Old habits die hard

The first few weeks of Dmitry Medvedev’s government under President Putin have more or less matched expectations. As I have blogged before, the new cabinet is designed to be either the engine of further reforms and a preparation for a gradual generational change, or merely an outpost for the conservatives withdrawn to the safe haven of the Presidential Administration. This clever infographic from RusRep, by the same token, claims an “anti-clan turnaround”. It might be true, when it comes to the government and the clan system formed until Putin I-II in general. However, as a lot of heavyweights (7 former members of the government) are still sitting in an “extended” Presidential Administration with remote controls in their hands (which Medvedev, in a telling move, deemed important to state they don’t have), Medvedev’s government is bound to be a “conflict government” with more than one battlefields.

The composition of the new government, even if it didn’t meet guesses to 100%, strongly resembles what Russia-watchers had anticipated. Law enforcement remained in conservative hands, unsurprisingly under the present circumstances where the elite are visibly preoccupied by the possibility of new forms and instances of protests mushrooming all over the country. Finance, on the other hand, will be handled by sober-minded technocrats, the closest thing to “liberals” in the new government. Furthermore, liberal-minded technocrats from the government (Arkady Dvorkovich, Andrei Belousov, Alexander Khloponin and Igor Shuvalov), most of them close to Vladimir Putin were appointed to the supervisory board of Vneshekonombank. Still no surprise there: one of the first visible conflicts in the conflict government is indeed emerging between these two – the ministry of finance, that is, would like to economise on the expense of the police and the military (with the economy clearly in need of some belt-tightening and the general fear of escalating protests within the elite, this might be a game to watch). But this is, in my opinion, a smaller slice of the cake for the moment.

In the last couple of years, especially during the crisis that saw oil prices dropping rapidly a thorough revamp of the Russian economy seemed inevitable, almost a fait accompli when it came to the strategic direction of the government. Now, however, things have changed: energy prices are rising again, so suddenly it has again started to be of growing concern and interest what direction the energy industry takes. It is from this point of view that the nomination of Arkady Dvorkovich to vice-PM is particularly interesting. For a known liberal like Dvorkovich, a position overseeing the energy industry is a serious gamble, especially now that the positions of the energy tsar Igor Sechin, contrary to what some had expected, were strengthened rather than weakened. Sechin was appointed the CEO of Rosneft, and, perhaps even more importantly, to the board of Rosneftegaz, the holding through which the Russian state holds its ownership in energy giants.

Sechin immediately made it clear that he prefers the state to uphold its ownership in the energy industry. Even though Rosneftegaz’s stakes were offered up for privatisation in 2013-15 and Medvedev pledged to withdraw from the state control of Rosneft by 2016, as Vedomosti reported on Saturday, this order seems unlikely to be more than a piece of paper while Sechin is in the driver’s seat (as it has happened before). Furthermore, Rosneftegaz will, before 2015, act as a co-investor in fuel and energy firms whose assets are slated for privatization, which, again, does not seem like a serious commitment by the state to withdraw from the energy industry.

Not to mention perhaps the most interesting sideline of the story, the question marks around the future of BP in Russia. The British oil company has recently announced that it would throw its 50 per cent stake in TNK-BP up for sale to a state-owned Russian company. Although Sechin officially denied that Rosneft was behind the buyout plans, it seems pretty obvious – especially in light of recent appointments to Rosneft – that either the oil company or Rosneftegaz will try to acquire BP’s share. This would put the Russian state into a partnership with the Alfa-Access-Renova (AAR) group of Viktor Vekselberg, Len Blavatnik and Mikhail Fridman, none of which I guess would be particularly eager to embrace Igor Sechin. It seems therefore not the least bit surprising that the Federal Anti-Monopoly Service chose this exact moment to investigate accusations by Rosneft about TNK-BP’s shareholder agreement – a process that might lead to confidential data being made public.

The dispute over BP’s exit from Russia and Rosneft’s acquisitive behaviour reflects a conflict between two interest groups – as much in business as in economic policy. Many say the new composition of the ruling elite is similar to that of the owners and the managers of a company, the stakeholders sitting in the Presidential Administration with their hands on Russia’s resources and assets, taking care primarily of their own interests, while the managers sit in the government and try to take care of the company’s interests. This might be truer than ever now that Medvedev’s government is made up of relatively fresh faces not tangled in the previous cobweb of interests.

Let them be called conservatives and liberals, stakeholders and managers, in the coming period, the energy industry will again become one of the main battlefields of the Russian elite, bringing back the cold winds of the early 2000s. Arkady Dvorkovich is indeed in a gamble, but his appointment reflects a longer-term thinking, a kind of a speculation. Oil prices may soar at the moment, but liberals seem to count on another wave of crisis in the near future, when privatisation and the deregulation of the oil industry will be inevitable in order to maintain other holy cows of the Russian state, such as welfare payments or law enforcement.

Because, just to remind ourselves, this whole process is happening against the backdrop of a less and less stable political environment: an unruly State Duma, a nervous countryside and a politically inventive opposition in Moscow. That is, if we remain with our metaphor, against a serious risk for the company of not being able to sell itself to its consumers. So far, competition is only present on the peripheries, but there is nothing more dangerous to an unnatural monopoly than dissatisfied but growingly conscious consumers.

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