Tuesday, December 21, 2004. Page 10.
The Next Oligarchs
By Mikhail Delyagin
The Yuganskneftegaz auction was pulled off in the best Putinesque tradition of unpredictability: The more confidence the public had that the auction would have a certain outcome, the less likely this outcome became. The victory of the mysterious Baikal Finance Group shocked everyone. It was as if the accused had suddenly been let off the hook in some Stalin show trial back in 1937. However, after a closer look at the issue, all surprise fades. One only feels a profound respect for those who orchestrated this drama from inside the Kremlin.
Neither the starting price nor the final sale price of Yugansk ($8.8 billion and $9.3 billion, respectively) should theoretically be within the reach of an utterly unknown company with only a legal address. This is why Baikal is clearly standing in for some other entity. No big foreign investor would want to risk breaking U.S. law. Therefore, the company must represent Russian capital outside of Russia. Yet no Russian investor would want to act against the wishes of the state on this politically significant issue. Such an investor would soon find himself sharing a cell with Mikhail Khodorkovsky. Thus, Baikal, joining the bidders in the last second, in one way or another likely represents the state's interests.
Possibly, Baikal represents Gazprom's interests. After the Houston trial, Yugansk became stolen goods, and Gazprom and Gazpromneft would become criminals in the United States if they bought Yugansk directly. As lawbreakers, their U.S. accounts and export supply could potentially be frozen. Gazprom belongs to the state, and the state could be held responsible for the company's actions. To avoid this possibility, the government could hand Yugansk over to Gazprom, not via its official subsidiary Gazpromneft, but quietly though a complex chain of middlemen that would lead back to Baikal.
However, a more likely second option is that Baikal's victory was merely a way to buy time for the 10 days the Houston court gave Yukos. The winner at auction has to pay the stated sum in 14 days. If this does not happen, the auction can be held again after the Houston moratorium has already expired. Then European investors can get in on the attractive deal.
The unexpected auction results do not change the big picture in Russian politics. The "friendly privatization" of the Chubais era has transformed into "friendly nationalization," when the property of the oligarchs associated with Boris Yeltsin is handed over to state organizations that do not represent national interests, but the interests of a new generation of siloviki oligarchs.
There is no reason to expect a new redistribution of property, however. The new siloviki oligarchs do not want the responsibility of managing assets. Their goal is to control a company's finance without having to answer for its future. The destruction of Yukos was meant to scare business. This has been accomplished, and now property will only be seized when managers get out of line.
Despite the elegant strategic masquerade, the final beneficiaries of Yukos' demise will be unmasked, and their ties to the state will become obvious. Then they will have to pay for moral damages and compensate for lost profits. This in turn means that Russia's citizens, who have been deprived of their political rights, will have to pay for the siloviki oligarchs' appetites.
In Houston, Yukos backed the state into a corner. There is no way out, and not because of the dastardly conniving of old oligarchs and their American toadies, but because the aggression against Yukos was actually against the law. The siloviki oligarchs are not just aggressive; they are also clueless and seem to have no understanding that their Western assets could be confiscated as property acquired by illegal means.
The consequences of the fact that siloviki racketeering has become not the tool, but the whole point of government administration are already apparent. The aggression of the siloviki oligarchs is ruining the economy, despite high oil prices. Yet for President Vladimir Putin, satisfying the appetites of his cronies seems more important than making the oft-repeated slogan of doubling GDP a reality, though this goal has already been officially pronounced impossible by many in the government. These appetites, fully criminal in their nature, are not connected to the state of the economy and will only grow. Once world market conditions worsen or at the very least fail to improve, these appetites will overwhelm business, making it too costly. To outside observers, it will seem as if the economy has suddenly collapsed for no reason and fallen into systemic crisis.
Interestingly enough, when the whole Yukos affair began, the public was on Putin's side. Putin played the role of avenger, restoring the honor of both the Russian people robbed by the oligarchs, and small and medium-sized businesses oppressed by big corporations. However, over the last year and a half, rage has replaced the public's sympathy and solidarity. It became clear that the Yeltsin-era oligarchs were not being attacked for the good of society, but for the good of a new, just as selfish oligarchy of siloviki. Even the extra taxes extracted from the oligarchs have been frozen in the stabilization fund. Meanwhile, the 2005 budget reduces social spending by 1.5 percent in real terms. Thus, the economic aggression and mounting greed unleashed during the course of the Yukos affair will have a serious effect on average Russians and small businesses that are increasingly unable to defend themselves from the excesses of the siloviki.
Mikhail Delyagin, head of the Modernization Institute and chairman of the Rodina party's policy committee, contributed this comment to The Moscow Times.