Tuesday, July 29, 2008

And now, friends, a brief look at what's coming up next in Russia.

But first, a quick review:

Alexander Litinenko, a former KGB colonel and outspoken critic of then-Russian President Vladimir Putin, was minding his own business in London when he fell ill. From what quickly became his deathbed, he accused Putin of sending operatives to zap him with polonium-210, a radioactive isotope. Scotland Yard investigated. Her Majesty's security officials are convinced Russian operatives were involved. Relations between London and Moscow have since markedly cooled.

Mikhail Khodorkovsky was the boss of oil giant Yukos before he got crossways with the Kremlin and was arrested on charges of tax evasion and fraud. He was summarily tossed into a gulag, lost most of his fortune and saw his company evaporate. A series of minor and by most accounts trumped up prison-conduct violations have made him ineligible for parole. Khordorksky -- who bought Yukos at a state auction in 1995 for $350 million, was a generous contributor to political campaigns. He had gained control of a prestigious newspaper and hired a serious investigative reporter -- then he was arrested.

Robert Dudley, chief of TNK BP, left Russia last week amid a host of official harassment and worries that his visa would not be renewed. BP is a 50 percent shareholder in the oil venture. Mikhail Fridman, German Khan and Viktor Vekselberg -- Russians worth a combined $45.9 billion -- own the rest and have demanded BP pick a new CEO. What they really want is to be bought off with fat payouts rather than to follow Dudley's plan to invest the cash in developing production. TNK BP is worth about $45 billion and accounts for 13 percent of BP's earnings. Dudley escaped with his freedom and his life, but BP isn't saying where he'll be working from. Wise move.

Now comes word that Putin is at it again. He went after Mechel, a Russian coal and steel concern, earlier this week, alleging it fixed prices. Shares lost more than 30 percent -- which is no surprise given what usually happens when Putin takes aim at a company or an executive.

The wingtips on the ground in Russia don't think that the government will try to give Mechel the Yukos treatment. The Kremlin merely wants the company to hold down steel prices instead of charging what the market will bear and, you know, make money. Russian leaders want to control inflation -- currently at about 13.5 percent -- and this is how they're going about it.

Imagine Ben Bernanke telling Wal-Mart to cut prices or he'd send Henry Paulson over with some heavy hitters to fuck up the place, then throwing CEO Lee Scott in the hoosegow.

Well, that's what's going on here, isn't it? It happened to Khordorkovsky. It happened to Dudley. That's exactly the sort of "pressure" being applied to Mechel, and it's the same deplorable, dirty tactic the Red Thug Brigade recently exerted on food company Wimm Bill Dann, and for the same reason.

Mechel shouldn't have to do as it is told. Mechel should do whatever it jolly well wants for the benefit of its shareholders. Mechel should be able to tell Putin to take a hike. Only the market should be able to dictate prices, period, amen.

Sure, the Kremlin is under pressure to control costs. Well, hey, governing is a bitch. One UralSib analyst downplayed Putin's comments as merely "a firm slap on the wrist for a company that is taking advantage of the high prices to boost its bottom line." Analysts usually like that sort of thing to happen to the bottom line. Welcome to free markets, Vladimir. Why not use fiscal policy and monetary tools to manage your economy? Turns out is works OK here in the developed world.

Putin, doubtlessly in the voice my dad used to use when he would threaten to pull this car over -- has already told Russia's oligarchs what's what. He did it at the first so-called "oligarch meeting" in 2001. And he made the point again after Khodorkovsky was arrested, just to make things abundantly clear. The rule: Big Russian companies have to put national interests above their shareholders' interests, and their plans require a certain social element.

This is immensely ludicrous. No one in the Western world -- with the possible exception of long-haired Berkeley undergrads -- would support this sort of wacko commie horseshit. Cubans in Miami would still -- justifiably -- cut Castro's throat for "nationalizing" their homes and businesses. Zimbabwe's Robert Mugabe was vilified for redistributing white-owned farm land to blacks. This Robin Hood-style approach to economic policy isn't only morally wrong, it also doesn't work.

Anyway, Putin called for an investigation: "I'm asking the Federal Anti-Monopoly Service to pay special attention to the problem -- and maybe even the Investigative Committee of the Prosecutor General's Office," the Moscow Times reports Putin as saying. Whatever. Putin'll send in the hall monitors from Moscow High if he thinks it will get him what he wants.

Igor Zyuzin, Mechel's owner, called in sick. I admire the sheer ballsiness of this tactic.

Putin, for his part, obliquely threatened to put said balls on the block.

"The director has been invited, and he suddenly became ill,'' Putin said. "Of course, illness is illness, but I think he should get well as soon as possible. Otherwise, we will have to send him a doctor and clean up all the problems."

My guess is the doctor Putin has in mind is familiar with what constitutes a lethal dose of polonium-210.

My prediction: Igor will get the what-for, his company will get hosed and shareholders will have to eat the losses. And Putin will keep bullying the oligarchs instead of addressing the roots of the economic problems his country faces.

That's a shame. There are a lot of great companies in Russia. Just don't buy them until Putin is gone.

Incidentally, Mechel's first-quarter net earnings rose 162% from year-ago levels.


Paul T said...
This comment has been removed by the author.
David said...

2nd comment!