LONDON: Russia’s premier steel magnate looked ill at ease. “Maybe it was not absolutely necessary,” Alexei Mordashov said slowly, his arms folded close to his chest. “But it will not change our development towards a free-market economy. I am absolutely sure there is not going to be a change in the rules of the game.”
Mordashov, chairman of privatized steel giant Severstal, was talking about the arrest of Mikhail Khodorkovsky, his fellow “oligarch”, whose arrest on corruption and tax evasion charges has sparked market turmoil and a political crisis in Russia.
“It’s not good for the business climate here,” Mordashov continued. “I do not have enough information to make a judgment on the case. It’s a matter for the courts.”
Mordashov’s caginess may be understandable. Khodorkovsky’s arrest two weeks ago has set nerves jangling among the plutocrats whose vast fortunes were made from state assets acquired on the cheap.
Last week, The Observer newspaper in London revealed that a Russian MP is now demanding an investigation into how Roman Abramovich, new owner of Chelsea football club, made his oil billions. President Vladimir Putin denies wanting to reopen the controversial privatizations of the mid-Nineties. Even so, ordinary Russians have no love for billionaires and the country is currently in election season.
In Moscow, everybody seems to have a different theory about what lies behind Khodorkovsky’s arrest. Most view the Kremlin’s fight with the chief executive of oil giant Yukos as a special case because of Khodorkovsky’s vocal criticism of Putin and his sponsorship of opposition politicians.
The President is said to have extracted an undertaking from the oligarchs in 2000 that they would stay out of politics, and William Browder, chief executive of Hermitage, the HSBC-owned Russian fund manager, believes the affair will serve as a warning to those inclined to renege on the promise.
“If you were to spend a weekend at an oligarch’s dacha over the past three years, you would find him seething at how he has gone from the joyous position of being rich and powerful to just being rich... But all of the oligarchs are probably so scared at this point that they’re going to behave themselves.”
Once Khodorkovsky is convicted or exiled, others add, business as usual will resume and there will be no return to arbitrary state confiscations. His removal might even facilitate a long- heralded $25 billion investment in Yukos by ExxonMobil, the American oil group.
For oligarchs and international investors — if not for human rights campaigners — that is probably the most palatable interpretation of events. Another is that Putin wants to renationalise Yukos but go no further.
Oil currently generates 25 per cent of Russia’s national income, and its biggest oil company is a major money-spinner which, in the Kremlin’s eyes, should never have been made private. The imminent US deal may have been precisely what Putin sought to prevent by having Khodorkovsky arrested and his one- third Yukos shareholding frozen.
Under Russian law, that shareholding could yet be confiscated outright if Khodorkovsky, who denies wrongdoing, is convicted of organized crime. And some fear wholesale confiscations of the oligarchs’ businesses could follow. Boris Berezovsky and Vladimir Gusinsky have already been forced into exile, and there is speculation that Putin is planning to take down the oligarchs one by one.
We shouldn’t entirely discount the official explanation for the affair, which is that Khodorkovsky is suspected of corruptly benefiting from a privatization by the general prosecutor’s office, which acts without political interference. But that would not reassure some oligarchs, since the same office might also want to look into their affairs.
In the end, nobody knows what Putin plans for the oligarchs except Putin himself — and perhaps not even him, according to some, who see the growing influence of his KGB-trained advisers behind Khodorkovsky’s arrest. Other Kremlin insiders are suspected of wanting to get their own hands on confiscated assets, enriching themselves in the manner of Yeltsin-era cronies.
“Putin has an interest in not clarifying the rules of the game,” says Michael McFaul, a Russia expert at Stanford University. “It’s his arbitrary use of the rule of law that gives him power over the oligarchs.
“But overall, I think it has negative long-term consequences for the economy”.
McFaul believes that Putin “wants to transform the Russian state and make it more respected and feared inside and outside Russia. He has set out to systematically remove all alternative centres of political power”.
These include over-mighty regional governors and independent TV stations, says McFaul, and could eventually include the oligarchs, too. “But Putin does not see this political strategy as being incompatible with western investment,” he says.
Capital flight is probably only one of the problems Putin will face if he chooses to clip the oligarchs” wings.
Looking out from Alexei Mordashov’s bullet-proof boardroom it is easy to see how being boss of Severstal would give one feelings of grandeur. Mordashov’s “kingdom” has a very physical location: Cherepovets, a town 385 miles north-east of Moscow, which is economically dependent on Severstal’s huge steel plant.
People like Mordashov, who took the reins at Severstal at 27, had to be exceptionally tough to get to the top. They will not give up power without a fight.—Dawn/The Guardian News Service.