All the President's men: The KGB'S great power-grab

Shortly after his election as Russian President in 2000, Vladimir Putin was driven to the headquarters of the former KGB in central Moscow to celebrate the anniversary of the founding of the Soviet secret police.

The former KGB colonel, a Soviet-era spy in East Germany who later reached the pinnacle of the security services by becoming the first civilian director of the KGB's domestic successor organisation, the FSB, was returning to his spiritual home. Inside the Lubyanka, the new Kremlin leader addressed 300 of the former KGB's finest. "Instruction number one of the attaining of full power has been completed," he dead-panned.

Six years on, Mr Putin's joke looks more like a statement of fact. The poisoning of the ex- FSB agent Alexander Litvinenko in London, which according to at least one Russian commentator has cast relations with the West back to the days of the Cold War, has placed Mr Putin's links to his former FSB colleagues under fresh scrutiny.

The President has made no secret of his plan to bring Russia's strategic industries under state control, as witnessed by the dramatic fall from grace of Mikhail Khodorkovsky, the owner of Russia's biggest oil company, Yukos. Less well-known, however, are the KGB connections of the men appointed to powerful positions in at least three of the top state-run companies where relations with the Kremlin are already tightly intertwined.

Two weeks ago, a former KGB general, Valery Golubyev, was appointed to a top position at the state-run energy giant Gazprom, which has gobbled up oil assets, media, banking interests and farms in a rapid expansion. Mr Golubyev, named deputy chief executive officer, was the third management committee member to hail from the former KGB and like Mr Putin served in the mayor's office in St Petersburg in the 1990s. The Gazprom chairman, Dmitri Medvedev, is First Deputy Prime Minister and tipped as a possible successor to Mr Putin when the President is constitutionally bound to stand down in 2008 after two terms in office. The state-run oil company Rosneft - the country's second biggest oil producer - has as its chairman Igor Sechin. Again a former associate of Mr Putin in his home city of St Petersburg, Mr Sechin is also the Kremlin's deputy chief of staff and believed to be ex-FSB. He hired a young aide in September, Andrei Patrushev, who happens to be the son of the current FSB director, Nikolai Patrushev. And the chairman of the national airline Aeroflot is Viktor Ivanov, another close Putin ally from St Petersburg who worked with him at both the KGB and the FSB.

These are the "siloviki", or the power men, who were once members of the feared secret police but who now hold sway in the corridors of the Kremlin as well as in the boardrooms of the most important state-run companies. They have a spring in their step after the humiliation and demoralisation caused by the collapse of the Soviet Union. The "siloviki", including Mr Sechin and Mr Ivanov, have been blamed for the measures that have rolled back democratic freedoms in Russia, by placing restrictions on political parties and non-government organisations, and tightening state control of the media. "The country is run by the KGB, whatever they call themselves," Russian analyst Yevgenia Albats, commented recently.

Since the days of the Soviet Union, when the KGB served as the eyes and ears of the Communist regime, former officers have put their discipline, knowledge and sources to good use in private industry and even the murky world of the black economy. But does it matter that "KGB Inc" has taken on a new importance under Mr Putin? Certainly at Gazprom, the KGB links are not considered a handicap. Inside the soaring Moscow headquarters of Russia's biggest company, spokesman Sergei Kuprianov seems to be afflicted by temporary amnesia when asked about the top management officials who are former FSB members. But he quickly rallies to point out that some of the most talented professionals to lead the state have come from the ranks of the KGB. "Many people who previously worked for the KGB work for business and many occupy high posts in business," he went on. The record of Mr Golubyev, the new deputy CEO, stands for itself, he said. As for Konstantin Chuichenko, who heads the legal department, he is a "class act in the legal area". The third of the 17 Gazprom management committee members with known KGB links, Sergei Ushakov, "is continuing his professional career in charge of security services," Mr Kuprianov said.

Jonathan Stern, a Russia expert who is the director of natural gas research at the Oxford Institute for Energy Studies, says plenty of former MI5 employees are now in top jobs in British industry. "Putin appointed people he trusts because in the 1990s there were young unprincipled cowboys who got very rich - and you can't have that again," Professor Stern said. But where there is a risk in Russia, he says, is that "a small group of people are controlling very, very large state assets, and that is a concern."

According to Olga Kryshtanovskaya, who has studied the Russian elite for many years, the FSB, police and military have become the dominant force under Mr Putin's presidency. She said in a study published in 2004 that the most marked increase in the "siloviki" had been in the regions, where five out of seven presidential representatives were former KGB or military men.

Ms Kryshtanovskaya told The Independent that there was cause for alarm in a political system where the presidency has the preponderant power. "It's a problem because in the past there was collective decision-making. For example when [former president Yuri]Andropov wanted to invade Afghanistan, there was a collective decision by the Politburo. Now there is no such organ and the president himself decides." According to some Moscow commentators, Mr Putin is "very hardline" politically, but an economic liberal. But Ms Kryshtanovskaya compares the economic centralisation in Russia to South Korea, which placed big companies under state control. Why is Mr Putin doing this? "Because he wants full control," she says.

Western countries had become wary of Mr Putin over the past two years, when an increasingly assertive Russia started to bully its former satellite states by using gas as a weapon, prompting fears that Moscow might not be a reliable energy supplier for Europe. The Organisation for Economic Cooperation and Development said in a damning economic survey of Russia last month that, "the expansion of state ownership overall must be regarded as a step back," as it pointed to the expansion of state control in the "strategic" sectors such as oil, aviation, power-generation equipment, automobiles and finance.

Gazprom's "seeming insatiable appetite for asset acquisitions" has been at the expense of a focus on its core business, the OECD said. Russians joke that Gazprom - the world's biggest gas company - is not just a state within a state, but the state itself. Hardly surprising then, that there are rumours in Moscow that Mr Putin intends to do a job swap with Mr Medvedev at Gazprom when he leaves the presidency in 2008. "EU countries decided that Putin is not a market reformer and a nasty man and they can't trust him. This perception will have been reinforced by the Litvinenko affair. It reinforces what people want to believe," said Professor Stern.

Mr Putin's deputy spokesman, Dmitry Peskov, accuses the West of turning an economic issue into a political problem. Gazprom is a corporation, he says, and is acting like a corporation. "It's not Kremlin Incorporated, and they have to protect their interests." Challenged about Gazprom's decision to cut off gas to Ukraine last winter, he replied: "Here's a very simple example. Imagine if you don't pay your gas bill in London. The gas distributor will cut it off. Are you going to hold a press conference and blame the gas company for violating your human rights? This is the same story. It's all about economics."

"The EU have been criticising us for subsiding countries' economies, by applying lower rates for natural gas. When we started to raise the price, they started to criticise us for using the gas as a tool of political pressure." In other words, the view from Mr Peskov's third-floor office in the Kremlin is that Russia is damned by the West if it does, and damned if it doesn't.

According to one of Moscow's dynamic young businessmen, Alexander Izosimov, who is CEO of Beeline, a leading mobile telephone company listed for the past 10 years on the New York stock exchange, Russia is at a crossroads. "We are at a historic moment, when Russian capital for the first time is investing outside, and so far it's not welcome. The government is taking protective measures in response to that." He said the Russian government would ensure that some industries, including the military and energy, would be out of reach for Western capitalists, as the Kremlin intends to create "national champions" that will pull the economy behind them.

But is the deepening state influence a threat to Russian democracy? Ms Kryshtanovskaya worries that civil society has no input because "the parliament is like a department of the Kremlin. Everything comes from the top. These people don't want to give up power, they want to concentrate power."

Mr Peskov readily acknowledges that Russia does not have a Western-style democracy as he outlines the concept of "sovereign democracy" which holds sway over a sprawling country with one foot in Europe and the other in Asia, 11 time zones and a Muslim population of 20million. "We are not going to make a copy of Britain or the United States. We have this term of sovereign democracy. We have our own society, that absorbs hundreds of years of our achievements and disappointments, hundreds of years of co-existence of different nations, of different religions. All of this makes our system a bit different than what you have in Britain. But just because we are different doesn't mean that we are wrong - or that we kill people with radiation materials in the centre of London."

Now, as the presidential election looms after next year's parliamentary polls, nobody can predict which way the Russian bear will turn: back towards its authoritarian past, or striding resolutely along the path of greater transparency, economic integration with Western markets and the rule of law. "Things are getting much more complicated. Russia is trying to politically assert its position in the world politically and economically. This giant is awakened and it's trying to get up - and not everybody accepts it," says Mr Izosimov. "In Russia there are two camps - one that wants to integrate, while the other says, why bother, we have tons of oil, they will come to us anyway."

Professor Stern agrees, but warns: "What is very dangerous is that if they think they don't like us and don't trust us, they will decide - what the hell."