Silvio Berlusconi, Prime Minister of Italy
Photo: Ilya Pitalev
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The Bitter Aftertaste of YUKOS
The Russian government spent the entire year preparing for the main records of 2004 – the sale of Yuganskneftegaz and the formation of Gazpromneft. The politicians' cynical attitude to the economy had its effect: recently, nearly all important economic events have been connected in one way or another with the YUKOS affair. And all the business records achieved have for the most part been dismal.
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It's hard to go wrong by saying that nothing that happened in Russia in the last quarter of 2004 was more important than the development of the YUKOS affair. The YUKOS affair in itself expanded to scales that were hard to even imagine previously. At the time the merger of the oil assets of Gazprom and Rosneft into one Gazprom subsidiary (the St. Petersburg company OOO Gazpromneft) was announced at a meeting of President Vladimir Putin and Prime Minister Mikhail Fradkov in September 2004, it formally had no relation whatsoever to the YUKOS affair. The president, the prime minister, and many liberal and conservative politicians in the cabinet of ministers in the fall of 2004 spouted a lot of reassuring claims to the public that there was no connection between the formation of Gazpromneft and the problems of Mikhail Khodorkovsky and his company. And only someone who had finally stopped believing in the bureaucrats' honesty could have said at the time: “They're lying”.
Today, however reluctantly, the number of people who believe that for the sake of certain objectives (whether political, economic, state, private, or mystical is unimportant), the president of Russia is capable of deliberately lying in public is increasing. You can explain this however you like, but at the present time Gazpromneft is ready to absorb not only Rosneft, but also Yuganskneftegas. The new oil company will be Russia's largest: by early 2005, it will be producing nearly 30 percent of Russia's oil.
You don't have to call what's happening expropriation of the property of a number of companies and individuals – Mikhail Khodorkovsky's lawyers have spoken of this quite clearly and correctly. You don't have to talk about what long-term goals the founders of Gazpromneft are pursuing (if the company agrees with the recommendations of Deutsche Bank, its financial adviser, it might absorb Sibneft and Surgutneftegaz in future, having become in effect an oil monopolist in Russia) – nothing is known for certain about this. Only one fact is important: the formation of Russia's largest ever state oil company, usually referred to as Gosneft in the past, has been going on in Russia with varying success over the last ten years. And in 2005, there is a 99-percent probability that Gosneft will be set up under the name Gazpromneft (we'll leave a 1-percent probability of a possible conflict within the government elite on the question of control over the giant company, which could theoretically become uncontrollable).
Of course, to achieve this record, you need to set another ten related records. For example, for the first time in its history, the Russian Federal Property Fund had to schedule an auction for Sunday, December 19. The Federal Antimonopoly Service had to examine Gazpromneft's application to acquire Yuganskneftegaz in record time (the application was submitted ten days before the auction, whereas examination of documents usually takes a month). The creditors will have to grant record credits to Gazprom for this purchase (about $10 billion). Finally, the Russian authorities will have to expend a record amount of effort in order to avoid serious foreign policy problems as a result of this deal.
So far, it appears that there will be even more potential partners in this record than required. Whatever you may say about the predatory policy of the management team recruited by ex-YUKOS president Khodorkovsky, Yuganskneftegaz is one the most attractive oil assets in Russia in terms of oil wells and infrastructure. It was not without reason that experts at Dresdner Kleinwort Wasserstein valued Yuganskneftegaz at $14-21 billion.
The appeals of YUKOS's shareholders to German Chancellor Gerhard Schroeder are in vain. Despite the private capital, it is unlikely that Deutsche Bank, which fully recommended that Gazpromneft buy Yuganksneftegaz, consulted with the country's leadership on this matter. And it is hardly worth asking what Italian Prime Minister Silvio Berlusconi thinks about the Russian authorities' actions against YUKOS. Information that the possibility of Italian state companies investing in YUKOS assets was discussed at a meeting of the heads of Italy and Russia in October has not been refuted.
It is not worth waiting for record agreement between the words and deeds of the leadership of European countries, even on such a fundamental issue as property rights and the admissibility of confiscating private property for higher purposes. It appears that not only Russian citizens, but also citizens of EU countries already fully understand one thing: it is unlikely that anything in today's world can stop politicians from setting up Gazpromneft, or for that matter, Germanneftegaz, Fransneft, or Italresource if they so desire. Russia has opened the way to these records.
The main problem is that in Russia, they have underestimated the extent of the distortion of political principles achieved by the world's leading countries in their passion for the ideas of socialist redistribution, even for worthy ends and on the basis of capitalist principals. The warnings of the classics of economics and political science have gone unheeded, although in general they speak quite plainly: deviations from the principles on which the market is based are like rust and eat away the foundations.
Viktor Gerashchenko, the present chairman of YUKOS's board of directors, can hardly blame the government for what is happening with YUKOS today. If nearly everything is possible for the sake of state interests, this is not far from the idea that absolutely everything is possible for the sake of state interests. In effect, the present Gazpromneft players are nothing but worthy students of the adherents of the idea advanced by the Motherland (Rodina) bloc in the elections. Nationalization of oil assets was on this list – and YUKOS's board of directors can hardly be surprised that it is happening today in a way that doesn't suit them. The essence remains the same.
Many more important conclusions follow from this essence. For example, the YUKOS affair cannot help but be replicated in the economy, since the state does not exist as a single whole with specific goals and objectives. This means that any given bureaucrat using simple tactics may, sometimes imperceptibly even to himself, be involved in redistribution of a private company's assets for “state” – in fact, for private-state – purposes. It means that for Russian economists there exist two economies – “new and old” – and two classes of investors – Russian and foreign. For anyone possessing the levers of power, these dichotomies are effaced very quickly – in direct relation to the size of the stake.
So Oleg Deripaska set a record for quick-wittedness in November when he tried to thwart a nearly agreed-upon takeover of the Russian company Power Machines by the German engineering concern Siemens. The fact that the state interest in this deal was agreed to by high-ranking government officials didn't prevent the oligarch from showing a fundamentally different state interest without any harm to himself – in that Power Machines passed to the control of Russian and not foreign investors.
In practice, the process launched once in the YUKOS affair developed slowly, but finally led to the expected results. In 2005, the wild outburst of state and near-state interests will move at unprecedented rates. The state, represented by high-ranking bureaucrats, will undoubtedly explain the reason for the problems of specific company differently each time and for a while the markets will believe it. However, we note the problems with Vimpelcom that started in December. The company's actual owner, Alfa Group, controlled by Mikhail Fridman, probably thought that Vimpelcom's fair degree of integration into power structures, as well as its reputation as a leader of the new economy and a company with foreign investments (Vimpelcom's largest owner is the Norwegian Telenor) was a sufficient guarantee that the tax services would not decide to collect record taxes from it
Of course, one would like to believe that Mikhail Fridman will be able to extinguish the conflict around Vimpelcom in record time. However, there is no reason to believe this. Besides, even if Vimpelcom manages to fight off the claims of the power structures, it is obvious that new conflicts will follow it. Alas, we should not expect positive records.
Dmitry Butrin
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