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OPINION AND ANALYSIS

“It’s pleasant to be here, you feel comfortable, and you don’t feel people are watching you,” Roman Abramovich on buying Chelsea Football Club in London, for equity and debt totaling $240 million.

Russian villagers like to say that if you drink you die; and if you don’t drink you die, so it’s better to drink.

This is a characteristically pessimistic twist to Russian bravado. But among the Russian oligarchs who don’t lack chutzpah, it begs the question of whether their spending is as reckless as their drinking; and whether the recent behaviour of the oil plutocrats – men like Abramovich, whose source of wealth is the top-5 oil producer Sibneft, or Platon Lebedev and Mikhail Khodorkovsky, the controlling shareholders of number-2 oil producer Yukos – reflects optimism, or pessimism, for their own futures.

Cribbing from the Russian media, the pundits of the foreign-owned brokerages in Moscow, together with the international business media, believe there is a contradiction between Abramov’s brash quarter-billion dollar declaration of love for England; and the arrest in Moscow for a quarter-billion dollar sized fraud of Lebedev, and the summons for questioning of his better-known partner Khodorkovsky.

Abramov’s move to acquire the Chelsea Football Club is thought to reflect the new international confidence of an oligarch, with all of the sordid history of the Yeltsin decade safely behind him. That’s just “crying over spilt milk”, Abramovich told the Financial Times, one of the few international journals on which the oligarchs can rely for their own brand of forgetfulness. Never mind that Abramovich has openly described England as preferable to Russia for his children’s education, and for his own security -“you don’t feel people are watching you”. The important issue for Abramovich is whether he can continue to count on the Kremlin’s approval, which he sought before spending his offshore earnings on this deal. That approval appears to have been the quid pro quo for his accepting the Kremlin’s ban on his trying to sell Sibneft to foreign oil companies, and agreeing to sell to Yukos instead. But Abramovich’s worry about who is watching him suggests he isn’t confident of what the Kremlin may do in future.

Surely, Abramovich told his masters, I should be able to spend some of my Yukos sale proceeds on whatever I like to play with? Perhaps they agreed. But perhaps Abramovich also thought he had better buy a foreign football team in a blaze of publicity to assure his exile, if it comes to that. Did Abramovich explain to the Kremlin that he wasn’t taking much of a financial risk in the Chelsea deal, certainly not if the potential profits from selling out the prime real estate on which the football club stands are realized ahead of the repayment of the club’s current debts, and the costly replenishment of its playing assets.

This is perhaps what President Vladimir Putin meant, when in a recent response to a press question about “patriotic oligarchs”, he replied: “as for patriotism, capital as such is not unpatriotic in itself. Capital always flows to where the best conditions exist for its use, whatever you might say or desire. So our task is above all to create such conditions, and not cry about the fact that capital is flowing out.”

The Lebedev-Khodorkovsky case looks much more pessimistic to those who trade on Russian optimism. The conventional theory in the press links the criminal case to the timing of the upcoming parliamentary elections in six months, followed by Putin’s reelection race next March. The relationship, according to this theory, is that the Yukos shareholders have gone too far in financing the political opposition to Putin, and perhaps too far in preparing the ground for a presidential race of their own. According to one investment promoter, the problem is not only political timing, but the fact that Lebedev and Khodorkovsky have been too successful in generating shareholder value. The “big fundamental change,” writes Roland Nash of Renaissance Capital, “that has driven all the positive news that has underpinned Russia’s remarkable markets since 1999 is the drive of the private sector to use the major reforms of the nineties to take advantage of the devaluation, high oil price and Putin-related stability to make money by investing and restructuring to grow business.”

“The success of the private sector and the stagnation of the public,” Nash claims, “has inevitably led to growing friction between the two. Private business is increasingly frustrated by the antiquated bureaucracy which it is forced to find increasingly imaginative ways to circumvent. The public sector is finding itself more and more unable to adequately control the financial and increasingly international muscle of industry.” Ignoring the charge against Lebedev is one way of making his prosecutors look absurd. Admitting “we have no certain idea about why Mr Lebedev is being questioned” is a slick way of assuming his innocence, and the guilt of the “antiquated bureaucracy.”

A more reliable analysis comes from sources close to the Kremlin itself. Some time ago, they say, Lebedev was invited to look at the dossier relating to the alleged fraud. Reportedly, he reportedly refused to countenance any concession, any plea bargain, any compensatory payment. That private bravado drove the affair into the public realm, where Lebedev and his fellow Yukos shareholders have received much more than the warning he first received. This is related, not to the political timing, but the timing of Yukos’s efforts to restructure itself, its management and lines of business, in preparation for a sale to a US oil company, either ExxonMobil or Chevron-Texaco. For the Kremlin, such a deal runs directly counter to the economic security interests of the state. For brokers like Nash, a state with such interests is “antiquated”.

The big difference then between Abramovich, toasting champagne in Chelsea, and Lebedev, on a water diet at Lefortovo prison, is that the latter wouldn’t listen to the warnings. He and his partners believed the slogans their PR men have been delivering to the Financial Times. They imagined that the commercial deals they are contemplating are nothing more than adding shareholder value. Just how reckless that is can be measured against Abramovich’s caution. The bravado boys forgot their own village wisdom. In the end, the pessimistic villagers always thought, you do die.

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