Putin Renationalizes Oil Company After All

For those who haven’t been following the soap opera in Russia, Yuganskneftegaz was the operating unit of the Yukos oil company. When the heavy back tax bill the president levied on the company fell due, it forced the sale at auction of Yuganskneftegaz, which pumps a million barrels of crude a day. The operating entity was purchased by Baikal Finance Group, of whom no one had heard. According to the Financial Times the address of its headquarters was a grocery and gas station in Tver, north of Moscow. Right after Baikal made its purchase, it was takeover (in a matter of hours) by state-owned oil company Rosneft. As a result, a late entry for biggest lie of the year comes from Russia’s President Vladimir Putin, who said, “I think everything was done by market methods.” The market wasn’t anywhere near this one.

Despite the lie, President Putin told a great truth as well when he said, “"You all know very well how our privatization was carried out at the beginning of the 1990s. And how people were using different tricks, which included breaking laws then in force, in order to acquire ... state property.” The Soviet Union was the owner of just about everything in the economy, and it had ceased to exist. As a result, a preserve sort of Marxism prevailed in the privatizations – to each according to his greed and to each according to his agility. That’s how the so-called “oligarchs” got hold of their billions.

And so, it seems a long-running plot has come to fruition. Tsar Vladimir Putin has shown that he is still a Chekist at heart, still a KGB man to his core. Nothing can be more powerful than the state, and that means the president of the Russian Federation must be able to do as he pleases without interference from those with loads of money. If Mikhail Khordokovsky, the man who stole most of Yukos according to Mr. Putin, sent some of his money to opposition politicians, then he was a problem to be removed. He has been. He would have been far better off to have followed the example of Roman Abramovich, who took his money, moved to England, bought the Chelsea soccer team, and hasn’t bothered looking back.

What is really amusing is the way the businessmen thought they could play western legal games against an opponent who understands that all power comes from the barrel of a gun – even economic power. Gazprom, the state-owned gas company, was favored by the Putin government to buy Yuganskneftegaz, but Yukos sought bankruptcy protection from a Houston, Texas, court who essentially forbade that solution. The siloviki, as Mr. Putin’s former KGB pals are known, went ahead with the auction, arranged for Baikal to bid and to deposit over a billion dollars with the Russian tax authorities after it won. Then, they has Rosneft take over Baikal, and Rosneft is being merged with Gazprom. Tom Clancy novels are less involved, but it is truly a marvelous move.

The lawyers in the west will continue to fight this, but at the end of the day, they can’t prevent the renationalization. Russian law, as articulated by Mr. Putin, will always hold that the property the shareholders claim was stolen from the Russian people. Now, the question is who wants to invest in Russia? The answer is simple – anyone who is a friend of the Tsar.

© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.

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