RFE/RL
May 15, 2008
Analysis: Kremlin's Most Secretive Figure Moves To Cabinet
By RFE/RL analyst Robert Coalson
Copyright (c) 2008. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036. www.rferl.org
There were few surprises when Russian Prime Minister Vladimir Putin presented his cabinet picks to President Dmitry Medvedev this week. The official ideology of "continuity" seemed intact as Putin largely moved his former Kremlin inner circle over to the government.
Those expecting the new cabinet to signal a change of tone or direction are likely to have been disappointed. The opposition Communist Party website summed up the selection with the headline, "Old People, Old Policies, Old Problems."
But Putin's choice of former deputy presidential administration head Igor Sechin as deputy prime minister with responsibility for industry, energy, and natural resources sends perhaps the clearest signal that the second age of Putin will be an intensely amplified version of the first.
Although Sechin spent eight years at the pinnacle of power in Russia, little is known for certain about him. He made just two public appearances during his years in the Kremlin, demonstrating a clear predilection for wielding power behind the scenes. His life before he came to the Kremlin is also shrouded in mystery: it is widely believed he made his start in the KGB, although his official biography merely states that he was a civilian and military translator in Africa in the 1980s.
Sechin Sprawl
The lack of accountability means that much of Sechin's reputation is mere speculation. He is routinely described as the head of the St. Petersburg chekist clan in the Putin-era political elite. He is seen as an unwavering advocate of a strong security state bolstered by powerful state-controlled corporations. He is widely believed to be the instigator of the forced renationalization of oil giant Yukos. Rosneft, the state-owned oil firm of which Sechin is chairman of the board, was able to take over Yukos's main production assets and more than triple its annual output in the space of just months. But there is compelling evidence that his tactics of "business by other means" are being applied much more broadly.
In a scandalous interview with "Kommersant" in November, businessman Oleg Shvartsman accused Sechin of carrying out a "velvet renationalization" in the very sectors he now oversees under Prime Minister Putin. "This isn't raiding," Shvartsman said. "We don't take over enterprises -- we minimize their market value using various means. As a rule, these are voluntary-compulsory means. There is a market value, there are mechanisms for blocking its growth, of course, all sorts of administrative things. But, as a rule, people understand where we are coming from."
After Shvartsman's interview, Oleg Kiselyov, an official with the Russian Union of Entrepreneurs and Industrialists, commented: "My feeling about this publication is ambivalent. Yes, it is unpleasant, loathsome, disgusting, but it is true. I can't help but be glad that someone is speaking about this publicly."
Of course, such "leaks" are quickly plugged in Russia -- Shvartsman lost one contract after another and began to deny the things he'd said in the interview. He and "Kommersant" are still facing potentially devastating legal action in Russia's Kremlin-controlled courts.
One day after making Sechin a deputy prime minister, Putin tapped him to be chairman of the board of the Consolidated Shipbuilding Corporation (OSK), a potentially mammoth enterprise that is the latest sector-swallowing megacorporation to have been created by the Russian government in recent years. Analysts cited by gazeta.ru were unanimous in saying that Sechin's appointment will "accelerate" the formation of the shipbuilding giant, which has been virtually stalled since Putin signed the decree on its formation in March 2007. But they were coy in speculating exactly how he will work this miracle. "Considering Sechin's new role," business analyst Yekaterina Kravchenko said, "we can expect the success of any process of consolidation. Any, that is, that [is] in the interests of the state."
Putin's interest in getting the OSK project off the ground and in connecting the shipbuilding giant with Rosneft is tied to Russia's aggressive bid to control the Arctic shelf and its resources. "The main direction [of OSK] is the creation of lines of marine technology for the extraction and transport of hydrocarbons from the shelf," Putin said in St. Petersburg on May 13, "including sea platforms, tankers, ice-breaking gas-container ships, and icebreakers." Given the importance of this priority for Putin's government, Sechin will likely use whatever means necessary to achieve it.
'Harsh And Powerful Weapon'
Observers and business leaders who have dared to comment on Sechin's appointments have spoken in vague terms that seem more appropriate for a mafia boss than for a top-level official in charge of the most dynamic sectors of the Russian economy.
"I have known [Sechin] for eight years," AvtoVAZ President Boris Aleshin told "Kommersant." "This is a talented, insanely hardworking person, a good organizer and a keen manager. I have had occasion to deal with him many times and our communication has not always been simple. But dialogue was always constructive. Sechin is always ready to give good advice."
Tranzas Group President Nikolai Lebedev commented: "I think bosses aren't chosen; they are handed down by fate and you have to know how to live and work with them."
Despite the fact that market-oriented Finance Minister Aleksei Kudrin will continue officially to oversee the government's economic policies, Sechin's appointment sends a clear signal that the decidedly nonmarket state megacorporations will continue to play a key role in the government's ambitious development plan through 2020. "Sechin's appointment confirms that the state is beginning to more actively interfere in business," Alfa Group Managing Director Andrei Terekhov told "Kommersant."
"I think the state intends to enact a seriously protectionist policy in industry," SM Group co-owner Yury Koropachinsky said, "and Sechin is a harsh and powerful weapon on that front."
Liberal observers, including Kudrin, have argued that the megacorporations present a serious threat to Russia's economic development. As Sechin's record shows, they tend to resolve business issues through political means, using their lobbying might to secure concessions, loans, and contracts.
Former Deputy Energy Minister Vladimir Milov has written that the debt racked up by many of Russia's state corporations exceeds all standard business norms. In March, Milov wrote that the debt-to-earnings ratio of Sechin's Rosneft had reached 106 percent, while that of Gazprom -- headed by Dmitry Medvedev -- was 70 percent. A month earlier, Rosneft took a $3 billion emergency loan to make payments on earlier borrowing it did to finance the Yukos takeover. As "strategically important" companies, though, these firms are protected by the state -- which is why Western banks continue to lend to them.
More recently, Milov has written that although two-thirds of Russia's gross domestic product is produced by state-controlled enterprises, they contribute just 1 percent of state revenues. In 2007, the private oil company LUKoil paid $3.10 per barrel in dividends, while Rosneft paid just $0.70 and Gazprom paid $0.33. LUKoil paid $42 per barrel in taxes in 2007, while Gazprom paid just $4 per barrel. Milov attributed the inefficiency to "a badly regulated and highly corrupted system of state-property management."
With Sechin's appointment, that system looks set to flourish. Rosneft shares have risen 13 percent so far this month. Investors know a safe bet when they see one.