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Wednesday, June 15, 2005

The Service Oil Pipeline

06-10-2005 Kommersant - By Dmitry Butrin -
The imprisonment of YUKOS's owners and the division of their legacy was a powerful incentive to the development of democracy in Russia. It is not inconceivable that a two-party system will finally appear in the country: OOO Liberalneftegaz and ZAO Patriotneftegaz will be competing for power and property.
What will happen to Russian statehood in the nine years that former executives and still the largest owners of YUKOS, Mikhail Khodorkovsky and Platon Lebedev must serve in a medium-security prison camp according to the sentence handed down by the Meshchansky Court? For the time being, the following is most probable scenario for the development of events on Russia's oil and gas scene: genuine competition and a progressive movement towards democracy will appear by 2006. Instead of a single political hydrocarbon concern, i.e., Presidential Administration - Gazprom - Rosneft - United Russia with subsidiaries in the White House and the Prosecutor General's Office, two competing structures will appear - OOO Liberalneftegaz and ZAO Patriotneftegaz - representing the two most popular ideologies in Russia in both corporate policy and business practice.
Khodorkovsky accomplished a fair amount in the recent history of the Russian economy. Leaving aside State Prosecutor Shokhin's ideas of the achievements of YUKOS's management in the organized crime business, which are of little use for discussion anywhere except in the Meshchansky Court, you can't ignore the fact that it was Khodorkovsky who influenced the formation of two parties in near-Kremlin circles (a group of like-mined people in the old European interpretation of this term). And a juicy chunk of YUKOS property, Yuganskneftegaz, which, during its owner's time in prison, was thrown out for division into the political and economic field and became the missing link for the splitting of these parties in the business environment. We have only to wait until the parties form into holdings in the business field and into political parties in the political field. In the purely human sense, it seems that a division into us and them has already occurred in the Kremlin, despite the appeals of Vladimir Putin and the head of his administration, Dmitry Medvedev to preserve unity in the face of ill-wishers.
Dmitry Medvedev, head of OOO Liberalneftegaz
In principle, you could very well say that Khodorkovsky's fate was not decided in the Meshchansky Court, the Kremlin, in Old Square, or at meetings at Rosimushchestvo, where an unprecedented battle for and against the merger of Gazprom and Rosneft took place in the spring of 2005. Recall that it was Yuganskneftegaz that decided the fate of the deal during a murky Russian Federal Property Fund (RFFI) auction held on December 19, 2004. Rosneft's purchase of Yuganskneftegaz became the main argument against the formation of the largest oil and gas company in Russia, which was supposed to emerge from the united Gazprom and Rosneft and in which the state had a controlling interest.
The formation of the order-bearing, efficient, socially oriented state company Gosneftegaz based on Gazprom in a quasi-compulsory alliance with Surgutneftegaz and Transneft was almost declared outright, for example, in documents dealing with development strategies for the oil and gas reserves of Eastern Siberia and the Far East. But Yuganskneftegaz, which went to Rosneft in the end, wrecked this orderly plan. As a result of a compromise in the Kremlin and surroundings, each kept its own.
But what does "its own" mean? The dispute between Medvedev and Igor Sechin, the chairmen of the boards of Gazprom and Rosneft, respectively, led the Russian government elite to create two state oil and gas companies, which were supposed to take shape by the end of the summer of 2005. The first was Rosneft, which already controlled 60 percent of YUKOS's production and probably controlled the remaining 40 percent of production and at least part of the refining operations. The second was Gazprom. Officially, it received nothing; but there was a very high possibility that the $8-10 billion it was supposed to receive from the state through Rosneft loans would be spent on oil projects. This might well be both the purchase of Sibneft and the acquisition of a stake in TNK-BP, if the Russian shareholders decide to get out of this business. Asset swaps with Western investors in Russia cannot be ruled out.
Igor Sechin,
head of ZAO Patriotneftegaz
If there are no problems with their formation, by 2006, both companies could very well claim the role of the largest players in the Russian fuel and energy complex, including the power industry. But what is more interesting is that the two state companies have been quite clearly delimited according to a different characteristic, namely, according to their business strategies, which represent fundamentally different versions of state dirigisme in the economy, and, given the economic centrism of all present-day politics, two different state ideologies.
Gazprom (tentatively OOO Liberalneftegaz) can already lay claim to consolidating relative liberals in the government around it, from German Gref to Viktor Khristenko, albeit not without some friction. And in both corporate governance and state ideology, this is a party oriented toward cooperation with the EU and the United States, a social state, technocracy as distinct from the rule of ideology, and phraseology borrowed from Harvard and Boston. Theoretically, this is the Latin American model.
Rosneft (the future ZAO Patriotneftegaz) is another version of dirigisme, appropriately known as Chinese. This is narrow-minded isolationism, the elimination of competition by means of rigid state control, a rejection of the social state ideology, total state capitalism in the well-known sense, politicized rather than business cooperation with the West, native phraseology, and unbounded patriotism.
Of course, the words "economic liberalism" can be applied to politicians and managers of the first group only with well-known reservations. The matter concerns two models of an economic policy that assumes active intervention by the state and its agents in market processes and as a direct player, regulator, and guardian of state interests, which are fundamentally different from the interests of private business and, ultimately, of society, whatever the claims to the contrary. In this sense, Aleksandr Lukashenko is a more liberally inclined politician than his Turkemen counterpart.
It would be no great exaggeration to suggest that, under certain circumstances, Liberalneftegaz and Patriotneftegaz will become opposing forces in the political sphere in the pre-election cycle in 2007-2008 in one form or another; and in the business sphere, the stiff competition between the two conglomerates will obviously become even stiffer. Khodorkovsky and Lebedev may be pleased. Their nine-year sentence may well be considered a sacrifice on both the altar of competition in Russia's fuel and energy complex and the altar of political freedom. The rivalry of the two ideologies will inevitably enter the public realm; but isn't this democracy? At the very least, the struggle for power of the two political parties is still more democratic than United Russia's autistic internal power struggles.
However, the most predictable scenario should not be confused with the most likely one. Politics in Russia consists of barely predictable events. Who could have imagined three years ago that Mikhail Khodorkovsky would be on the prisoner's dock?

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