Putin's Extremely Long, Very Weird Press Conference

[AdamSmith]

Putin's Extremely Long, Very Weird Press Conference

http://mobile.businessweek.com/articles/2014-12-18/vladmir-putins-surreal-press-conference

[AdamSmith]

Merry Christmas, Mr. Putin

http://mobile.businessweek.com/articles/2014-12-18/putin-gambled-on-russias-economy-ukraine-policy-and-lost

[MsAnn]

Interesting article AS.

I would guess that it is hard to be coherent when Obama and Merkel got you bent over a table.

[AdamSmith]

[RA1]

Et vice versa.

Best regards,

RA1

[MsGuy]

Adam's link mentions that a certain Vladimir Evtushenkov has been cleared of charges. This has been one of the odder stories coming out of Russia this year. I suspect if it weren't for the Ukraine blow-up and the fall out from that, it would have gotten more coverage.

The odd part is that Evtushenkov is one of the loyal, regime friendly oligarchs that form a critical pillar of support for Putin. While he wasn't one of the top tier super-oligarchs. he was a solid 2nd tier multi-billionaire and clearly a player in the Kremlin.

Then suddenly he was not.

As I understand the story, another faction of the Kremlin elite coveted his controlling interest Bashneft, a middle rank oil producer (& good source of hard currency earnings). They made a low ball bid, he turn them down and, presto, the police crashed his door, Bashneft was seized by the state (to be sold for pennies on the dollar to guess who) and Evtushenkov was held virtually incommunicado until he agreed to let bygones be bygones and acquiesce to the loss of his company, (After all he still has several billion bucks worth of assets still under his control.) All this came down in a period of 3 or 4 months.

Now a Russian oligarch taking it in the neck ain't nothing new but before now it's always been some knot head who thought he could cock a snoot at the regime. But Mr. Evtushenkov was loyal regime insider.

And grifters in Russia elbow their way into successful private businesses all the time. But regime insiders are supposed to be immune from all that shit.

What the fuck happened here?

Granted that Russia under Putin is a lot like a group of Mafia bosses trying to govern a country, but still, when the individual bosses start making each other 'offers you can't refuse', that shit can go south really fast. Even the Italian Cosa Nostra in America learned that internal gut fighting was not good for business.

Remember these guys have still got to run the country. I would think that right now keeping the state functioning is a difficult enough task w/o having to fend off a dagger in the back every time you go to the office.

Personally I took the Evtushenkov episode as the canary in the mine showing that the situation inside the Kremlin is a lot more fragile (& even more dis-functional) than it appears on the outside.

Just my 2 cents worth. That and $1.65 will get you a cup of weak coffee at my local truck stop. Tip not included.

And sorry for wandering off topic.

[AdamSmith]

The Guardian said this back in September:

"...Analysts said the moves against Vladimir Yevtushenkov this week looked like a raid on his business by Kremlin-connected forces, and were a sign of an intensifying battle for a "shrinking pie" of resources." http://www.theguardian.com/business/2014/sep/17/oligarch-yevtushenkov-arrest-deepens-fears-russian-economy

Guardian or some other paper speculated much as you did, MsGuy, that this new danger to those on the inside could eventually, maybe not too far off either, be a big factor in Putin's undoing, if it comes to that.

[MsGuy]

Thanks for the Guardian link, AS.

If you're a business owner in Russia, how can you sanely respond to this but by squireling as much capital as possible out of the reach of the Kremlin? When even a whale like Yevtushenkov can't protect himself from this kind of shit, the lesser fish have to be terrified.

[lookin]

Lovin' the insights guys! Thanks!

Not sure what public opinion polls mean to the oligarchs, but it can't hurt that Putin is riding high with the Russian people.

Who, bless their hearts, respond to a crumbling economy by trudging out and buying flat screen TV's.

[MsGuy]

Putin's headline poll numbers are out of sight but if you drill down a bit you find a few dangers for him lurking under the surface.

For instance, only 6% would support any further action in the Ukraine if it would cost them a hit on their personal income. Also only 30% support the use of Russian troops to protect the breakaway regions around Donets. Both numbers are down sharply in just the last 4 months. I found those poll numbers yesterday but I can't for the life of me find the link now...Sorry.

Further, I would think most Russians have a clear memory of how bad things got after the government defaulted on its bonds back in 1998. Putin road that crises to power.

Now they've still got Putin and they've got no alternative available. I guess they just about have to give him a chance and hope for the best.

And, hey, who doesn't want a nice flat screen TV?

[RA1]

Wasn't it Argentina a few years ago where if you got paid at 8 AM you better spend it before noon because by 4 PM your money would be worth less? Russia, Venezuela, maybe Brazil and several other countries may be headed down that road. I lived through the most recent US version back in the '70's and it was not pretty.

Best regards,

RA1

[AdamSmith]

Paul Krugman, NYT: "Putin's Bubble Bursts"

http://mobile.nytimes.com/2014/12/19/opinion/paul-krugman-putins-bubble-bursts.html?ref=opinion&_r=0&referrer=

[AdamSmith]

Even Loyalty No Guarantee Against Putin

By STEVEN LEE MYERS and JO BECKER

The New York Times

DEC. 26, 2014

MOSCOW — Vladimir P. Yevtushenkov, not long ago one of Russia’s richest men, walked free on Dec. 17 after 92 days under house arrest. He was held by prosecutors on charges of laundering money from the purchase of an oil company in 2009 — charges that President Vladimir V. Putin ultimately acknowledged could not be substantiated.

By then, the legal case against him had stripped him of his shares of the oil company, Bashneft, and returned them to the property of the state. In a matter of months, his legal odyssey drained as much as 90 percent of Mr. Yevtushenkov’s fortune, leaving him scrambling to salvage what he could of companies and subsidiaries that trade on the London and New York stock exchanges.

The swift, unexpected and still largely unexplained expropriation of Bashneft is the latest case to highlight the darker corners of the political and economic system that Mr. Putin has developed during his 15 years as Russia’s paramount leader.

Even as he has wielded the virtually unchallenged power of government and legal bureaucracy to reward a new class of oligarchs, friends and allies from his years in St. Petersburg, he has also used the same instruments to punish those whose political or economic interests fall afoul of the Kremlin’s. For each winner in Mr. Putin’s system, there are inevitably losers.

Photo

A Bashneft refinery in the city of Ufa in 2013. Vladimir P. Yevtushenkov was stripped of his shares in the company. Credit Sergei Karpukhin/Reuters

Mr. Yevtushenkov has now joined a list that includes not only Putin critics like the exiled former oil executive Mikhail B. Khodorkovsky, who spent 10 years in prison before being freed by Mr. Putin, and Aleksei A. Navalny, the lawyer and businessman turned anticorruption crusader who, after final arguments in the latest criminal case against him, now faces the prospect of a similarly lengthy term behind bars. They also include others who, like Mr. Yevtushenkov, once expected that outward loyalty and close ties to the Kremlin afforded them a measure of protection.

A prominent businessman who knows Mr. Yevtushenkov said that Mr. Putin had eroded the very notion of property rights in Russia, even for those who displayed fealty. He said that Mr. Putin himself had described private ownership of strategic industries with the Russian word to roost. “A chicken can exercise ownership of eggs, and it can get fed while it’s sitting on the egg,” he said, “but it’s not really their egg.”

The case against Mr. Yevtushenkov and the oil company unfolded in the wake of the international furor over Russia’s annexation of Crimea in March. It continued despite the economic turmoil that has hit the country following the imposition of sanctions by the United States and its Western allies and the drop in the price of oil. According to analysts, investors, businessmen and employees of Mr. Yevtushenkov’s holding company, Sistema, the seizure of Bashneft was both a reaction to the economic tumult and a factor in worsening it.

They said that Bashneft fell victim to the rapacious ambitions of the state oil company, Rosneft, which is controlled by one of Mr. Putin’s oldest and closest aides, Igor I. Sechin. Mr. Sechin was instrumental in the legal assault against Mr. Khodorkovsky that began in 2003 and ended with Rosneft’s acquisition of the tycoon’s oil company, Yukos, and Mr. Khodorkovsky’s conviction on fraud and embezzlement charges in what were widely denounced as show trials.

Others attributed the case to an internal power struggle among Mr. Putin’s circle of advisers, while still others pointed to Mr. Yevtushenkov’s activities in Ukraine after the ouster of the president, Viktor F. Yanukovych. Mr. Yevtushenkov’s legal troubles served as an ominous warning to the country’s businessmen to remain loyal and pliant in what appears to be a new era of sanctions and economic hardship.

“It was definitely meant to be that public — to do it like that,” said Aleksandr Y. Lebedev, a banker and media mogul, referring to Mr. Yevtushenkov’s arrest in September. Mr. Lebedev faced a similar legal assault in 2012 that forced him to sell off a number of assets, including a minority share in the state airline, Aeroflot.

“The people in the Kremlin certainly would understand that it was going to hurt the stock market; that it’s going to add to the whole economic situation; that it was going to frighten the business community,” Mr. Lebedev said. They went ahead anyway, he added, because they wanted to deliver a message: “Behave yourself.”

The State Trumps Capitalism

The history of Bashneft since the collapse of the Soviet Union has reflected the uncertain and ultimately incomplete transition to a market economy, and its demise punctuated the steady accretion of state control in strategic industries that has become the most prominent feature of Mr. Putin’s rule.

Once part of the Soviet oil ministry, the company and its oil fields were transferred by the government of President Boris N. Yeltsin to the regional government where they were located in the Republic of Bashkortostan, an ethnically diverse region between the Volga River and the Urals. Mr. Yeltsin famously urged Russia’s regions and republics to “swallow” as much autonomy as they could.

Photo

Aleksandr Y. Lebedev was forced to sell assets, including a share in Aeroflot. Credit James Hill for The New York Times

Mr. Putin, though, has steadily eroded the independent authority of the regions. Bashkortostan was ruled as a fief by Murtaza G. Rakhimov, a powerful political ally of Mr. Yeltsin’s whose relations with Mr. Putin would become increasingly strained. In 2002 and 2003, Mr. Rakhimov’s government privatized Bashneft, with most of its shares ending up in the hands of a company called Bashkir Capital, which Russian prosecutors said was controlled by Mr. Rakhimov’s son, Ural.

“It was privatized outside the law,” said Mr. Navalny, whose Fund for the Fight Against Corruption has regularly highlighted shady transfers of property and wealth through government auctions and contracts. Even Russia’s auditing chamber criticized the sale, but with the evident blessing of the Kremlin, the deal was upheld in court — until investigators, with no explanation, revisited the deal in April.

Mr. Yevtushenkov became involved in 2005 when his company acquired $600 million in shares in the newly privatized Bashneft; in 2009, he acquired a controlling share for another $2 billion, something that could not have happened, executives and analysts here said, without the tacit approval of the president at the time, Dmitri A. Medvedev, and the paramount leader, Mr. Putin, who was then prime minister.

Mr. Yevtushenkov, once a functionary in the office of Moscow’s powerful former mayor, Yuri M. Luzhkov, founded Sistema in 1993 and built a business empire that included the telecommunications giant MTS, as well as real estate, media and retail investments. By the time of his arrest the company was worth an estimated $15 billion.

Despite his political ties to Mr. Luzhkov, whom Mr. Medvedev dismissed in 2010 after an internal power struggle, Mr. Yevtushenkov nurtured close ties with the Kremlin. He never spoke out in a way that would attract its ire. “He’s a very commercially minded kind of person,” Mr. Lebedev said, “but he’s also by the book.”

Under Sistema’s ownership, production at Bashneft increased at a time when Rosneft struggled, despite a major expansion that included the takeover of another oil company, TNK-BP, for $55 billion. Since the annexation of Crimea, the company has come under the sanctions imposed by the United States, the European Union and other countries.

Two people who work for Mr. Yevtushenkov, who would speak only on the condition of anonymity, said they believed that Mr. Sechin personally was behind the takeover of Bashneft, pressing Mr. Putin to revisit the circumstances of the privatization as a pretense in hopes of increasing Rosneft’s production and cash flow.

Rosneft had approached Mr. Yevtushenkov last year about the possibility of a merger or sale, according to news reports at the time, but Mr. Yevtushenkov resisted, and instead prepared a public offering of the company’s shares in London.

The deterioration of relations with the West in the wake of the war in Ukraine appeared to make the sale of Bashneft’s stocks abroad increasingly worrisome to the Kremlin. In the weeks that followed the annexation of Crimea in March, the powerful Investigative Committee — an investigative body often seen as pursuing political cases at the Kremlin’s behest — quietly began a civil and criminal inquiry into Bashneft that exploded into public only in July.

Tellingly, in his annual news conference at the Kremlin on Dec. 19, Mr. Putin said that the case against Bashneft had nothing to do with the privatization of the company in the 2000s, but rather with the original transfer of the company from federal to regional authorities in the early 1990s. That raised the question of why Mr. Yevtushenkov had been arrested at all, since he was not involved until much later, and the company has argued it was a good-faith buyer of Bashneft.

Photo

Mr. Yevtushenkov at a court hearing in Moscow last month. He walked free on Dec. 17 after 92 days under house arrest, but he lost as much as 90 percent of his fortune. Credit Sergei Karpukhin/Reuters

Mr. Putin maintained that the Kremlin had no intention of reversing the notoriously murky privatizations of the past, but the result was the same anyway. Sergei V. Pugachev, a self-exiled banker who is now fighting Russia’s attempts to freeze his assets, said the case highlighted Mr. Putin’s longstanding strategy to subdue businessmen who would work independently of the Kremlin.

“He saw that there are people who have big businesses, companies and other assets,” Mr. Pugachev said, referring to Mr. Putin’s rise to power in 2000. “And from that moment on he felt himself a part of that system, and his goal became to get on top of that system. And that means he has to control everything.”

What happened next followed a pattern that has become familiar. As happened in the case of Mr. Lebedev and Mr. Pugachev, a legal assault began from multiple directions, like a swarm unleashed by an informal signal from Mr. Putin. “Putin gives an order,” Mr. Navalny said, “maybe ‘act according to the law.’ And the words ‘act according to the law’ means do whatever you want in the legal system.”

On July 15, investigators arrested a prominent Armenian businessman and philanthropist, Levon Airapetyan, as he landed at Moscow’s Domodedovo airport after arriving from France, accusing him of acting as a middleman in the sale of Bashneft, along with its former chief executive, Ural Rakhimov. The same day, a court ordered a freeze on Bashneft’s shares. Mr. Yevtushenkov was summoned for questioning a week later.

Mr. Yevtushenkov appeared to presage his fate only days before the legal assault to capture Bashneft began in July. In an interview with the Russian edition of Forbes, he described the complex, informal and maddeningly opaque rules that govern business in the former republics of the Soviet Union, including Russia, especially when investing in crucial sectors like energy.

“Any government will always find a way to put you in your place, no matter how strong you are in the international arena, no matter what business you may have there,” he said, describing transitional market economies that he said would take a generation to break free from state control. “And if suddenly it turns out that you declared one thing but did something else, then the punishment, directly or indirectly, will come soon enough.”

Mysterious Legal Assault

According to Mr. Pugachev, Mr. Yevtushenkov himself did not understand what he had done, if anything, to trigger the legal assault. He said they met in his London office only two weeks before Mr. Yevtushenkov was placed under house arrest on Sept. 17.

Mr. Pugachev was once close enough to the corridors of power that he was known as the “Kremlin’s banker,” but is now a fugitive from Russian justice. He once controlled a banking, real estate and shipbuilding empire, until the global financial crisis in 2008 and 2009 led to a flurry of difficulties with the government and accusations of fraud and embezzlement. A bank he founded, Mezhprombank, foundered under a crushing debt, some of which came from a bailout approved by the Central Bank in response to the crisis.

At the same time, the Kremlin suspended construction of a luxury hotel that he had overseen at a historic site on Red Square opposite the Kremlin known as the Middle Trading Rows. Mr. Putin had once been so involved in the construction, Mr. Pugachev said, that he offered advice on the hotel’s designs and the hiring of the hotel’s managing company. With the project only a year from completion, however, the presidential security service objected to the proximity of a hotel to the heavily guarded seat of power.

Although Mr. Putin, then the prime minister, repeatedly promised that the government would compensate Mr. Pugachev for costs exceeding $1 billion, negotiations bogged down and he was never paid, he said.

When Mezhprombank collapsed in 2010, the government accused Mr. Pugachev of bankrupting the bank, though Mr. Pugachev claimed that the bank’s legal troubles were used as a pretext to seize two shipyards he owned in St. Petersburg and offered as collateral for the Central Bank loans.

Mr. Putin, he said, had urged him to sell the shipyards — which built, among other things, a nuclear-powered icebreaker at the center of Russia’s ambitions to exploit the Arctic’s natural resources — to the state company United Shipbuilding Corporation. At the time, the corporation was headed by Mr. Sechin, who also served as a deputy prime minister.

Mr. Pugachev said he began negotiations and had the two shipyards valued at $3.5 billion, but it became clear that he had lost the protection he once felt his relationship with Mr. Putin provided. With his financial empire crumbling, he made one last appeal. “Listen, I’ve done everything I can for you,” he recalled Mr. Putin telling him. “Good luck.” After a series of court appeals by the Central Bank, the two shipyards were sold in 2012 for less than $500 million, far below their estimated value. He said that he warned Mr. Yevtushenkov that he should not return to Moscow, citing his own troubled exile.

“Listen,” Mr. Pugachev said he told Mr. Yevtushenkov, “you must take one manly step in your life.” He said that he added: “You must spit on all this. Stay in London. You have enough money here. You won’t starve. You’re not poor. Then, I don’t know, maybe then you’ll go to court. You’ll figure it out. But if you go back there, I think you’ll have problems.”

Giving Up Without a Fight

After Mr. Yevtushenkov’s arrest in September, a court ordered the seizure of Bashneft’s frozen shares, then still worth about $4 billion. Mr. Yevtushenkov’s company issued a statement maintaining that the purchase of Bashneft had been “legal and transparent.” But with Mr. Yevtushenkov restricted to his home, able for a time to meet with only his lawyers, the company sought to contain the damage, including more than $3 billion in dividends that it had earned and distributed from Bashneft.

Instead of fighting the court’s seizure, the company abandoned its right to appeal a court ruling, citing the “best interest of the company,” essentially ceding one of its biggest assets without a fight. And in early December, the shares reverted to the state.

In the end, Mr. Yevtushenkov was never charged with any crime, though Mr. Airapetyan remains under house arrest, and Ural Rakhimov, who is reported to have fled to Austria, is also subject to an international warrant.

A day after Mr. Yevtushenkov’s release, Mr. Putin wished him and his businesses well. He even invited him to a meeting with other prominent businessmen in the Kremlin the following day. Shares of Sistema soared after his release, but the loss of Bashneft eliminated roughly half of the company’s revenues, according to one executive.

The ease with which the state reacquired Bashneft, one of the country’s most profitable oil companies, underscored the virtually uncontested power that Mr. Putin and his closest circle of advisers are able to wield over Russia’s economy and, especially, its natural resources.

For now, at least, the economic turmoil that has engulfed Russia after the conflict in Ukraine and the drop in oil prices have done little to curb Mr. Putin’s grip. Mr. Navalny said that the political and economic crisis had further tightened the circle of advisers around Mr. Putin, increasing the influence of hard-liners at the expense of those who once encouraged a more liberal economy. He said the Kremlin was now in a siege mentality. “The circle of decision makers has grown smaller,” he said in an interview in his tidy apartment in a Soviet-era block in southwestern Moscow, where he has been confined since February except for police escorts to his court appearances. “It’s harder to get to see Putin to resolve one’s own business problems.”

In his last court appearance, prosecutors asked the judge to sentence him to 10 years in prison on charges that he and his brother, Oleg, defrauded two companies, one of which is the Russian subsidiary of the French cosmetic company Yves Rocher, even though the company’s representative said the brothers had committed no crime against it. A judge is scheduled to deliver a verdict on Jan. 15.

“Earlier there were various groups,” Mr. Navalny said. “These groups had various levels of influence. These groups formally remain, but the center of decision making has moved in the direction of these people who can work under the rules of wartime.”

Correction: December 27, 2014
Because of an editing error, an earlier version of a picture caption with this article misspelled the surname of the former owner of Bashneft, a Russian oil company. As the article correctly noted, he is Vladimir P. Yevtushenkov, not Yevtushenkovfull.

http://www.nytimes.com/2014/12/27/world/even-loyalty-no-guarantee-against-putin.html?hp&action=click&pgtype=Homepage&module=first-column-region&region=top-news&WT.nav=top-news&_r=0

[AdamSmith]

Kremlin critic Alexei Navalny gets suspended sentence but brother jailed

http://www.theguardian.com/world/2014/dec/30/kremlin-critic-navalny-given-suspended-sentence-brother-jailed