Doping and Rosneft tarnish the Remnants of Russia’s Reputation

Two breaking news dominated the political debates and rumor bazaars in Moscow at the end of last week. One was the publication of the World Anti-Doping Agency’s report on the second part of the independent investigation led by Richard McLaren on the scope of use of banned substances in Russian sport (Gazeta.ru, December 10). The other quite surprising news was the deal on selling 19.5 percent of the state-owned Rosneft company to two foreign investors: the oil trader Glencore and the Qatar Investment Authority (QIA) (Nezavisimaya Gazeta, December 9). Both President Vladimir Putin and Prime Minister Dmitri Medvedev praised the deal as a successful execution of the strategic decision on the privatization of Rosneft that added 10.2 billion euro (about $11 billion) to the state budget (RBC.ru, December 9). In the opinion of insightful but still puzzled experts, however, this quasi-privatization is as murky and secretive as the state-organized system of production, distribution and cover-up of doping (Novaya Gazeta, December 8).

Russian sports fans were extremely upset by the explosion of the doping scandal on the eve of the Rio Olympics this summer, but the state propaganda machine carefully covered up the problem, so the new McLaren report comes as an unexpected after-shock (Kommersant, December 10). Few new names were added to the long list of disqualifications, which is a relief of sorts for a thousand athletes who are allegedly implicated, but the main emphasis of the investigation is on the role of various state agencies in building the organization for achieving success in various sport disciplines through the systematic abuse of performance-enhancing substances (Moskovsky komsomolets, December 9). The Ministry of Sport and the newly created “independent” anti-doping public commission were quick to issue denials about the existence of such organization, but the volume of accumulated evidence speaks with irresistible force (Newsru.com, December 9). It is rather hard to believe that Russia may clean up this act, because the dirty sports bureaucracy is an organic part of the thoroughly corrupt regime.

The state oil giant Rosneft, controlled by Putin’s long-time associate Igor Sechin, belongs to the core of this regime and enjoys the privilege of zero accountability in managing the vast business and distributing profits. Sechin made sure that the government, which formally oversees his decisions, had no say in and no information about the clandestine privatization deal, and Alexei Ulyukaev, former minister of economic development, was unceremoniously thrown behind bars as a preventative measure against any interference (Moscow echo, December 8). The only mode of privatization acceptable to Sechin was finding a rich customer, who would not object to being kept in the dark, so even some Chinese partners expressed reluctance to partake (Carnegie.ru, December 8). Earlier this month, Rosneft borrowed overnight on the domestic market about $10 billion from undisclosed financial agents, so experts assumed that the company would simply buy its own shares (Forbes.ru, December 8). The coup with Glencore and QIA left observers flabbergasted, particularly when the former announced that it had invested only 300 million euro ($ 320 million) in the deal and gained expanded privileged access to trading Russian oil (Kommersant, December 8).

Questions about the deal go further than just who financed the purchase and who really owns the over-priced but non-voting shares (RBC.ru, December 8). The readiness of a consortium of Italian banks, led by Intesa Sanpaolo, to act as creditors for the troubled Glencore can only be explained by a generous inflow of Russian money (Republic.ru, December 8). The coincidence of Qatar’s sudden entry into the high-risk and low-yield Russian oil business and OPEC’s hard decision to cut down production quotas leaves much space for conspiracy theories (Nezavisimaya gazeta, December 9). The more difficult questions are about a possible breach of the sanctions regime, which restricts Russia’s access to Western financial markets and targets Rosneft specifically.

The Kremlin responded nervously to the news that the US Treasury Department would investigate the legitimacy of Rosneft’s so-called “privatization,” in which a group of beneficiaries pocketed a nice package of shares through some creative accounting and money laundering (RBC.ru, December 9). It was a relief for Sechin and other Russian stakeholders, however, to hear from Carter Page, a foreign policy advisor to President-elect Donald Trump’s transition team, who visited Moscow last weekend, a sharp criticism of “hostile attempts” to punish Rosneft and its boss by sanctions, which in his opinion only hurt Western investors excluded from the privatization deal (Newsru.com, December 9). The Kremlin courtiers are further encouraged by news about Trump’s posible choice of Rex Tillerson, CEO of Exxon Mobil, for the post of US Secretary of State, because his work in Russia was so successful that Putin awarded him the Order of Friendship in September 2012 (RBC.ru, December 11).

More such honors can now be showered on Italian bankers or Qatari sheiks, but responsible Western investors would hardly be tempted to partner with Rosneft, which cultivates an extra-brutal business style resembling FSB special operations. They might take note of the plain fact that the net result of the series of aggressive acquisitions is rather disappointing, as Rosneft’s total market value is presently less than $55 billion, which Sechin paid in March 2013 for TNK-BP, after absorbing the forcefully dismembered Yukos back in 2004 (Moscow echo, December 10). They might also reflect on Sechin’s personal involvement in the fierce squabbles between siloviki, which continues non-stop as yet another colonel from the internal security department of the Ministry of Interior was arrested last week by the FSB on the charge of taking a pitiful bribe of $1.5 million (Fontanka.ru, December 10).

Petro-revenues produce the same corrupting impact on Russian politics as doping does on Russian sport. The difference is that international sports federations are taking the problem seriously and proceed with disqualifying “dirty” athletes and bureaucrats, while for many in international business the lure of oil money remains irresistible. Putin knows that the business reputation of Rosneft and Gazprom is in tatters and is set to demonstrate that Western entrepreneurs are no different from his cronies like Sechin. Sanctions remain the most reliable means of curtailing Russian export of corruption, but it takes great political determination to sustain them, and US leadership in this regard is indispensable.