Growing pains of Russia's rich

THE recent revelation that Moscow now has more billionaires than New York obscures other trends that are leading to a deep-seated change in the Russian economy.

True, Moscow's super-rich are a colourful and controversial bunch. They have come along way since the late 1980s when Artyom Tarasov was labelled the first Russian to make a million from the new freedoms of the Gorbachev era.

Wealthiest now is oil magnate Mikhail Khodorkovsky, 40, who has little chance to enjoy his $15.2bn (£8.2bn) in his cramped Moscow cell, where he faces trial on massive fraud and tax evasion charges.

Roman Abramovich is next, the once-publicity shy oligarch now tsar of Chelsea, worth $12.5bn.

But the billionaire bracket gets ever wider. A significant addition is the only woman - Yelena Baturina the 41-year-old wife of Moscow mayor Yuri Luzhkov. She was 'somebody small in the plastics industry' when she married, recalls Andrei Piontkovsky, director of Moscow's Centre of Strategic Studies.

The mayor's wink decides the direction of vast construction contracts in Russia's capital, now awash with new projects. She now owns one of the city's biggest building firms, cement firms, Black Sea hotels and a condensed-milk plant.

Still, there is a pattern among most of the 36 billionaires - up from 25 in February, though probably underestimating the true figure, since many have hidden fortunes offshore.

The typical profile is a married man with two children and a mistress, a main base in Moscow with expensive homes in London and the south of France, and a fortune accrued from exploiting hydrocarbons or metals following early, often clumsy forays into capitalism trading jeans or Western electronics.

Many of them are seen by most Russians as winners of the whirlwind era of robber-baron capitalism in which State assets were sold for a song by a deeply corrupt government.

Yet this is not the whole story. While Bentley and Rolls-Royce have opened to supply the rich set, names such as Mothercare and Bhs are just as much a familiar part of the Moscow scene. Debenhams is rumoured to be following and Ikea is rolling out new stores faster than its customers can assemble wardrobes.

The coming school holidays will see a record exodus of aspiring middle-class Russians on package tours to all the main Mediterranean resorts.

'The last three years have been good to us,' says Dmitry Kostikov, 35, a father of two who runs a computing company. 'I am not rich. My annual salary amounts to about £25,000 and it depends on my own efforts. But we have renovated our three-room flat and bought a small plot to build a dacha 50 miles outside the city. We have just afforded our first foreign car - a second-hand Volvo - and booked our first Western holiday in Spain.

Such small businesses have been slow to develop in Russia compared with other ex-Communist states, but there are signs the government sees the importance of nurturing them. A flat rate income tax of 13% helps.

The lives of such people are a million miles from grab-and-run oligarchs of the Yeltsin era with their bodyguards, art collections, English nannies and Lamborghinis. Yet even the tycoons are changing their tunes, increasingly conscious that President Vladimir Putin expects them to put something back for their lavish lifestyles.

Khodorkovsky has said as much from his cell while Abramovich has ploughed millions into the reindeer region of Chukotka in Siberia and is boosting his support for Russian sport.

Yet he is still criticised for doing too little. Oil baron Viktor Vekselberg, a major owner in TNK-BP and ninth richest in Russia, spent $100m buying back Tsarist Faberge eggs from the Forbes Collection in the US, putting them on display in the Kremlin Museum - as if to prove a point to Putin.

Tarasov, the first new-era Russian millionaire to seek a safe haven in London when the courts were used against him at home, is trying to improve his domestic ratings by repatriating a valuable Romanov tiara.

Putin wants to see more of the oligarchs' fortunes benefit Russia's development. And his targets are not just big shots. 'The government has announced some ambitious economic goals and needs to know who influences growth in the economy to make sure these people co-operate,' says Chris Weafer, head of research at Alfa Bank.