The big game: Ulyukaev, Sechin and Russia’s neopatrimonial privatisation

Ilya Matveev// Nov. 21, 2016// OpenDemocracy-Russia

The arrest of a federal minister shows that, in Russia, the government and the country’s largest state company are increasingly turning to force.

lead Russia’s Minister of Economic Development Alexey Ulyukaev arrives at Moscow’s Basmanny Court. (c) Maksim Blinov / RIA Novosti.

Last week, for the first time in Russia’s recent history, a federal minister was arrested. According to the Investigative Committee, Alexey Ulyukaev — at that moment, Russia’s Minister of Economic Development — was detained accepting a bribe of two million dollars at the office of state oil company Rosneft.

From the explanations given by the Investigative Committee, Ulyukaev had tried to extort money from Rosneft in exchange for issuing a positive ministerial evaluation of the state oil company’s acquisition of state-owned shares in Bashneft. In turn, Rosneft contacted law enforcement agencies, which organised the operation to detain the minister — Ulyukaev was arrested with“specific marks” on his hands after supposedly handling the money.

How realistic are these accusations? Aleksandr Shokhin, chairman of the Russian Union of Industrialists and Entrepreneurs, said it best: “You’d have to be crazy to… threaten Rosneft and demand two million dollars from Igor Ivanovich Sechin [CEO of Rosneft], who is basically one of the most influential people in our country. It wasn’t the Investigative Committee’s job to detain Alexey Ulyukaev, but representatives of the Kashchenko Psychiatric Hospital.”

The case of lawyer Sergei Magnitsky comes to mind. Back in 2007, when Magnitsky accused Russian tax officials of stealing 5.4 billion roubles (£140m), he was later accused of stealing those funds himself. We can assume that Rosneft was putting pressure on Ulyukaev, demanding that he approve the Bashneft deal, and then accused the minister himself of threats and extortion.

That said, the objections of Ulyukaev and other members of the Russian government against Rosneft’s acquisition of Bashneft, which were made clear in July this year, are easy to explain. Russia’s law on privatisation of state and municipal property forbids the participation of companies that the state has a share of 25% or more.

Rosneft doesn’t fall under this law only formally. The state company’s main shareholder (69.5%) is Rosneftegaz, which, in turn, belongs 100% to the state. Moreover, in July, vice premier Arkady Dvorkovich referred to a direct order from Putin not to allow state companies to participate in privatisation.

The arrest of Ulyukaev on fantastic charges of “threatening” Rosneft and bribe extortion is, it appears, only an episode in a saga that goes back to 2010.

Nevertheless, on 2 September, Putin gave an interview to Bloomberg in which he stated that, although “it’s probably not the best option when one company under state control acquires another purely state company”, in the end “the important thing for the budget is who gives the most money”, and this is why Rosneft cannot be denied participation in the Bashneft deal.

On 12 October, Rosneft bought a 50.08% stake in Bashneft for 329.7 billion roubles ($5.24 billion) — thus becoming the majority shareholder. Ulyukaevstated at the time that in the process of preparing the deal, two proposals were received, and that the “very best, which was higher than the valuer’s price, was made by Rosneft.” Ulyukaev didn’t name the other potential buyer.

Shortly after, Putin stated that he “was slightly surprised” at the decision to sell Bashneft to Rosneft, although he referred to the fact that this was the “position of the government of the Russian Federation, first and foremost its financial-economic bloc” (although the government had objected to the deal in July, referring to an order by Putin himself.)

A month later, Ulyukaev was suddenly arrested. Who needed this, and why?

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