Tuesday, January 25, 2005
The Kremlin and business
January 22-28, 2005 - The Economist -
Who Vladimir Putin trusts to run Russian business
Summary prepared by Hayk Sargsyan of CDI
It Is a quirk of Russian history that the country's best hope of recovering the influence lost by Moscow with the fall of the Soviet Union is through the energy business. A sub-quirk is that, even aside from spy-turned-president Vladimir Putin, a growing number of those presiding over Russian businesses were once involved with efforts to confound the West by other means. Such people do not exactly seem like ideal corporate partners. But, increasingly, it may be safer for investors to be with them than against them.
Some of these Kremlin henchmen have little or no business experience. And, for investors in the enterprises they help to run, they bring more specific risks. One is that, especially in the energy sector, they will make important decisions, as Paul Collison, an analyst at Brunswick UBS, puts it, in the interests of "only one shareholderthe state". And if the dismemberment of Yukos is any guide, Mr. Putin's crowd does not have an especially high regard for the rights of minority shareholders.
Those observers who remain bullish about Russia's business prospects argue that, in their heyday, the attitude of the oligarchs to corporate governance was much worse than that of KGB Inc today.
Unfortunately, the risks of betting on Russian firms in which the Kremlin does not have a say, especially those in competition with state-dominated interests, look even greater. For Mr Putin, predicts Chris Weafer of Alfa Bank in Moscow, putting his loyalists on the boards of firms such as Rosneft is only a prelude to ensuring that these firms become the undisputed champions in their industries. If he is right, in many non-state firms the dangers of poor governance will increasingly be eclipsed by the perils posed by government, in terms of licence revocations, access to pipelines and so onnot to mention, as Yukos discovered, surprise tax bills.
Who Vladimir Putin trusts to run Russian business
Summary prepared by Hayk Sargsyan of CDI
It Is a quirk of Russian history that the country's best hope of recovering the influence lost by Moscow with the fall of the Soviet Union is through the energy business. A sub-quirk is that, even aside from spy-turned-president Vladimir Putin, a growing number of those presiding over Russian businesses were once involved with efforts to confound the West by other means. Such people do not exactly seem like ideal corporate partners. But, increasingly, it may be safer for investors to be with them than against them.
Some of these Kremlin henchmen have little or no business experience. And, for investors in the enterprises they help to run, they bring more specific risks. One is that, especially in the energy sector, they will make important decisions, as Paul Collison, an analyst at Brunswick UBS, puts it, in the interests of "only one shareholderthe state". And if the dismemberment of Yukos is any guide, Mr. Putin's crowd does not have an especially high regard for the rights of minority shareholders.
Those observers who remain bullish about Russia's business prospects argue that, in their heyday, the attitude of the oligarchs to corporate governance was much worse than that of KGB Inc today.
Unfortunately, the risks of betting on Russian firms in which the Kremlin does not have a say, especially those in competition with state-dominated interests, look even greater. For Mr Putin, predicts Chris Weafer of Alfa Bank in Moscow, putting his loyalists on the boards of firms such as Rosneft is only a prelude to ensuring that these firms become the undisputed champions in their industries. If he is right, in many non-state firms the dangers of poor governance will increasingly be eclipsed by the perils posed by government, in terms of licence revocations, access to pipelines and so onnot to mention, as Yukos discovered, surprise tax bills.
# posted by Deval : 1:55 AM
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