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Napoleon’s Foreign Minister – Charles-Maurice Talleyrand-Perigord – once said that a man has been given eyes in the front of his head so that he can look forward, instead of backward. When Napoleon discovered that Talleyrand was betraying him to his enemies, Napoleon told him to his face he was “so much shit in a silk stocking.”

The question that still puzzles historians of Napoleon’s rule is why, given what he knew about him, did he permit Talleyrand to retain a position of power that enabled him to continue taking money for spying on Napoleon, weakening his political alliances and ultimately conspiring in his military defeat, abdication and imprisonment?

Until Napoleon fell, he believed he was clever enough to use Talleyrand’s intelligence, while using Talleyrand’s vices to make him predictable and controllable. Napoleon admitted to enjoying the match of wits. In the language of modern espionage, Napoleon thought he could “double” Talleyrand. That was a mistake, the size of which could be measured by Napoleon only after it was too late.

Is there a lesson in this to be studied in Russia? In the political campaigns that lie ahead for the Kremlin in the new year, there are many who whisper that President Vladimir Putin risks more than is prudent by keeping in his employment a number of men who, according to the rumors, are as dangerous as Talleyrand. It’s all very well, they say, to plan to be rid of them after the Duma election next December, or after the president is confirmed in his reelection a few months later. But what if their betrayals cost Putin dearly before then?

Consider the lesson Talleyrand teaches for the price of Russian electricity.

According to a widely published rumor, not so long ago the president was represented at a meeting at which Anatoly Chubais, the head of United Energy Systems (UES), Oleg Deripaska and Roman Abramovich met to consider how the state’s electricity-generating assets should be divided up among themselves before and after the election and what the price of electricity should be all the while. Between them, Deripaska and Abramovich own Russian Aluminum, the country’s leading aluminum producer; separately, they own car, bus and aircraft factories, banks and insurance companies, the oil company Sibneft, gold mines, power plants and airline assets. The urgency of their interest is obvious from the global falloff in the price and demand for Russian aluminum in 2002. If Russian electricity were to become too expensive, Deripaska’s metal-producing assets would lose their value. What’s more, if that price were to jump during the cold months ahead of the elections, that would play into the hands of those seeking to revive the parliamentary opposition and weaken Putin. That would be bad for all of them.

Whether there was a secret dacha meeting or not, it is inconceivable that the Kremlin, Chubais, Deripaska and Abramovich – and others as well – haven’t been carefully sounding each other out about the price of electricity. Whether they have reached a common agreement is another matter, though money has been doing some of the talking. Since the third week of September, a group of strategic investors has began to buy up UES shares. What is known about the sellers is that they are the minority Western and Russian institutional shareholders who have made public their fear that Chubais intends to destroy the value of their holdings by dividing up UES assets in a fashion that benefits power-hungry oligarchs. The suspected buyers, Deripaska and Abramovich, are playing on the Kremlin’s distrust of both Chubais and the Western shareholders of UES with a promise to dispose of both at an electricity price that is patriotic and politically advantageous – in the short term.

Before the share-buying started in September, the UES share price was about $0.08; by late December it had climbed to more than $0.13, a gain of about 70 percent (60 percent better than the Russian stock-market index as a whole). Several hundred million dollars appear to have changed hands. If they are a group, the new buyers already control at least 12 percent of UES, and it is rumored they will continue buying until they have 25 percent. If that happens, they will have sliced the old foreign shareholder group in half. Chubais’ former international supporters will be half as numerous and less than half as powerful.

Since the Kremlin started with 52 percent of UES and hasn’t budged, why should it care who owns the rest, so long as the president is confident he can control them? The answer depends on a point that is a secret that is very well-kept now and likely to remain so: Does Putin trust Deripaska and Abramovich any more than he does Chubais?

In retrospect, Chubais saw his rivals closing in and, in midsummer, offered them a deal. They could acquire power-generating assets he could afford to dispose of, he said, in one of his famously cheap loans-for-shares schemes. That was too obvious for Chubais’ Western supporters to stomach, and so he was obliged to withdraw the offer, proposing a moratorium on selling UES assets. The share price started its upward climb, but not because the existing shareholders believed in him.

Chubais then came back at the end of November with a scheme called the Investment Guarantee Fund. This was halfway between what Chubais promised his Western allies not to do, so that they might stop selling, and what Deripaska and Abramovich told him they intended to acquire, so that the momentum might be slowed down. The fund proposed to identify new power-plant projects in which investors could be attracted in exchange for a privileged stake. The problem with that, the Westerners noticed, was that it appeared to devalue the existing power-generating capacity of UES. This encouraged some investment banks to re-rate UES, encouraging further selling of shares.

While Deripaska and Abramovich continued buying, the Russian government decided to cut capital spending by UES in 2003 to $710 million – a 25 percent cut. The government also ordered UES to hold its retail-electricity tariff to a raise of no more than 14 percent in ruble terms – almost zero if inflation is taken into account. That was the political writing on the wall, and, in commercial terms, it clearly signaled that Putin intended to devalue the shareholders’ assets in order to benefit the welfare of the state – and his election prospects. Predictably, the Western investors heeded their Moscow brokers’ advice and continued to bail out.

If Chubais’ critics thought he was selling out to the Western investors, they have been proven wrong. If Putin’s critics thought he had been too soft on Chubais, they look likely to be mistaken also. From the Kremlin’s point of view, it is proving relatively easy to tax Deripaska and Abramovich to subsidize the price of electricity.

Napoleon never did as well with Talleyrand. But then, with those two, we have eyes that can look backward to see how the story ended.

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