Streetwise Professor

November 16, 2010

That’s the Way Rackets Work

Filed under: Commodities,Energy,Politics,Russia — The Professor @ 6:15 pm

This is one of those stories (h/t JRL) that can be read on many levels:

Meeting of the Security Council chaired by President Dmitry Medvedev will discuss energy security in late November. The necessity of a federal law “On energy security of the Russian Federation” and legislative and organizational measures will be considered at the meeting.

The state aspires to complete information on oil and to control over it. The Interior Ministry is supposed to combine  efforts with the Energy Ministry in prevention of oil thefts. By and large, the matter concerns establishment of Oil Control, a system that is supposed to shut down the black market of oil products. Work on this mechanism has been under way since earlier this year, when oil companies complained to the president against countless illegitimate mini-refineries that were making fuel of dubious quality and selling it domestically and abroad.

A source within the government announced that approximately 10% (about 50 million tons) of all oil made annually disappears without a trace. “As matter stand, oil companies do not want the state to know exactly what they have. The intended involvement of law enforcement agencies is not going to make them happy at all.”

Political Information Center Director General Aleksei Mukhin allowed for the possibility of a connection between the idea to establish a control mechanism and the notorious YUKOS affair. Mikhail Khodorkovsky and Platon Lebedev are facing charges of theft of 350 million tons of oil. The verdict will be passed in mid-December. “The state wants control over commercial activity of the fuel and energy complex,” said Mukhin. “The Interior Ministry
and Federal Security Service have some serious lobbyists working for them. With information on the movement of fuels in Russia and abroad available to them, these structures will be able to influence oil companies’ marketing policies… Reorganization of the Interior Ministry is about to put an end to police generals’ business ventures. They need something else… I suspect that losses of oil will only increase now.”

On the one hand, I would not put it past some Russian oil businesses to attempt to escape the country’s onerous tax burden on oil.  On the other hand, this gives the Interior Ministry access to extremely valuable commercial information that they can utilize for various nefarious purposes that just happens to line the pockets of Ministry personnel.

It seems that some firms in the oil industry were too clever by half, asking the state to intervene to crack down on some dodgy competitors, only to find that the Interior Ministry would take this as an invitation to get up close and personal with all of their businesses.  Proving yet again that it’s very dangerous to give the slightest opening to the operators of protection rackets, as they will take what you offer plus anything else that they feel like taking.  You give an inch, they’ll take miles.

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