- Print This Post Print This Post

By John Helmer, Moscow

“I can promise to say nothing that is untrue”, wrote Giuseppe di Lampedusa, the Sicilian prince, the Italian writer, when introducing a chapter of his brief memoirs. “But I shall not want to say all; and I reserve the right to lie by omission. Unless I change my mind.”

If somebody wants it badly enough, the Russian government can still be induced to ban writers, exile them, or allow them to be beaten up or killed without recourse. So there are things that cannot be written, because the risk and the threat are too great. For that reason, no differently from the Soviet period, there remains much that must be understood by omission, between the lines. This past year wasn’t different in this respect from the previous one, and on the present signs, it isn’t likely the new year will see much change.

The biggest change is in President Vladimir Putin’s attitude, and the state policy he directs, towards the men who occupy the commanding heights of the economy.

In March of the year 2000, when Vladimir Putin was a novice at president and still trying to ensure his security, he said of the men whom we know put him in place, that he intended to “liquidate the oligarchs as a class”. For a man educated in Marxism, that was a misspeak – the oligarchs are a power elite in the Wright Mills sense – but it was calculated to mean what Putin believed a proletarian audience, and the unhappy remnants of the Red Army and the KGB, would understand. As for showing special favour to one or the other, according to Putin he intended to keep the oligarchs “equidistant” from the government, and himself.

In June 2003, just before he ordered the arrest of Mikhail Khodorkovsky, Putin said: “I don’t really like the word ‘oligarch’ used to describe big business representatives in Russia. In the sense that we usually use this word, an oligarch is a person with stolen money, who continues to plunder the national wealth, using his special access to bodies of power and administration. I am doing everything to make sure this situation never repeats in Russia.”

In February 2006 Putin said: “Back in the mid-1990s oligarchic groups substituted for government in Russia. They were elected to parliament and lobbied laws beneficial for specific financial and industrial groups instead of the society. They also ensured fulfilment of these laws through their representatives in high places. I do not think this meets the public interest.”

A few weeks later, on May 10 of the same year, in his annual address to the Federal Assembly Putin spoke of treading on oligarch toes. “And we will continue to tread on them. But these are the toes of the comparative few who seek to retain or gain position or riches or both by some short cut that is harmful to the greater good.”

On June 5, 2009, Putin tossed a pen at Oleg Deripaska, and ordered him to sign an emergency wages and supplies agreement for protesting workers at the Pikalevo alumina refinery, one of United Company Rusal’s units: “Why has your factory been so neglected?” he asked Deripaska. “They’ve turned it into a rubbish dump. Why was everyone running around like cockroaches before my arrival? Why was no one capable of taking decisions?” Not long afterwards, Deripaska explained: “The history of the Pikalevo problem was that in reality what was happening at the meeting and the one picture that the television stations broadcast, did not match… In fact, everything was different. What happened at the meeting was that very productive solutions were developed which allowed production to resume.”

Putin appeared to be attacking again on February 24, 2010, when he was critical of Mikhail Prokhorov for failing to meet his investment obligations in the electricity generating sector. “We all talk about improving the climate for business investments, about the formation of a normal market environment, including the electrical energy sector. But such a civilized market implies mutual responsibility….There are companies that stick to their word. And right now we are ready to enter agreements with those who will legally enshrine mutual commitments to work in new conditions…So I’ve checked who has met their commitments – those are either state-owned companies (Gazprom, Inter RAO UES, RZD), or foreign companies – our major foreign investors (Fortum of Finland, Enel of Italy, E. ON of the Federal Republic of Germany). There is, however, one major private company, LUKoil – it also works in full. And our other private investors have in fact fled. What kind of work is that?”

“This is your civilized market, and this is the responsibility of business…as I said, there are those who, unfortunately, haven’t done everything necessary, everything that they had agreed to do, among other things receiving state money at the expense of additional [share] issues… TGK-4 is accounted by Onexim and the major shareholder there is Mr. M.D. Prokhorov…TGK-4, for instance –[doesn’t] even have operating plans. Not even plans! The major shareholder there is Mr. Prokhorov. He feels good in economic terms — as they say in certain circles he made some dough. He has money. He goes to different offices, and he came to me recently. I have a very nice relationship with him. He seeks various uses for these funds and resources. But it is necessary to meet the commitment assumed earlier!”

Six months later, Putin was at Norilsk to meet management and workers of Norilsk Nickel. According to the transcript published by the prime ministry, a questioner spoke of shareholders like Deripaska (explicitly named) having as their main purpose “to fill their own pockets, [so] many people in Norilsk are worried about the current conflict between the main shareholders of Norilsk Nickel. I would like to ask you: Do you think how our employees are protected from the possible adverse effects of this conflict? And I hope that it will not be a Pikalevo scenario – I hope, and am confident in this. But can we count on the support of the Government of the country?”

Putin’s reply started with an explanation of how the conflict at Pikalevo was not comparable to the shareholder fight at Norilsk. But he implied he agreed with the charge against Deripaska of filling his own pocket. “With regard to the [shareholder] conflict – yes, we see that it’s there. I tell you frankly: today it has not even been discussed. And in accordance with the law, we would not be there to intervene. But I’m on to something that has drawn attention.” At this point Putin referred to the proportion of profit which Norilsk Nickel and its international peers have distributed as dividends to shareholders. “Kazakhmys”, he said, “distributed 6.6%, Rio Tinto in my opinion, 18%; BHP, 38% plus something. The shareholders of Norilsk Nickel distributed as dividends 50% of the profits – the largest allocation [in the peer group]. I think that’s enough. You see, an order of magnitude greater than all the rest!”

If the prime minister judged the payment of 50% of dividends was the ripoff threshold for shareholders in September 2010, what endorsement has the president given to the shareholder agreement of this month, according to which Norilsk Nickel will be obliged to pay out not less than $3 billion in shareholder dividends each year for the next three? Over the decade since 2002 — not counting the $555 million loss in 2008 — Norilsk Nickel’s profit line has averaged $2.9 billion per annum. Only twice in the period has the profit line exceeded $3.1 billion.

So a shareholder agreement to commit $3 billion in annual payouts amounts to an undertaking to pay the shareholders at least 100% of the company’s net profit, possibly more, multiplying debt and cancelling investment. In what way is this the solution to the shareholder conflict that was promised by the prime minister? One answer lies in the difference between the terms of the Norilsk Nickel shareholder settlement which were announced in the first week of December, and the terms which were announced in the second week. That’s to say, between announcement of the dividend payout, and dead silence. According to an Alfa Bank report, “[now] there is no mention of dividend policy or payout plans… it is negative for Norilsk because – given that Millhouse will purchase shares from Rusal and Interros rather than Norilsk Nickel – a special dividend to Norilsk shareholders as a result of this transaction is no longer probable. In addition, there is no mention in the [December 11] agreement of a dividend policy or dividend payouts, a factor that has driven up Norilsk shares in recent days.”

As we dance into the new year, let’s whistle as we watch our toes, and ask ourselves, whose are we treading on, if not our own? Answer – by omission.

Leave a Reply