By Ian Bremmer To Our Readers Has something you've read here startled you? Are you angry, excited, puzzled or pleased? Do you have ideas to improve our coverage? Then please write to us. All we ask is that you include your full name, the name of the city from which you are writing and a contact telephone number in case we need to get in touch. We look forward to hearing from you.
Email the Opinion Page Editor
Recent developments in Russia all point in one direction: The Kremlin's energy sector policy has shifted to more aggressive efforts of direct control. Moves by Gazprom to acquire the Yukos subsidiary Yuganskneftegaz at auction and increasing pressure on Russia's oligarchs to play by Kremlin rules suggest that, even if the Mikhail Khodorkovsky case is unlikely to be repeated, President Vladimir Putin's government has not finished tightening its grip on the oil industry -- and possibly on other strategically important areas of the economy.
Even before Gazprom's official declaration of interest in Yugansk, the natural gas giant was the clear front-runner to purchase it at the Dec. 19 auction. Despite repeated claims by CEO Alexei Miller that Gazprom was not interested in Yukos assets, the announcement of Gazprom's latest intentions was hardly a surprise. Because Gazprom has close ties with -- and is partly owned by -- the government, the authorities can use it to acquire and control Yugansk.
Merging Gazprom and Rosneft and buying Yugansk will give the state a large amount of leverage in the oil sector. The Kremlin will control more than 50 percent of the new entity, a company that will produce 1.6 million to 1.7 million barrels of oil per day. The new firm will be a major integrated energy player globally. In fact, given Gazprom's acquisitions in nuclear capacity over the last decade, it won't only be oil and gas that the Kremlin can use to consolidate power.
The Nov. 19 announcement that 76.8 percent of Yugansk would be sold at a starting price of $8.65 billion sent a clear signal: The Kremlin intended to put Yugansk's price within reach of Russian companies whose prospects looked unlikely when the Justice Ministry announced in October a $10.4 billion valuation for the company. It now looks likely that Gazprom will bid for Yugansk together with Surgutneftegaz, which also has good relations with the Kremlin. Yet this has not put to rest speculation that Gazprom will dilute its own ability -- and by extension that of the government -- to control Yugansk by borrowing money on the international market. Yukos' U.S. bankruptcy declaration and the recent pangs of conscience at some major banks about lending to Gazprom have further muddied the political waters. Finally, there has been increasing speculation of another sort as well, that various foreign companies will bid for Yugansk. However, the precedent set by other recent foreign acquisitions of Russian companies makes foreign ownership highly unlikely.
Energy is not the only economic sector of strategic importance to the government, as recent events have shown. Those in the Kremlin most determined to bring scarce and profitable resources under state control have been pushing for a couple of years to label other sectors of the economy "strategic assets," with limits on foreign involvement in their development. Recent legal pressure applied to Mikhail Fridman's VimpelCom suggests that the telecoms sector may be next on the government's shopping list and that Khodorkovsky may not be the only Russian oligarch the Kremlin intends to bring to heel.
In fact, the oligarchs, Russia's robber baron business moguls who made fortunes buying up key Soviet monopolies at bargain basement prices in exchange for financial support for Boris Yeltsin's political agenda, will be the most obvious immediate losers in this process of state consolidation of "national assets." The Khodorkovsky case is only the least subtle example of the Kremlin's determination to reassert its control over Russia's natural wealth.
As a result, the Kremlin's recent moves produce a heightened risk of capital flight from Russia, as Russia's wealthiest businessmen scramble to stow their valuables beyond the Kremlin's reach.
The Yugansk sale raises issues about the government's commitment to the rule of law in Russia. Certain elements of the Yukos case were unique. The case against the company and against Khodorkovsky was initially politically motivated, and the level of punishment for Khodorkovsky is unlikely to be repeated. But the government's use of the courts to assert control over national assets, despite the passage of legal reform three years ago, reveals that the state has not decided to curb the excesses of zealous prosecutors intent on scoring political points with the Kremlin with high-profile victories over powerful and politically independent businessmen. Investors should also be concerned with the disregard for the rights of minority shareholders in the Yukos case.
Sunday's auction will be a good test case of the government's willingness to conduct transparent auctions. Industry analysts fear with good reason that the political undercurrents of the Yugansk case will push conduct of the auction in the direction of the bidding around the 2002 privatization of the oil company Slavneft. Companies will likely have to vault a number of bureaucratic hurdles to qualify; then they'll be asked to pay a $1.5 billion deposit. The Slavneft auction was widely criticized for its lack of transparency and for the political pressure that led to the disqualification or voluntary withdrawal of several bidders.
Russia still remains a comparatively attractive place for foreign direct investment in energy. But risks around Russian equities remain undervalued by the market. Russia will continue to attract foreign oil companies because of the potential it offers to accumulate reserves. Russia still looks more attractive in that regard than countries in West Africa, the Caspian region or the Middle East -- although Libya has also begun to attract major energy players over the past year. But investors should expect that the Kremlin will be carefully watching -- and managing -- the efforts of private firms to find a foothold in the Russian energy sector.
Ian Bremmer is president of Eurasia Group and senior fellow at the World Policy Institute. He is also a columnist for the Financial Times. He contributed this comment to The Moscow Times.
http://www.moscowtimes.ru/stories/2004/12/16/005.html
===== Nu, zayats, pogodi!
__________________________________ Do you Yahoo!? Send holiday email and support a worthy cause. Do good. http://celebrity.mail.yahoo.com