Streetwise Professor

This is one of the most inadvertently hilarious things I’ve read in a while.  Vladimir Belaef of the Global Society Institute of San Francisco (which is a sufficient statistic to infer what you need to know about him), and one of Russia Profile’s “experts”*, wrote:

To presume that the TNK-BP and BP-Rosneft issue is somehow connected with supposed internal intrigues in the Kremlin is rather a stretch of the imagination. William of Occam would suggest looking at the simpler explanation: money. Billions of dollars are involved, certainly worth a purely commercial dust up on the part of ARR, who could expect substantial pecuniary benefit should it prevail in some form. Politics should be left out of this, particularly Russian electoral gambits.

What a card!  Uhm, like “billions of dollars” and “politics” are disjoint sets?  If it’s one, it can’t be the other?  In Russia, of all places?  Stop it Vladimir!  You’re killing me!

Look, internal intrigues in the Kremlin are all about money.  Especially when it comes to energy-related money.  The Vladimir who matters–V. V. Putin–resembles less a real prime minister, and more an especially sleazy US Secretary of Commerce spending a good chunk of his time shilling for domestic companies.  But that’s only when he’s not getting involved in giving Russian companies detailed orders on what to produce and how to produce it, or arbitrating disputes between oligarchs.  I defy you to name a head of government or head of state in any major country who is involved more directly with business decisions down to the level of minutia, and who spends more time doling out carrots to some favored businessmen while giving others a whack with the knout.

Anybody who draws a line between “billions of dollars” and “politics” in any nation is a fool, because politics is all about money.  (As Mark Hanna, a Republican power broker said around 1900, “There are two things that are important in politics. The first is money, and I can’t remember what the second one is.”)  To say that about contemporary Russia takes a special kind of fool.  But if you’ve read Belaef for any amount of time, you wouldn’t be surprised.

* An erstwhile RP expert once told me that its “Expert Panel” was “three Kremlin stooges and [him or her].”

The BP drama in Russia slouches on.  One interpretation of these events that has been advanced is that this represents something of a step forward for Russia, in that it is respecting the legal rules and the contract between the TNK-BP partners.  Maybe.

Here’s an interpretation that I consider equally likely, and arguably more so: hiding behind the contract was just a convenient way for Putin to exercise his discretion to achieve a desired outcome.  Exactly why he desires this outcome is difficult to divine, but money almost certainly has something to do with it.  That, and maintaining the political equilibrium in the natural state.

BP thought it was playing by Russian rules.  It made a deal with a powerful representative of the state commonly believed to be Putin’s alter ego.  But the real Russian rule is that there are no rules.  Or that the rules change without warning.

Moreover, BP may have overlooked something very important: that it is possible to be too powerful in Russia.  Putin’s essential task is to maintain a balance between rivals; he can’t let anybody get too powerful.  Stalin played the same game, only using more ruthless means.

In brief, Russia is akin to a lobster tank.  Once it looks like one lobster is going to climb out, others pull it back in.  In this instance, Fridman et al grabbed Sechin by the tail.

Indeed, the big problem with the BP deal for Putin may well be that it would have greatly strengthened Sechin if it had gone through.  By allowing it to be torpedoed at the last moment Putin also cut Sechin down to size.  That is, the deal would have made Sechin too powerful had it succeeded, but provided the perfect opportunity to undercut him.  This lends credence to the view that Putin is perfectly fine with Medvedev’s demand that Sechin leave his directorship at Rosneft.

The most recent development is that AAR is planning to sue BP for damages for violating the TNK-BP shareholder agreement.  This seems like a legal stretch: an injunction seems the appropriate remedy for BP’s breach, and it is difficult to see how TNK-BP would be damaged if the deal doesn’t go forward.  Instead ,this lawsuit–along with 2 others apparently in the works–are likely intended to turn up the heat on BP and force a buyout of the AAR partners on favorable terms, or alternatively to force a buy in of TNK-BP into the joint venture with Rosneft.

Prior to his departure (from the front of the scenes, although there are suspicions he is still involved behind them), Sechin growled menacingly that if the BP deal failed, Rosneft would seek damages.   Even if Sechin is not the decider on this, it is likely that whoever is will decide that this is worth pursuing.  It would permit Rosneft to extract some major money from BP in the here and now.  As for the Arctic venture, that was and remains a highly uncertain, long term prospect.  Moreover, there are other companies who could step in for BP–even if they would be unlikely to engage in a share swap.  Given the way that the Russian leadership discounts the future, a trade of some cash today for a pig in the poke tomorrow is a no brainer.

Whether this would be mere opportunism, making the best of an unexpected situation, or whether it was part of the plan all along is impossible to say.  This whole situation is so murky that it is impossible to tell what the exact sequence of events was, and what was the knowledge and intent of the key parties.  I am convinced, however, that (a) Putin was aware of that AAR had grounds to fight, (b) Putin knew AAR would fight if he did not stop it, and likely win, and (c) that Putin could have readily found a way, a carrot and/or a stick, to get AAR to back down if he wanted them to.  That things have developed the way that they have means that he wanted it to work out that way.  Just why is more difficult to know.

Thus, I think that BP’s travails are just beginning.  Even if it tries to walk, it will be tied up in court for years.  Every option they have looks very, very costly.

That’s the risk you take when you invest in Russia.  You think you are playing by the rules, and then find that those rules are no longer operative.  You think you’ve figured out the power relationships, only to find out that they’ve changed–and indeed, your actions might be the impetus for that change.

So, believe if you like that Putin’s apparent deference to a contract represents a move towards the rule of law.  I certainly wouldn’t put a red cent on the line based on that belief.  For remember: the very devil himself can cite scripture for his purpose.

CFTC Commissioner Bart Chilton has been touting research that he claims supports his view that speculation has distorted prices, thereby necessitating position limits.   I’ve read each one.  My conclusion: if this is the best he can come up with, the case for position limits is weaker than I thought.  And that’s saying something.

The citations fall into a couple of categories: superficial quasi-academic studies, and quotations from various figures, including some well-known economists, who have done absolutely no serious research on the subject.

Here are my quick takes on each one.

Since Chilton has had three years to trawl the earth to find work that would support his idee fixe, it is rather amazing that this is the best he can come up with. It’s rather sad, actually, that he believes that he is looking at the problem in a “more sophisticated way.” Although Chilton says that based on his literature review, “[i]t’s simply not the case that ‘there is no evidence that financial investors affect commodity prices,'” that’s not true. What I wrote in Regulation last summer, and what I’ve repeated numerous times on this blog remains true. As yet there is no serious theory, and certainly no serious evidence that speculators have distorted commodity prices.

The NYT business section ran a fairly long article on the BP-Rosneft fiasco.  As a.russian noted in a comment to my earlier post on the subject, the Times piece supports my argument that BP was counting on Russian lawlessness to overcome the black-and-white of its agreement with its AAR Russian partners:

This time, it had appeared that Mr. Dudley and BP might have protection from higher-ups. Rosneft’s chairman, Igor I. Sechin, is also a powerful deputy prime minister.

A senior BP official with knowledge of the company’s work in Russia said BP lawyers had understood that the agreement with Rosneft was “on the edge” of violating the TNK-BP shareholder agreement. But the deal also appeared to coincide so strongly with Russia’s national interest that the company assumed the Kremlin would discourage the Russian shareholders in TNK-BP from making trouble. [Translation: “discourage”=”Threaten with adjoining cells in Chita.”]  The BP official spoke on the condition of anonymity because he was not authorized to talk on the record.

The article contains this howler:

Mr. Putin, too, now seems to be distancing himself from the BP-Rosneft deal. In March, he told Russian journalists at a news conference that Mr. Dudley had not warned him of the possible legal challenge from the Russian oligarchs.

“I was completely in the dark,” he said, according to the newspaper Vedemosti. “When I met with BP’s director he didn’t say a word about this,” Mr. Putin said, referring to Mr. Dudley.

I am sure that Mr. Dudley also didn’t say a word about the sun rising in the east, the color of the sky, or Joe Biden’s hair plugs: one needn’t waste time by belaboring the universally known.  The shareholder’s agreement wasn’t a secret.  And even if it had been a secret from the wider world, do you think for a moment that Putin, ex-spook and head of a government lousy with current and ex-spooks wouldn’t have known about an important fact in the most important industry in Russia?  In the dark?  As if.

I still think there is a substantial likelihood that BP was played from the beginning, that Sechin/Putin and the AAR oligarchs have been tag-teaming.  But even if that’s not the case, it is impossible to know what the true story is, and what its implications are.

The BP-Rosneft deal also inspired (if that’s the word) the most ludicrous thing I’ve read in a long time (h/t R):

Russia Investors Should Study Kremlinology

Kremlinology was once the speciality of spies and diplomats: These days, foreign investors and companies need a degree in it too. Oil major BP had expected Russian political influence would secure its $16 billion share swap deal with state-owned Rosneft. Instead, its oligarch-backed opponent, Alfa Access Renova, has successfully blocked the plans: Arbitrators confirmed an injunction on the deal on Friday. But could bad news for BP encourage others investing in Russia?

Kremlinology was almost always a farcical failure at its heyday.  And BP’s current predicament is attributable precisely to its attempts to practice Kremlinology.  It was too clever by half in its belief that it could unwrap the riddle inside the mystery inside the enigma, and that it could play power politics in Russia.  It completely outsmarted itself.  If you believe you really know what’s going on there–then you’re the mark.  That’s all the Kremlinology you need to know.

The WSJ article argues gamely:

Both AAR’s legal victory, and the move against ministers’ corporate influence, fit a theme reformers want to promote: that Russia’s investment climate is improving.

It is still far too early to draw any conclusions about the outcome of the AAR-BP-Rosneft affair.  And the broader implications of that affair are even more uncertain.  Even if this does represent a case in which the Russian state respected investor rights even though it would have preferred to do otherwise, who is to say that this is a precedent, rather than a one-off?  Perhaps the internal politics cut one way this time: who is to say they will cut the same way next time?  If Putin is backing off now because he needs the money (which the WSJ suggests), how will he behave when his needs are less pressing?  The whole thing about Russia is that there are no–zero, zip, nada–ways of making and keeping credible commitments.  Everything is driven by the particulars of the parties and the moment.  That’s what you need to know about Russia: anyone who thinks that he can use Kremlinology to understand even approximately those particulars, and how they are likely to shift, is in for a rude surprise.  As an alternative, I’d suggest reading entrails.  It’s far more reliable.

The “move against ministers’ corporate influence” is even more difficult to interpret.  Yes, on its face, it is encouraging.  But relying on superficial readings is very dangerous when it comes to Russian politics.  Is it a desperate gambit on Medvedev’s part?   What are its odds of succeeding?  Is this just part of a mechanism to redistribute the goodies?  To cut down to size some people who have gotten too big for their britches and pose a threat to Putin–at least from his paranoid perspective (paranoia being a highly valuable trait among autocrats)?  (Firing everybody to get rid of one somebody is not unknown, even in the US: cf. the Clinton DOJ’s firing of all US attorneys to get rid of a particularly meddlesome on in Arkansas.)  The opening salvo in a power struggle?  (In which case, run, don’t walk, to the nearest exit.)  Even if it is legit, how likely is it to succeed?  Will it really transform in a fundamental way the political and business system in Russia?

Fools rush in where angels fear to tread.  Rushing into Russia on the basis of a few ambiguous developments which could possibly, maybe, be interpreted as the harbingers of a new investment environment would be quite foolish indeed.

Remember how Obama said that “empathy” was one of his primary criteria for selecting a Supreme Court justice?

Here’s Mr. Empathy in action:

Maybe empathy is only required of wise Latinas.

Will he get off the eight miles a gallon thing already? Sheesh. That’s poised to become the New Slurpee Line that he beats to death.  If he keeps it up, he’s going to have to pay Scott Miller royalties.

According to EPA numbers, the only automobile that operates at 8 MPG even in the city is a Bugatti Veyron, which sells for $1.7 million.  So I don’t think that’s what Obama is talking about.  The next worst mileage is for Aston Martins, Bentleys, and Rolls-Royces–at 11 MPG city.  Again, I don’t think that’s what Obama’s talking about.

He mentioned SUVs.  The lowest mileage–city–are for Chevy Suburbans, at 10 MPG.  They get 15 highway, almost twice 8 MPG.

So maybe he means old clunkers.  But even very few old clunkers get 8 MPG.  In high school I had a ’66 Buick Wildcat with a 425 cubic inch V8.  When you floored it, two things happened:  you were thrown back into your seat by the acceleration, and you could see the needle on the gas gauge decline noticeably.  And it got more than 8 MPG.

And if he did mean old clunkers, what could you get if you traded it in?  If you’re driving something like that, it’s not out of choice–it’s out of necessity.  So telling somebody like that to buy a new car is pretty heartless.

Bill Clinton knew that faking empathy (“I feel your pain”) was politically smart and, well, civil.  Insulting people (especially one who was quite likely chosen as a likely Obama supporter to ask him a question), and completely stepping in it (“even if you have a big family, it can’t be that big.  Ten kids?” . . . awkward pause) is just off-putting and declasse.

As for the substance of Obama’s energy remarks in response to the question, it was a typical melange of the sensible (oil is a world market; supply can’t be increased today) and the idiotic (we only have two percent proven reserves, etc.).  Unfortunately, when it comes to policy, idiocy is in driver’s seat.

To reprise Scott Miller from “Eight Miles a Gallon”: “Gonna invent a big engine, make it run on bullshit, put it in a chassis, buddy it will ever quit.”   Hey, if somebody could do that, Obama could provide the BS and make the US energy self-sufficient for years to come.

There’s actually an Obama two-fer here: “Invent a big engine, make it run on bullshit, put it on a train track . . .” But is it high speed rail?

Back when position limits were first being debated at the CFTC in the summer of 2008, here on SWP I questioned whether the Commission had the statutory authority to impose limits in the absence of a finding that “excessive speculation” had caused unwarranted fluctuations in commodity prices.  According to John Kemp of Reuters and Commodities Today, that argument has been raised by numerous commentors on the CFTC position limit NOPR:

The last day of the two-month consultation on Monday witnessed a volley of carefully coordinated submissions from Goldman Sachs, Barclays Capital, Morgan Stanley, the International Swaps and Derivatives Association (ISDA) and a host of others, all urging the CFTC to withdraw the proposed rulemaking.

Many of the objections build upon the criticisms set out at length by the Futures Industry Association (FIA) at the end of last week. The responses help lay the legal paper trail that will be cited when the rule is eventually challenged in the courts.

The gulf between the commission and the industry is so broad it is unbridgeable. A legal challenge to the CFTC’s authority to impose position limits appears inevitable. The only question now is who will bring it. None of the big banks, oil companies or institutional investors is likely to want to court controversy by acting as plaintiff.

But the rule could be challenged by an industry association on behalf of its members (there is safety in numbers) or by any individual firm willing to stand up and accuse the CFTC of over-reaching.

. . . .

But more fundamentally, most objectors argue the CFTC has no rationale and no legal authority to impose position limits at all, notwithstanding passage of the Dodd Frank Act in July 2010 (PL 111-203).

The FIA continues to argue the commission has no authority to impose limits unless it can come up with objective evidence that speculation has actually burdened interstate commerce and position limits are necessary to cure the problem.

BTW, I wasn’t coordinating with anybody.  I think I was the first, and certainly among the first, to raise this issue.

I’m not a lawyer, and especially not an expert on statutory interpretation.  Regardless of whether the law requires the CFTC to act only after making a credible finding that speculation has in fact distorted markets, however, I believe that would be the prudent course.  Given the real potential for harm inherent in the regulation, it should be adopted only if that harm is balanced by some benefit.  Insofar as harm is concerned, if the regulations are binding, that means definitively that they impose costs on market users.  So what is the benefit?  Is it too much to ask the Commission to demonstrate that they are intervening to fix a real problem?

As I noted in my comment to the Commission, it gave a very limited justification for its limits.  What’s more, the limits as proposed were far more expansive than required to fix the problem that the Commission identified.  Thus, in my opinion, the proposed limits are unduly burdensome.  There are far more efficient ways to mitigate the specific problem that the Commission has identified.

On a related note, Kemp omits any discussion of another mandate in Dodd-Frank, namely, that the Commission determine the costs and benefits of its proposed regulations.  Gensler has attempted to stonewall implementation of this black-and-white statutory language.  Although he hides behind statutory language when he does not want to defend substantively his actions (“Don’t look at me!  Congress made me do it!”) he blithely ignores that which he finds inconvenient.  (Yet another soul looking for free options–politicians and regulators are particularly prone to this sort of opportunism.)

This suggests another legal and substantive attack on any position limit rule: even if a finding of “excessive speculation” is not required, the Commission should provide a cost-benefit justification for position limits.  It has not done so.

With good reason.  For if it even tries, the results will be laughable.  The argument I raised in my comment letter would imply that the NOPR would not pass the cost-benefit test, and that it wouldn’t even be close.

But Gensler seems intent on pushing forward.  If he succeeds (which is not assured, as indicated by the Commission’s cancellation of today’s meeting) the (bad) joke will be on the markets–and the millions who depend on them.

So, I presume the industry will see Gensler and the agency in court.  I hope the plaintiffs (whoever they are) make both the statutory authority and cost-benefit analysis arguments.  That would be very interesting.

Interesting story about the Russian oil industry:

Russia’s government may make it illegal for oil companies to reduce crude output and oil-product sales when “there’s demand” and sales won’t be loss-making, Vedomosti reported.

The measure is included in the latest version of a new law on oil extraction, refining and transporation that is being debated in the government, the Moscow-based newspaper said, citing a copy of the drafted dated March 1.

Here’s what I think is really going on.  Russia taxes oil extraction very heavily, and relies heavily on oil taxes to fund the government.  When taxes become too onerous, companies rationally respond by cutting output (and by not investing in new productive capacity).  This puts a crimp in government revenues.  So the state is proposing to eliminate the ability of firms to respond to high (and potentially higher) taxes on oil by reducing output.

This is essentially another way of extracting rents from “private” oil producers in order to fund the state.  It suggests acute near-term fiscal pressures.

There is always “demand” at some price.  Who determines what is “loss-making” is key here.  Presumably this will be interpreted to mean that price (net of taxes) exceeds lifting costs.  But lifting costs are not the true opportunity cost of producing oil.  The primary opportunity cost is the “shadow price” of extraction: the revenue foregone on a barrel of oil that could be produced in the future, but is produced today instead.  The ukase to produce today indicates a divergence between the government’s estimate of this shadow price and the estimate of the owners of the wells.

In other words, this proposed law signals that the Russian government discounts the future more heavily than ostensibly private resource owners.  (I say “ostensibly private” because the rights of ownership are highly circumscribed if the state controls both price–through taxes–and output and extraction decisions.)  The Russian government wants revenue now, and plans to get a lot of it through resource taxes.  It wants to limit the ability of firms to reduce their tax burden by reducing output today (in order to produce more in the future, perhaps when fiscal strains are less acute).  Hence the law.

In brief, the significance of the law is primarily what it says about the fiscal situation in Russia, and the dependence of the government on resource taxes.

Russia is trying to push output to the max today to maximize current tax revenues.  But there is a recognition that producing resources–many dating from Soviet times–must be replaced, and the more that is produced today, the more rapidly these resources need to be replaced.  The problem is that the tax regime creates a severe disincentive to invest in new fields.  Hence the heavy lobbying by Sechin and other elements in the Russian oil industry to get tax breaks on new fields.

One problem is the inability of an autocratic state like Russia to make credible commitments on such a tax regime.  The proposed law is an example of the time-inconsistency problem.  Future changes in the law can effectively take away tax breaks granted today.

Thus, in the coming years Russia will face an increasingly complex dilemma.  There is an increasingly pressing need to replace the legacy fields developed by the USSR.  But there is chronic and increasingly acute fiscal pressure: an aging population and the regime’s use of increased social benefits to tamp down popular opposition mean increasing demands on the state budget.  The major source of revenue to fund these demands is resource taxation.  But there is a fundamental contradiction between a tax regime that would encourage investments to replace depleted legacy resources and a tax regime that will meet these fiscal demands.

Just how Putin et al can square that circle is not immediately apparent, to say the least.

A Swedish arbitration panel has ruled in favor of the AAR consortium and found that BP’s deal with Rosneft to explore and develop oil properties in the Arctic  had violated the TNK-BP shareholder agreement.  Under this agreement, BP pledged to undertake all its Russian operations through TNK-BP.  After BP signed the deal with Rosneft, its TNK-BP partners, AAR, succeeded in obtaining in London an injunction halting the Rosneft transaction.  The arbitration ruling extends the injunction and makes the deal’s ultimate fate even more doubtful.

Given BP CEO Robert Dudley’s experience with AAR–he was CEO of TNK-BP until he was ousted in an ugly dispute with the Russian “partners”–you have to wonder what the hell he was thinking when he entered the Rosneft deal without first securing a release from AAR.  The shareholder agreement’s term wasn’t a secret.  Dudley knew from harrowing experience that AAR plays rough and plays for keeps.

Did he assume that Sechin and Rosneft would lean on AAR to make things go forward?  Did Sechin provide assurances that he would?  Dudley would have been utterly foolish to rely on such an assumption–trebly so to rely on any assurance from Sechin.

Did BP believe that it knew how to navigate the treacherous shoals of Russian energy politics and ???????  What could have possibly led them to that conclusion?  The company’s handling of Kovykta was a disaster (e.g., going to Sechin to ask for help in convincing Gazprom to play ball–as if!).  Dudley’s humiliation at TNK-BP was another fiasco. Once burned, twice shy, you’d think.  Twice burned, thrice shy.  But not BP.

AAR now has Dudley and BP by the short ones, and can extract a pretty price from the British company.  Although some have suggested that AAR will not want to cross Sechin and will eventually accede to a BP-Rosneft joint venture (in exchange for a nice lump of cash no doubt), you cannot rule out the possibility of a double game here, with Sechin and Fridman et al cooperating behind the scenes to shakedown BP.  Think of the side-payment possibilities between AAR and Sechin: Sechin stands aside while AAR bleeds BP for the last cent–or pence–and in return, AAR kicks back some of that to Sechin/Rosneft.

Or Sechin could effectively stand aside, forcing BP to give up on the Arctic partnership–but continuing with the stock swap with Rosneft.  That would give Sechin his cake–a big share stake in a western supermajor–with the opportunity to sell the Arctic JV to another supermajor.

Amazingly, BP has said that it plans to proceed with the share swap even if the Arctic JV must be aborted. (Just what is beyond stupid, anyways?)  Many investors have apparently not lost their minds, even if the company’s management has: these investors are telling BP it should scrap the swap if the exploration deal is scuppered.

Maybe that’s not what is going on, but you can bet that Sechin is hardly taking BP’s interests to heart here.  Instead, he is scheming to figure out how to work the situation to his advantage–and letting the devil take BP.

There is a lot of irony in this story.  For one thing, the original AAR-BP spat over TNK-BP was in large part a dispute over strategic direction.  The AAR group wanted TNK to extend operations overseas, whereas BP wanted to focus in Russia.

The other major irony, of course, is that BP can’t blame Russian lawlessness for this one.  BP lost fair and square in western courts.  These courts found that BP had violated a contract, and that its Russian partners could enjoin BP from proceeding with transactions that constituted the breach.  Proving that the law is sometimes as it should be–no respecter of persons.

And the irony just doesn’t stop: presumably BP wanted the TNK deal subject to UK law in order to protect it against Russian predations.

The real irony would be that BP was counting on Russian lawlessness to allow it to breach its contractual agreement.  That Sechin and Putin would intervene to undermine AAR’s legal rights.  That visions of Khodorkovsky would keep the oligarchs in line.  That may yet happen, but don’t count on it.  But if that was the company’s calculation, it deserves whatever it gets, and worse.

This is just the latest in a series of major screw-ups by BP.  There’s Macondo, of course.  Texas City.  The propane corner.  The connivance in the release of the Lockerbie bomber.  The scandals involving Lord Browne.  Not to mention its pratfalls in Russia.  All the other supermajors put together–ExxonMobil, ConocoPhillips, Chevron, plus some foreign firms–haven’t matched BP’s collection of mis-steps.  I’d say that this record of mismanagement would make the company a takeover target–but who’d want to take over such a snake-bit firm, especially since the takeover would also bring with it deep entanglements with sweethearts like Sechin, Rosneft, and Fridman/AAR?

Several interesting stories on the way things work in Russia.

The most fascinating is the tale of the remarkable rise to prominence of gas producer Novatek, and the windfall reaped by Putin friend Ginnady Timochenko:

The Novatek agreement was signed on March 3 in Novo-Ogaryovo with Putin personally blessing the deal. According to official reports, Total will acquire 12 percent of Novatek, the second-largest gas producer in Russia, from its CEO and largest shareholder, Leonid Mikhelson, and co-owner Gennady Timchenko.

The huge figures involved in this deal are especially noteworthy. In fact, on Dec. 20, Gazprom sold Gazprombank a 9.4 percent stake in Novatek for 57.5 billion rubles ($2 billion). Only one day earlier, that stake was valued on the MICEX at 87 billion rubles, and it is now worth 101.3 billion rubles. The very next day, Dec. 21, Gazprombank resold those shares to Novatek. Now, with Putin looking on, Timchenko and Mikhelson resold several major share packets to Total for 30 percent more money than Gazprom received for the same shares.

Gazprom is run by Putin’s friend Alexei Miller, Gazprombank is owned by Putin’s friend Yury Kovalchuk, and yet another friend of Putin’s, Timchenko, is co-owner of Novatek. What we have is a complex, multistaged financial transaction in which individuals and companies with close ties to Putin flip billions of dollars worth of stocks and securities in murky, under-the-table schemes.

And lo and behold, Putin anoints Novatek as the leader in future Russian LNG endeavors:

Prime Minister Vladimir Putin, who wants Russia to export 10 percent of its gas as LNG by 2020, blessed Novatek’s plans at a ceremony near Moscow last week, calling it a “good and large- scale work.” Gazprom has delayed decisions on expanding Russia’s only LNG facility, the Sakhalin-2 project with Royal Dutch Shell Plc, and developing the Shtokman field on the Barents Sea.

“Novatek’s project is now Russia’s primary LNG project outside of Sakhalin,” said Chris Weafer, chief strategist at UralSib Financial Corp. “Total’s strategic partnership with Novatek is an acknowledgement that Shtokman is on a much slower development path with an unpredictable future.”

And speaking of anointing, Putin pushed through a deal to elevate a partially state-owned wireless firm to lead efforts to create a 4G network, vaulting the heretofore minor firm to the forefront of the telecoms business:

But investment banking isn’t the only sector the Kremlin and the companies it controls have dipped their hand into recently, despite intense rhetoric of late about privatization and reducing the state’s role in the economy. Last week, Mr. Putin presided over a plan to give a little-known wireless company, partly owned by the state, the lead role in building a nationwide fourth-generation wireless broadband network, leapfrogging the three major non-state companies that had controlled the mobile industry. With these precedents, Russia investors are left wondering which privately-owned industry is next.

In sum, FOKs (“friends of the Kremlin”*) get blessings showered on them: multi-billion dollar overnight windfalls on stock stakes, preferential positions in new utility franchises.

And with respect to privatization, the state appears to be fading its offer to sell a stake in Sberbank:

Russia may delay a key element of its planned $35 billion in state assets sales, a government minister said Monday, as dramatically higher oil prices shrink the budget deficit and reduce fiscal pressure.

The sale of a 7.6% state-held stake in OAO Sberbank, Russia’s biggest lender, may not happen in 2011 because of questions about market conditions and a lack of preparation for the deal, Economy Minister Elvira Nabiullina said Monday, according to Russian newswires. Ms. Nabiullina also sits on the state-controlled bank’s supervisory board.

Later on Monday, Russian Finance Minister Alexei Kudrin said higher oil prices alone wouldn’t halt asset sales and that the “mood of international investors” is a bigger factor.

Deputy Prime Minister Shuvalov could go into the landscaping business with all the hedges in this statement:

Comments state-owned shares “Savings Bank” may be privatized in 2011, if the market had a good situation and be able to attract quality investors. This was reported by First Deputy Prime Minister Igor Shuvalov at the forum “Russia and the world.” “Maybe this year. If we can get a good capital, and market competition is set for good capital, and if we are able to get a good price, and will be at this moment a good market, in this case, the transaction will take place” – said he said.

Kudrin’s demurrals must be taken with a grain of salt: it’s all about the fiscal situation.  The privatization drive, such as it is, doesn’t reflect a newfound appreciation for the virtues of privately owned enterprise over state owned businesses.  It’s driven first and foremost by fiscal needs.  With the recent spurt in oil prices, those fiscal pressures have eased.  And not surprisingly, the enthusiasm for privatization has faded accordingly.

But as the Novatek and telecoms stories indicate the concept of private property in Russia is, well, rather Russian–Muscovite, really.  Property is not really a bulwark against the intrusions of others, most notably the state.  Instead, ultimate discretion over the use of resources rests with the state and its de facto ruler, which takes it from those whom they desire to punish and rewards it–conditionally–it to those whom they desire to reward.  The current system bears more than a passing similarity to the system in Muscovite times, in which holding of property was conditional on service to the state, and loyal service was rewarded by the assignment of a ????????? (“feeding”):

One problem [with kormlenie] was the lack of effective controls over how much was extracted; another, that the subjects would be drawn into complex patterns of personalized relations, where all distinctions between public and private were eroded.

Back to the future.  The current Russian system often more resembles the Muscovite one, in which property tenure was contingent on the discretion of the ruler and dependent on service to him (or her), than even the one that existed after Catherine’s reforms, which severed property tenure from state service.  For all the talk of modernization, that’s the way things work today–and it’s anything but modern.

*Yes, I know that Putin isn’t in the Kremlin–yet.  But that’s a mere detail, and FOKs has a nice ring to it.

Obama at his press conference, 11 March, 2011:

You may want to buy a fuel-efficient car, but you may not be able to afford it. And so you’re stuck with the old clunker that’s getting 8 or 10 miles a gallon.

Scott Miller and the Commonwealth, 8 Miles a Gallon:

From Washington to Arlington to the House of Saud
They’ll all be buying shovels so they can have a job
And I’ll be living happy in the Shenandoah Valley
Rollin’ down the road on 8 miles per gallon

Miller does have a suggestion for a fully organic, alternative energy source:

So I invent a big engine
make it run on bullshit
put in on a chassis
Buddy, it’ll never quit
invent a big engine
make it run on bullshit
put it on a train track
Buddy, it’ll never quit
invent a big engine
make it run on bullshit
put it on the highway
Buddy, it’ll never quit

Hey, we could tell the Middle East to pound sand (which they have a lot of) if we could make engines run on bullshit (which we have even more of, especially in the 202 area code).

But seriously: who do you know who drives an “old clunker” that gets 8 miles a gallon?  Yes, there are a few people in this vast land of 300+ million souls who do, but not many.  Is this just another revealing insight into how Obama envisions what life among the bitter clingers who can’t afford arugula is like?

But Obama has a solution, of course: his magical electric cars.  Which require batteries, of course.  But Obama has found the cool solution:

U.S. President Barack Obama has championed “multi-megawatt vanadium redox fuel cells” for mass-storage batteries as “one of the coolest things I’ve ever said out loud”. [Which means, I guess, that he is always saying even cooler things in his head.]

How cool does it sound to say “China currently dominates world vanadium production and has been restricting exports“?

When does reality intrude?  Ever?