The Russian Oligarkhs

[Armen]

http://news.independent.co.uk/europe/story.jsp?story=545402

 

Putin trying to destroy oil tycoon, says EU official

By Sebastian Alison in Brussels

28 July 2004

 

 

Vladimir Putin, the Russian president, is deliberately trying to destroy the economic empire of Mikhail Khodorkovsky, the detained founder of oil giant Yukos, a senior European Union official said yesterday.

 

"We interpret this as a decision of President Putin to destroy an economic empire which had certain strategic goals of political influence," Eneko Landaburu, the European Commission's Director General of External Relations, told the European Parliament.

 

"What's happening here is essentially a settling of accounts," he said when asked about moves by Russia to force the sale of Yukos' main production subsidiary to pay a tax bill.

 

Most EU leaders have been cautious in commenting on the Yukos case, but Mr Landaburu, the top civil servant under EU External Relations Commissioner Chris Patten, told parliament's foreign affairs committee he saw no sign the Kremlin was trying to take over running the economy.

 

He said it was clear the Yukos crisis was worrying foreign investors in Russia, whose economy is heavily reliant on the raw materials sector. But the case appeared to be a one-off, Landaburu said.

 

Mr Khodorkovsky, on trial on charges of fraud and tax evasion, became Russia's richest man through his stake in Yukos. But he fell out with Mr Putin by publicly backing liberal opposition to the president, who was then seeking re-election.

[Armen]

REVIEW & OUTLOOK

 

DOW JONES REPRINTS

 

URL for this article:

http://online.wsj.com/article/0,,SB1090791...8473197,00.html

 

Another Russian 'Ice Age'

July 26, 2004; Page A14

 

Vladimir Putin relishes comparisons with his hero, Peter the Great, who forcibly modernized Russia. But the record and instincts of the Russian president, after four years in power, call to mind a different czar, Nicholas I.

 

The former KGB officer and the Grand Duke both grew to admire Prussian discipline during formative years in eastern Germany. They got the top Russian job by chance. On taking power in December 1825, the young czar had to put down rebellious army officers with revolutionary European ideas. The "Decembrists" shared contemporary liberals' desire to open up Russian government. In response, Nicholas I became an autocratic reactionary. He cut Russia off from the West for 30 years and strengthened the authoritarian bureaucracy and secret police. The era is called Russia's "ice age."

 

Mr. Putin isn't a tyrant and leads a dynamic society. Yet his Russia also isn't nurturing political pluralism or the rule of law. So, as liberal democracy plants deeper roots elsewhere in Europe, Russia risks once again having a modernizing Europe pass it by.

 

This history helps to explain the puzzling persecution of Russia's premier oil company, Yukos, and its richest man, Yukos boss Mikhail Khodorkovsky. Last October, Mr. Khodorkovsky was thrown into jail on tax evasion and fraud charges. His trial recently started in Moscow. Mr. Putin declared in June that the government didn't want to force Yukos out of business, but last week it took dramatic steps to do just that.

 

Mr. Khodorkovsky's offense was to cross the Russian president. Ahead of a parliamentary election last year, he spent millions on opposition candidates and independent parties and think tanks. The Yukos boss broke an implicit bargain between the plutocrats and the president: If the businessmen don't get in Mr. Putin's way, he won't get in theirs. Whatever his deeper motivations, Mr. Khodorkovsky was helping to inject a little (very little, in retrospect) life into a listless electoral contest dominated by the president's allies. Mr. Putin clearly didn't appreciate the competition.

 

The oil magnate wasn't the first oligarch to run afoul of the Kremlin. Unlike Boris Berezovsky or Vladimir Gusinsky, however, he didn't flee Russia for a comfortable exile abroad. He decided to test his own conviction that Russian politics and business could become more Western. In the event, Mr. Khodorkovsky has proved no match for the Kremlin.

 

The tax police found plenty of incriminating material, and the courts thus far have sided with the government at every turn. The public is happy to see a rich businessman of Jewish descent humbled. After all, along with dozens of others, Mr. Khodorkovsky made his fortune during the controversial fire sales of the Yeltsin years, when lucrative assets went for a song. Yet of that group, he's virtually alone in jail.

 

Swayed by neither Western complaints nor investor jitters, the Kremlin barrels ahead. Last week, the government said it planned to sell off the company's main crude oil-production unit to cover a quickly growing bill for back taxes that could top $10 billion. The forced liquidation of Yuganskneftegaz would take the heart out of the company, likely forcing its break-up or bankruptcy. Tellingly, ministry officials said they expected the unit could go for as little as $1.75 billion, when in fact it's worth $15 billion or more. By Russian law, the court shouldn't even touch this unit, since non-core assets are supposed to be liquidated first. But this case was never about the law.

 

The prosecution of Mr. Khodorkovsky is the clearest signal yet that the Russian state isn't accountable to anyone save the man in the Kremlin. And that's the worst news out of Russia since the 1998 financial crisis. Once laws and rights are undermined, no one can feel secure. "When the wolf says he will eat only one sheep, he won't eat another only as long as he doesn't get hungry again," says former economics minister Yevgeny Yasin.

 

Mr. Putin is undermining his main successes of the last few years, stability and investment. But the irony is lost on him. Last week, as the Yukos drama played out, the Kremlin submitted legislation to the Duma to make it harder to fund non-governmental organizations. Vladimir Potanin, an oligarch with decent relations with the Kremlin, is reportedly in talks to sell his controlling stake in the daily Izvestiya to Gazprom. That would put another big media outlet in the Kremlin's hands. Gazprom took over the once feisty NTV station from Mr. Gusinsky. The state-owned company is also in line to pick up any bits of Yukos.

 

Political pluralism, strong and independent institutions and a limited and open government are a sign of national strength. Mr. Putin's allergy to all of those is telling. As historian Nicholas Riasanovsky wrote of Nicholas I: "The sovereign's insistence on firmness and stern action was based on fear, not on confidence; his determination concealed a state approaching panic." In his time, Russia missed its chance to build a modern European state. Nicholas I died a bitter man and history hasn't been kind to him. Mr. Putin, unfortunately, doesn't give the impression that he's a history buff.

[Anileve]

Vladimir Putin relishes comparisons with his hero, Peter the Great, who forcibly modernized Russia.

Is this after he realized that Communism is a doomed system? I can't imagine how one would do a 360 pirouette, after worshipping KGB fat cat bureaucrats, and decided to "relish comparisons" with the bourgeois which they've hounded to death.

[Nakharar]

The "bourgeois"? Aren't they the former communist apparatchiks who enriched themselves at the expense of the Russian people? Those same people who smelled the riches awaiting for them but had to wait for a benevolent czar Boris with whom they could share the spoils.

[Armen]

I think the Russians (primarily the middle and low ranking people from the former KGB) are slowly starting to understand what happened in 1917 and, most importantly, who did that and why.

[Anileve]

I think the Russians (primarily the middle and low ranking people from the former KGB) are slowly starting to understand what happened in 1917 and, most importantly, who did that and why.

That's why they regularly organize rallies calling back the communism regime. It's ironic that Russians were always in need of some strong central leadership, monarchy or dictatorship as long as they were stern, however in the same time anarchy has been firmly planted in the Russian soil from the beginning. I think that communist party leaders have realized that they are being outnumbered by capitalism. Putin, I think besides his KGB background is a typical businessman. How is the corruption rate in Russia?

[Armen]

The implications of the Bolshevik revolution in Russia are going to be there for some time. When the revolution happened the Russians where in their "teenage" period as far as their national consciousness is concerned. And when something bad is implanted at that age, it is going to take quite some time to cure it.

Russia was going to become a normal capitalist state if the results of 1917 capitalist revolution were not hijacked by the Bolsheviks, who implanted a foriegn and impotent ideology in Russia to conserve its development.

Russian men have two forms of existence: alcoholic or soldier. Business and enterpreneurship psyche is non existent in Russian mind. Putin is clearly not an alcoholic.

[Armen]

Business in Russia

 

The last days of Yukos

 

Jul 29th 2004 | MOSCOW

From The Economist print edition

 

The destruction of Yukos is nearly complete

EPA

 

OUTRIGHT expropriation is ugly. It scares investors. But it would have been less ugly and less scary than the deliberate dismemberment of one of Russia's best-run firms behind a paper-thin veil of legal due process. Two weeks ago many businessmen in Russia still hoped for a deal between Yukos and the government. They now glumly accept that the embattled oil firm's likeliest fate is to be broken up and at least partly sold off—ostensibly to cover tax bills, but really as a way to put some of Russia's choicest oil-producing assets in state hands for next to nothing. “I told you so,” say those who claimed that was the plan all along.

 

What convinced the rest was the announcement earlier this month that Yuganskneftegaz, Yukos's main production subsidiary, would be sold to cover a $3.4 billion claim for back taxes for the year 2000. Having given Yukos virtually no time to pay, the government not only ignored its attempts to negotiate a payment schedule and an offer by its on-trial ex-boss Mikhail Khodorkovsky (pictured) to sell his stake to cover the debt: it chose to bite off the biggest, most efficient chunk of Yukos. Yuganskneftegaz is worth $30 billion, reckons the firm, and even in a heavily discounted quick auction it should fetch $12 billion-14 billion, more than all possible back tax claims combined.

 

Some hardy optimists had still hoped for a fair auction, open to all. But officials have not even bothered to claim that there will be one. And this week's naming of Igor Sechin, one of President Vladimir Putin's closest advisers, as chairman of the state oil firm, Rosneft, sent an unmistakable signal. “[This] presents the government with the perfect opportunity to catapult Rosneft from a mid-ranking oil producer to one of the world's major producers,” wrote Chris Weafer at Alfa Bank in Moscow.

 

Then came the coup de grace. This week, courts ordered that all the assets of Yukos's three production subsidiaries be frozen. The firm said that this meant it would have to stop pumping oil, a statement that panicked the oil markets into driving up world oil prices to a new high of $43 a barrel. Russian officials denied that the ruling meant that production should stop. There were suggestions that Yukos was scaremongering in a bid to embarrass the government (surely impossible) into doing a deal. Whatever the truth, the incident wiped out the little remaining value Yukos had on the stock market—which may now provide a perfect excuse to sell it for peanuts to the only firm willing to buy.

 

In the teeth of this assault, good news has continued to trickle out about Russian business. Germany's Siemens announced a joint venture with Russia's Interros for control of Power Machines, the country's biggest industrial machinery firm. The government put its remaining small stake in Lukoil, another oil firm, up for sale; America's ConocoPhillips is expected to buy it. France's BNP Paribas is buying 50% of a unit of Russian Standard Group, which controls one of Russia's top private banks. Such firms still seem to view Yukos's problems as something that only Yukos will face. But the ferocity of its destruction has shocked even the most bullish of Moscow's foreign investment analysts. And among the business elites the question still echoes: “Who might be next?”

Edited July 30, 2004 by ArmenSarg

[Anileve]

Russian men have two forms of existence: alcoholic or soldier. Business and enterpreneurship psyche is non existent in Russian mind.

I’ll have to disagree with you Armen, although the statement sounds just about right and darn hilarious. Russians were always very business oriented, the largest black markets, trade of arms, and a very strong computer industry. Despite the alcohol replacing 70% of the water in their bodies, they are pretty bright. Most of the “crackers”, “hackers”, “programmers” are Russians. Their literature was always rich, their medicine and science was always praiseworthy. In fact I think that Russia will always be US’s strongest competition. It’s ruthless and takes into account only how to make a buck. If you notice most of their Governance was either Dictatorial, Communist or Monarchial, however as I’ve said before the Russian mind has always had anarchical notions. They would establish a very domineering government and then try to figure out ways to go around it. A very strange concept I would say. Maybe because an oppressivea government usually results in the birth of the black markets, a sure way not just to make a buck but a fortune.

[Armen]

I am not refusing to acknowlegde the existence of Russian talent in various fields. I am trying to describe their Slavic national consciouness, which has lacked business flexibility until now. To make it clearer: a writer may have a psyche of businessman or soldier.

The Russian business elite that developed in St.Petersburg and Moscow in 19th century (mostly Russian-German, Russian-French, Russian-Swedish mix) was eliminated as a result of the revolution. Now they are trying to once again creat a class of Russian capitalists.

If we dig deep into the backgroud of those scientists, artists and businessmen we will find that a big percentage of those people are not Russian. There are 2 or 3 Russian's among 20 richest people in Russia at present.

I agree with your assesment of the results that various historical events have stamped on Russian consciousness (e.g.acceptance of dictatoral governing), however I am more interested in the reasons that has led to these results, because I think Putin is trying to win time to deal with these problems. Moreover, he is being deliberately distracked from taking that path.

[gamavor]

One more proof that everything in this world happens for a reason!

For those of you who are energy savy (like me ) check out this, and read between the lines:

 

http://www.theenergyexchange.co.uk/viewnew...asp?NEWS_ID=893

 

 

 

Motley Fool

ConocoPhillips Looks East

Wednesday July 28, 1:19 pm ET

By Rich Smith

 

 

It takes a certain amount of courage, perhaps even recklessness, to invest in Russia -- one of the world's fastest-growing economies, but one also derisively and pretty accurately referred to as the Wild East. For the most part, companies that take the risk are old-economy stalwarts, whose size enables them to absorb their losses if the move proves to be a mistake. In May, Alcoa (NYSE: AA - News) jumped into the crime-ridden Russian aluminum industry with its purchase of controlling interests in two aluminum plants. Ford (NYSE: F - News), Altria (NYSE: MO - News), and International Paper (NYSE: IP - News) have also worked in the country for years.

 

One other company that has demonstrated its interest in Russia (and its oil and gas reserves) for years is ConocoPhillips (NYSE: COP - News). Last week, rumors began circulating that the company was strengthening its ties to Lukoil, the world's second-largest oil company by reserves (after Exxon Mobil (NYSE: XOM - News)). The CEOs of both Conoco and Lukoil reportedly met with Russian President Putin to discuss investment opportunities in Russia. That meeting took place just hours after Russia announced it would be auctioning off its 7.6% stake in Lukoil in the year's biggest privatization offering. According to at least one source, Mr. Putin "wished Conoco success" in its bid to acquire the stake.

 

Fool readers will recall that Lukoil and Conoco have a history together. They have cooperated on various ventures in Russia over the past decade. And as recently as January, when Conoco held a garage sale to unload its chain of Mobil filling stations, Lukoil dropped by and picked up two-thirds of the stations on offer.

 

That relationship, combined with the apparent display of Kremlin support for Conoco's expected bid, suggests that the outcome of the October 2004 sale of the Lukoil stake is preordained. After all, the lessons of YUKOS (read about that story here), and of what allegedly happens to companies that cross Mr. Putin, cannot have been lost on other potential bidders for the Lukoil stake.

 

Assuming the "auction" proceeds as planned, therefore, Conoco shareholders will soon own a $2 billion stake in the world's second-largest oil company. Their company should also be within the good graces of the Kremlin. So if YUKOS is broken up and sold off for a song to pay its back taxes -- as many investors fear will happen -- that could be an exceedingly profitable place for Conoco to be.

 

 

http://biz.yahoo.com/fool/040728/1091035140_2.html

 

Ваше благородие, госпожа удача

Для кого ты добрая, а для кого -- иначе,

Письмецо в конверте, погоди -- не рви,

Не везет мне в смерти, повезёт в любви

 

Ваше благородие, госпожа чужбина

Сладко обнимала ты, только не любила

В ласковые сети постой, не зови

Не везет мне в смерти, повезёт в любви.

 

Девять граммов в сердце...

Перестаньте, черти, клясться на крови...

 

[gamavor]

...

Russian men have two forms of existence: alcoholic or soldier. Business and enterpreneurship psyche is non existent in Russian mind.

 

Armen, Armen, Armen!!!

 

Just few days ago, in a different context I made exactly the same statement and I have a witness that might conform it, who also might happen to read this. Small and funy world.

 

[Armen]

Just few days ago, in a different context I made exactly the same statement and I have a witness that might conform it, who also might happen to read this. Small and funy world.

Yeah, we often seem to be on the same frequency.

[Armen]

Kremlin denies Yukos compromise

 

The Russian justice ministry has gone back on a decision allowing Yukos access to the oil firm's bank accounts to keep its operations running.

The ministry denied having taken a decision to allow Yukos to use the money; it added that the notice sent to Yukos by a bailiff had been irregular.

Furthermore, it said any money coming into the accounts would be "seized or switched" to pay Yukos' tax bills.

Crude oil prices, already rising on Thursday, jumped after the statement.

Concern over the fate of Yukos, which produces one fifth of Russia's oil, has contributed to record oil prices.

 

Uncertainty

 

Oil prices fell back slightly from record highs on Wednesday after traders learned that Yukos had a financial lifeline.

Yukos had welcomed the decision to let it dip into the frozen accounts, saying it would enable the firm to "steadily pay off our tax bill".

Oil prices eased as the news lessened the risk Yukos might have to stop pumping oil or declare bankruptcy.

The picture is now much less certain.

Shares in the Russian oil giant fell more than 14% on the Moscow exchange within minutes of the announcement.

The price of a barrel of Brent crude in London rose 73 cents to $40.43 by mid-afternoon on Thursday, while on the New York Mercantile exchange oil was trading up 42 cents at $43.25.

"Yukos is the major story supporting prices," said Nauman Barakat, an executive at US oil analysts Refco.

Yukos has been ordered to pay $3.4bn (£1.8bn) of back taxes for 2000.

 

Sidestepping a crisis

 

The company is embroiled in a long-running stand-off with the state over tax evasion. Its founder - Russia's richest man Mikhail Khodorkovsky - is in jail whilst on trial on separate charges of tax fraud and embezzlement.

Foreign governments are thought to have lobbied the Kremlin as oil prices have soared in recent days.

"The government does not want the company's operations to be materially affected by the Yukos affair as that would escalate what is now an internal matter into an international scandal," Renaissance Capital analyst Adam Landes wrote in a research note.

He said the Russian government was likely to ensure that oil production continues.

So far, Yukos has managed to pay $700m of its $3.4bn (£1.8bn) tax bill for the year 2000, and its executives have vowed to try their best to pay off the remainder soon.

But commentators warn that if the government presses on with 2001-2003 tax claims, the bill could end up being as high as $10bn.

Yukos is regarded as one of the most transparent Russian companies, but also in the Kremlin's eyes as one that has gained too much influence and political power.

 

Story from BBC NEWS:

http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/3537862.stm

 

Published: 2004/08/05 15:22:26 GMT

Edited August 5, 2004 by ArmenSarg

[Armen]

Politics first: the Kremlin tightens its control

By Carola Hoyos and Arkady Ostrovsky

Published: August 5 2004 04:00 | Last updated: August 5 2004 04:00

http://news.ft.com/cms/s/29dfd2b4-e67c-11d...000e2511c8.html

 

On July 22, the day that Yukos, the oil company, warned of its imminent bankruptcy and its main production subsidiary was seized by bailiffs, Vladimir Putin, the Russian president, held a meeting with James Mulva, the chief executive of ConocoPhillips, and Vagit Alekperov, the Soviet-era oil boss who now heads Lukoil, Russia's flagship oil company.

 

The president had some good news for Mr Mulva: the government had just signed a decree to sell its 7.6 per cent stake in Lukoil - a private company which represents the Russian state in major international ventures - and signalled that ConocoPhillips was welcome to bid for it. Mr Putin added that he would like to see a more active relationship between Russian and US companies in the energy sector.

 

Investors and traders were confused: should they sell Russian energy stocks because the country's largest oil company was being made bankrupt in violation of shareholders' rights, or should they buy assets because foreign companies were moving in?

 

Of all Russian companies, Yukos has been the most active in seeking foreign investors, while Lukoil has remained cautious about foreign equity partners. But with its seemingly contradictory actions, the government was, in fact, sending a clear message: "we rule".

 

Having gained almost total political power in the country, Mr Putin and his entourage are proceeding to take control over what Lenin called the "commanding heights" of the economy. This does not mean that Russia is about to start nationalising private business and property or that foreign investment will dry up. It does, however, mean that the Kremlin will decide who can and who cannot invest in Russia. It will increase the state's control over strategic parts of the economy at the expense of the oligarchs who accumulated their wealth through privatisations in the 1990s.

 

Although Yukos was yesterday given more breathing space by the justice ministry, which allowed it to pay salaries and to continue operating, there is little doubt that the balance of power is shifting towards more state-oriented companies such as Lukoil.

 

Alexander Radygin, an economist at the Institute for the Economy in Transition, argued in a recent paper that, over the past four years of Mr Putin's presidency, Russia has been moving towards "state capitalism" where power belongs to the bureaucracy rather than to private business. "The dominant trends of the past few years have been the growing expansion of property interests of the Russian state, an attempt to establish control over capital flows in the Russian economy and a desire to make business dependent on state institutions - despite decisions about deregulation, administrative reform and privatisation plans," Mr Radygin says.

 

This trend is most visible in the oil and gas industry, which accounts for almost 20 per cent of gross domestic product, according to the World Bank. While the state, and people who identify themselves with it, are also strengthening their positions in banking, telecommunications and media, the attack on Yukos is crucial to both domestic and foreign investors because it shows the limitations of the market economy in Russia.

 

Al Breach, chief economist at Brunswick UBS, the Russian arm of the the Swiss bank UBS, says: "The Yukos affair demonstrates that property rights mean very little in Russia compared to politics. The ownership of assets is contingent on a political regime. If the regime changes so does the property structure."

 

The investigation of Yukos's taxes was initially interpreted by investors as a by-product of a political brawl between Mikhail Khodorkovsky, Yukos's key shareholder and former chief executive, and the Kremlin. Following Mr Khodorkovsky's arrest, they continued to buy Yukos shares believing the company's integrity was not in doubt. Even when Yukos was presented with a back-tax claim of $3.4bn it was seen as an attempt to rid Mr Khodorkovsky of his wealth. Investors were reassured by Mr Putin's promise that his government would do all it could to avoid the company going bankrupt.

 

But the justice ministry's actions over the past few weeks indicate that the campaign was not aimed at merely curbing Mr Khodorkovsky's political ambitions or ridding him of his wealth. Taking financial control of Yukos, one of Russia's most dynamic oil companies, was at least as powerful a goal.

 

Mr Khodorkovsky, who is standing trial for fraud and tax evasion, has volunteered to give up his shares in Yukos to settle the tax debt. The company has offered the government its stake in Sibneft an oil company, which would have paid for most of the tax arrears. Both offers were ignored.

 

Instead, bailiffs, who are part of the justice ministry seized Yuganskneftegas, Yukos's largest production subsidiary, valued at $30bn, and are preparing it for sale to settle the tax bill. Yevgeny Yasin, a former economics minister, says: "This is the most blatant demonstration that the attack on Yukos has little to do with taxes and everything to do with re-distribution of property and control over the oil industry from independent minded private owners to politically loyal hands."

 

Mr Yasin says the Kremlin appears keen to have the same degree of control in the oil industry as it already does in the gas sector. Unlike the oil industry, which was largely privatised in the mid 1990s, the gas sector has remained largely in state hands.

 

The reform of Gazprom, the natural gas monopoly, has long been seen as the litmus test of Russia's commitment to market reforms. But on the eve of his re-election as Russian president in March, Mr Putin ruled out its break-up.

 

The government holds 37 per cent in the company and is planning to increase it to 51 per cent. It will be assisted by Alexei Miller, who was appointed by Mr Putin four years ago as chief executive to reassert control.

 

Mr Miller has bought back many of the assets sold or transferred to other companies by the previous managers. Now he wants to go further and build Gazprom into a state-controlled, broad energy holding. The company already owns about 10 per cent of UES, the electricity monopoly, and is in the process of creating an oil business.

 

Reform of UES - headed by Anatoly Chubais, the author of Russia's controversial privatisations of the 1990s - has also been put on ice. According to Mr Chubais's plan, UES should have been divided into power generation companies and sold to private investors while the grid stayed in state hands. But Mikhail Fradkov, the prime minister, has delayed the sell-offs because of unease over who the buyers might be. It seems unlikely in the present political climate that the government would allow the uncontrolled sale of energy assets which could increase the size of the oligarchic groups.

 

While energy remains the backbone of the Russian economy, the state is also strengthening its position in other areas, including banking. The banking sector is still dominated by Sberbank, which has 20,000 branches across the country and holds 62 per cent of all deposits. The central bank is pushing ahead with banking reform but it has no plans for breaking Sberbank's monopoly. "We shall not even think about what to do with Sberbank until 2007," Andrei Kozlov, a deputy chairman of the central bank, has said.

 

The recent liquidity crisis in the banking system shook public confidence in private banks and bolstered the position of Sberbank and Vneshtorgbank, both state-owned institutions. Problems at Guta Bank, which suspended operations last month, triggered a wave of withdrawals from private banks. Alfa Bank saw an outflow of $240m from retail accounts in just one week. Sberbank reported a net inflow of Rbs10.2bn and Vneshtorgbank, the second largest state bank, not only saw its deposits grow by 9 per cent in July, but took over Guta Bank for Rbs1m and assumed its obligations with $700m of assistance from the central bank. Control of the banking sector gives the government the possibility of allocating capital to any industry of its choice.

 

"Sberbank and Vneshtorgbank give credits to Russia's largest companies and have exclusive access to the biggest and cheapest financial resources - the savings of the populations and deposits of the central bank," Mr Radygin of the Institute for the Economy in Transition says.

 

The state appears equally reluctant to give up control over the population's pension savings, despite a provision for future pensioners to transfer some of their savings to a private scheme. "One gets an impression that the real aim of the government was not to reform the pension system but to maximise financial resources under the state control," Mr Radygin says.

 

Meanwhile, both state-owned and some private companies are urging Mr Putin to exercise tougher control over the market economy. Last week the heads of energy companies Lukoil, Rosneft, Transneft and TNK-BP said in a letter to Mr Putin that "the management and regulation of economic processes in the market economy is a natural and necessary obligation of the state".

 

The principles of "managed democracy" which has already led to an almost total control of political process by the Kremlin, is now being extended to business. The question is who will manage the commanding heights of the economy?

 

One group that seems well placed to benefit from growing state control is the siloviki - people with a background in security services and the military, many of whom lost out in the1990s. Since Mr Putin's election as president, however, they have managed to penetrate almost every level of the political pyramid. Last week Igor Sechin, the deputy head of Mr Putin's administration who is closely associated with the siloviki, was appointed chairman of Rosneft, the state-owned oil company. Mr Sechin, who acts as a gate-keeper for Mr Putin, is widely believed to be one of the initiators of the attack on Yukos. (Mr Sechin's daughter recently married the son of Vladimir Ustinov, the prosecutor general, who made the case against Yukos shareholders.)

 

Mr Sechin's appointment led many analysts to believe that Rosneft could become the recipient of at least some of Yukos's assets. Another candidate for Yukos's assets is Surgutneftegas, a company tightly controlled by Vladimir Bogdanov, a Soviet-era oil man loyal to the Kremlin and Mr Putin.

 

"Russia is following the path of former Soviet republics such as Azerbaijan or Uzbekistan, where economic wealth is concentrated in the hands of a ruling political clan. Putin may not realise that he is creating a new oligarchy which, once it has enriched itself, will pose a considerable threat to his own authority," says Olga Kryshtanovskaya, a sociologist who has conducted a study of Mr Putin's political elite. Mr Breach says: "We are moving from a system which was deeply imperfect but tried to live up to the rule of law and market principles, to a system that is more political."

 

So what are the lessons and implications for foreign investors? The key lesson is the lack of respect for property rights. "What matters is control over the cash-flow, rather than ownership," says Mr Breach. This poses a serious risk for minority investors in any Russian company. It also means that market capitalisation of Russian companies is likely to remain low compared with their foreign counterparts.

 

Although the oligarchs who enriched themselves during the 1990s privatisations were far from being at the forefront of corporate governance - many of them diluted minority shareholders's stakes and siphoned profits into private bank accounts - over the past decade they transformed outdated Soviet assets into thriving and increasingly transparent businesses. This was well reflected in the growing market capitalisation of the companies.

 

They have also proved their ability to survive the tough and often lawless conditions of Russian business. The siloviki and state bureaucrats have no such record. They have shown little respect for the right of minority shareholders so far - as the Yukos affair demonstrates - and they may be reluctant to open up their business interests to shareholder scrutiny.

 

For strategic investors, the trend towards greater state control of the economy does not mean the end of foreign investment and privatisations, but implies that any merger or acquisition - particularly one involving a foreign company - is impossible without the Kremlin's approval. The sale of assets is likely to take into account the political loyalty of the buyer. ussia will remain an attractive investment for oil companies looking to replace their reserves (see below). But instead of negotiating with the company - as ExxonMobil did when it pursued a stake in Yukos - energy companies are having to talk directly to the Kremlin - as ConocoPhillips did when it formed a partnership with Lukoil.

 

Large foreign companies have plenty of experience of operating in authoritarian environments, such as the Soviet Union in the 1970s and China today. In the short term, state control of the economy could provide stability for foreign companies and reduce their risk of facing aggressive Russian business practices.

 

In the long term, as Mr Breach argues, any system based on the political allocation of resources is prone to crisis, as the collapse of the Soviet Union demonstrated only too vividly.

 

The moves against Yukos by Vladimir Putin, the president, have brought a new level of uncertainty to Russia's oil sector. But for the world's largest international oil companies, the country is too big a prize to let go.

 

Continued turmoil in Iraq, surging demand in China and dwindling production and reserve growth have combined to make oil companies and consumers desperate for oil. And Russia is seen as the country outside Saudi Arabia with the most potential to help meet strong global demand.

 

Oil executives - most of whom are cautious about speaking of Russia's political moves for fear of the Kremlin or giving away their strategy - are uneasy with Moscow's strengthened grip over its oil assets. Nevertheless, they continue to search for opportunities, driven by fierce competition over reserves and concerns that the Kremlin will be likely to allow a limited number of foreign deals.

 

Outside Russia the pickings are slim, with many oil executives believing that the world's large fields have already been discovered. Many of the remaining reserves lie in the Middle East, where regimes such as those in Saudi Arabia and Kuwait, have kept the doors largely closed to international investment.

 

BP, the world's second largest energy group, is the only big oil company with a corporate deal in Russia - an $8bn joint venture with TNK. Last week, BP revealed that its production would have fallen 7 per cent in the first quarter of this year from last year had it not been for its partnership; instead it reported overall production growth of 18 per cent in the second quarter. Lord John Browne, BP's chief executive, last week said the Yukos affair had had no impact on TNK-BP and that "everything was going in the right direction".

 

Analysts say that ExxonMobil, the world's largest energy group, which has a relatively small presence in Russia, needs to make the biggest new investment because of its size. It had been looking to link up with Yukos, but analysts now expect Yukos's biggest subsidiary to go to a Russian buyer.

 

Meanwhile, ChevronTexaco has had its eye on Sibneft. In April, France's Total retained bankers to advise them on how to get its hands on a share of the company after Roman Abramovich, its largest shareholder, made clear his eagerness to sell.

 

ConocoPhilips, of the US, is looking to expand its relationship with Lukoil, Russia's second largest oil company. The company says that one of its options is to buy the stake the government intends to sell later this year and augment it with shares bought from Lukoil's top management.

 

Royal Dutch/Shell, the world's third largest energy group, already has its biggest single direct investment in Russia's Sakhalin region. "We are keeping an eye on what happens and are thinking through whether those opportunities are available to us." says Malcolm Brinded, head of the company's exploration and production.

 

The large number of suitors and a record high oil price have given Mr Putin the opportunity to play coy. He did, however, welcome potential US investors when he met James Mulva, head of ConocoPhilips, last month. "I would like to see relations between Russian and US businesses develop more actively," he said.

 

While Mr Putin has not made it easy for foreign investors, industry observers say Russia needs the oil companies to develop its resource base. "Without advanced technology it would not be possible for Russia to reach its full production potential," says Stewart Johnston of Charles River Associates, industry consultants.

 

The US has made clear that it wants to form a strategic partnership with Russia to reduce America's dependence on the Middle East. But Spencer Abraham, US secretary of energy, has told Mr Putin that some of his recent decisions, including the threat to revoke ExxonMobil's exploration license in eastern Siberia, could dampen US investor interest.

 

Mr Putin has yet to go as far as the leaders of many of the world's biggest oil-rich states when they nationalised their oil industries between 1960 and 1980. But his slow progress in authorising foreign investment for oil has delayed supplies the world needs.

 

Carola Hoyos

[Anileve]

Ваше благородие, госпожа чужбина

Сладко обнимала ты, только не любила

В ласковые сети постой, не зови

Не везет мне в смерти, повезёт в любви.

Beautiful words. It was a good movie. A vsetaky rusky ochen bogati yazik gamavor. I was reading Grin the other day, I don't know if you read "Aliye Parusa" but the language was just magical, with every word he was weaving a lingual tapestry transforming it into vibrant images. Russian can sometime hit notes that other languages simply cannot ever achieve. And the versatility of it is amazing, you can say so much with a simple play of words.

[Armen]

http://www.forbes.com/business/forbes/2004/0816/020.html

 

Paul Klebnikov 1963-2004

How Russia Went Down A Dead End

James W. Michaels, 08.16.04

 

Early in the 20th century, before the Bolshevik Revolution, Russia's was the fastest-growing economy in Europe. Industrial production doubled in just 15 years, productivity was up by half. Russia was a contender in steel, textiles and oil. It had a popularly elected Parliament, the Duma. A large and growing peasant population were becoming landowning farmers. Its middle-class, capitalist sector was asserting itself. "On the eve of [WWI] Russia was quite rapidly entering an era of prosperity." So wrote Leonard Schapiro, an outstanding scholar of the Russian revolution, adding that what Russian development required was simply more time.

 

So much for the myth that the communists modernized a feudal society. This surprises a lot of otherwise well-informed people, but this little-known fact underlay much of what Paul Klebnikov strove to accomplish. Paul's faith in Russia was not merely emotional. He understood that but for the Bolshevik coup, Russia would today be a prosperous, democratic country perhaps on a par with, but more powerful than, Britain or France or Germany.

 

To better understand where Paul was coming from I borrowed from his family a copy of Paul's Ph.D. dissertation (it earned him a doctorate from the London School of Economics in 1991). The thesis was on the Stolypin reforms, named for the reformist Russian prime minister Pyotr Stolypin. Stolypin was assassinated in 1911, but his economic reforms continued after his death.

 

Stolypin was a liberal in the old sense of wanting to liberalize the economy. He had to fight against both the socialist left and the hard-core traditionalists. Neither the socialist left nor the hard right wanted peasants to become property owners. Stolypin's reforms were more economic than political. They gave peasants the right to own land and to work it for their own benefit rather than as part of the traditional feudal commune. If they chose, the peasants could sell their land to other farmers and move to the cities. Stolypin freed the creativity of the individual Russian at the same time as rapid industrialization was opening new opportunities for entrepreneurial people in the cities. The reforms encouraged Russians to work harder and to work more effectively; per capita income surged.

 

But when the czar blundered into the First World War he brought this progress to a crushing halt. Badly beaten, demoralized and often hungry, the decimated Russian armies mutinied. In the resulting chaos a small ruthless band of conspirators known as Bolsheviks grabbed power under Lenin and Trotsky. They either killed Stolypin's yeoman farmers or forced them back into collectivity. In short, the Bolsheviks aborted progress.

 

I hope to see Paul's thesis published as a book one day soon. It could serve as a guide to those who want to help poor countries with rapidly growing populations escape the poverty trap. As Paul convincingly demonstrates, you don't do it through government programs. You do it by unleashing individual initiative and disseminating information.

 

In the first issue of the Russian version of FORBES you could see what Paul was trying to accomplish: He wanted to help Russia get back on the road to capitalism, democracy and civil society, where it was before the Bolsheviks sent it down a dead end. Paul aimed at this in two ways: by raising standards of taste and ethics among the new business class and by exposing the corruption, cronyism and thuggery that stood in the way of progress.

 

The Putin government in Moscow faces some crucial tests in the near future. Will it bring to justice the killers of Paul and other journalists? Will it treat fairly the minority shareholders of the Yukos oil company? Will it distance itself from some of its shady associates? Will it permit a really free press in Russia?

 

Let's hope that Putin emulates Stolypin and does the right thing. If he rises to the occasion, Russia, with her great resources and educated population, will be a splendid place to invest.

[Armen]

August 12, 2004

PAGE ONE

 

With Oil Price At Stake, Yukos Finds Support

 

http://online.wsj.com/article/0,,SB1092217...page%5Fone%5Fus

 

U.S. and China Express

Concerns About Crackdown;

Kremlin Official Reassures

By GUY CHAZAN in Moscow and CARLA ANNE ROBBINS in Washington

Staff Reporters of THE WALL STREET JOURNAL

August 12, 2004; Page A1

 

As the surge in oil prices continues to darken the global economic outlook, the U.S. has expressed strong concerns to Russia over its handling of a clampdown on oil giant OAO Yukos, and China has told the Kremlin that it is worried about supply disruptions.

 

The Kremlin's No. 2 energy official then came to the oil company's defense, urging other Russian authorities to unblock Yukos's bank accounts in a tax dispute and saying he wanted to avert a disruption to oil exports.

 

"Our aim is to prevent the mass shutdown of wells," said Sergei Oganesyan, head of the Federal Energy Agency. Russia is the world's second-largest oil producer, after Saudi Arabia. Mr. Oganesyan said 700,000 barrels a day of exports could be disrupted, though he didn't explain how he arrived at that estimate. Daily world output is about 83 million barrels. Yukos produces about a fifth of Russia's daily output of slightly over nine million barrels a day.

 

Mr. Oganesyan's comments came after U.S. National Security Adviser Condoleezza Rice last weekend phoned Russian President Vladimir Putin's chief of staff, Dmitry Medvedev, to express concern about the chaotic way Russia has dealt with the Yukos affair and its effect on the oil market, according to a senior U.S. official. Secretary of State Colin Powell, Commerce Secretary Don Evans and Energy Secretary Spencer Abraham are expected to send similar messages to their counterparts in coming days.

 

Another senior U.S. official said yesterday that Washington has two concerns: how the Yukos affair is affecting the market and how it could damage the future development of the rule of law, especially in Russia's energy sector.

 

"It's not just a question of civics," the official said. "The modernization of Russia's energy sector is going to be dependent on foreign investment. ... Being heavily fought over by people interested in political advantage is not good for the sector, not good for world energy and not good for Russia frankly."

 

In a rare alliance of economic interests, China also has protested to the Kremlin in recent days. China, which receives 150,000 barrels a day of oil from Yukos, or around 7% of total Chinese daily consumption, has sent letters to Mr. Putin and Prime Minister Mikhail Fradkov seeking assurances that deliveries won't be disrupted, according to a person close to the Russian government.

 

For both the U.S. and China, two of the world's largest oil importers, the price of oil is a vital economic factor. This week, the Federal Reserve blamed the "substantial rise in energy prices" for slowing output growth and damping improvement in the labor market. China's booming economy has brought a surge in imports -- to 2.5 million barrels a day, according to Chinese customs figures -- which could leave China with an oil-imports bill for the year of roughly $37 billion.

 

Yesterday, crude oil had a volatile day, falling as low as $43.30 and peaking at $44.96. It settled near the highs of the day, finishing up 28 cents at $44.80. (See related article2.) Still, the current oil price is not the "record" as some describe it, since in inflation-adjusted terms, oil prices remain about half of the levels hit in the early 1980s.

 

Saudi Arabia, seeking to calm soaring petroleum markets, repeated its vow to pump oil flat-out if needed and to prevent a price surge from slamming the world economy. In its monthly oil-market report, the Paris-based International Energy Agency, the industrialized world's energy-system watchdog, also sought to offer reassurance, noting Saudi Arabia's ability to raise output and rising strategic oil stocks among several reasons why oil-supply worries should ease. (See related article3.)

 

Forces such as global demand, fears about terrorism or the uncertainty of Iraqi oil exports are hard for any government to affect. But the big variable in recent weeks has been the fate of Yukos, which alone produces about 1.7 million barrels a day.

 

That accounts for the international pressure on Russia. Mr. Putin's handling of the Yukos case has raised doubts among U.S. officials about the Russian leader's commitment to the rule of law. But the White House nevertheless has chosen to keep a low public profile, arguing that public criticism of Mr. Putin was more likely to backfire.

 

U.S. officials also noted that Yukos's former chief executive, Mikhail Khodorkovsky, like all of the Russian oligarchs -- the business moguls who amassed financial empires after the collapse of the Soviet Union -- could well be guilty of some crimes. That makes him a difficult cause to champion. And amid its Iraq troubles, the U.S. doesn't want to alienate Mr. Putin, whose support is essential for any United Nations action there. But with oil prices rising the White House has decided to up the private pressure.

 

Mr. Oganesyan's call for restraint may signal a realization by the Kremlin that the affair is straining Russia's ties with trading partners. The comments marked the first time in months that a high-ranking Kremlin official has publicly backed Yukos.

 

Russian officials appear locked in a behind-the-scenes dispute over how to bring the Yukos affair -- which has featured a multibillion-dollar claim for back taxes and the jailing of Mr. Khodorkovsky, the company's former chief executive, on fraud charges -- to a conclusion. The government has issued a stream of contradictory statements that have clouded the fate of a company that provides 2% of world oil supply.

 

Adding to Yukos's woes, the company said it received a default notice last Friday on a $1.6 billion loan held by its core shareholders and collateralized by oil-export revenue. A Yukos spokesman said the company had no plans to declare bankruptcy. The default means the amount of the loan is due whenever the creditors choose to demand it, though analysts said that isn't likely in the immediate future. The company received a similar notice on a $1 billion loan from a group of Western banks last month.

 

The Yukos-Kremlin dispute is widely seen as driven by President Putin's desire to cement his power in the face of a challenge from the politically ambitious Mr. Khodorkovsky. To the extent that the brawl has roiled oil markets, it also is giving a lift to Russian oil revenue. Still, the harsh attacks on Yukos have big downsides for the Kremlin, making the dispute the object of increasing outside attention and criticism.

 

Some observers see the Kremlin's ultimate aim as putting the company in friendlier hands, like state oil company OAO Rosneft. Since mid-June, when he said the government had no interest in bankrupting Yukos, President Putin has maintained a Sphinx-like silence on the dispute, at the same time giving law-enforcement agencies free rein to crack down on the company.

 

Mr. Khodorkovsky is on trial for fraud and tax evasion. Bailiffs pursuing a 99 billion ruble ($3.38 billion) tax bill against Yukos have frozen its bank accounts, seized shares in its key oil-production units and announced they would sell the largest of them, Yuganskneftegaz. Panicked investors have dumped Yukos stock, fearing that the Kremlin planned to dismantle the oil giant and sell off its assets at fire-sale prices to loyal energy companies.

 

With no clear word from the top, Yukos's fortunes have fluctuated wildly, leading to 20% daily swings in its share price. Last week, bailiffs announced the company could access its accounts to pay for day-to-day operations. A day later the Justice Ministry blocked them again. Last Friday, a Moscow court declared that the bailiffs' seizure of Yuganskneftegaz's shares was illegal. Three days later, the ministry said bailiffs had frozen the shares a second time. Analysts have said the timing of the various announcements has led to suspicions of insider trading by corrupt officials.

 

Yet there is little evidence that Yukos is about to halt production. The company boosted output to 1.73 million barrels a day in July from 1.72 million barrels a day in June. At the same time, total Russian oil output reached a post-Soviet high of 9.33 million barrels a day last month.

 

Some analysts say the crucial question isn't whether Russian exports would be cut, which they doubt, but rather who ultimately would control the company.

 

"The real issue is who will end up owning the assets which today we know of as Yukos, on what terms might ownership of those assets be transferred, and what are the implications for Russia's investment climate," said Christopher Granville, an analyst at UFG, a Moscow investment bank.

 

--Chip Cummins in London contributed to this article.

[Armen]

Bush Asks 'Good Friend' Putin To Calm Storm Around Yukos

Oil Prices Drive U.S. to Appeal for End to Political Turmoil

 

By Peter Baker

Washington Post Foreign Service

Saturday, August 14, 2004; Page A14

 

 

MOSCOW, Aug. 13 -- Alarmed by record-high election-year oil prices, President Bush in recent days has sent repeated appeals through intermediaries to the man he calls "my good friend," President Vladimir Putin, asking him to calm the politically charged crisis surrounding Russia's giant Yukos Oil Co. in the interest of stabilizing world energy markets.

 

The Putin government's effort to seize control of Yukos, which pumps 2 percent of the world's crude supply, has helped drive international oil prices to record highs in recent weeks, exacerbating economic anxiety in the United States just 80 days before the Nov. 2 presidential election.

 

National security adviser Condoleezza Rice telephoned Putin's chief of staff last weekend to express concern over the crisis's impact on international markets. The State Department on Thursday publicly called on Russia to put aside internal "political considerations" in order to resolve the Yukos matter. Energy Secretary Spencer Abraham called his Russian counterpart Friday to reinforce the message and Commerce Secretary Donald L. Evans planned to do the same, officials said.

 

"Obviously, from our standpoint, the market seems to respond to any kind of bad news and hardly ever to good news," said a senior U.S. administration official, who spoke on condition of anonymity because it is not his job to brief reporters. "So to the extent they can help remedy this situation, that's good for the market."

 

It was unclear what, if any, impact the American calls had. Putin has made no comment about Yukos in two months, and his staff has said nothing publicly about the calls by Rice and Abraham.

 

Russia's oil-dependent economy is enjoying benefits from current prices, which rose Friday to a record $46.58 per barrel, but the country also faces substantial losses if the government's freeze on Yukos bank accounts forces the company to shut down production.

 

Russia's Federal Energy Agency director, Sergei Oganesyan, told reporters this week that a Yukos shutdown would have drastic consequences and said he was trying to persuade the government leadership to unfreeze the accounts.

 

U.S. officials said they were not trying to interfere in the legal cases against oil baron Mikhail Khodorkovsky and his company but expressed concern about the way the cases are being conducted.

 

"In our view, the appearance of a lack of due process and threat to private property rights have resulted in both the Russian and the international business communities being on their guard," State Department spokesman J. Adam Ereli said Thursday.

 

The concern in Washington underscored the global impact of the battle over Yukos. "It affects everybody in the world now. It's no longer just about [Putin] and Khodorkovsky," said William F. Browder, chief executive of Hermitage Capital Management and one of the leading American investors in Russia.

 

Other factors are also pushing prices up. Instability in Iraq, soaring demand in China and a national referendum in Venezuela to be held Sunday have all fueled uncertainty. Yukos pumps 1.7 million barrels of oil a day, the same amount Venezuela provides the United States and nearly as much as Iraq produces when its pipelines are operating.

 

In the Russian case, Bush finds himself at odds with one of his closer overseas allies. Bush has held out his relationship with Putin as a signal achievement of his foreign policy, declaring after their first meeting that he had gotten "a sense of his soul." Their division over the war in Iraq was short-lived, rarely personalized and quickly papered over.

 

But Khodorkovsky's arrest by masked Russian agents in October troubled many U.S. officials, who saw it as selective justice against a political rival to the Kremlin. The escalating legal attack on Yukos this summer has pushed the matter onto Washington's agenda because of its impact on world oil prices.

 

"There is an irony and there is a paradox" that Bush's friend Putin would be causing problems for the American president, said Tatyana Parkhalina, director of the Center for European Security Problems, a Moscow research organization. But Parkhalina doubted that Putin would back off just to help Bush. "He will listen, of course, but he will behave as he thinks is right for Russia. Frankly, I don't think Mr. Putin will change his approach toward the Yukos affair."

 

U.S. involvement could stir resentment in the Kremlin. "All kinds of declarations concerning internal affairs are not welcomed, and from time to time, this creates problems for the image of the United States," said Yevgeny Kozhokin, director of Russia's Institute for Strategic Studies.

 

Although Democratic presidential nominee John F. Kerry once said many foreign leaders were privately rooting for him, many analysts here feel Putin would not be one of them. He has built a constructive working relationship with Bush, and his advisers say privately that they want to preserve that.

 

In the view of the Russian political establishment, Republicans have a more pragmatic approach to Moscow than Democrats, unburdened by moralism over human rights abuses, the crackdown on independent media or the war in the southern Russian republic of Chechnya.

 

"Under the political circumstances now, Republicans are practical to the level of cynicism and take care of geopolitical interests and make more convenient partners than Democrats, who care more about freedom, rights, et cetera," said Sergei Karaganov, chairman of Moscow's Council on Foreign and Defense Policy and an adviser to the Kremlin.

 

Putin does not express such sentiments publicly, but recently, he has made statements that twice seemed to bolster Bush against Kerry.

 

During June's annual summit of leaders from the Group of Eight major industrialized nations, held at Sea Island, Ga., the Russian president rose to Bush's defense against Democratic criticism of the war in Iraq, even though Russia had opposed it. The Democrats, Putin said, "don't have any kind of moral right" to criticize Bush since "they conducted exactly the same kind of policy in Yugoslavia," a reference to NATO's 1999 bombing campaign there when Bill Clinton was president.

 

A few days later, as Bush was being accused of exaggerating the ties between deposed president Saddam Hussein's Iraq and Osama bin Laden's al Qaeda, Putin jumped into the debate again. He told reporters in Kazakhstan that after Sept. 11, 2001, Russian intelligence agencies gave the Americans "information to the effect that the official bodies of Saddam's regime were preparing acts of terrorism" against the United States.

 

The second statement was "probably the best thing an international leader could say to assist Bush without seeming too straightforward," said Boris Makarenko, an analyst at Moscow's Center for Political Technologies, a private study organization.

 

Putin has been less forthcoming with energy aid. Although he and Bush in 2002 heralded a new "energy dialogue," intended to link the world's largest oil importer with the world's second-largest oil exporter, officials on both sides acknowledge that the dialogue has stalled.

[Armen]

From Russia with impact

 

The price of oil on the futures market of the New York Mercantile Exchange, which usually serves as an indicator of international oil prices, has been revisiting all-time highs above $43 per barrel since the beginning of this month. The rise has been caused by concern that the Russian oil giant Yukos Oil might be forced to halt production, in addition to continued instability in Iraq, a labor dispute in Nigeria's oil industry and political instability in Venezuela.

 

Under the administration of President Vladimir Putin, now in his second term, Russia has achieved steady economic growth that is effectively backed by high crude oil prices. But the administration is reported to have been taking steps that could drive Yukos, which has played a significant role in the new Russian economy, to the verge of bankruptcy. It is indeed a strange predicament.

 

At the end of last year, tax authorities in Russia accused Yukos of evading huge amounts of taxes. They ordered the company to pay back taxes for fiscal 2001 and fiscal 2002 totaling 197.3 billion rubles (about $6.7 billion). To make matters worse, the court approved a complete freeze on the assets of Yukos, including its production subsidiary.

 

The freeze not only meant that the company would be unable to pay the back taxes but also raised fears that it might be forced to cut back on crude oil exports. Perhaps because the impact on the oil market was much greater than expected, Russia's Justice Ministry quickly lifted the freeze on the production facility.

 

The confrontation, however, between the Kremlin and Yukos is deep-rooted, with no signs of any viable settlement. Unable to pay the back taxes given the mere elbow room it has for survival, Yukos has been on the verge of bankruptcy. If the Kremlin makes a mistake in its response, it could greatly damage international confidence in Russia and lead to a worsening of the investment environment.

 

For President Putin, who has advocated "dictatorship by law" to wipe out corruption, the most important issue has been to prevent political intervention by the oligarchs who colluded with the previous administration and made their fortunes through the privatization of state assets. Previously the most influential oligarch was Mr. Boris Berezovsky, who had intensified his criticism of Mr. Putin through the media outlets that he controlled.

 

After Mr. Berezovsky went into exile abroad, Mr. Putin turned his attention to Mr. Mikhail Khodorkovsky, the president of Yukos until he resigned following his arrest last September on charges of tax evasion and fraud. Mr. Khodorkovsky, said to be the wealthiest man in Russia, had made no attempt to hide his political ambitions and openly supported opposition lawmakers in the Lower House election at the end of last year.

 

President Putin's hounding of Mr. Khodorkovsky has been harsh, since it apparently was meant to serve as a warning to other oligarchs. Nevertheless, it reportedly has been welcomed by the Russian people, who harbor strong antipathy toward the wealthy. In a recent public opinion poll, 30 percent of respondents said they supported the position of the Putin administration, and 29 percent expressed the even more extreme opinion that Yukos should be nationalized. Only 19 percent of those surveyed replied that punitive legal procedures should be suspended if Yukos pays its back taxes.

 

As of last weekend, reports indicated that informed sources would not be surprised if Yukos were to announce a decision to halt oil production. Those reports were based on a yet another negative development: For the second time in a month, Yukos had received a default notice on a pre-export loan worth $1.6 billion. Analysts were quoted as suggesting that the beleaguered oil giant would probably declare bankruptcy to play for time in figuring out how to save its immense assets.

 

Business circles in the West see the Yukos affair as a measure of the democratic maturity and political stability of Russia. Whatever the rights and wrongs of the oligarchs' actions, if the Putin administration chooses to apply the law in a selective manner and adopts an industrial policy that runs counter to privatization, there is sure to be a sudden slowdown in foreign companies' seeking to locate and invest in Russia -- just as it appears to be getting onto the right track. Inevitably, the impact on the world economy as a whole would be negative.

 

The Japan Times: Aug. 15, 2004

© All rights reserved

[Armen]

http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=4139

 

Globalist Perspective > Global Politics

Russia’s Newly Found “Soft Power”

 

By Fiona Hill | Thursday, August 26, 2004

 

Russia is back on the global strategic and economic map. For starters, it has regained the prominence in global energy markets it enjoyed in the 1970s and 1980s, when the Soviet Union — not Saudi Arabia — was the preeminent world oil producer. But Russia now has a “new soft power” role that extends far beyond its energy resources, as the Brookings Institution’s Fiona Hill explains.

 

In recent years, Russia has transformed itself from a defunct military — although still nuclear — superpower into a new energy superpower.

 

New uses for oil revenues

 

Although Russia has retained many of the vestiges of Soviet “hard power” — including nuclear weapons and a massive conventional army — it is not the superpower of old.

 

New energy revenues have not been used to boost military spending or to revive Russia’s defense industry at the expense of every other sector as in the Soviet period. Oil wealth has been transformed more into butter than guns.

 

And there is more to Russia’s attractiveness than oil riches. Consider the persistence of the Russian language as a regional lingua franca — the language of commerce, employment and education — for many of the states of the former Soviet Union.

 

Russian pop culture

 

Then there is a range of new Russian consumer products, a burgeoning popular culture spread through satellite TV, a growing film industry, rock music, Russian popular novels and the revival of the crowning achievements of the Russian artistic tradition.

 

They have all made Russia a more attractive state for populations in the region than it was in the 1990s. Over the last several years, Russia has become a migration magnet for Eurasia.

 

New prospects

 

Millions of people have flooded into Moscow, St. Petersburg and other Russian cities — from the South Caucasus and Central Asia in particular — in search of work and a better life.

 

Russia has the potential to achieve the economic and cultural predominance in Eurasia that the United States has in the Americas.

 

Instead of the Red Army, the penetrating forces of Russian power in Ukraine, the Caucasus and Central Asia are now Russian natural gas and the giant gas monopoly, Gazprom, as well as Russian electricity and the huge energy company, UES — and Russian culture and consumer goods.

 

Gazprom is the primary provider of gas to the Eurasian states and has regained its position in markets like Georgia, where other companies had entered in the late 1990s. UES has similarly expanded its markets, especially in the Caucasus and Central Asia, where early energy sector privatizations brought in foreign investors.

 

Defining the term

 

In addition, private firms — such as Russia’s Wimm-Bill-Dann Foods — have begun to dominate regional markets for dairy products and fruit juices.

 

Russia may not be able to rival the United States in the nature and global extent of its “soft power” —which Harvard Professor Joseph Nye defines as emanating from three resources: “[a state’s] culture (in places where it is attractive to others),” its political values (where it lives up to them at home and abroad) and “its foreign policies (where they are seen as legitimate and having moral authority).”

 

Regaining influence

 

But Russia is well on its way to recovering the degree of soft power the USSR once enjoyed in its immediate sphere of influence.

 

Russia will succeed if the heavy-hand of Moscow is pulled back — and the hand of commerce is extended instead in Russian foreign policy.

 

Since 2000, Russia’s greatest contribution to the security and stability of its vulnerable southern tier has not been through its military presence on bases, its troop deployments, or security pacts and arms sales.

 

Rather, it has been through absorbing the surplus labor of these states, providing markets for their goods, and transferring funds in the form of remittances (rather than foreign aid).

 

Central Asian states in particular are fearful of the social consequences of large numbers of labor migrants returning to the region from Russia if there were to be a political backlash against migrants or a Russian economic downturn. This migration to Russia has become a safety valve for the whole region.

 

More powerful than the United States?

 

As a matter of fact, Russia has the potential to achieve the economic and cultural predominance in Eurasia that the United States has in the Americas.

 

It will succeed in this mission if the influx of migrants to Russia continues, if Russian business investment grows in neighboring states, if regional youth continue to watch Russian TV and films, purchase Russian software, CDs and DVDs and other consumer products.

 

Trade — not military muscle

 

Most of all, it would succeed if the heavy-hand of Moscow is pulled back — and the hand of commerce is extended instead in Russian foreign policy.

 

There is a burgeoning popular culture, a growing film industry, rock music, Russian popular novels and the revival of the crowning achievements of the Russian artistic tradition.

 

Given this list of “ifs”, clearly some skill is required to draw upon Russia’s soft power resources in crafting a successful regional policy.

 

The current U.S. failure to capitalize on its own undisputed soft power and growing global anti-Americanism demonstrate the risks involved, and the limits of soft power if a state is not seen to live up to its own values abroad or its foreign policy motivations are questioned overseas.

 

It is by no means assured that Russia’s increasing soft power will be used to positive effect. But the prospect is clearly there – and should be encouraging Russia’s current leadership to chart a new regional policy for itself in Eurasia.

[skhara]

Russian men have two forms of existence: alcoholic or soldier. Business and enterpreneurship psyche is non existent in Russian mind.

 

I remember hearing about a story a while back when a man in Russia was brought to a hospital unconcious. His blood alchohol content was so high that it results in death. Well apparently he slept it off, got up in the morning, washed his face and went to work.

 

Maybe what he actually had was too much blood in his alchohol stream??

[Armen]

The Jamestown Foundation

Tuesday, October 26 -- Volume 1, Issue 113

EURASIA DAILY MONITOR

 

THE DESTRUCTION OF YUKOS AND PUTIN'S ESTRANGEMENT FROM THE WEST

 

Vladimir Putin has never been a man of second thoughts, but these days he might reflect on his year-old decision to put Mikhail Khodorkovsky behind bars without much joy. The negative repercussions of the arrest are definitely greater than he expected in an area that he greatly values: personal relations with key Western leaders. He travels often to Central Asia but remains a "foreigner" in the old-boys networks of the post-Soviet nomenklatura; he looks visibly uncomfortable in the company of the shamelessly authoritarian Alexander Lukashenka; his Ukrainian best friends, Leonid Kuchma and Viktor Yanukovych, may have been guests of honor at his recent birthday party but are also not quite his type -- and not that reliable either. A heart-to-heart with George W. Bush or an easy moment with Silvio Berlusconi or a get-together with Jacques Chirac and Gerhard Schroeder, these are the truly important occasions for a Russian leader aspiring to be accepted "as an equal."

 

Pragmatist as he is, Putin meticulously calculated the scale of the damage to his international standings before dispatching special forces to capture the richest man in Russia. His damage-limitation strategy was based on three key assumptions. First, this demonstration of the president's unlimited authority would confirm that he is firmly in control of the situation and is the only man to do business with. Second, Western demand for Russian oil keeps growing, so seizing Yukos would eventually turn the oil factor to work for the president and not for the oligarch. Third, the charges of tax evasion, embezzlement, and fraud would show Putin's determination to exterminate corruption.

 

While the first reaction to the special anti-Yukos operation was probably stronger than Putin expected, he weathered it with few reasons to doubt the perfection of his planning. Western leaders expressed only mild disapproval, and the media outcry was dismissed as "sponsored PR." Indeed, Khodorkovsky, with his questionable business ethics and bold ambitions, had few friends-in-need. Putin, to the contrary, had been very useful for the U.S. President, by giving Bush the green light to deploy troops in Central Asia, and for the Chirac-Schroeder "old Europe" by registering his firm opposition to the U.S.-led invasion of Iraq. However, Putin did not find a single opportunity to prove this value in the past year and instead has been spending his political capital on covering his increasingly evident miscalculations.

 

The first stumble was that Khodorkovsky refused to go along with the plan and surrender his treasures in return for a one-way ticket out of Russia. Making the charges stick in court and appropriating the oil assets have turned out to be much more difficult that Putin's lieutenants envisaged. Rules have to be bent again and again, but a badly needed "closure" still cannot be achieved.

 

Key members of Putin's inner circle have been eager to take charge of the business side of the problem, leading to embarrassing public rows between them. The crusade against corruption has come to naught, so the recent Transparency International report on corruption points to the Russian oil economy as infected by rampant corruption. Fearing a steady deterioration of the business climate, Andrei Illarionov and German Gref, the only remaining liberal economists in prominent positions, have broken the taboo against commenting on the Yukos affair and emphasized its political nature.

 

The simmering anxiety pervading the global oil market may bring Russia hefty profits, but it does not necessarily play in Moscow's favor, since every clumsy Russian move to assert central planning is brightly illuminated. Customers want to see dynamism and flexibility, but the Kremlin-appointed "new oligarchs" now running Yukos come nowhere near to the efficiency of management achieved by Khodorkovsky.

 

The most unpleasant consequence for Putin is the erosion of his carefully constructed image of firm and competent control. Rubbing shoulders with Western leaders, he has to convince them -- as well as himself -- that he is also an adept leader, confidently in charge of a huge country that contains enormous risks. That one decision made last October, instead of proving his leadership, has trapped Putin in a circle of limited and pre-determined choices about curtailing democracy, regulating the economy, and abandoning modernization. Each of these post-Yukos steps takes Putin further away from where he wants to be as equal, and his unequivocal support for Bush appears to be a sign of desperation. During his first year in jail, Khodorkovsky has kept his composure and gained more respect than any PR-campaign would have brought him. Putin was irritated by his presence on the international arena, too independent and stylish, but now he is wary of his prisoner's shadow.

 

(Ezhenedelny zhurnal, October 19; Gazeta.ru, October 21; Kommersant, October 21; Izvestiya, October 25; Ekho Moskvy, October 16; Novaya gazeta, October 18; Polit.ru, October 20).

 

--Pavel K. Baev

[Armen]

MosNews, Russia

Jan 12 2005

 

Chess Legend Kasparov Calls Putin `Fascist'

 

Russian President Vladimir Putin is a `fascist', Garry Kasparov,

widely regarded as one of history's greatest chess player, has told

the BBC. Kasparov accused the Russian leader of dismantling democracy

with the support of a supine West, which is only interested in

stability in the East.

 

Kasparov, currently in London to work on a new book and promotional

events, said that allowing Moscow to host the G8 summit in 2006 would

be the equivalent of Nazi Germany being allowed to host the Olympics

in 1936.

 

`[it is vital] to make sure there is no G7 meeting in Moscow in 2006.

It will be like the Berlin Olympics in 1936, it will be the

equivalent of Munich 1938, integrating Putin's Russia.

 

'The democracies are conceding to a brutal dictator. He has abolished

the nature of democratic institutions. He will go further.`

 

The West must stop its overt and tacit support for Mr Putin, Kasparov

said. 'Don't support Putin. It is not about giving support to us, but

Putin's main support comes from Western leaders. President Bush is

not shy about calling this KGB colonel his friend.`

 

Kasparov was born in the Azerbaijan capital Baku in 1963 to a Jewish

father and an Armenian mother. Ever since his victory over Anatoly

Karpov in 1985 to become world champion Kasparov has been portrayed

as an outsider who took on the Soviet establishment.

 

Kasparov helped set up Committee 2008, a group dedicated to bringing

down Vladimir Putin and stopping the constitution being changed so

that he can run for a third term, in January last year.

 

Commenting on the Yukos sale Kasparov called it 'the greatest robbery

of the 21st century`.

 

Kasparov takes heart from what has happened in Ukraine, and believes

Putin will have to leave office, perhaps even before his second term

comes to an end in 2008.

 

'There could be popular unrest. The stability [of Russia] exists only

in the mind of Bush and Blair. It lives through high oil prices and

censorship.`

[MosJan]

Haba HAbaaa

 

nuka smatri skolko drov polamali

 

NU GArik Nu Ti Dayosh