Streetwise Professor

There is a very revealing struggle going on in Russia right now. It is a pitch-perfect illustration of how Putinism works.

At issue is the Russian government’s privatization initiative, and specifically the privatization of the oil company Bashneft (a Russian firm with a very sordid, checkered past, but I repeat myself). Igor Sechin covets Bashneft, in large part because Rosneft production has been falling (estimates for 2016 are a 2 percent decline), and with sanctions and the company’s inefficiency, here is little hope of reversing the decline. Getting ahold of Bashneft would increase Rosneft’s production and reserves, and Bashneft’s production has grown handsomely of late (almost 11 percent in the last year): Sechin could buy what he can’t create.

But government technocrats, led by Deputy Prime Minister Arkady Dvorkovich, are adamantly opposed to a Rosneft takeover. The opposition stems in part because acquisition of Bashneft by a state-owned firm would make a travesty of privatization, and also thwart the goal of using privatization proceeds to address the government’s fiscal strains, which requires outside money. The opposition also reflects the understanding that enhancing Rosneft’s position in the Russian oil industry is detrimental to the future development of that industry. Rosneft is more parasite that creator.

Dvorkovich therefore flipped out when Russian bank VTB invited Rosneft, as well as other state-owned companies like Gazprom Neft, to participate in the privatization auction. It initially appeared that Putin had sided with Dorkovich, and an anonymous spokesman in the Presidential Administration had confirmed this. This was hailed as a huge defeat for Sechin, and perhaps a harbinger of a change in the balance of power within the Russian government.

But not so fast! An “official” said that the exclusion of Rosneft was “unofficial”. But then this week Putin’s spokesman Peskov, who had confirmed only a week before the “understanding” that Rosneft was out of the running, reversed himself, and said that “formally speaking” Rosneft was not a state owned company, and hence it could participate. You see, Rosneft is owned by a holding company, which is owned by the state. So  even though economically this is a distinction without a difference, legally it provides enough of an opening for Igor to slip through.

So who knows what will happen? Maybe Rosneft will be allowed to participate, under the understanding that it will not win. Or maybe the fix is in. Or maybe Putin is just letting Dvorkovich and (ex-)Mullet Man battle it out ender the carpet for a little while longer before ruling. This would allow him to weigh the arguments–and also to force the contenders to make bids for his support. Putin will rule depending on how he wants to balance the competing political factions, and who can offer the most to Putin or others he wants to favor.

And as in the heyday of Kremlinology, outsiders will attempt to discern deeper lessons from the outcome. Who is on top? How committed is Putin to reforming the Russian economy? How wedded is he to the idea of state champions? Or is he willing to concede that given Russia’s economic straits it is necessary to make accommodation to more Western commercial and legal norms?

The problem with the answers to all of these questions is that even if you are right today, nothing is set in stone. Putin could reverse course later. Maybe next month. Maybe next year. This is an inherent problem with autocratic systems: autocrats can’t make credible commitments. The only precedent is that there are no precedents. Today’s decision matters. . . for today.

So whatever the outcome of this current dog fight, it will tell you about the current state of play and the current balance of power, and not much more, because for an autocrat, tomorrow is another day.