Streetwise Professor

The Bashneft sale to Rosneft (which I wrote several posts about) is a done deal, but apparently there was some unfinished business. Namely, the business of  revenge.

On Monday Economic Development Minister Alexei Ulyukayev was detained for corruption. He allegedly took a $2 million bribe to “allow” the sale. Indeed, Bloomberg claims he was caught in the act:

Ulyukayev, 60, was detained on Monday “in the act” of receiving the cash, said Russia’s Investigative Committee. He was later charged with demanding the money from Rosneft PJSC to allow its purchase last month of the government’s 50 percent stake in regional oil producer Bashneft PJSC, the agency said in a statement. The economy minister denies any wrongdoing, his lawyer Timofei Gridnev told Business FM radio. Investigators moved that he be held under house arrest before he arrived for arraignment Tuesday at Moscow’s Basmanny Court.

Ah, Basmanny justice. Gotta love it.

This all seems quite bizarre. The Bashneft acquisition was clearly a source of intense conflict with the Russian government, with the government ministries–including Ulyukayev–initially expressing opposition. Then there was temporizing, with Putin seeming to come down on both sides of the issue. Then it was decided in Rosneft’s–that is, Igor Sechin’s–favor.

Presumably, Putin was the ultimate decider here. If so, Ulyukayev was in no position to “allow” anything. Maybe he had a chance to make his case, either directly to Putin, or indirectly via Medvedev. But once he lost, he would have been delusional to think he had any leverage over whether the deal would proceed.

Further, the timing is beyond strange. The deal was decided in September, and finalized on October 12, more than a month ago. So, did Ulyukayev give net 30 terms on the bribe? Net 60? Was it half now, half later? Is bribery really done on credit in Russia?

I would also venture that attempting to shake down Sechin and Rosneft is tantamount to suicide. Did Ulyukayev attempt such a risky thing? Did Sechin play along and then facilitate a sting by the Investigative Committee? Or was this a set-up job from the start?

One thing that is almost certainly true is that this is Sechin taking his revenge, and sending a message to others: look at what happens to those who cross me.

The Energy Ministry, under Novak, also opposed the deal initially. I wonder if he is sleeping well.

There are some comic elements to the story. Several stories breathlessly report a law enforcement leak saying that Ulyukayev’s phone had been tapped “for months.” Um, pretty sure it was tapped like forever.

Ulyukayev has a reputation as a “liberal” in Russia, and assorted Western dimwits expressed Shock! Shock! at his arrest. Prominent among these were Anders Aslund and my fellow professor and buddy Michael McFaul. I say dimwits for several reasons. First, is it news to them that the “liberals” in the Russian government are marginalized, and exist at the sufferance of people like Sechin who are in Putin’s inner circle? Second, are they so credulous as to believe that these liberals are untainted by corruption? Puh-lease. Ulyukayev appeared in the Panama Papers. Further, the “liberals” and “reformers” mainly go back to the Yeltsin period, and remember that  Yeltsin elevated Putin in exchange for foregoing any investigation or prosecution of the rife corruption of the Yeltsin administration. Ulyukayev was associated with Gaidar, who was also tied to corruption (although the publicly revealed instances were small beer by Russian standards).

There are no clean hands in Russia. This very fact is what usually keeps people in line, for they know the adage “for my friends, everything: for my enemies, the law!” Everybody is vulnerable to prosecution, because everybody is corrupt: actual prosecution is used sparingly, however, to punish those who have committed a political transgression.

Ulyukayev clearly committed such a transgression, and hence he finds himself in the dock.

There is no reason to be shocked by this. It merely confirms that people like Sechin are the real power. But this is apparently a revelation to alleged Russia experts.

Bashneft is the Hope Diamond of oil companies: it seems to bring bad luck to anyone who touches it. Ural Rakhimov, the son of the boss of Bashkortostan (where the company is located), who profited from the corruptly done privatization of the company in 2002, but who apparently fled Russia when the privatization and subsequent sale came under government scrutiny. Vladimir P. Yevtushenkov, who bought Bashneft from Rakhimov, but then wound up under house arrest for 92 days for allegations related to the privatization: he walked only after the government seized Bashneft shares from Yevtushenkov’s holding company before performing the re-privatization Kabuki that ended with the company being bought by Rosneft. And now Ulyukayev.

Will the skein of bad luck end with Rosneft and Sechin? That’s a good bet, but not a lock. Who knows what changes in power are in store, especially as Putin ages, or if there is some economic or political shock?