Grim news continued to flow from Georgia yesterday. The Georgians said
Russia had bombed the civilian airport in Tbilisi, while Russian
warships off the coast began an economic embargo. Prime Minister
Vladimir Putin left the Beijing Olympics and flew to Russian North
Ossetia, where he revealingly criticized "Georgia's aspiration to join
NATO."
Not least among the geopolitical realities coming to the surface at the
moment is that of just who's top dog in the Kremlin. While it's widely
thought Mr. Putin's power trumps that of Russian President Dmitry
Medvedev, an interesting wrinkle has emerged elsewhere in the new
Russia that has modern-day Kremlinologists wondering whether the
president might yet become more his own man.
The story revolves around Russian coal and steel company Mechel, which
is publicly listed on the New York Stock exchange. On Friday the firm
said it was going to postpone a preferred share placement in the wake
of a battering its shares took from the volatile Mr. Putin.
Late last month, Mr. Putin accused the company of price gouging and tax
evasion and warned of investigations to follow. He also got personal
after Mechel CEO Igor Zyuzin failed to show up to a meeting the prime
minister was holding with business leaders. "The director has been
invited, and he suddenly became ill," said Mr. Putin, according to the
Moscow Times. "I think he should get well as soon as possible.
Otherwise, we will have to send him a doctor and clean up all the
problems." Mr. Zyuzin had been hospitalized a day earlier with heart
problems.
Coming from Mr. Putin, such talk is nothing short of terrifying:
Consider the fate of former Yukos CEO Mikhail Khodorkovsky, now in jail
in Siberia while Yukos's assets were gobbled up by state-owned oil
company Rosneft. Investors swiftly took note: Mechel's stock dropped by
more than 33% in a day, while the Russian exchange fell by 9%.
The Mechel play springs from a familiar game plan, in which accusations
of tax or regulatory problems become the alibis by which the Kremlin
and its cronies seize the assets of unwanted competitors. "It is a
strictly commercial operation in the framework of Kremlin Inc. Tribute
is no longer enough for them; they want to take everything into
ownership," speculates Russian analyst Vladimir Pribylovsky. A similar
scenario has played out with British Petroleum's BP-TNK venture in
Russia, in which the Russian partners used visa "issues" to force CEO
Robert Dudley out of the country.
The surprise in all this is that President Medvedev has decided to
protest. "We need to create a normal investment climate in our
country," the President said, without mentioning Mr. Putin. "Our
law-enforcement agencies and government authorities should stop causing
nightmares for business." A Medvedev adviser added that "it is not
correct to destroy your own stock market . . . and wipe off $60
billion." The Russian stock market is trading at a 22-month low.
The question for Kremlinologists is whether Mr. Medvedev's comments are
evidence of some independence on his part and perhaps a looming power
struggle, or merely amount to a good cop, bad cop routine. It would be
heartening to think it's the former, and that Russia's leaders are
beginning to realize there are costs to their habits of confiscation.
But with foreign investors still looking to make a fast killing in
Russian markets (foreign direct investment jumped by some 60% between
2006 and 2007), those costs apparently won't be paid for some time.
Meanwhile, for anyone thinking of putting money into Russia, the
message should be caveat investor.
