Global Policy Forum

By Dmitry Slobodanuk

The contradiction between the Kremlin and oligarchs is gathering steam

One may say that the party of the Russian power is seriously probing American investors. As it was stated at the summit, the new law "About Underground Resources" will be based on returning Russia's crude and natural gas sources to the federal property. After such a move, all concerns about TNK's merger with the British Petroleum or selling 25 percent of YukosSibneft's stocks will become unimportant at all. Nothing is known about the reaction from the USA yet, although one shall assume that it will be strongly negative.

The law "About Underground Resources" will be ready in 2004. This was announced by Russian Deputy Minister for Economic Development Mukhamet Tsukanov at the second US-Russian energetic business summit. "We think that the law will be ready next year, we are through with the first part of the law about the people who control the oil and gas industry. Now we are working on the water part, and the forest part of the law is to be considered at the Duma in October," the official stated.

Of course, the new law will be considered by the deputies of the new convocation. There is every reason to believe that Khodorkovsky and Abramovich's followers will not make a large number in the new Duma. That is why there is nothing surprising about the fundamental principle of the new law - to vest oil and gas sources to the federal property. This idea is not new for the Kremlin. "The state does not own underground raw materials now and Russia suffers one billion rubles of losses. This is the real economic loss that cannot be explained either with political or economic factors," Mukhamet Tsukanov said in a statement. The official added a certain part of the Earth's bowels would be vested to Federation units on contractual basis. However, a contract between the center and regions is not a reliable guarantee. Therefore, federal officials will have underground raw materials at their full disposal. "We do not make everyone work under the terms of the new law. Those who work in the old system may continue working. We simply intend to announce the economic advantages of the new system. If they wish to accept new rules, they will join," Tsukanov said.

It seems there is no need to explain, what kind of "explanations" or "persuasion" methods might be applied to those who disagree. On the other hand, it is hard to believe that someone will disobey the new law by the time it is complete. The idea to nationalize underground resources was originally announced by presidential spokesman Dmitry Kozak last year. The idea of the federal property imposed upon oil and gas caused great concerns among foreign investors and Russian oligarchs. They said that underground raw materials were the only assets of Russian mining companies. If oligarchs stop owning them, companies' stocks will be devalued, the stock market will collapse, there will be no investments and cash will flow out of the country. Kremlin officials put the idea aside, and Russian oligarchs hurried to talk to their foreign colleagues about selling Russian oil and gas companies to them. Oligarchs do not want to lose everything, they are prepared to give way to foreign competitors.

The situation proved to be even worse. Yukos's CEO Mikhail Khodorkovsky developed his political activities against such a background. He had a grand goal to pursue: the State Duma of the new convocation must not approve the new law about underground raw materials, the Duma must block all other similar laws too. The Russian government did not sit on its hands and it struck back. The Russian Federation Office of the Prosecutor General instituted criminal proceedings against Yukos and its affiliated company Menatep - eight files altogether. Platon Lebedev - Yukos's largest shareholder, head of Menatep, was imprisoned. Despite of the commotion, he is still in jail.

Nevertheless, the Russian Ministry for Anti-Monopoly Policy approved the merger between Yukos and Sibneft. Furthermore, it became known that the shareholders of the merged company were conducting negotiations with American and British oil giants to sell 25 percent of stocks to them. The announcement about selling the stocks is expected to be made in the nearest future. Russian business circles think that everything has already been settled about the issue. Yet, it is not known what the Russian government is intended to do in return, but the reaction may be very strong on the threshold of elections. The Russian electorate will not understand weak measures or a compromise - people like strong power. Vladimir Putin and his team will not be watching transnational corporations obtaining the control over Russian oil assets.

Depending on oligarchs and investors' reaction, the Russian government will think of further actions. The cleansing might be very painful, taking into consideration oligarchs' open pressure on power. All officials think that certain criminal cases need to be investigated and someone will have to be jailed because privatization results cannot be revised. President Putin has already acknowledged that he has no right to show pressure on independent prosecuting bodies. The Russian law "equalizes" everyone, no one can take liberties beyond the framework of the law, no matter how many billions they have saved. It is not ruled out that there will be no one to protest against the new underground resources law, when the State Duma of the new convocation starts considering it.

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