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By John Helmer in Moscow

For mining and metals, Russia’s new cabinet is the same as the old one — business as usual

In less than a week, the bright promise of the Zubkov presidency of Russia has evaporated, and amid a bad case of election nerves inside the Kremlin, President Vladimir Putin himself has announced a set of cabinet appointments that appear to reverse several recommendations the week-old prime ministry had recommended. The status quo ante will now oversee the election campaigns for parliament in December and the presidency next March.

The market impacts registered to date are neutral to optimistic.”No surprise in structure, policy, little surprise in personalities,” commented Renaissance Capital, an active bookrunner for asset valuations at risk of heavy backtax claims.

“We view the new Cabinet as signalling that no significant changes to government policy or direction will be forthcoming ahead of the Duma and Presidential elections in December and March respectively,” commented Alfa Bank, which is owned by Mikhail Fridman, an oligarch potentially threatened by an anti-corruption drive during the election period.

UralSib Bank claimed to have foreknowledge that the new cabinet will be good for brokers’ trades and equity sales. “We were anticipating a cabinet structure that supports the expectation of a shift in the government’s previous priority of building financial surpluses and control structures within strategic industries, to one that focuses on investment and spending in those industries and in infrastructure. The details made available so far satisfy that hope and should help continue building a favourable investment case for Russia in 2008.”

Last week’s perceived risk of a Kremlin drive to draw votes by attacking mining and metals proprietors like Vladimir Potanin and Mikhail Prokhorov — co-proprietors of Norilsk Nickel and Polyus — appears to have dwindled, and with that, the Russian risk discount.

Last week, Zubkov declared himself for a major house-cleaning, for an attack on governmental and business corruption; and for an end to nepotism. This week, most of the cabinet remains in place, and the number of prominent nepotism cases has doubled. A new presidential candidate has also been put in place — Dmitry Kozak, a highly competent St. Petersburg lawyer, has been named Regional Development Minister, replacing an old Putin rival, an ex-St. Petersburg governor, Vladimir Yakovlev. Kozak has been Putin’s special negotiator in the conflict-wracked Caucasus for several years.

Lobbyists active in the process of deciding the new cabinet in the past week have admitted that, despite a flurry of well-placed or expensively paid for rumours, appearing in the Russian media, no-one outside the President’s circle knew what would happen to the cabinet until the last minute. Deadlines of Friday and Saturday evening passed without official word; and all of the trading day of Monday.

Then it was Putin, not the new prime minister, who announced that only three ministers have been relieved of their posts — Economic Development and Trade Minister German Gref; Health Minister Mikhail Zurabov; and Regional Development Minister Vladimir Yakovlev. The nepotism, which Zubkov said last week should be stamped out, arranging the resignation as defence minister of his son-in-law Anatoly Serdyukov, has been overlooked. Putin refused to accept Serdyukov’s resignation; he remains at the Defence Ministry. Putin also added a fresh case of nepotism, appointing Tatiana Golikova as health minister; she is the wife of the Industry Minister, Victor Khristenko, who also remains.

For the minerals, metals and mining markets, the stand-pat cabinet appears to represent no discontinuity with its predecessor, although there are cracks in the door which Zubkov appears to have opened.

Finance Minister Alexei Kudrin, whose job was rumoured to be in peril, will retain the portfolio, which is crucial to the future of the Russian diamond sector, and for Alrosa, whose board Kudrin chairs. However, Kudrin has also been promoted a rank to deputy prime minister; at that level, he may decide he has too much to do of greater importance than supervising Alrosa. This opens the way to a replacement with more interest in making changes in Alrosa than Kudrin has shown to date.

Zubkov had the option of letting Natural Resources Minister Yury Trutnev stay, or go. Brought in from the governorship of Perm in 2004 by LUKoil, Trutnev has curried favour with several oligarchs, starting with Vagit Alekperov of LUKoil. He has obliged Gazprom in putting pressure on takeover targets held by Royal Dutch Shell and British Petroleum. He has promoted Victor Vekselberg’s schemes in South Africa, as well as Oleg Deripaska’s aluminium business. Trutnev remains in place.

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