Putin-era billionaires and the new privatisation wave
The focus on the “unequal privatisation” of the Boris Yel’tsin era has attracted public attention to the swift rise of Putin-era billionaires and the ongoing battle within the Russian government over the second wave of privatisation. Under Vladimir Putin, several of his alleged friends from St Petersburg, emerged as the primary beneficiaries of profitable state contracts, particularly in Russia’s most lucrative economic sector – the oil and gas industry. Some such as Gennady Timchenko and the Rotenberg brothers came to prominence as trading partners to Russia’s national champions, Gazprom and Rosneft. Having generated significant capital, these new players have begun to acquire corporate assets, often from state-controlled companies at a considerable discount. For example, in 2008 the Rotenberg brothers bought Gazprom’s construction assets and subsequently merged them into a private corporation, Stroygazmontazh – Russia’s major pipeline building contractor.
One of Russia’s richest men, Gennady Timchenko, as a co-owner of the commodity trader, Gunvor, which handles over 1/3 of Russian oil exports, has also been expanding his influence in the domestic oil and gas sector. Timchenko acquired over 20% in Russia’s largest independent gas producer, Novatek, as well as important stakes in foreign and domestic oil and gas service, transportation and chemical companies. The emergence of Gennady Timchenko has been welcomed by some foreign investors who see him as playing a positive role in challenging the traditional dominance of state-controlled energy champions Gazprom and Rosneft in the Russian oil and gas sector.
Putin-era billionaires are also emerging as a decisive third force in the ongoing fierce battle between the liberal and conservative wings in the Russian government over the future privatisation of state-controlled oil and gas companies, such as Rosneft, Transneft, Transnefteprodukt and Zarubezhneft.
The liberal wing in the old Putin government, represented by Deputy Prime Minister Igor Shuvalov, the minister for economic development Elvira Nabiullina and presidential economic adviser, Arkady Dvorkovich, argued that the state-controlled companies should be completely privatised (with the government retaining a golden share). In the opinion of the liberals, this new wave of privatisation will enable Russia to attract investments for industrial modernisation and the promotion of greater transparency and efficiency of the state-dominated sectors of the domestic economy.
However, these liberal privatisation attempts have been hindered by the conservative wing of the Russian government, represented by a group of KGB veterans, or siloviki, headed by Igor Sechin. The conservatives do not completely reject the future privatisation, but seek a delay until the external economic situation sufficiently improves to make the sale of state oil corporate assets more profitable for the state and the government. The siloviki also highlight Rosneft’s strategic importance for monitoring the domestic oil industry, attracting foreign investment and technology for new large-scale projects in East Siberia and the Arctic, being a key tax contributor to the Russian budget, as well as potentially becoming a global national oil company (NOC) which will promote Russian energy interests abroad.
Although the Putin-era billionaires, such as Mr Timchenko, have traditionally enjoyed good relations with the government conservatives, they are poised to benefit from the new privatisation and will therefore likely back the liberal wing. Business circles, which missed the Russian privatisation gravy train of the 1990s, are well aware that the new owners of the privatised companies will play a highly prominent role in the domestic oil and gas sector. As a result, the battle for these assets could be severe and could create further rifts within the Russian government and Putin’s inner circle.
The Russian business dilemma.
The biggest threat to Russia’s stability comes from the growing infighting within the country’s political and corporate elites which could become particularly prominent in the domestic oil and gas sector. In the context of the growing public discontent, Russian elites could seek co-optation of various factions and groups within the highly divided opposition movement in order to protect their corporate assets in the post-Putin era and potentially gain new ones. In the best case scenario, Vladimir Putin will postpone oil and gas privatisation until Rosneft boosts its international presence and capitalisation through its recent partnerships with international oil companies, such as ExxonMobil, ENI and Statoil. Putin could also facilitate a pact between corporate elites and their political allies on a peaceful division of assets offered for privatisation. In the worst case, privatisation under conditions of growing divisions within the elite and another wave of mass protests coupled with economic instability in external markets could lead to a fast erosion of the existing political and economic system in Russia. In these circumstances, co-operation among key Russian business groups will be of paramount importance for the stable transition into the post-Putin era. However, as long as Russia does not have strong democratic institutions, such as free elections, real multiple parties, and free speech, as well as transparent and uncorrupted court and law enforcement system, private corporate assets will continue to be exposed to arbitrary demands of future Russian rulers and possible political storms.
This problem will remain until Russian elites realise that the stability of the domestic political and economic system can not be based on one man’s popularity ratings, or his effective control over the highly centralised decision-making process and the law-enforcement apparatus. Access to the international legal system, partnerships with Western companies and the use of Western contracts offer only short-term protection of property rights in Russia. Without the establishment of strong democratic political institutions, effectively channelling interests and grievances of diverse social groups, corporate assets of Russian business elites can not be reliably secure over the long-run. This realisation may drive Russia’s big business towards lobbying Vladimir Putin for real political reforms. The question remains whether Putin will be able to meet these aspirations or will be coerced into cutting his presidential term short.
