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The Korporatsiya’s Remaining Mega Deals

The Russian government’s theft of Yukos was in many ways a dress rehearsal. An experiment with a new methodology of using regulatory and tax pressure,faking the legal cover, spreading the spoils of the take to enough international partners so as to split up the complicity, and monitoring the international reaction or lack thereof. As a learning experience, it was quite effective, and now the Kremlin has gotten much better at it, developing a specialty in “partial nationalizations,” a technique based on the assumption that if you leave your victim a nickel or two, he won’t tell anyone you took his lunch money. As Stanislav Belkovsky tells Reuters, “There have been no real victims recently. There are just different cash-out terms.” We of course beg to differ. After the cut is good story about the rush to close up two of the biggest deals involving Gazprom’s siege of TNK-BP and Deripaska’s foray in Norilsk before the relative certainty of the Putin era comes to close.

From Reuters:

Putin’s Kremlin Inc has unfinished business to doBy Dmitry ZhdannikovMOSCOW (Reuters) – Russia will see some mega-deals over the next few months as both the Kremlin and billionaire tycoons seek to wrap up unfinished business before President Vladimir Putin steps down next year.In the strategic oil and metals sectors, gas export monopoly Gazprom has set its sights on oil major BP’s Russian venture, and Kremlin-friendly billionaire Oleg Deripaska is keen to buy into metals major Norilsk Nickel.Those deals — if they are to happen — will need to close before Putin hands over power next May as, beyond that, the Kremlin’s strategy is as hard to predict as the name of Putin’s yet-to-be-designated successor.But one thing is guaranteed — any major deal will need approval from the next Kremlin chief as Russia seeks to boost its geopolitical role, a goal that often outweighs the discipline of sound economic management.”The Kremlin is paranoid about control and even though it already knows it can’t manage properly everything it has got, it is about to embark on a new expansion campaign,” said Chris Weafer, chief strategist at UralSib bank.”Even though the Kremlin is not taking entire control, it forces changes to the benefit of people whom it trusts more.”In his eight years in office, Putin has brought over half of Russia’s oil industry, the world’s second largest, back under state control, ignoring critical comparisons to resource nationalism in Venezuela or Bolivia.The trend began with the bankruptcy of oil major YUKOS, whose politically active owners are now serving jail terms.It continued with a state buyout of oil firm Sibneft from billionaire Roman Abramovich, followed this year by the buyout of Russneft by pro-Kremlin businessman Oleg Deripaska.Car makers, shippers and metals producers have failed to escape state consolidation. Global majors BP and Shell have been also forced to sell assets to state firms.CASHING OUT”There have been no real victims recently. There are just different cash-out terms,” says Stanislav Belkovsky, a former pro-Kremlin analyst who has become a vocal critic of Putin.Putin must step down after his second term expires in March, but he has asserted his “moral right” to retain political influence. He heads the United Russia ticket expected to sweep a parliamentary election this Sunday, and has publicly toyed with the idea of becoming a future prime minister.Belkovsky, who runs the Institute of National Strategy, predicts that Gazprom will buy at least a half of No.3 oil firm TNK-BP, a 50/50 venture between BP and a group of Russian billionaires, before Putin’s term expires.The owners of nickel and platinum giant Norilsk Nickel, Vladimir Potanin and Mikhail Prokhorov, may also cede control to Deripaska, who could over time sell his assets to a state corporation, Belkovsky expects.The ‘oligarchs’, who acquired their wealth in the chaotic privatisations of the Boris Yeltsin era, may ultimately be replaced by ‘state oligarchs’ controlling almost all of Russia’s oil sector and most of its precious metals industry.”There are no real property rights in Russia. Property exists as long as the state recognises you control a company. It can become real property only if you cash out and withdraw your money to the West,” he says.ATTACKING AN OLIGARCHSvetlana Borodina from Standard & Poor’s says non-strategic industries look much safer for investors.”If we talk about numbers, I have a feeling the state is ready to accept the idea that food, construction, real estate and other smaller industries can be fully private,” she says.She and Belkovsky say the state’s intentions in the telecoms sector remain a mystery as much depends on whether Putin’s successor keeps in place minister Leonid Reiman, who has held back the privatisation of national telecoms holding company Svyazinvest.Borodina rates the risks of major asset redistribution in case Putin fails to secure a smooth transition of power: “There could be some fighting between elite groups, but it won’t really be on the surface and won’t affect the structure of assets.”But Weafer says the tendency of friendly state buyouts instead of confiscations may be reversed.”Attacking an oligarch may be useful to deflect criticism of high inflation,” he said. “The wealth gap in Russia is huge. And many Russians think that anybody in an Armani suit and driving a Mercedes should go to jail.””We are increasingly cautious about 2009, when we can see a recurrence of events which upset investors,” he added.