12/27/2004 12:00 AM


The Kremlin's Oligarchs


The poker game surrounding the billionaire owner of Russia's Yukos Corporation has ended in farce. The finale has revealed the internal power struggle in the Kremlin, and has angered Washington.

An observation monitor shows the auction of Yuganskneftegaz, the main asset of the Yukos oil giant in the press center of the auction house in Moscow.

An observation monitor shows the auction of Yuganskneftegaz, the main asset of the Yukos oil giant in the press center of the auction house in Moscow.

It's the appearance of their lifetimes. He is Igor Minibayev, a young man wearing a dark suit. She is Valentina Komarova, a sober woman wearing a tailored suit. The two, their faces lined with apprehension, share a common assignment: to attack.

"260.7 billion rubles," says the young man. It's the equivalent of $9.3 billion. Then the auctioneer's hammer hits the table.

The two figures are the new owners of 76.79 percent of Juganskneftegas (JNG). Three-quarters of a company that produces the lion's share of oil for the Yukos Corporation, or one-eighth of all oil produced in Russia. Total Russian production last year amounted to 50 million tons, more than Germany currently imports for its 82 million people from the entire territory of the former Soviet Union.

But Igor Minibayev and Valentina Komarova, winners at the compulsory auction in Moscow for shares in JNG a fortnight ago, appear less than overjoyed. As soon as the auction ends, they disappear offstage into Russian anonymity. They are employees of Surgutneftegas, an oil corporation with close ties to the Kremlin. They did what they were told -- and that was, officially, to "buy" the shares on behalf of Baikalfinansgrup (BFG).

No one had ever heard of BFG before. Shortly after the auction, the only comment that occurred to the finance minister of the country with the world's largest land mass was that he had "no idea" about BFG.

BFG's mailing address, at Novotorshkaya Street 12b in the central Russian city of Twer, corresponds to that of a local bar where the city's inhabitants like to sit down for a shot of their favorite beverage, "Cocktail 100," a drink with 100 grams of vodka that's often mentioned in Izvestiya, a newspaper closely aligned with the Russian government.

This is the BFG, established just a few days earlier, that acquired, at compulsory auction and in response to government pressure, the key assets of Yukos, once the dominant oil corporation in the world's second-largest oil-producing country. It was a stroke of genius of sham-like proportions. According to Moscow's political astrologists, the smirks of members the Kremlin administration are easy to recognize behind the façade.

The final act of a vendetta

The auction was the tragically comic showdown capping an 18-month vendetta against Yukos, which, either as a whole or in the form of individual employees, finds itself accused of tax evasion, fraud and incitement to both attempted and actual murder. Yukos faces a wide range of criminal indictments that company insiders have called into question, not for reasons of their validity, but for the motivation and timing of their announcement. Corporate giants such as Yukos founder Mikhail Khodorkovsky, his personal fortune valued at $8 billion only last year, now find themselves behind bars. They have been subjected to house searches, seizures of their assets and demands for payment of back taxes running into the double-digit billions.

Igor Sechin, an aide to Vladimir Putin's and former comrade from his years in the KGB, is widely viewed as the victor in the most recent series of charades to gain control of billions in Russian oil money. The rough-and-ready Sechin, deputy chief of staff for President Putin, also happens to be the chairman of the board of Rosneft, a money-losing, state-owned oil conglomerate. From their offices just outside the Kremlin's walls, Moscow's political forecasters are now predicting that Rosneft, shoulder-to-shoulder with Surgutneftegas and closely aligned with the Kremlin, will quickly gain control over the Yukos shares acquired in the recent auction.

Russian President Vladimir Putin has silently declared war on the Russian billionaires who profited from the country's privatizations in the 1990s.

Russian President Vladimir Putin has silently declared war on the Russian billionaires who profited from the country's privatizations in the 1990s.

Unless something else happens, Sechin's direct march through the oil wells of western Siberia will be counted as a victory for the forces within Putin's camp that are aligned with the Russian military and have declared war on the billionaires who made their fortunes during the privatization waves of the 1990s. It's also a setback for high-ranking Kremlin official Dimitry Medvedev, board chairman of Gazprom, as well as for Gazprom CEO Alexey Miller, both long-time Putin confidantes. But in contrast to Putin's old friends from the St. Petersburg offices of the KGB, their resumes include nothing but civilian duties.

"The Putin family"

The internal power struggle within the Putin family, as the oligarchs surrounding the president are now being called, in a nod to Boris Yeltsin's former political clique, is making big waves. Suddenly the planned merger of Gazprom and Rosneft is considered dead in the water. It would have made the state the majority shareholder in Gazprom and would have turned Gazprom into the world's largest energy company - all this without the "Silovik," or representatives of the direct Russian power structures, having played a role.

Because this was an outcome that could not transpire, Gazprom, along with its German shareholder E.on, had to lose a key skirmish within the vestibules of power in the battle for the Yukos legacy. Gazpromneft, Gazprom's recently established oil subsidiary, was sold under a veil of secrecy before the Yukos auction ever took place.

The fault lies in a court ruling pronounced by a court in Houston, Texas, where Yukos filed for protection against its creditors under US bankruptcy law. The outcome was a temporary injunction in which the court ordered the postponement of the auction for Yukos key holdings. The Houston court's ruling was essentially a greeting from the globalized world to Russia's political class, a greeting containing the message that globalization is not a one-way street that ends in the conversion of oil and gas bubbles into billions of dollars.

Another element of this message is that globalization can also mean that those who break the law in Russia while at the same time expecting to make money elsewhere in the world are playing a dangerous game. German banking giants Deutsche Bank and Dresdner Bank both played key roles in Gazprom's planned takeover of Yukos' core assets, and both are likely to have heard the Houston court's message loud and clear.

German Chancellor Gerhard Schröder, smirking for the cameras as he met with his newfound friend Putin at Gottorf Castle in northern Germany, is probably the only one who still insists on calling the Yukos affair and its permutations "an internal Russian problem." But Schröder's words are more indicative of his diplomatic bag of tricks than of any real state of affairs.

The rise and fall of Yukos was almost never an internal Russian matter. Khodorkovsy purchased Yukos at auction in 1995 for $410 million. Eight years later, the company was worth about $36 billion, or about 90 times what Khodorkovsy had paid for it. By making sure that his accounts were consistently above-board and contributing to social causes, Khodorkovsy quickly transformed himself from a get-rich-quick robber baron to a darling of the West.

Until mid-2003, Khodorkovsy was more than welcome in Washington. He was the flywheel of the Russian-American energy dialogue, playing the role of a sophisticated outside agent for the US oil industry within his giant monopoly on oil and gas reserves in Putin's realm. Only since his arrest has the Republican-leaning US oil lobby begun viewing Russian President Vladimir Putin in a light that is no longer fueled by the spirit of the two countries' shared fight against terrorism.

Last week, US President George W. Bush voiced his displeasure over developments in Russia in no uncertain terms. For the instinct-driven Texan currently residing in the White House, the fact that the mysterious Baikal Finance Group is acquiring the key assets of the Yukos Group, a mere 15 months after US-based oil conglomerate ExxonMobil was on the verge of jumping into Khodorkovsky's open arms, serves as grounds for a declaration of war.

However, Bush will only discover the identity of his true opponent two weeks later than expected, and possibly not until January 18. This is the date by which the two Russians who purchased the bulk of Yukos' assets at auction will be required, in a nod to Russian tradition, to transfer the $9.3 billion.

That's because official Moscow, caught in some twilight zone between Christmas according to the Western, or Julian calendar, and the Eastern, or Gregorian calendar, has indefatigably ordered its own mid-winter deep sleep.

And that in the age of globalization.

Translated from the German by Christopher Sultan


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