Over the past week the plug seemed to be pulled on the BP-Rosneft deal, only to have the Kremlin step in and resuscitated it with a deadline extension to the middle of May. Despite government meddling in this case, there have been other signs that President Medvedev has moved further away from Putin’s managed democracy and the rule of law are taking hold.
Pavel Felgenhauer writes in the the Eurasia Daily Monitor
Russia’s tandem rulers – President Dmitry Medvedev and former president and current Prime Minister Vladimir Putin – continue to profess their friendship, but these statements are increasingly unconvincing as the presidential elections that will install a new head of state for six years come closer. In Russia elections are shamelessly rigged and results prearranged by a corrupt bureaucracy, so the nomination of an official candidate is indeed the election per se, while the casting of the popular vote is a public relations exercise, mostly intended to appease foreigners and gain international legitimacy. The present tandem arrangement with Putin as the all-powerful prime minister officially sitting in the backseat with Medvedev performing the role of a largely figurehead president cannot continue much longer, certainly not for another six years, as it is already beginning to visibly crack.
Last year, President Medvedev signed into law that those charged with economic crimes should not have to face severe pre-trial detention, however, Russia’s best known political prisoner Mikhail Khodorkovsky has been in pre-trial detention since the start of his second trial. In an appearance before Russia’s Supreme Court, Khodorkovsky won his detention appeal.
The decision was a moral victory for Khodorkovsky, who was sentenced to remain in prison until 2017 in a December ruling condemned by Western governments and rights groups, but it will not lead to his release.
Are these signs that Medvedev’s power is ascending? Ordering top government officials to step down from their directorships of large Russian owned companies has not drawn comment from Putin, who set up the system. Perhaps this is a glimpse of modernization in action, Medvedev-style.
Reuters summarizes the challenges in doing business in Russia with:
Russia is one of the world’s most lucrative markets but is heavily dependent on energy and commodity exports, plagued by corruption and its political stability rests on one man, Prime Minister Vladimir Putin.
Even with rising oil prices, Russian Finance Minister Alexei Kudrin has forecasted a budget deficit of 2% for 2011. With Middle East unrest as a backdrop, the Kremlin has even stronger incentives to maintain and increase social spending and state pensions.
It is interesting that Reuters links the legitimacy of Putin’s United Russia party to economic growth. Markets hate uncertainty, so despite the lack of democracy in Russia, Putin’s leadership is an economic program that the markets are used to.
Putinomics, however, extracts a heavy toll on the Russian economy. The capital seepage leaking out of the legitimate economy through corruption and the lack of rule of law not only drives away investment (capital outflows were at an all time high in 2010) but levies a heavy toll on Russian investments. Russian energy companies trade at a 40-50% discount from US companies.
Transparency International and Revenue Watch Institute released a study today on oil and gas companies and finds that they must do more in their anti-corruption measures.
The companies evaluated represent 60 percent of global oil and gas production. By disclosing anti-corruption measures and key organizational and financial data, especially on a country-by-country level, companies demonstrate their commitment to stop the misappropriation of revenues. In particular, detailed publication of fiscal payments allows citizens to hold governments to account.
In a recent Newsweek article, “Sechin Evolution into Reportedly Number Two Man in Russian Government Examined,” Vice Premier Igor Sechin is revealed to be the true power broker in the Russian White House, “the country’s main manager” and “expanding…spheres of influence.” Additionally, IHS Global Insight recently reported:
…that Deputy Prime Minister, Igor Sechin, has reminded investors that new amendments to the law on foreign investment in state–controlled strategic mineral fields are not designed to relinquish state control over the strategic assets but rather to offer an asset-swap to gain a foothold in Russia’s natural resources industry. Sechin’s comments are a stark reminder why the investors are wary of venturing into Russia in the first place. The Kremlin needs to do more to assure the foreign investors, already guarded by the infamous Yukos and BP nationalisation cases, that they will be offered fair compensation and will have a clear explanation of what constitutes strategically important resources. IHS Global Insight Daily Analysis, Russian Prime Minister Seeks Foreign Investors’ Advice to Improve Investment Law, by Lilit Gevorgyan, 23 December, 2009
Indeed, with Sechin as Russia’s Vice Premier for Industry and Energy, the risk of corporate raiding by government officials remains high and President Medvedev’s talk of ending legal nihilism, will be just that, talk.
Mikhail Khodorkovsky shares his thoughts with NEFTE Compass on the future of Russia’s oil reserves, the need for Russia to develop alternative energy technologies and Russia’s role in the shifting oil and gas geopolitical landscape in light of alternative energy developments. Khodorkovsky posits that countries will lessen dependence on one supplier or a group of suppliers as more competition in the form of alternative energies begin to play a role. These changes will not only bring about new technological and economic realities, but improve and preserve human life as well.
Russia may very well experience an obvious reduction in the role of rents from the realization of hydrocarbons in the country’s budget. Russia needs to diversify its economy given the competitive challenges posed by a growing China, and, in the future, India.
NEFTE Compass is a leading weekly oil and gas publication focused on Russia, Eastern Europe, Central Asia and the Caspian Sea.
