PEN-L message, Russian capital under the state

Rodnaya Gazeta
No. 23
June 18, 2004
THAT'S ALL: THE END OF CAPITALISM IN RUSSIA
The parallel lines of history meet
More and more parallels between Russia today and Russia a hundred years ago
Author: Valery Solovei, Alexander Grebennikov
[from WPS Monitoring Agency, www.wps.ru/e_index.html]
[Large-scale private enterprise in Russia has failed to justify
itself in economic or social terms, and that is why the regime's
hands are not tied at all in dealing with business. The tougher
the regime's stance, the more support it will get from the
public.]

      Contrary to expectations, President Vladimir Putin did not
meet with business leaders on June 16; instead, he departed on his
Central Asian tour straight after the end of the St. Petersburg
Economic Forum. The official reason for the meeting being
cancelled was that the representatives of business had failed to
prepare any topics for discussion. In actual fact, there is simply
nothing for the president to discuss with them. These days he
dictates the rules, while the business community plays the role of
supplicant. Given this configuration of forces, a dialogue becomes
not only unnecessary, but even superfluous.
      Interest in relations between big business and the federal
authorities is considerabley enlivened whenever either side comes
up with some kind of initiative. There have been two such
initiatives of late: trials have begun in the YUKOS affair, and
Russia's magnates have raised the possibility of a collective
meeting with President Putin.
      With all its growing financial might, business in Russia is
totally dependent on the regime, which can cut off the oxygen
supply of business whenever it wishes to do so. Judging by the
feverish haste with which money is being taken out of Russia,
including by means of investment in the Western economy, this
threat is viewed as real rather than hypothetical.
      To be honest, we must admit that if the regime takes a hard-
line approach to business, it would be justified. Those who accuse
the regime of killing the goose that lays the golden eggs are
either disingenuous or self-deceiving. While a few people can
afford to buy Faberge eggs, this is balanced by millions of others
being unable to afford enough ordinary eggs to make an omelette.
      Big business in Russia has not become a driving force in
economic development. It is less efficient than Soviet-era state
monopolies, according to a World Bank report. And the complete
lack of social responsibility among Russia's nouveaux riches is
apparent even without reference to special analytical reports.
Large-scale private enterprise in Russia has failed to justify
itself in economic or social terms, and that is why the regime's
hands are not tied at all in dealing with business. The tougher
the regime's stance, the more support it will get from the public.
      It is being made very clear to the oligarchs that their fate
is in the president's hands and they will be treated according to
his will. Is that cruel and unfair? It's no more cruel and unfair
than what has happened to tens of millions of Russian citizens who
have been left by the wayside of society.
      In historical terms, we are witnessing the failure of the
very idea of capitalism in Russia. After all, capitalism is not
just the market - it is a game with a multitude of social and
political players who are independent of the state. In theory,
such players might have arisen from the system of private
enterprise. They might have - but they have not; nor will they
arise in future. From now on politics will be entirely monopolized
by the state, and those who challenge the state's right to
autocracy will risk not only their fortunes, but their liberty as
well. The example of Mikhail Khodorkovsky is a lesson to all.
      Contemporary Russia is seeing a return to the great
stereotype of Russian history: the regime, like the Sun, is at the
center of politics and economics and everything else, while all
other political and economic forces exist only as long as they are
permitted to exist in the regime's shadow and shine with the
regime's reflected light.
      It's not a matter of whether big business will interfere in
politics or not; that question has already been settled, and not
in favor of big business. Other questions already settled include
Russia's large monopolies making "voluntary" contributions to
social needs, donating to the United Russia party, returning
cultural treasures to Russia, and so on. They will do as they are
told. The principal issue is something else: will large private
companies survive in Russia at all?
      At present, there is no economic or social justification for
their existence; they are supported solely by the bureaucracy's
wish to get a piece of the action. To put it cynically: you've
become rich, so now let others get rich too. What's more, the
extent of the private sector's freedom is directly dependent on
power-struggles at the very top of the regime.
      This is presented as "strengthening statehood," creating a
system of state capitalism. But we forget the words of one
politician from a century ago: it's only one step from state
capitalism to nationalization. And in general, the parallels
between Russia today and Russia a hundred years ago are becoming
more and more pronounced.
--------

Cabinet staff names candidates for the dialogue between business
and government

      The Cabinet staff has released a list of Russian business
leaders accredited as personal advisors to the prime minister.
      Mikhail Kasianov's government had its Enterprise Council, but
that has now been relaunched and renamed in line with the new
trends in economic policy: the Competitiveness and Enterprise
Council. The membership list remains almost unchanged. Only three
of the more authoritative members of the old council are not part
of the new one: Mikhail Khodorkovsky, Kakha Bendukidze, and
Vladimir Potanin (the latter is virtually unrivalled in the
dialogue between business and government). All the other names are
painfully familiar.
      Not even Kremlin insiders know exactly when Vladimir Putin
will finally hold his meeting with the flower of Russian business.
Intensive preparations for that meeting continue. For example,
Prime Minister Mikhail Fradkov's speech at the St. Petersburg
Economic Forum gave business leaders some food for thought.
According to the prime minister, the Russian economy will undergo
some truly revolutionary changes over the next few years. Russia's
"Dutch disease" will be completely cured: the proportion of the
GDP that comes from raw materials exports will shrink to a third
of its present level. Now that's a revelation! No one could have
predicted such a twist, least of all Russia's oil and metals
magnates. How the prime minister intends to achieve this - and,
more importantly, why (since raw materials exports now account for
over 50% of the GDP) - could not be inferred from his speech. But
since he's said it, it will be done. The regime expects nothing
less from business.
      By some apparent error, Arkady Volsky, head of the Russian
Union of Industrialists and Entrepreneurs, has not been included
on the membership list of the government's new council. Volsky's
comments at the St. Petersburg Economic Forum were not in harmony
with Fradkov's speech. Volsky lashed out at the Prosecutor
General's Office for permitting prominent businessmen Khodorkovsky
and Lebedev to be held under arrest "before the economic claims
against them are investigated." The Prosecutor General's Office
immediately accused Volsky of putting pressure on the courts.
      In short, direct dialogue between business and government
isn't working out so far. It only makes progress with the
Prosecutor General's Office acting as intermediary.
      Translated by Pavel Pushkin

Analytical department of RIA RosBusinessConsulting
June 21, 2004
YUKOS ready to be nationalized?
YUKOS oil company wants to give some of its assets to the government, de
facto maintaining real control over the company

As RBC Daily predicted last summer, in the end, YUKOS assets are likely to
fall under the control of the state or oil companies loyal to the
government. The YUKOS affair took a new turn at the end of last week. On
Thursday, Russian President Vladimir Putin said the government was not
interested in the bankruptcy of YUKOS. As a result, YUKOS stocks rose 36
percent on the MICEX. On Friday, the company s management proposed a plan
to buy out YUKOS shares from its main shareholders, and said YUKOS was
ready for talks on selling some of its assets to government-owned
companies. But analysts react differently to the unexpected turn in the
YUKOS case. According to some experts, the government and YUKOS agreed on a
peace settlement, whereby some assets will be transferred to the
government. Others say it is just a smart PR move of YUKOS, aimed at
maintaining control over the company through selling part of its assets and
receiving government protection instead.

The oil company s managers made their first peace settlement proposal a
few hours before Mr. Putin s statement on Thursday. There are different
ways of settling the conflict, but they require a more serious discussion,
said Vasily Shakhnovsky, one of YUKOS s major shareholders. He stressed
that other co-owners of Group Menatep (the main shareholder in YUKOS)
shared this position. The Tax Ministry claims RUR 99.3bn (about $3.4bn) in
back taxes and fines from the company. The Prosecutor General s Office
continues to investigate the company s key shareholders, while the Natural
Resources Ministry considers the possibility of revoking YUKOS s oilfield
licenses. Mr. Shakhnovsky s statement was published by the Vedomosti
newspaper on Thursday morning. On Thursday afternoon, Mr. Putin said the
oil company s debts were a matter of courts . While they are calculating,
the government will try to prevent the company from collapsing, the
President said. The Russian government is not interested in the bankruptcy
of a company like YUKOS, he added.

On Friday, it was reported that YUKOS Deputy CEO Yuri Beilin and Alexey
Khamrakulov, Chairman of the YUKOS Trade Union Committee, had written a
letter to Russian Prime Minister Mikhail Fradkov, proposing different
solutions to settle the conflict. Without waiting until final court
decisions are made, we suggest that the Tax Ministry, together with
government officials, prepare a tax payment schedule for 2004-2006, taking
into account the implementation of production plans and social obligations.
Secondly, the management of the YUKOS oil company is ready to submit a
program for the gradual acquisition by the company of the controlling
interest from its main shareholders, the letter says. Thirdly, YUKOS is
ready for talks on selling part of its assets to state-run companies of the
fuel and energy sector. The money will be spent to pay the tax claims,
Yuri Beilin and Alexey Khamrakulov wrote.

In other words, the company s managers, apparently with the blessing of the
key shareholders, proposed a partial nationalization of YUKOS in return for
tax debts.

Both the government and the company s shareholders were looking for a
solution of the conflict situation, from which none of them benefit. Both
parties do not want to lose face. It seems a peace settlement has been
achieved. I do not rule out that it was made clear to Vladimir Putin in a
private conversation at a recent G8 meeting that it is better to solve the
problem as soon as possible. YUKOS shall pay $3.4bn in back taxes and
fines. But this sum can be reduced. Certainly, YUKOS will have to sell
something. Most likely, it will sell its oilfields in Eastern Siberia,
which Gazprom wants to get, Alexander Blokhin of Antanta Capital said.

Meanwhile, other analysts believe YUKOS arranged the recent events with the
aim of preserving its business and rescuing its main assets. What happened
is a carefully planned action. Putin s statement was non-committal Even if
some shares are sold, they will not allow the government to influence
strategic decisions in the company. But they will enable YUKOS to use a
government umbrella - immunity. The company s aim is to sell shares to
the government, not concrete oilfields, said Alexander Sobyanin, Director
for Strategic Planning at the Border Cooperation Association. In his
opinion, a real desire to reach an agreement does not become public, as a
rule, and is not accompanied by the filing of appeals. The analyst thinks
the state judicial machine will continue the investigation, and YUKOS
assets will eventually be given to four large companies - Gazprom, Rosneft,
Surgutneftegas and LUKoil.