Safe and graceful privatization

ECONOMICS

Safe and graceful privatization

by Konstantin von Eggert at 28/06/2012 20:38

The annual St. Petersburg International Economic Forum is an endurance exercise. During the day, participants meet people, listen to speeches, conduct talks, sign agreements, etc. If you are a journalist, you chase around those people who meet other people and listen to speeches (to which you listen yourself), as well as those who deliver the speeches and those who conduct talks and sign contracts. Come evening, journalists and their prey migrate from one party to another until morning.

A typical conversation on a typical White Night in Russia’s northern capital goes like this: “Have you been to Mikhail Prokhorov’s bash yet?” – “No, but I’m heading there after the St. Petersburg Governor’s reception” – “OK, let’s meet later at Forbes’ cocktail.”

This year the partying was as hard as ever, while over a glass of champagne (or something stronger) CEOs of major multinationals, Russian oligarchs and top-tier Russian bureaucrats were discussing the direction that Russia and its economy were taking after Vladimir Putin resumed his tenancy of the Kremlin in May.

This time the atmosphere in St. Petersburg was distinctly more normal and somewhat more businesslike than a few years ago, at the height of what I’d call “the great power fever” that gripped the Russian leadership. When oil stood at $150 a barrel, the Kremlin had a curt message for potential investors: “It’s either our way or no way.”

When it came to strategic sectors, and especially the country’s oil and gas industry, getting anywhere near Russian assets was problematic at best. Foreign companies were reduced to no more than risk-service contractors for behemoths like Gazprom or Rosneft.

The times seem to be changing. “Privatization” and “asset swap” buzzed round the forum’s halls and its party circuit. Selling off significant chunks of Russian state-owned companies or exchanging their shares for shares in Western companies is a strategic trend blessed by Putin in his forum speech.

The deal that the Russian officials are holding up as a model is ExxonMobil’s agreement with Rosneft, which gives the American supermajor access to Russia’s shelf in the Arctic and the Black Sea in exchange for shares in Exxon projects in Texas and the Gulf of Mexico.

Rosneft, under its new CEO, Putin confidant Igor Sechin, signed similar agreements with Italy’s Eni and Norway’s Statoil. Sechin was also given an important role as executive secretary of the newly formed presidential commission for the development of the Russian energy sector.

Russia’s ruling class of bureaucrats-turned-billionaires seems to be intent on privatizing the state companies it controls and integrating them into the global economic landscape, through a chain of mergers, acquisitions and asset swaps. This is a strategic decision which in fact sets the stage for the final push by the Putin-era elite to legitimize the results of more than a decade of what is euphemistically known in Russia as “redistribution” of assets from the oligarchs of the 1990s to the “state businessmen” of the 2000s. The fate of Yukos and its former owner, Mikhail Khodorkovsky, is a prime (but by no means only) example of such redistribution.

A friend in Moscow who works for a major Western multinational concurred with me when I shared this view of the Kremlin suddenly falling in love with the Western multinationals. “Russia’s rulers seem to count on finishing a vast privatization program by the end of his first term, and then incorporating what would then become ‘their’ businesses into the global corporate world, thus becoming members of the international business elite. Then, around 2020 or so, they may start contemplating political liberalization and creating stable and transparent rules for business in Russia proper. In 10 years most of them will be 70. They want a graceful and safe exit.”

If so, it seems that the Kremlin saw the writing on the wall even before the Moscow protesters hit the streets last December. If my St. Petersburg forum impressions are anything to go by, the next few years will see a race against time between a Russia that is changing fast and its ruling class, which wants it to stand still just a little bit longer.

This comment by Konstantin von Eggert, a commentator for Kommersant FM, first appeared at www.en.rian.ru. The views expressed here are his own .(3628 печ зн)

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