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Kremlin Policy and Russian Business Fused at the Hip

If you haven’t yet had a chance to read Greg White and Alexander Kolyandr’s sprawling and informative article on billionaire Oleg Deripaska in today’s Wall Street Journal, I really recommend taking the time to do so.  There’s quite a lot of great material in the article, leaving me indecisive about what parts to share.  Basically, I think that we can see the story of Deripaska surviving the economic crisis with his most of his fortune intact as an epic illustration of how business in done in Putin’s Russia, complete with flagrant conflicts of interest, oligopolistic non-competition, and the packaging of deals through foreign policy, diplomacy, and business.  Political loyalty and points with Putin is the only key to survival, while competing companies, political opponents, and foreigners of any stripe can expect lawlessness, theft, and maybe even prison.

Taxpaying Russian citizens should be outraged that government dedicates itself not to the public interest, but rather applies its resources to help a billionaire accumulate more wealth. Of course that’s not what happens – instead most of the public will just shrug their shoulders and ignore the state’s pillaging, and somehow continue to believe the Kremlin’s myth that Putin has “tamed” the oligarchs, instead of just incorporating them and becoming one himself.

If this kind of state corporatism is the future for Russia, the world should tremble.  FSB + Megacorporations = something more terrifying than the heights of Wall Street avarice.

From the Wall Street Journal:

Exactly what Mr. Deripaska’s relationship to the Kremlin is remainsunclear. Both sides say it is purely business. But he iswell-connected, with direct access to Mr. Putin and other topofficials, according to people close to him.

Mr. Deripaska is often a member of the business delegation when Mr.Putin and Russian President Dmitry Medvedev travel abroad. The42-year-old billionaire has been a big investor in Kremlin-backedprojects such as the 2014 Winter Olympics in Sochi. He wins points forhis efforts to save Soviet-era behemoths like the OAO GAZ auto factoryand an aircraft maker.

Like the other remaining oligarchs, he studiously avoids independentpolitical activity. For years, Russian officials from Mr. Putin on downhave lobbied the U.S. to lift a ban on granting Mr. Deripaska a visa.Except for special permits arranged through the Federal Bureau ofInvestigation last year, the efforts have failed, amid what U.S.officials say are concerns about whether Mr. Deripaska has ties toorganized crime. Canada also denied him visas twice under a law thatcovers “alleged criminality,” Rusal disclosed in IPO documents lastweek. Mr. Deripaska denies any criminal ties and has never been chargedwith a crime. (…)

While some U.S. investment banks were leery about the Rusal IPO, ithad no trouble finding underwriters. Mr. Deripaska went to China withMr. Putin in October, lining up deals to sell Rusal’s metal andpitching its shares.

Back in Moscow, on a day in mid-November, he sat for hours on acouch outside Mr. Putin’s office in the prime minister’s suburbanresidence, sending text messages as he waited for a meeting with Mr.Putin.

The patience paid off, as Mr. Putin approved a plan to invest about$700 million in Rusal’s IPO through VEB, the state bank. Though thedeal would give the government only a 3% stake, people close to it sayit will be a huge boost to the public offering.

To make it possible, the government had to approve special rulesallowing the investment, made with earnings from money the Kremlinearmarked for pensions. Russia’s finance minister, Alexei Kudrin,hailed the deal as a good one for the government and a step to ensurethat control at Rusal stayed with Mr. Deripaska. After the sale of10.6% of Rusal’s shares near the end of January, Mr. Deripaska’s stakewill fall to about 48% from 53% but he will remain in control.

A last-minute hangup delayed things. Regulators in Hong Kong, wherethe IPO is taking place, demanded assurances Rusal wouldn’t bebankrupted by the $4.5 billion loan from VEB, the state bank, when itcomes due in October 2010. Another Russian state-controlled bank cameto the rescue. OAO Sberbank offered to refinance the loan for four moreyears, and is considering buying shares in the IPO as well.