The Blowback on Velvet Reprivatization

Oleg Shvartsman’s now infamous interview with Kommersant (full translation here), in which he pulled back the curtain on the functioning of the Russian government’s velvet reprivatization, is causing some major blowback. Today the Moscow Times reports that several investors, including the European Bank for Reconstruction and Development (EBRD) and Israeli bank Tamir Fishman, have suddenly pulled out of their plans to launch an investment venture after hearing this news of the siloviki campaign to carry out soft, partial (“velvet”) thefts of companies and assets by driving down their value via tax, regulatory, and other state authorities – a more skillful implementation of the Yukos methodology. Welcome to the world of business with today’s Kremlin – at least we finally know what “Putin’s Plan” consists of. However losing his partners on an $81 million venture is the least of Shvartsman’s problems.

He is in very deep trouble, and likely received a frighteningly credible threat from Igor Sechin, Putin’s deputy chief of staff and Rosneft board chairman, who he had fingered in his interview along with long-time Duma member Valentin Varennikov. In a shocking twist, yesterday on Echo Moskvy radio, Shvartsman categorically withdrew his statements with almost incomprehensible reasoning: “Sometimes, it is possible to alternate these contexts with each other, changing the content, the essence, the fullness of meaning, pulling out the names, surnames, the essence of given information.“Like everyone else who heard the radio interview, Kommersant isn’t buying it, and is going to file a complaint against Shvartsman, and will play the tapes of the interview in court. In their fascinating piece on the refutation, the paper quotes Sergei Buntman of Echo Moskvy, who said that Shvartsman looked like he was clearly pressured to make the retraction: “From the spot, he abruptly set to the refutation. The feeling was he came with the speech that was well thought-out and prepared in advance.” It is also noted that Shvartsman even retracted statements made by his wife to the New York Times.Needless to say this brings back memories of the “retraction” by Russneft owner Mikhail Gutseriyev, who committed the cardinal sin of buying Yukos assets that the state believed it had rightfully stolen. The price for this transgression, was a slowly building campaign against his small successful oil company by the authorities, culminating with invented criminal charges and pressures to sell to the state. Just like Shvartsman, Gutseriyev made the mistake of speaking out, publishing an emotional letter on his company’s website denouncing the campaign of persecution, only to be removed hours later. Then, in a transparently desperate effort to undo this leak, Gutseriyev began aggressively denying that he had ever said such things, and that his statements were taken out of context. However, it was too late, nobody believed him, and he was forced to flee Russia, first to Turkey and then the United Kingdom, shortly following the mysterious death of his son in an apparent car accident. His multi-million oil company now looks like it will be passed into the hands of Oleg Deripaska’s company Basic Element, a transaction which I have argued underscores the total illegitimacy of the Yukos auctions.So it remains to be seen whether anyone will believe Shvartsman’s retraction. If not, he will likely find himself 1) in the gulag, 2) self-exiled to Europe, or 3) the victim of an unfortunate accident. Such are the fates dealt to those who anger the siloviki by speaking out.The greatest question of the hour is why Shvartsman gave the interview and shared so much highly sensitive information. Was it just a careless and unplanned moment of boasting? Or was the timing, right before the parliamentary, an indication that further moves are being made against Igor Sechin, perhaps directly or indirectly related to the arrest of Bulbov, the Cherkesov response, the arrest of Storchak, and the campaign against Kudrin? Whoever was able to arrange to flip one of Sechin’s key lieutenants surely secured quite a coup, likely inspiring nothing short of fury in the other camp.According to a Kremlin insider who blogs anonymously on this site, Sechin has never been more powerful, and in many respects his influence has surpassed that Vladimir Putin, as demonstrated by the incremental steps taken against both Bulbov and Storchak, both of whom were acting in Putin’s interests. It is interesting to note today’s report in the Moscow Times about how three Rosneft vice presidents, Alexander Sapronov, Alexei Kuznetsov, and Valery Borisenko, have been forced out of the company, leaving president Sergei Bogdanchikov with no more allies in the company. Many more people are expected to be forced out, which shows the rising clout of Sechin, who looks like he may be bracing himself for a tough battle come elections time.Did the Shvartsman interview with Kommersant rain on this multi-billion dollar parade? How will this inconvenience be handled? Stay tuned for more to come….