Kremlin Oligarch Shakeup Continues

As the inevitable power struggle builds toward the March 2008 presidential elections, we are continuing to see purges and punishments within the structure of the Putinocracy. The latest loser is Mikhail Gutseriyev, president of Russneft, who has been under pressure for over a year. The Kremlin is increasingly eager to place as many assets as possible under the control of the most loyal oligarchs. The name of the beneficiary of Guseriyev’s disfavored status will therefor come as no surprise. Oleg Deripaska and his “Basic Element” holding company will now own Russneft. Derispaska is well-known as one of those closest to Putin and is almost certainly the proxy for many of Putin’s own holdings. As an Oxford Analytica article in Forbes explains:

If Deripaska becomes the new owner and retains control of Russneft, then this will support the view that the Kremlin does not regard re-nationalization of the oil sector as an end in itself. Rather, it is mainly concerned with ensuring that this strategic industry is run by people who–whether they are state-appointed managers or private entrepreneurs–can be relied upon to do the state’s bidding.

Gutseriyev, it appears, did not behave in a “loyal” manner. In this respect, his story is similar to Khodorkovsky’s. In early 2006, Russneft attempted to buy Yukos Finance’s 49% stake in Slovak state-controlled company Transpetrol, which manages the Slovak section of the Druzhba oil pipeline. Yukos Finance is registered in the Netherlands, making it more difficult for the Russian authorities to acquire it in the way they have done with Yukos assets within Russia. Gutseriyev’s bid for Transpetrol could have been seen as an unwarranted interference in Kremlin plans. . . .

The Russneft affair shows that the authorities will use any available means to remove a strategic asset from an owner perceived as being uncooperative. The Kremlin’s classification of acceptable and unacceptable owners is once again an open question, as is the extent to which the authorities will want to control assets beyond the oil industry.

Following the money flow in and around the Kremlin provides a much more accurate picture of what is happening in the Putin government than their official statements or diplomatic activities. Deripaska and others like him are working to spread their methods abroad. As this Canadian Globe and Mail business report suggests, they are finding more resistance in places with investors who might not be keen to suffer a “Russian discount” on value thanks to “the risk and the odious governance aspects” of doing business with these companies. On Russneft, the report offers:

The “culture” in Moscow these days seems to allow for the existence of two kinds of big companies: those in favour with the Kremlin, and those that get their kneecaps busted. So discovered Russneft’s Mikhail Gutseriyev, who claimed that government authorities harassed him into coughing up his company. (Mr. Deripaska wants to buy it and will, some believe, flip it to a state oil concern). Mr. Gutseriyev recanted his story yesterday, mysteriously, but perhaps understandably. He’s finding out what BP and others already know: In Putin’s Russia, you own what you own until someone powerful decides he wants to make your life hell.