“I’m so bored. I hate my life.” - Britney Spears

Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann

"Never for money/always for love" - The Talking Heads

Wednesday, January 04, 2006

any primary products for you today, ma'am?

If LI were Evo Morales – a thought out of H.G. Wells, no? – we would definitely be taking notes about the recent Russia-Ukraine tiff. Putin "hates" Mr Yushchenko and is happy to try to undermine him,” according to the Financial Times in an article that overviews the recent, slow return of resource companies to state control.

State control does not mean total state control, however. It means that the state has a majority share in Gazprom and Rosneft, oil and gas groups. This, we think, is a logical fit for Russia. Both groups have private investors, but given the Russian national economy’s strengths and weaknesses, it never made sense to make Russia into neo-liberal heaven – consideration of the right mix of private to public enterprises should have made the state very cautious about giving away its crown jewels. In fact, no country in its right mind gives away its high value resource extraction industries – witness the recent dustup in this country when China made an offer for Conoco.

“In the past two years, [Putin] has set about creating those groups. Using occasionally questionable methods, he has restored to state control energy assets that were privatised cheaply a decade ago. Rosneft, the state-owned oil company, in late 2004 bought the main production arm of Yukos, the oil company built up by Mikhail Khodorkovsky - now serving a nine-year sentence in a Siberian prison for fraud and widely seen as the victim of a politically motivated campaign.
Last autumn, the Russian state increased its stake in Gazprom, the gas giant that controls about 20 per cent of the world's natural gas reserves, from 38 per cent to 51 per cent, moving from de facto to de jure control. Gazprom then bought Sibneft, the oil group controlled by Roman Abramovich, the Chelsea Football Club owner, for Dollars 13.1bn in Russia's biggest merger.

Finally, Mr Putin has just signed into law measures to lift long-standing restrictions on foreigners owning Gazprom's remaining 49 per cent free float. Some analysts believe the influx of international investors could double Gazprom's market capitalisation to as much as Dollars 300bn (Pounds 172bn, Euros 250bn), putting it among the world's top companies. Rosneft, meanwhile, is being prepared for an initial public offering on the London Stock Exchange this year that Russian officials have suggested could value it as high as Dollars 72bn.”

Those who, in the nineties, were critical of ‘shock therapy’ will now get a chance to see if the model that worked so successfully after WWII – a private economy with a large state stake– will work for Russia. The danger to governance is obviously underlined by Putin’s use of natural gas as if it were his own private dagger. When there are no impediments to direct executive control of these enterprises, they are always going to be subject to this kind of gross corruption. State control shouldn’t mean straight executive control.

Read Chris Floyd’s analysis for comments on the hypocrisy of certain of those who are condemning Putin at the moment. And do remember, too, that the increase Putin is trying to extract from the Ukraine is, percentage wise, in the same ballpark as the increase in gas prices demanded by the IMF in Iraq, which has so far not created mass indignation among policymakers in the West.

This is probably the structural lesson for Morales. The other lesson should be situational. Bolivia does not have to market its natural gas to the U.S. The EU has every incentive to diversify its suppliers. This is a good time to have massive natural gas reserves.

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