution’s twentieth anniversary, Havel refrained from jubilation. “The era of dictatorships and totalitarian systems hasn’t ended,” he said in a speech. He also led a group of prominent Central and Eastern European politicians that published an open letter to President Obama warning of a “growing sense of nervousness” in Central and Eastern Europe. “All is not well either in our region or in the transatlantic relationship,” the letter said. It described Russia’s “overt and covert means of economic warfare” against former Soviet states, and concluded, “The threat to energy supplies can exert an immediate influence on our nations’ political sovereignty, also as allies contributing to common decisions in nato.”

Havel emphasized this point in an interview. Russianstate-controlled and private enterprises, he said, are “undoubtedly influencing the behavior of various Czech political parties and politicians. I’ve seen several cases where the influence started quietly and slowly began projecting onto our foreign policy.” He added, with characteristic gravity and a touch of understatement, “I can only advise great caution.”   

Gregory Feifer is a senior correspondent for Radio Free Europe in Prague. His book The Great Gamble: The Soviet War in Afghanistan was released in paperback this year. Brian Whitmore is the Europe editor at Radio Free Europe and co-author of The Power Vertical, a Russian-affairs blog. This article ran in the September 23, 2010 issue of the magazine.

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