Publication: Monitor Volume: 6 Issue: 176

Yevrotek, a company connected to the Tyumen Oil Co (TNK), has won a privatization tender for an 85 percent stake in the state’s Onako oil company. The results, which were announced earlier this week, were something of a surprise, given that most Russian observers had expected that Profit House, an entity representing an alliance between two Russia’s most powerful oil companies, Yukos and Sibneft, and Stroitransgaz, a subsidiary of the Gazprom natural gas monopoly, would win the tender. A Profit House victory was seen as all the more likely given the perceived political clout of Roman Abramovich, the Sibneft chief and State Duma deputy. Nonetheless, Yevrotek’s US$1.08 billion bid for Onako beat out Profit House’s bid of US$1 billion and a US$450 million bid from another oil company, Yugraneft. LukOIL, Russia’s largest oil company, had been expected to compete for Onako, but did not enter the bidding. The acquisition of Onako will boost TNK’s oil output from fifth to fourth place among Russian oil companies (Moscow Times, September 20).

A number of observers have hailed the results of the Onako tender as a sign that the Putin administration is making good on its pledges to establish a level playing field in the economy and to move away from the practices of the Yeltsin era, when what passed for “privatization” was in fact a series of rigged insider deals between the state and powerful oligarchs. These observers have pointed to the fact that Yevrotek paid more than double the starting price of US$425.25 million as evidence that the Onako tender was an example of genuine competition, not a rigged insider deal.

It should be noted, however, that the winners in the Onako tender were are something less than products of a genuine meritocracy: Yevrotek is controlled by TNK, which, in turn, is part of the Alfa Group, the holding headed by two of Russia’s most powerful Yeltsin-era oligarchs, Pyotr Aven and Mikhail Fridman. And while it is true that the state earned real money from the Onako sale–in sharp contrast to the controversial 1995 “loans-for-shares” auctions, in which state assets were sold for knockdown prices or even given away–the fact that the Onako selling price was much higher than the starting price is not, in and of itself, proof that the tender was not rigged. Indeed, after the results of the Onako tender were announced, a newspaper quoted an anonymous top executive of one of Russia’s oil companies as saying that the fact that Yevrotek bid only US$80 million more than Profit House suggested that Alfa, the power behind Yevrotek, knew in advance what Sibneft and Yukos, the powers behind Profit House, planned to bid. “This is the logic of dishonest participants [in tenders]: to find out what a competitor is bidding and then to offer a kopeck more,” the executive was quoted as saying (Vremya novostei, September 20).

In this sense, the Onako tender may resemble the 1997 tender for a 25-percent stake in the Svyazinvest telecommunications holding, which turned into a vicious battle and mudslinging contest, pitting a consortium led by LogoVAZ chief Boris Berezovsky and Media-Most head Vladimir Gusinsky against a consortium led by Oneksimbank chief Vladimir Potanin. Potanin’s consortium won with a US$1.875 billion bid which was considerably more than the starting price. The Svyazinvest tender was widely hailed for its perceived transparency and fairness, though some observers fudged and called it “relatively fair,” without explaining exactly how a tender can be something other than either fair or unfair. In any case, the financier George Soros, who was part of the consortium which won the Svyazinvest tender, later admitted that was something of an exaggeration to say that the Svyazinvest tender was fair. According to some unsubstantiated reports, the Svyazinvest winners had discovered in advance what their rivals planned to bid.

In any case, the Onako tender may be a sign that President Vladimir Putin, rather than trying to eliminate the oligarchs as a class, as he once promised to do, has decided to adopt the strategy perfected by his predecessor, Boris Yeltsin, of dividing and ruling the powerful tycoons. Earlier this year, Putin appeared to be favoring Sibneft’s Roman Abramovich by looking the other way when Sibneft and another company, Siberian Aluminum, joined forces and, in what would appear to be a violation of Russia’s antimonopoly legislation, took over an estimated 70 percent of Russia’s aluminum industry (see the Monitor, March 10, April 4). The results of the Onako tender may be a sign that Putin is now leaning toward the Alfa Group as a way to prevent Sibneft from becoming too powerful. Indeed, some observers have predicted that the next big oligarchical battle will be between Sibneft and Alfa.