Streetwise Professor

October 12, 2013

Dissing Dmitri. Again. Message to Investors: Abandon Hope All Ye Who Enter Here

Filed under: Economics,Energy,Politics,Russia — The Professor @ 11:37 am

At the dedication of a new Rosneft refinery (for giggles imagine in your mind’s eye Obama doing something similar at an Exxon one), Putin made a strong statement regarding the compensation-or not-of the TNK-BP minorities.  In a nutshell: you’ll take the crumbs I give you and you’ll like it.

Rosneft should buy out the minority shareholders of TNK-BP Holding at the prevailing market price, not at the peak levels of the past, Russian President Vladimir Putin said on Friday, indicating there will be no increase for investors hoping for an improved payout.

“The valuation and payouts should be carried out for those who wish to sell not at peak levels but today’s market price,” said Putin, who was in Tuapse on the shore of the Black Sea for the opening of an oil refinery by Rosneft. “That should be the basis. No one should be deceived or robbed.”

Oh no one is being deceived here, but robbery is another matter: the minority holders know they are getting robbed.

Note that Putin doesn’t advocate the payment of a premium on the market price, or acknowledge that the market price was depressed as the result of legitimate fears-stoked by Sechin’s Rosneft-is-not-a-charity rhetoric-that the minorities would get a pittance.

This is everything that Sechin could ask for-and probably did.  But it is a huge dis of Medvedev.  Medvedev had publicly pressed Sechin (in a joint appearance) to up the compensation for the minority shareholders, by paying a premium over the average of the market price since the time of Rosneft’s acquisition.  Medvedev had said that this measure was an essential step in assuring foreign investors that they would be treated fairly, thereby making them more willing to invest.

Putin’s decisive rejection of Medvedev’s position tells you all you need to know about the prime minister’s influence in the country, and his ability to control Sechin and other silovki.  Perhaps more importantly, it tells you that Putin couldn’t care less about fixing the severe legal and institutional defects that make investment in Russia so fraught with risk, and which have brought on the stagnation that some have been predicting for some time (ahem) and which is now pretty much obvious to anyone who pays the slightest attention.  (The IMF’s recent appraisal of the Russian economy pretty much puts the seal on stagnation as the new conventional wisdom.  The few Russians of stature who can speak out-and by few, I mean like one, Kudrin-say the same.)

This may seem a small story, but it speaks volumes.  For those of you cock eyed optimists who had hope that Putin would feel compelled to reform in order to stave off stagnation and rejuvenate economic growth, now is time to face reality and abandon it.

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1 Comment »

  1. And right on time, the big news out of Russia is about anti-immigrant riots. A nice distraction.

    Comment by jon livesey — October 14, 2013 @ 4:06 pm

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