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Source: Putin’s Ultimatum to the Russian Oligarchs (Fort Russ)

January 26, 2015
Crimson Alter – Politrussia.com
Translated from Russian by Kristina Rus


2015: The Apocalypse or the Renaissance of the Russian economy?

Reading endless stories of schizo-patriots and liberals that the Russian economy will soon experience a complete collapse, would be very amusing if these stories, shaped exactly by the manuals of Rand Corporation, did not get on the nerves of real Russians. We all have a difficult year ahead, and to live with an eye on a “total collapse, looming on the horizon,” described by the gloom-and-doom prophets of all colors, – is a dubious pleasure. To live in constant fear that “the oligarchs will  overthrow Putin, knock him out with a snuff-box, and the time will come to go out to the Patriotic Maidan to save Moscow”, is simply impossible. It is impossible not to notice that this psychosis is created skillfully and the main card of the manipulators is based on the hope that the audience will not notice those facts that clearly indicate that the situation is moving in a completely different direction.

Briefly, this scenario can be formulated as follows: subjugation of the oligarchy plus full state capitalism. About this, as a terrible disaster for the Russian economy, talks German Gref. Actually, this is not a disaster, but a renaissance.

In the working plan of the structure of the Russian economy, the Kremlin decided to take into account the positive and negative experience of the crisis of 2008 with amendments to current geopolitical realities. By all indications, at the famous meeting with Russian business leaders, Putin gave the oligarchs a choice: work for the country (dedollarization, participation in support of the ruble, the transfer of control over enterprises into the Russian jurisdiction, and so on) or the state will ‘deal’ with them and take the property.

Putin’s strategy is easy to reconstruct based on leaked to the press elements of the preparation for the meeting of the President and the leaders of Russian business. This is how these “gentleman talks” were described by government and business sources of Gazeta.ru:

“…Representatives of ministries and agencies contacted major exporters, shareholders and owners, and had a heart-to-heart conversation with them. The conversation went something like this: “Have you heard about our situation with the ruble? – “Yes” – “Could you possibly now not aggravate the problem – sell part of foreign currency earnings to support the ruble and to calm the citizens?”

Then there was a fork in the conversation. Some agreed with the recommendation, and some – not. The naysayers said: “I have a debt in foreign currency, and the ruble is floating free. So I am saving. You don’t have the right to force me”. They were replied: “Well, do as you wish. We have no right to force someone. But if tomorrow you will come to the government to ask for support, state guarantees, loans and in general… then don’t expect anything”.

The oligarchs had time to think, but the first results appeared immediately. The decision of Alisher Usmanov to transfer control of his companies (Megafon, Metalloinvest) to Russia – is an indication that the smartest oligarchs have already made their bets. One can only envy the foresight of Usmanov – his financiers began to break into the Chinese (Hong Kong) capital markets already back in the summer and the process of transferring control of the offshore assets to Russia was started long before Putin’s “December ultimatum”. The ability to feel the essence of time is the key to survival in the current geopolitical conditions.

A very unexpected example of the correct orientation in the political space is the owner of AFK Sistema, Yevtushenkov. It would seem, in the context of Western court decisions in the Yukos case, the incredible pressure of the West on Putin and the nationalization of Bashneft, Yevtushenkov had all the reasons to become Khodorkovsky 2.0 – the icon of the opposition, the hope of the State Department and the applicant for the post of Moscow’s curator after an oligarchic Maidan. In fact, many had expected this course of events. Instead, Evtushenkov has “converted” in a few months, for which 10 years in prison was not enough for Khodorkovsky. Many argue that it is Yevtushenkov who sold those 3 billion dollars, mentioned by Putin. Moreover, Yevtushenkov had himself issued a black mark in the eyes of the West in his recent interview. Note two significant quotes:

First – Vladimir Yevtushenkov about the dollar:

“This is an artificial situation, created by a common panic… It will still subside – in February or March, and the dollar will tank, it will again increase the gap with the Euro and, of course, so to speak, there will be no more of this crazy price. We just need to wait it out. And if someone now wants in a panic to go to the dollar, he will simply lose… why don’t you call me sometime in late March – early April to discuss this subject again, and then you will understand, that I was right.”

Second – Vladimir Yevtushenkov about the government and the country:

Alexander Gamov (KP): But you don’t have any resentment at the authorities, as I understand it?
Vladimir Yevtushenkov: Are you kidding? I am flesh from the flesh of this country – what resentment?

We can say that Yevtushenkov understood the true Zen of Russian life: even the oligarch is flesh of the flesh of the country. And those who consider themselves “above the borders”, “above the countries”, “above the law” and argue that they could care less “what color rag flies over the House of Government”, will very soon be left without those assets, the owners of which they by mistake and misunderstanding consider themselves. No revolutions and expropriations, God forbid! Exclusively invisible, but no less real hand of the market, but rather of a constable.

This is how German Gref describes our near future:

“According to our calculations, at a price of $45 per barrel of oil we need to generate approximately 3 trillion rubles in reserves for 2015. This means that the government will capitalize banks and increase its share in them, and the banks will buy industrial enterprises and turn into financial-industrial groups. We will have a huge, big state, our whole economy will be the state”

According to Gref this is apocalypse, horror and disaster. In reality this is elimination of inefficient owners. And oil at $45 plays no role here. Just the time has come for the business community of Russia to make a choice: to combine their interests with the interests of the country or to counter their interests to the interests of the country. Sitting on the sidelines is not an option, although the opportunity exists, is present especially for those who will try to play Maidan. Smart oligarchs are involved in the stabilization of the ruble, fit into the process of dedollarization and confirm their allegiance to the country by transferring control structures to Russia. This process will accelerate and it will be a major business trend of 2015.

Let’s consider a specific example, how the new state policy towards business manifests in the new environment. As a demonstration of a contrasting example, we can look at two steel companies: Severstal and Mechel.

Mr. Mordashov (Severstal) properly oriented himself in a political context. This is evident in his interview to Vesti:

OAO Severstal regularly sells currency earnings and during its activities is not engaged in its accumulation. This was stated during an interview with TV channel “Russia 24” by the CEO and principal owner of the company, Alexey Mordashov.

There is a reason to believe that Severstal will do well.

Mr. Zyuzin (Mechel) is not very well-versed in the political context and as a result, exactly what Mr. Gref warned about is happening to his company. Although it would seem that, given the obvious vulnerabilities of Mechel, its owner had to be at the forefront of the “converted” oligarchs. But for a “no” there is no trial [old Russian saying], but more precisely there is –the Arbitration Court of the Russian Federation and similar bodies in other countries:

“On December 30, 2014, the bank sent a formal demand for repayment of debt and interest of 16 billion rubles on two loans of Singapore Trading Mechel Carbon (Singapore) Pte Ltd through a local law firm Rodyk. On January 7 demands for the same loans were also sent to the traders of “Mechel” in Switzerland – Mechel Trading AG and Mechel Carbon AG, the bank demanded 47 billion rubles and 16 billion rubles, respectively. According to the source of the newspaper, the bank operates through the state agency of Switzerland on debt collection – Betreibungsamt Baar. VTB confirmed the claims and added that they intend to submit a claim in Russia to recover the entire debt of OAO “Mechel” of 47 billion rubles. According to the bank, overall “Mechel” group as of January 12 owes VTB more than 70 billion rubles and more than $170 million”

Special focus should be placed on the fact that two state banks (Sberbank and VTB) are bankrupting Mechel in response to the reluctance of Zyuzin to part with the property in a good way: “Sberbank and VTB insist on the conversion of 75% of debt of Mechel shares through the additional share issue. Main owner Igor Zyuzin, in turn, offered to restructure the debt with a repayment extension and conversion of foreign currency loans into rubles.” And here it is worth recalling the words of an unnamed source in the government, who warned the oligarchs “if anything… don’t expect anything”.

Everything goes according to plan, described by Gref with a “minus” sign, but actually there is a heap of positive: the state is using the economic and geopolitical situation and through state-owned banks creates (actually re-nationalizes) financial-industrial groups at the expense of those who did not fit not only into the market but also into the mobilization era of Russian state capitalism.

By the way, Western banks wishing to participate in the process of “expropriation of property” for debts, can already write off their loan portfolios. They will only receive a pledge of shares of offshore “blanks”, but the real rights of ownership of Russian assets they will have to prove in a Russian court, which is known to be the most fair court in the world.

Back in the summer, Sergei Ivanov in an interview with KP [Komsomolskaya Pravda] hinted that some of his regular acquaintances, who are known for liberal views, realized that the Kremlin is right in its confrontation with the West, and that they will never be accepted as equals in the West. Now we see how this understanding generates quite tangible economic consequences, and the process of repatriation of capital and “conversion” of the smart captains of business is in full swing. Even today we can confidently assert that we will meet the end of 2015 in a completely different country. Whether you will like this other Russia depends on whether you like the scenario, in which the state will sharply increase its role in the economy at the expense of the destruction of the oligarchy, which did not want to merge its interests with the interests of the country