ENI’s Sacrifice of Integrity in Yukos Auctions is Viewed as Weakness

One can only assume that after the last two phoney auctions, the Kremlin will now be issuing a rulebook, given that both auctions have been preceded by high-level meetings or conversations involving senior Kremlin officials in what are obviously attempts not only to predetermine results, but also to legitimize criminal conduct on behalf of Russian officials at the highest levels. The willingness of ENI to participate in this farce says more about its surrender to the new gas OPEC of Algeria and Russia than anything else.


The Six-Legged Dog of ENI got cornered by the Gazprom-Sonatrach agreement

These are not open free auctions but rather organised sales at knock-down prices and with predetermined winners. While ENI appears at first sight to have won this auction, in reality Gazprom is the winner. As Alexander Medvedev, Deputy Chief Executive of Gazprom stated moments after the auction, “The structure of what we will get is still being discussed, but we will definitely get 51% – that is a minimum.” The reality is that Gazprom was torn between trying to create the appearance of a normal auction and therefore allowing ENI to win, and not losing face with the Russian public. Therefore after the auction, Medvedev addressed the Russian press to assure them that while they were using ENI’s money and ENI as a proxy, in reality ENI would not control the assets, Gazprom will. Last week saw the first of a series of rigged auctions in Russia in which the remaining $30 billion of Yukos assets are being sold off cheap. BP had signed up for the auction, but walked away only ten minutes into the bidding, when the assets were still a half billion dollars below market value. As there were no other bidders, many observers have concluded BP was complicit in bid-rigging, hoping to gain favour with the Kremlin. BP’s suspicious withdrawal from bidding has led some shareholders to express “grave misgivings” over the company’s role in the final sell-offs of Yukos. Even before the auction, California’s State Controller called upon the public pension fund, Calpers, to reconsider its $500 million investments in BP, out of concern for apparent complicity in Kremlin corruption. In the long term, the patronage of the Kremlin by European energy companies will prove counterproductive. This voluntary sacrifice of integrity is viewed by Moscow as weakness. For the corrupt officials currently acting as Russia’s economic gatekeepers, this complicity only validates their attack on the free market, and encourages the current pattern of expropriation, thievery, and destruction of property rights.