Kremlin clans struggle over assets

East Week ^ | 23 June 2005 | Jadwiga Rogoza, Ewa Paszyc

[Lukasz]

On 16 June, Gazprom’s Board of Directors finally agreed on the mechanism of buyout of the 10.74% of its shares necessary for the state to become the controlling shareholder in this monopolist company (until that time, the state had controlled 39% of shares in Gazprom). The decision is an element of the consistently implemented plan of strengthening the state’s position in economy. At the same time, it ends a subsequent stage of the battle between Kremlin-based coteries for control of the strategic assets in the energy sector. This battle has laid bare the divisions and conflicting interests among influential Kremlin officials. It has also revealed that in these conflicts over assets President Vladimir Putin is manipulated by his associates, and that his role becomes increasingly more instrumental.

This decision by Gazprom’s Board of Directors finalises another stage in the clash between the two most significant Kremlin-based coteries who fight for control over strategic energy sector enterprises (for more details, see the appendix). One of the coteries is associated with Gazprom (it is believed to include the concern’s boss Alexei Miller and the head of the Kremlin administration Dmitri Medvedev), the other with the state-owned oil company Rosneft (Igor Sechin, an influential deputy head of the Kremlin administration, is supposed to be the “patron” of the group).

The two groups have been disputing, on the one hand, over control of Rosneft concern (it has recently increased its value by swallowing up Yuganskneftegaz) and, on the other, over the manner how the state is going to obtain a controlling stake in Gazprom. The group of Miller and Medvedev has striven for merging Rosneft into Gazprom (they have developed a complex scheme for exchange of shares in both companies to enable the state to gain a controlling stake in Gazprom). In turn, the group of Sechin (who is Chairman of the Board of Directors at Rosneft) has torpedoed the idea and striven for preserving the company’s independence.

The final scheme of the assets’ distribution is a compromise; it does not determine the victory of either of the groups. Rosneft will stay out of Gazprom, yet it has to sell a part of its shares to private investors. Gazprom will receive this money in exchange for the block of its shares handed over to the state (for more details see the appendix).

The way the struggle for assets of Gazprom and Rosneft was fought has revealed bitter conflicts within the president’s closest milieu (predominantly consisting of people connected with the special services). Such conflicts do not result from any differences in programmes or visions of the Russian economy development; they stem from the groups’ aspirations to control the most lucrative enterprises.

This affair has also shown that President Putin starts losing control of the intensifying struggle for property between various groups within his milieu. Over recent months, the president’s statements concerning Rosneft and Gazprom have on several occasions been disparaged or even disproved by actions of his close associates (see the appendix).

The “struggles for property” in the Kremlin will seriously affect the election process and the currently pivotal issue of succession in 2008 (when Vladimir Putin’s second term-in-office will have expired). An increasingly important objective for the Kremlin-based coteries (which have gained control of the richest sectors of the Russian economy) is ensuring themselves business continuity and “political shield” after the year 2008. The behind-the-scenes fight between particular groups for the right to push their candidate for the “successor” has clearly become more active during the recent half-year. However, as the conflicts within the ruling elites sharpen, choosing a candidate suitable for all the groups gets increasingly more difficult. Therefore, one should expect that the closer the election period approaches, the more intensive and brutal the struggle within Putin’s milieu will get.

[kharaku]

Its a step backward.

[billybudd]

Not really. It's the germination of political pluralism, albeit undemocratic so far.

[kharaku]

I dunno after the confiscation of YUKOS... it's hard to view the state's policies as genuine.