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The Russian government has steadily extended its reach over the country's energy industry over the past four years, building its state companies into major global players. Originally, the logic for the expansion was nationalist and political. Russian power players were incensed that oligarchs (or even worse, foreigners) were able to profit from private ownership of the country's oil wealth -- and by consolidating, the Kremlin gained access to a powerful tool for influencing the behavior of the European states downstream.
But now there is a new logic in the nationalization process: political competition. Within Russian President Vladimir Putin's inner circle there are two power centers. The first, comprising First Deputy Prime Minister Dmitry Medvedev and Deputy Chief of Staff Vladislav Surkov, is the power behind Gazprom, the Russian state natural gas mammoth. The second, comprising Sergei Ivanov and Igor Sechin -- who share Medvedev and Surkov's titles, respectively -- controls Rosneft, Russia's major state oil firm.
The Gazprom and Rosneft teams are more than simply two adversarial state companies. They are the two factions struggling to succeed Putin as Russia's next president, with Medvedev and Ivanov as the candidates and Surkov and Sechin as the powers behind the throne. For these teams the Gazprom/Rosneft tussle is more than simple one-upmanship; it is the most clear-cut and public means of evaluating who is doing better at consolidating power. (Note that the firms' CEOs -- Gazprom's Alexei Miller and Rosneft's Sergei Bogdanchikov -- do not play a major role in this political tussle ... although they do despise each other, adding a personal twist to this economic, strategic and political competition.)
With presidential elections (read: Putin deciding to whom he should give his office keys) slated for March 2008, the next eight months will see a flurry of activity as the two teams compete for the energy industry. And the completion of elections will not halt the contest. Putin has explicitly attempted to balance the two factions so that neither is all-powerful once he steps down. The two teams are likely to spend the rest of 2007 intensifying their efforts and trying to overturn Putin's carefully laid plans in order to enhance -- or defend -- their positions.
To date only two major private energy players have been reincorporated into state structures, and these two provide the blueprint for future reintegrations.
The first is Yukos, whose leader -- Mikhail Khodorkovsky -- found out exactly what happens to those who meddle in Russian politics without the Kremlin's express approval, direction and sponsorship: They find themselves tossed in prison, subjects of trumped-up charges, with their wealth confiscated. This is not to say that Khodorkovsky was an innocent man. He was a Russian oligarch, and like all Russian oligarchs he made his fortune by robbing the Russian state blind and then evading taxes. But among the major energy oligarchs he was the only one prosecuted, and that only happened because he did not choose to follow the Kremlin's lead. Nearly all Yukos assets now rest on Rosneft's balance sheets, with the last bits only being acquired at auction within the past few weeks.
The second example is Sibneft. The oligarch behind Sibneft -- one Roman Abramovich -- was just as manipulative and theft-prone as Khodorkovsky, and unlike Khodorkovsky he did not demonstrate a particularly deep penchant for reinvesting in his company or even making a semblance of effort to pay his taxes (in fact, his tax evasion ethic was certainly the most impressive of all the oligarchs). But he did not evade the Kremlin's political dictates. Instead he put his hardly minor manipulation skills at the Kremlin's disposal and played a critical role in engineering Khodorkovsky's downfall. As part of a severance deal, Abramovich sold Sibneft to Gazprom for a tidy sum and was allowed to move most of the proceeds offshore to his new life in the United Kingdom as the kingpin of the Chelsea soccer club.
Note that neither Gazprom nor Rosneft has a track record of investing in and/or advancing its own technological prowess -- and neither company has significant plans to do so. The firms' plan is to leverage their political connections to expand operations by mergers, takeovers and, in some cases, methods that blur into an area that looks a lot like outright nationalization or even theft. Russian energy firms' options are collaboration and departure, or resistance and disembowelment.
What follows is how these options are likely to be applied to Russia's remaining independent energy players, in approximately the anticipated order in which the "remedies" will be applied.
Russneft
Almost certainly, the first firm to find itself in need of a change of stationery will be Russneft.
Russneft is controlled by its president and founder Mikhail Gutseriev. Unlike many other Russian businessmen, Gutseriev does not owe his success to ties with the Kremlin. In fact, he is neither a friend of Putin's inner circle nor the pawn of a larger Russian oligarch. Gutseriev's secret is foreign support in the form of Glencore, the Swiss-based resources-trading firm founded by the infamous American power peddler (and Bill Clinton pardonee) Marc Rich. It was Glencore that supplied Gutseriev with the majority of the financing he needed to build Russneft into the firm it is today.
Gutseriev's career in the oil business began in 2000, when he became president of Slavneft, a Russian-Belarusian state-owned oil firm. Gutseriev left Slavneft shortly before half of it was privatized in 2002, about the same time that several Slavneft assets went missing. (At privatization Slavneft was split 50/50 between private oil majors TNK and Sibneft, and is no longer an independent entity.) After leaving Slavneft, Gutseriev founded Russneft -- and those missing Slavneft assets reappeared under his stewardship, just on the books of a new firm. Since then Russneft has expanded to become Russia's ninth-largest oil producer -- its 2006 reserves reached 4.6 billion barrels of crude, while output reached 340,000 barrels per day (bpd) -- and the firm also holds 9 percent of Russia's gasoline retail market.
Russneft appears about ready to be swallowed by Rosneft, in part because Gutseriev had the temerity to challenge Rosneft for the ownership of some assets Rosneft was seeking. Those clashes ended Gutseriev's ability to fly under the Kremlin's radar, and now he -- and Russneft -- are squarely in the Kremlin's sights.
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