He is 39 years old and yet takes a week off sick – missing a crucial board meeting and the opening of Russia’s largest gas field. He was charged with bringing order to gemstone necklace the country’s biggest company – and in five months has achieved virtually nothing. He is reported to have extreme difficulty communicating with senior members of the Kremlin team – including one of the president’s closest confidantes.

He is Gazprom CEO Alexei Miller and he is under fire.

The rumor mill has been working overtime recently, suggesting that Miller is headed for the chop, culminating in an article on the Kremlin-connected strana.ru Website Monday stating that Miller had already resigned. That rumor was quashed by both the presidential and Gazprom press services – and observers point out strana.ru has a reputation for dropping nonsense – but experts suggest Miller is indeed struggling.

"The rumors, I believe, are based on a real dissatisfaction with Miller’s performance. I think the only thing keeping him in place at the moment is that it would reflect poorly on President Vladimir Putin to dismiss him so soon after having personally chosen him to succeed [long-time CEO Rem] Vyakhirev," said Alexander Blokhin, a senior oil and gas analyst at CentreInvest, a Moscow brokerage.

Blokhin said that, according to his sources, the dissatisfaction with Miller runs from Putin down through the presidential administration.

"Part of the reason is that Miller has been unable to find a common language with [Dmitry] Medvedev," deputy chairman of Gazprom’s board of directors, deputy head of the presidential administration, a close Putin ally and said by many to have laid the ground for ousting Vyakhirev in June this year. "Miller was tasked with retrieving lost assets, regaining control of financial flows and bringing order to wholesale pearl jewelry the company," Blokhin said. "It seems possible that he is not the right man for the job; he seems incapable of taking on the old guard."

Indeed, the dissatisfaction with Miller is strong enough that replacements for the CEO’s post have already been flagged.

According to a well-connected source who asked not to be identified, one potential replacement is former energy minister Sergei Generalov, once the vice president of oil-major Yukos.

The main criticisms of Miller, observers say, is that he has been unable to bring visible changes to the way Gazprom is run. One example cited is the fact that, in the past two months, two Gazprom board meetings have been postponed, and it now appears a meeting scheduled for November will be postponed until December. The agenda for each of these meetings has been the same – deciding on the company’s participation in Sibur’s controversial share issue and the politically charged buyback of a 32 percent stake in Purgaz from the shady Itera, believed to be connected to Vyakhirev and Gazprom’s old guard.

But some observers say the fact Miller is encountering such resistance in trying to recover the assets suggests he is on the right track. "The opposition to Miller both inside and outside Gazprom shows he is challenging the right people," said William Browder, managing director of Hermitage Capital. "He is taking on the dinosaurs of the company."

Meanwhile, on Wednesday, Gazprom launched the country’s largest natural-gas field, Zapolyar-noye. It had initially been expected that Putin and Miller would attend the launch together. However, Miller’s illness – he was scheduled to return to freshwater pearl necklace work on Thursday, Nov. 1 – prevented him from attending, and Putin wound up sending a congratulatory telegram to the ceremony.

As to Miller’s future, as one analyst put it: "Health problems have often been used in Russia as a pretext for officials to be gracefully removed from power. If Miller does not return for two weeks, then this may well be what we are seeing."

(The first in a two-part series reflecting on the concept of the middle class in Russia.)

I have been amazed and amused for quite a while now watching pundits throw around the term "middle class" when talking about Russia. Well, it took a U.S. government Web site reporting on the term (Radio Free Europe/Radio Liberty) to finally force my hand to write a few thoughts down on this reified and bastardized concept. This country does not have a middle class in any meaningful sense – not yet, at least. For this to happen, Russia's reform project needs to be seriously reassessed.

With the rise of what is often called the "emerging markets" and the economic transformation of the post-communist world in general, the term "middle class" has lost most of its meaning. Economists are divided as to freshwater pearl necklace how to characterize it. Should this concept be seen through the prism of income, or other social characteristics? If we use just income as an indicator, a "middle class" can be found in just about every society. When looking for a middle class as another social group, something very different may be found.

Though defining the middle class is difficult today, that has not always been the case. Historically, it has meant something like this: In Western Europe in the 18th century, the term "middle ranks" was used increasingly to express the notion of an expanding section of society composed neither of nobility nor of commoners, and, by the 19th century, "middle class" was widely used as a self-congratulatory expression by those to whom it was applied.

In current professional, sociological and political-science usage, the expression does not designate so much a class as a large, fluid status group, characterized most of all by its extent and flexibility, the relative effortlessness with which someone can join it and the great difficulty of leaving it (upward, at any rate). This is basically the Western model of and experience with the middle class, not post-communist Russia's. A "survival index" would be a better yardstick with which to measure and define groups within Russia's population.

The problem with applying class terminology to today's Russia is that it is all too often economically determined and, to some degree, politically motivated. Class is not only a financial-economic category, and those who believe it is are nothing more than Marxists of the cruder sort (whether or not they are aware of it) or just plain ignorant of economics, sociology and history. Defining Russia's middle class in terms of income and/or disposable income is a poor man's way of understanding the concept. It is also another habit that makes "getting Russia wrong" easy. It would be far more prudent to analyze the social group(s) that might one day become the foundation of the middle class in a much richer sense. (This will be discussed in detail in next week's column.)

The so-called "Russian middle class" is in fact a status group that has, as of yet, hardly embedded itself in society. The concept of class is still in the making in Russia – but there are a number of status groups that may eventually become the building blocks of a class-based society. Class is a a matter of self-identity – and the idea of identity remains in short supply in this country. To make some order out of this state of affairs, it will be useful to rope pearl necklace return to some ideas about political economy most pundits have never heard of.

The all-but-forgotten early 20th-century economist Thorstein Veblen preferred not to analyze the difference between social groups based on income, but by the use of ideas like "staples of decency" and "relative economic deprivation." Both concepts tell us about consumption patterns and how consumers want to define themselves within the economy. Veblen did not particularly care how individuals earned their income, but what they spent it on. This behavior is a very germane indicator when analyzing a developing economy.

A "staple of decency" in a contemporary Russia context is, for example, the mobile telephone. Possession of a mobile telephone is just as much a practical necessity for some as it is a symbol of status for many. It does not designate a class distinction; it is an indicator of aspiration. It could be considered a form of conspicuous consumption, but conspicuous consumption can and should be defined in different ways. For some consumers, it is a way to demonstrate that they have excess disposable income. For others – for many, in fact – it is a way of attempting to blur their income status by appearing to be among the affluent or "middle class."

Staples of decency are psychological expressions of aspiration; their social significance defines status, not necessarily real income. This is where the concept of relative economic deprivation comes into play. The middle classes of developed economies may live beyond their means because of a well-developed credit system, but in Russia, where such a thing does not exist, consumers make financial decisions based more on the desire to project status than on what they can really afford. Many in Russia's so-called "middle class" do not pay taxes, energy bills or rent. It is not paying its own way; it is a free rider on the back of an unreformed economy.

Because of Russia's transition to an economy many continue to – mistakenly – call a market economy, it is not hard to mistake those who have excess income with which to enjoy life for a middle class in the Western sense. This is not the case. In fact, look a little closer, and one can easily surmise that a real middle class is not in the making either.

The second part of this series will discuss what it will take for a meaningful middle class to nugget pearl emerge in Russia.

(Peter Lavelle is a Moscow-based analyst and the author of "Peter Lavelle's Weekly Russia Report," available at www.russiareport.ru.)

According to a Moscow newspaper report, German Kuznetsov, chief operating executive of Alrosa, has negotiated a marketing agreement for rough and polished stones with Horizon Development, a Beirut-based company that is part of the group of companies controlled by Prime Minister of Lebanon Rafiq Hariri.

The prime minister's son, Bahar Hariri, is reported to control Horizon Development. Hariri Sr. made an official visit to cultured pearl Moscow recently. The diamond negotiations took place in Moscow early this month.

Last September Kuznetsov publicly attacked the terms of Alrosa's diamond trade agreement with De Beers's Diamond Trading Co. He said the value of the deal should be cut by 25 percent. At the time, Alrosa said Kuznetsov was expressing a personal, not official view.

The Russian diamond trade agreement was signed by Nicky Oppenheimer after more than a year of negotiations in December 2001. It provides for the sale by Alrosa of up to $4 billion in rough diamonds to De Beers' Diamond Trading Co. over a five-year period, with the proviso that $500 million of each year's deliveries should be run-of-mine, and with an allowance for lesser deliveries in the last two years of the agreement.

Since then, President Vladimir Putin has signed into effect a decree allowing greater flexibility for Russian diamond exports outside the De Beers marketing channel.

On Jan. 16, the European Commission (EC) announced that the terms of the agreement restrict competition on the rough diamonds market "by eliminating competition from Alrosa.

"The Commission also takes the view that by entering into the agreement, De Beers has abused its dominant position in the rough diamonds market."

This was hardly news in the Russian diamond market, where diamond cutters have complained for more than a decade that special trade arrangements between De Beers and Alrosa curtailed their access to rough diamonds at market prices and allowed Alrosa to act as a price and supply monopolist.

It was the local diamond manufacturing industry that has lobbied for permission to sell rough diamonds abroad, which are unprofitable for cutting in Russia.

Leading this effort has been Ruis Diamonds, the Russian manufacturing company owned by Israeli diamantaire Lev Leviev.

In September, Valery Morozov, who heads Ruis in Moscow, said he favored cutting the volume of diamonds to be sold to De Beers by 25 percent. He now says he expects Alrosa will exploit the EC decision to export its stones independently of De Beers, and continue to withhold them from domestic diamond manufacturers.

Alrosa directors have so far refused to Keishi pearl comment directly on the EC decision, issuing only a pro forma statement that follows De Beers's lead in welcoming a fresh round of negotiations with the European Commission in Brussels.

If the EC vetoes the trade agreement, Alrosa will benefit from the increased flexibility it will have to market its diamonds, Ararat Evoyan, president of the Russian Diamond Manufacturers, claims. He said there would be no benefit to BHP Billiton, which has been trying for two years to get Alrosa to trade its diamonds through BHP's Antwerp sales network. "The company is not interested in intermediaries," Evoyan said, "since it can easily sell diamonds by itself."

Kuznetsov was named to his post at Alrosa by Deputy Prime Minister Alexei Kudrin, who is chairman of the company's supervisory board of directors.

At the same time, the federal government has intensified the pressure on the Sakha republic government, which has dominated Alrosa's operations, to loosen its hold and make the company's cash flow more transparent.

Kuznetsov's appointment came three years after he lost his post at Gokhran, the state diamond stockpile agency. He was replaced by Valery Rudakov, who attempted to eliminate corruption in both state stockpile trading and at Alrosa. Kudrin forced Rudakov to leave Gokhran last June.

Rudakov has acknowledged publicly a personal tie with Leviev and the Israeli diamond industry. How Kuznetsov persuaded Alrosa, which also works closely with the Israelis, to cut a new deal with the Lebanese remains unclear. Kuznetsov was unavailable to answer questions. Alrosa's spokesman said the company would not comment on the negotiations that have taken place with Hariri's group.

Vladimir Rybkin, the current head of Gokhran, acknowledges that "there was a meeting with the Lebanese, but no agreements were reached. The Lebanese were interested in supplies of rough diamonds from Russia, polished stones and the possibilities of cooperation with Russian polishing companies in the form of polishing Russian diamonds abroad on a tolling basis, or establishing joint ventures in Russia. I do not have any information on whether any agreements were reached with Alrosa."

Lewviev's executive Morozov says he believes the report of the deal is nonsense.

"The Middle East is a serious market for polished diamonds, including exclusive stones, but they go not to Lebanon but to freshwater pearl earrings the Arab Emirates and Saudi Arabia. For example, the Leviev group sells such diamonds there and considers it a serious market," he said.

"There are certain Lebanese companies that are involved in semi-legal purchase of diamonds from prospectors in Africa, who often operate illegally. There are no known [Lebanese] companies involved in the diamond trade, and it is neither serious nor appropriate to say that some Lebanese company may run the diamond trade of the Russian diamond monopoly or be able to replace De Beers."

Alrosa produces between $1.4 billion and $1.6 billion worth of rough diamonds per year, and at affiliated companies it can manufacture up to $200 million in polished diamonds annually.