Medvedev’s Mole in Rosneft

There is increasing chatter about the Reuters report that Yuri Petrov, a close ally of Dmitri Medvedev, has been nominated to the board of Rosneft, marking the latest blow in the so-called clan wars. Petrov formerly headed up Russia’s Federal State Property Fund (RFFI), was a law professor to Medvedev at Leningrad State University, and is known as one of his close supporters in the legal community along with Pavel Krasheninnikov, Nikolai Egorov, and Vladimir Krotov. Vedomosti reports that his nomination to the Rosneft board was a move specifically designed to give Medvedev greater clout vis-à-vis Igor Sechin, who is actively working to maintain his people in key positions around the new president. The guys over at Stratfor believe this appointment sets a dangerous precedent, and raises tensions between the competing state owned firms: “Crossing each clan’s loyal members into the other’s champion company could make things very messy for Rosneft and Gazprom technically, especially if one company’s agenda sabotages that of the other company.” I don’t necessarily agree that Medvedev having a mole within Rosneft is bad thing.

Firstly, in a modernized economy with functioning rule of law, the state-owned energy companies should not be worried about secrecy, betrayal, and siphoning of the rents by rival board members – they should aim for transparent, profit-driven operations as a real oil company and not a tool of Kremlin politics and corruption. If Russia’s next president can be better informed about what is going on within Rosneft, that is a positive development.Secondly, if we are hoping that Medvedev is able to carry out the ambitious agenda he outlined in his keynote speech at the Krasnoyarsk Economic Forum, including his promise to put an end to corporate raiding and his opposition to officials’ involvement in state-owned companies, then it will be necessary for him to establish his own independence. Even those who have never set foot in Russia understand that having Vladimir Putin down the hallway in the prime minister’s office severely constrains the next president’s ability to act, and it will be necessary for Medvedev to slowly built up his own constituency if he is ever able to edge out the siloviki from the Kremlin. As Alvaro Vargas Llosa has pointed out, “Russia’s hope of moving toward a more open, pluralistic and decentralized political system resides in Medvedev’s hypothetical ability to ruthlessly use the power of the presidency to purge Putin and his cronies.“But the Petrov nomination is not without its complications. Back in 2004, as head of the property fund he oversaw the rigged auction which passed Yuganskneftegaz, the largest and most valuable oil production asset of Yukos, into the hands of the mysterious front company Baikal Finans Group for just $9.3 billion – which was less than half of even Dresdner Kleinwort Wasserstein’s depreciated valuation of the company. From there, we all know what happened. The two-week old mysterious little company (whose address was registered to a Siberian vodka shack) was snapped up by Rosneft in the steal of the century. For Russia’s property fund manager, who assisted in arranging this transfer of assets, to take a seat on the board of the very company which has benefited so enormously from the transaction, is an obscene conflict of interest – even if the assets weren’t stolen.However, I expect that the Rosneft board nominations will soon be ignored by the much more important question of who will be selected to take over Medvedev’s chairmanship of Gazprom (a list of the nominees can be seen here). If we see Viktor Zubkov take on the role, it will be a sign that Sechin has triumphed in maintaining his foothold in the Kremlin, and will make the next four years very difficult for Dmitri Medvedev to deliver on his Krasnoyarsk promises.