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By John Helmer in Moscow

In the original game of basketball, invented by Dr James Naismith in 1892, there were 13 rules. Rule 5 was the disqualifier. In the playbook of Russia’s Deputy Prime Minister Igor Sechin, there is just one rule – and that’s the disqualifier. Mikhail Prokhorov’s decision to buy into the American National Basketball Association is his signal he’s out of the Russian game.

Prokhorov has been acutely sensitive to the coverage he has been getting in the American media for some time, and according to a source in his circle, that is because he does not want to be seen by the Kremlin as getting too close to the US Government. Taking ski vacations in Aspen, Colorado, is one thing; shaking hands with the President of the United States is another (in a crowded room).

But investing up to a billion dollars or more in the US – well, Prokhorov’s men accept that, before doing that, it is prudent for the oligarch to clear the transaction in advance with Prime Minister Vladimir Putin and Igor Sechin, the deputy prime minister who hands out (and takes away) Russia’s mining and metals concessions. Outside Russia, this process is misunderstood. Inside Russia, it is quite straightforward – oligarchs holding concessions for the exploitation of Russian resources do so at the pleasure of the state. The dividends they draw out of these concessions may be squirreled away in offshore havens, even spent on sex objects. But the spending of the capital of the concession, cannot be decided according to the same whims, especially not at a time like this.

Since the principal sources of Prokhorov’s wealth are gold (he controls Polyus Gold, Russia’s leading goldminer), and aluminium (he is an 18% stakeholder in Rusal), he is unlikely to put his position in those companies at risk by ignoring Sechin, or triggering his anger.

The very first Russian metals asset acquisition in the US – Norilsk Nickel’s purchase of palladium producer, Stillwater Mining in 2003 – has proved to be less than profitable. But there is no doubting that Prokhorov and his then partner Vladimir Potanin got Putin’s and Sechin’s permission before they did the deal. Putin reportedly lobbied then President George Bush to approve the transaction.

But a year later, Prokhorov (and Potanin) tried a billion-dollar investment offshore, for which they omitted to get Kremlin permission in advance. That was the $1.16 billion purchase of a 20% stake in Gold Fields of South Africa as part of a takeover scheme to reverse Norilsk Nickel’s Russian goldmines into an offshore listed company, beyond the reach of the Kremlin. That was in March of 2004. Citibank of New York loaned most of the money for the deal.

Within days, Potanin was summoned to the General Prosecutor’s office to explain what he thought he was doing. In time, the deal was abandoned, and the shares sold off, but not before Potanin had a falling-out with Prokhorov, and fired Leonid Rozhetskin, who had thought up the deal in the first place.

Since then big US investments by Russian oligarchs have been permitted to steelmakers Roman Abramovich, Alexei Mordashov, Vladimir Lisin, and Dmitry Pumpyansky. But they have proved unlucky lossmakers, and are now causing haemorrhaging on their Russian balance-sheets. In effect, the way Sechin sees things, Russian steelmills are making a profit, in order to subsidize the losses of the American mills, and to cover the debts the oligarchs ran up when they borrowed to pay premiums for the assets in the first place. Since they are now begging Putin – as chairman of the bailout bank, VEB – to keep them from defaulting, this is hardly the time to be asking permission to invest more Russian capital abroad.

And yet now, according to sources at Onexim, Prokhorov’s holding company in Moscow, he is thinking of becoming the part-owner of the New Jersey Nets, a National Basketball League franchise. He is also considering financing the construction of the Nets’ new stadium in Brooklyn, New York. The outlay required for the stadium is reported at $800 million. Five years ago, the Nets franchise was purchased for $300 million; it has apparently lost some of that value, because it is losing an estimated $50 million per annum. New York reports indicate that Prokhorov is thinking of putting up $700 million to buy a piece of both.

Igor Petrov, Prokhorov’s spokesman, confirms that Prokhorov is considering investment in the stadium. He is quoted by another newspaper as saying he had been approached for the deal, and “the possibility exists”. Onexim is also saying that Prokhorov is not buying a stake in the basketball team, “at least not now”. Asked to say whether Prokhorov owns a ski lodge in Aspen, Colorado, and other real estate in the US, Onexim is saying nothing.

New York and New Jersey media coverage of the deal casts doubt, not on the reported details, but on Prokhorov’s acumen. New York sources say that opposition to the building of the stadium is popular and powerful. “If Prokhorov thought the Red Directors were a drag, wait till he meets the Brooklyn Brownstoners,” says one.

An analyst for an American sports internet publication commented on September 17: “if he were actually so shrewd, why invest in any franchise, much less a money pit like the Nets? The Brooklyn stadium has been a boondoggle to say the least, and there’s no history of this franchise grabbing a hold of that crucial NYC market. It’s not just the ‘New Jersey’ thing, either; if so, the Jets and Giants would have folded long before now. Maybe it’s just a matter of getting in Brooklyn and the move will be a stroke of genius. Maybe. Or maybe Prokhorov would rather lose his money American sports than in international commodity trading.”

Putin and Sechin can read enough English to appreciate the punchline: “his decision to pursue the Nets means that his wealth may be a stroke of luck, not good judgment.”

In the Russian scheme of private property concessions, luck doesn’t exist. So, has Prokhorov taken leave of his senses? Or is he preparing to take leave of his Russian concessions?

An influential source in the Russian goldmining sector says that Sechin has strong opinions about Prokhorov, none of them printable here. The source says he is convinced that Prokhorov will not be granted the additional concession of the state-owned Sukhoi Log gold deposit for Polyus Gold to mine. The source is also convinced that, if Prokhorov has been calculating that he might replace the insolvent Oleg Deripaska in control of Rusal, he’s mistaken. Schemes for a state plan to replace Deripaska, and reorganize Rusal’s shareholding have been on Sechin’s table for some time. Although Sechin has yet to agree with Putin on what should be done with either Rusal or Deripaska, they are refusing to issue the one document Deripaska needs in order to convince his foreign creditors and potential strategic investors that Rusal is safe from nationalization.

Prokhorov can’t be blind to the message. On his own blog last week, he quoted the President, Dmitry Medvedev, as warning: “It’s easier to buy everything abroad and to deliver (abroad) our natural wealth, but we must strive for business to have the motivation to produce the best commodities and to create the most competitive conditions in our country.” Is Medvedev seriously contemplating carte-blanche for Prokhorov to invest in American basketball?

Even a champion brown-noser among Canadian sports reporters, Eric Reguly, couldn’t find in Prokhorov’s basketball and business strategy the hint that he might invest in US sports losers. With a VIP stadium pass in one hand, and pen in the other, Reguly has identified Prokhorov as “the oligarch credited with turning Norilsk from a clapped out collection of nickel assets into the world’s biggest nickel company (in a case of brilliant timing, he sold his 25 per cent Norilsk stake to Oleg Deripaska’s aluminum giant Rusal in the spring, just before the crash)….the billionaire did not play badly. He nailed about half of his foul shots and dribbled well… there’s no secret what he’ll do. Unloading his investment in Norilsk at the top of the market has probably made him the richest and most liquid oligarch in the land. He’ll use it to buy assets on the cheap from his fallen colleagues. That’ll make him smile.”

Sources who have followed Prokhorov for a long time, including those who have worked for him, suggest that his deals can be the predictable result of his suffering what he imagines to be a personal insult. The sources suggest that whenever Prokhorov thinks his amour-propre has been injured, he spends money on schemes of revenge. This can be costly. The sources point to the insult Prokhorov imagined he received from the Canadian government in December 2004 when members of his entourage were denied visas for a Christmas skiing vacation on Canadian slopes. (The married ones appeared to the Canadian consul to be traveling with ladies who weren’t their wives.) In reaction, the source claims, Prokhorov decided to make sure Canadian goldmine companies would fail in bids to buy assets in the Russian fareast.

Then there is the well-known affair at Courchevel in January of 2007, which resulted in Prokhorov’s detention in a Lyon prison for several days. The sources claim that Prokhorov made subsequent efforts, with French investment advisors, to buy French assets at premium prices that would provide him with the official vindication from Paris that he wanted. One such scheme, it is claimed, was Prokhorov’s abortive effort to buy the Villa Leopolda from the Safra family for the equivalent of $750 million, only to withdraw and forfeit his deposit. The property is now being quoted at a price of less than $50 million.

Deputy Prime Minister Sechin’s office doesn’t respond to formal questions, and he’s not said publicly what he thought, if anything at all, of the Courchevel affair, or of the Villa Leopolda. If Prokhorov suffered reputational damage from either in Moscow, he has survived handily.

But times change, and buying into the Nets appears to be a different story. If Prokhorov hasn’t applied for, and received Kremlin permission; and if he goes ahead with the deal, then he may be signaling that his pride has been hurt. Buying an American asset for half a billion dollars is his way of showing sangfroid. How Sechin may have hurt Prokhorov’s pride isn’t obvious. Not yet.

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