Kremlin Declares its Sphere of Influence in Business

It is rational and logical for some governments to declare certain sectors of the economy as sensitive to national security, and therefore requiring some type of overview process before allowing foreign ownership and management – defense and utilities, for example.  However in Russia, when a sector is declared as “strategic,” and therefore vulnerable to arbitrary state interference, this brings an entirely different set of concerns to the equation for any foreign investors.  The Kremlin is far from unique in using strategic sector designations as a blunt instrument of protectionism – just look back at the ridiculous Dubai Ports World controversy, or even repeated attempts by the Spanish and French to block energy mergers – but they may be unique in their reputation for abuse of these regulatory privileges for private and personal gain.

But in these days of crisis, the designation of strategic enterprises is more meaningful in terms of receiving state subsidies than the restriction on foreign investment and shareholdings.  Today Reuters reports (see below) on the announcement of Russia’s list for 2009.  The winners:  Gazprom, Rosneft, Aeroflot (who knows if this means Lebedev can hang on), Norilsk Nickel (same goes for the beleaguered Deripaska), and Vimpelcom.  The losers:  Polymetal and Integra.

The cabinet published the list made of 295 companies fromvarious industries and compiled by a government commission forincreasing sustainability of the economic development on its Website late on Thursday.

Moscow has pledged over $200 billion to stave off thecrisis, which has already seen companies cut jobs, salaries andinvestment plans, forced consolidation in Russia’s 1,000-plusbanking sector and prompted a rise in corporate debt defaults.

“The inclusion of a company in the list does not guaranteethe receipt of the financial support,” the government said in astatement on its web site www.government.ru.

“The main objective…is supporting their stability usingnot only credit instruments but other measures,” it said addingthe measures included restructuring tax arrears, altering tariffpolicy and granting government orders.

“Besides, if it is needed, the government will (act to)minimise negative social and economic consequences of theclosure of these enterprises,” the government said.