Riyadh on the Volga

The Putin administration has seen many aggressive takeovers of domestic and foreign energy holdings by Putin and his closest allies at Gazprom and Rosneft. Yukos was dismembered and parceled out like loot from a pirate raid. The Russian licensing agency Rosnedra has become a tool to squeeze foreign companies out. Meanwhile, the gang in charge of the state behemoths have no interest in modernizing their facilities or otherwise investing in keeping up production levels. Gas output is expected to drop next year and the Russian economy along with it, even if the prices stay high. Instead of using our vast natural resources to build a competitive economy, anti-competitive policies and Soviet-style monopolistic planning are causing even the most lucrative area of the economy to stagnate. KGB Incorporated has no interest in the long term. They are just filling their pockets before the inevitable collapse.

Several recent articles review this ongoing disaster, including this one by Daria Solovieva at the World Politics Review. The New York Times had a long piece on oligarch playboy Mikhail Prokhorov and how he was reigned in by the Kremlin after one of his disgustingly ostentatious parties in the French Alps drew the attention of the police to possible prostitution charges. Prokhorov was punished by being forced out of his stake in Norilsk Nickel, where Vladimir Potanin, one of Putin’s favorite oligarchs, now dominates.

Rather than expropriating assets outright, Mr. Putin’s government has exploited minor legal infractions at the target companies to force sales. Either government-controlled companies, or companies run by men seen as loyal to Mr. Putin’s Kremlin, are the beneficiaries.

In 2003, for example, prosecutors went after Mikhail B. Khodorkovsky, chairman of Yukos Oil, then Russia’s largest private company, on accusations of tax evasion. Mr. Khodorkovsky was sent to a Siberian prison, and Yukos went bankrupt. The state company Rosneft later acquired most of Yukos’s assets. Last fall, it was environmental infractions in pipeline construction that forced Royal Dutch Shell and Japanese partners to sell a controlling stake in their $22 billion Sakhalin II oil and gas development to Gazprom, the state gas monopoly.

Then, this June, BP’s local joint venture, TNK-BP, sold its share of a huge gas development after regulators threatened to revoke the license because the field was developed too slowly, which was a technical violation of the terms of TNK-BP’s license. Gazprom, again, was the beneficiary.

This is what Putin called “the ideal environment for foreign investment.” Ideal for the bank accounts of the Kremlin insiders, perhaps.