Although the St. Petersburg Economic Forum was a little soured this year by the doldrums of the crisis and the humbling of global capitalism, the Russian government still closed the show with a bang with President Dmitry Medvedev promising a rapid rebound from the recession, while helping land “several tens of billions” worth of new deals from premiere Western corporations. Nobody seemed to noticed that Finance Leasing Company (FLC), a state-owned aircraft company, became the first Russian government business to default on its bonds since 1998 (there may even be a fraud by FLC to divert funds toward other purchases). Back on June 5th, the president had all the right words that international business wanted to hear: “State ownership in most of the sectors of the economy should be viewed as an inevitable but a short-term solution.“ Cautious optimism, at least for some (like Citigroup), was the order of the day.
But even though Medvedev wants to reduce state holdings in certaincompanies, he is up against some powerful influence groups who are veryinterested in completing some “unfinished business.” At least that’sthe message from analyst Chris Weafer, who gave some pretty dramatic statements to New Europeover the weekend about the state’s plans to use the crisis to finallytake control of Norilsk and even an eventual merger between GazpromNeft and TNK-BP – which is what is happening with the Sibir Energypurchase. Weafer tells New Europe, “They will use this crisis toget controlover Norilsk Nickel and convert it into a national champion in themetals and mining sector, possibly combining it with (billionaire Oleg)Deripaska’s RusAl and maybe even Metalinvest.” (…) “This isunfinished business. They have been trying for eight years tocreate a national champion in the metals and mining sector. (…) Thisis the missing link or the missing piece of the portfolio thatthey now are going to control.”
Will a state-controlledmining giant ever be able to summon the political-strategic muscle ofGazprom and Rosneft? Probably not, but it will make a lot ofbureaucrats very, very wealthy, which is a useful strategy to managecompetitors within government.
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2 Comments
It is commonly held in the West that in all cases private management is superior to state management.Let us test this proposition.On the one hand, Putin/Kudrin/Medvedev have been very skilled in the management of the State’s financial assets, deploying them to engineer a “soft landing” of the Ruble in such a way that tens of millions of Russians were not suddenly impoverished like they were in the devaluation of 1998.On the other hand, there is Voloshin, who leveraged Norilsk Nickel to the hilt and who had to be bailed out by the Russian government.Yes, I would say from this comparison that private management is not in all cases superior to state management.
So you are in firm disagreement with President Medvedev? You shouldn’t be so Russophobic…
I think it depends on what kind of state management you are talking about. You take an state-owned company like Saudi Aramco or a sovereign wealth fund from the Mid-East, and their production and profitability are through the roof. Then you compare with a politically managed company like Venezuela’s PDVSA and you see some declining profitability, production, and overall disaster. It all depends on how much control the executive wants to exert over the state business for political and personal ends vs. professional management.Also, I think it was Deripaska that really messed up the worst, and he is recognized as one of Russia’s worst business managers – of course there are incompetents and spectacular failures in the private sector.