January 30, 2003
Digging out the loot
By John Helmer
MOSCOW - It was during the brief period of the New Economic Policy, which began in 1921, that Lenin and the Soviet authorities had the thought that in order to improve the redistribution of wealth, it was necessary to generate some wealth to start with.
This hilarious idea produced a dazzling display of satirical writing by the Russian talents of the day. (By contrast, in our brief period, the current crop of Russian writers tell their stories with such hyper-realistic attention to detail that not even a snigger, let alone a belly-laugh, is a possibility.)
In one of Mikhail Zoshchenko's stories of 1923, called "The Thief", Vaska Tyapkin, a pickpocket who specialized in city trams, decides that because the passengers have become so mean, he should move his business to the more invigorating air and improved pickings of the dacha belt.
So out he goes to case a cottage owned by a prosperous gynecologist. There he manages to break in; only he misses the dining room, where he expects to find silver, and in his haste he scoops up the toys in the nursery. He then jumps out the window. He is in the shrubbery, taking stock of his loot, when the alarm is raised, and he is obliged to accelerate his departure. A few minutes later, he realizes he's left his only jacket behind, as well as the one toy he wanted. Redistribution having gone into reverse, he concludes he would do better in future to try armed robbery.
Nowadays, it's not possible to make a satire out of a 4.1 percent GDP growth rate. A price of US$30 per barrel of oil, 9 percent real income growth, and just Rb 30.6 billion ($963 million) in wage arrears represent real wealth; they are no laughing matter, especially not at the start of the national parliamentary and presidential election campaigns for polls this year. But while we are still in the shrubbery, let's take stock of what those who have prospered most appear to be getting away with - and what they may fear losing.
Oleg Deripaska is one of the controlling shareholders of Russian Aluminum (Rusal), which he shares with Roman Abramovich and the Sibneft group. It isn't clear with whom he shares control of Base Element, the holding that includes Ingosstrakh Insurance; Aviacor the aircraft builder; GAZ the automobile company; several bus builders; and paper and pulp interests.
Of all the oligarchs for whom the elections of parliament and president pose serious risks, Deripaska is the most vulnerable, and this has begun to show already. He has failed to secure privileged access to cheap electricity for his metal production. He lost the tussle he started with rival Siberian Ural Aluminum (SUAL) over the Nadvoitsk smelter, and in the process demonstrated that Abramovich may have more clout on the Rusal board than Deripaska does.
His insurance and paper-pulp acquisitions face difficult legal challenges in the Russian courts, while in foreign courts Rusal is facing multi-million dollar breach of contract awards, and the grave possibility that the federal US court in New York will rule that it has jurisdiction over a billion-dollar fraud and racketeering claim against Rusal.
He has made numerous attempts to establish and expand his foreign assets. A Rumanian alumina refinery has been a costly failure. He has done moderately well in the bauxite-rich central African republic of Guinea, but he has been rejected in most countries, including China, which is a strategically vital market for his metal. Deripaska is far from losing his jacket, but, compared to the other oligarchs, he is further from securing the access to international capital that he would like. To that end, the toys he has acquired aren't quite what he wants, or needs.
Mikhail Fridman, the oligarch who controls Alfa Bank and the Tyumen Oil Company, has been trying for some time now to sell a stake of about 20 percent in both the bank and the oil company to what is known in polite circles as a strategic investor; that's someone whose fortune exceeds their intelligence.
It didn't help that one of the foreign victims of his acquisitions, Norex Petroleum, decided to sue on similar grounds, and for similar damages, as Deripaska faces in the same place. That suit helped expose Fridman's hidden ownership of the proceeds of his businesses. The sinking of the oil tanker Prestige, chartered by one of Fridman's oil trading networks, spilled more than oil on the beaches of France and Spain, and by threatening the way in which Tyumen Oil conducts its offshore business, it forced Fridman to dispose of the asset as quickly as he could.
He and Abramovich did well to acquire control from the Russian government of oil producer Slavneft, but that transaction only reinforced the appearance that he's vulnerable to the political changes that may follow the new elections. If Fridman had been planning on a clean getaway by election time, he looks likely to be frustrated.
Fridman is not the only Russian oilman who has been hoping for a 20 percent share sale or a stock market listing in New York, only to be nabbed by the alarm that is being raised by the American war machine. In the short term, this has raised the value of oil assets, only to make them appear at the same time to be too volatile, and risky for investors to value.
Russian oilmen have also done their best to court American, as well as Japanese and Chinese money, with lavish promises to convert their growing reserves into expanding deliveries. However, to make good on those promises, they depend on the Kremlin's control of the pipelines and ports to export the oil. But even the prime minister, Mikhail Kasyanov, can't let that out of the government's hands.
And that's why we find the oligarchs in the metaphorical shrubbery, counting what they have, and what they haven't gotten away with. Unlike Tyapkin - the name in Russian suggests he digs like a farmer hoes his potato patch - the heroes of our time can't contemplate trying the alternative of armed robbery. That's how we got here from our unfunny past.