Streetwise Professor

May 30, 2012

No Dividends For You!

Filed under: Economics,Energy,Politics,Russia — The Professor @ 9:47 am

Over the weekend I blogged about the renewed legal hostilities over Vimpelcom, Ltd, which, among other consequences, prevents the company from paying dividends.  Mikhail Fridman’s Alpha Group holds a large stake in Vimpelcom, along with Norway’s Telenor, and the Russian Anti-Monopoly Service which has moved against Vimpelcom is presumably acting as Fridman’s stalking horse. Another Alpha joint venture with a big western company-TNK-BP-is also unable to pay dividends because its board “inquorate” (a new word for me) due to the resignation of Gerhard Schroeder in December, and the to-the-knife conflict between the Russian AAR partners and BP that has precluded the naming of a replacement.  (BP claims that it can force the firm to pay dividends through an arbitration process.)

The war between the Russian owners and BP is now on the verge of going nuclear with Fridman’s resignation as CEO.

This means something big, obviously.  Just what? I have no clue.  Neither does anyone else, though numerous theories are being hawked.

Pretty much everyone agrees that this has something to do with Putin’s return to the presidency; Igor Sechin; the fallout from the failed BP-Rosneft deal; Russian energy politics; and the operations of the Russian natural state, with its balancing among oligarchical, state, and clan interests.   Just exactly how these pieces fit together is what no one quite gets.  This is Riddle, Mystery, Enigma: The Energy Edition.

A big part of this is due to the fact that no one understands what cratered the BP-Rosneft deal.  Yes, we all know that AAR’s demand that BP adhere to the TNK-BP shareholder agreement that required the British company to work exclusively through TNK-BP in Russia was the proximate cause of the termination of the Rosneft-BP transaction.  But no one knows exactly what went on.  Were Fridman and the other AAR partners defying Putin and Sechin, or acting with their tacit or explicit consent?  Or did Putin side with AAR against Sechin then, but is changing sides now?

What is certain is that this bodes ill for Russian efforts to attract investment.  What I find amusing is that much of the commentary presumes that Putin’s first priority is to implement reforms that improve the investment climate in order to build a stronger Russian economy, and wean it from its dependence on energy and raw materials generally.   He certainly pays lip service to this, but that is not his first priority.  Or even his second.  His overriding concern is maintaining control and the equilibrium between the grasping factions within the elite, and his main means of doing so is managing the distribution of rents, especially those thrown off by energy assets.

Given the virtual lack of any real formal legislative or judicial checks on his discretion, and the obvious glee with which he issues blizzards of ukases ordering this and that in the economy, I see no way for him to credibly commit to reforms that limit his discretion to intervene.  Indeed, the transition from the current state of affairs to such a rule-based would be so fraught with risk for him and the elite, that I cannot see it happening.

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