OIL BARONS GO TO WAR WITH PUTIN
Publication: Prism Volume: 6 Issue: 12
By Elena Dikun
The most dramatic event of recent weeks: the raid on the St. Petersburg branch of Promstroibank. On November 16, employees of the city prosecutor’s office and the local OMON [special police troops] burst into the bank, masked armed men sealed off the building and investigators began scooping reams of papers from the safes. The operation was carried out in the best traditions of Russian pantomime–as theatrically as possible. The official explanation was that prosecutors were looking for documents related to the activities of the St. Petersburg City Hall finance committee from 1992-1996.
The main question puzzling Russia’s political establishment is this: Who was so bold as to open the Promstroibank safes? It is no secret that the head of the bank, Vladimir Kogan, is very close to President Vladimir Putin. Russia’s deputy prime minister, Aleksei Kudrin, is also a long-standing bank client. A raid on such a bank amounts to gross impudence. Who could have been so reckless? The most popular version doing the rounds in the corridors of federal power is that the prosecutors were unleashed on Promstroibank by the oil barons, who had begun a secret war against Putin and Kudrin.
This military campaign dates back to July, when First Deputy Finance Minister Sergei Ignatiev–who is also a native of St. Petersburg, and once worked for Anatoly Chubais–placed a curious document on the desk of his current patron, Kudrin. It was a memo accusing a number of oil companies of tax evasion. According to Ignatiev’s figures, Sibneft, for example–headed by Kremlin oligarch Roman Abramovich–pays 8 times less tax, and Tyumen Oil Company (TNK) 3.3 times less tax per barrel of oil than Surgutneftegaz. Having made a couple of simple comparisons, the deputy minister concluded that “some companies have special systems for evading tax, using dummy companies, manipulating prices and so on.”
After perusing this document, Kudrin quickly summoned the tax officials and told them to get to the bottom of the oil companies’ accounts, and root out all their systems–both legal and illegal–for concealing income. The deputy prime minister then passed Ignatiev’s memo to Putin, who also found the document interesting, and made the most of the opportunity to use it in his discussions with businessmen invited to the Kremlin at the end of July. Putin told the oil bosses who were at the meeting that they were seriously underpaying the treasury, and that it was time to put an end to this disgraceful behavior.
It looked as though trouble was not far off, but then August arrived: The entire establishment went off on holiday, and the clouds gathering over the oil barons began to lift. For a while they put up a half-hearted defense, saying that Ignatiev clearly had problems with his math, but then one of the heads of the president’s administration neatly put an end to the matter, saying that “Kudrin had been given incorrect information.”
However, in October fresh trouble fell into the oil barons’ laps. One hundred and two deputies from the State Duma sent an open letter to the president demanding that he “curb the oil predators,” who were not paying their taxes and exporting their profits abroad. If he did not do something, the deputies threatened to nationalize the oil industry. Informed observers are convinced that the letter could have been arranged by the recipient himself–that is, the president–or at least by the government. Their suspicions were raised by the fact that the signatories included sixty deputies from the Unity faction which, as is well known, never does anything without first asking the Kremlin’s blessing. These suspicions were reinforced when Putin attached a stern resolution to the deputies’ letter, addressed to the head of the federal tax police and the minister for taxes and levies: “To V. Soltaganov and G. Bukaev. The problem raised by the deputies is a perfectly valid one. Your inaction thus far is rather surprising.” In other words, the president was angry with the tax officials: We’ve been urging you for ages to get to grips with the oil companies, but you don’t do anything. How many times do we have to tell you?
A few days later, on August 13, Kudrin summoned the heads of the fiscal organs for a dressing down. The tax officials were asked why they had shelved “Ignatiev’s list” and done nothing. Tax and Levies Minister Bukaev and tax police chief Soltaganov acknowledged their mistake, and swiftly submitted to the deputy prime minister a memo stating that Ignatiev’s sums were indeed wrong, and that the total oil profits concealed from the tax authorities were in fact many times greater. It transpired that the oil companies had underpaid by some US$75 billion. Sibneft and TNK still headed the list of fraudulent tax evaders. The president also instructed Gennady Bukaev to produce, by December 15, a draft decree outlining a system for determining market prices for oil.
And then the prosecutors descended on Promstroibank. According to our sources, the highly aggrieved oil barons and their lobbyists in the power structures tipped off the law enforcers. Even if no compromising material on Putin or Kudrin is found in the documents seized, this action will nevertheless be effective as a show of force. In other words, the president and his team of Petersburg economists have been shown that there is an answer to pressure.
On 2 December the heads of the largest oil companies headed for the White House to negotiate with Deputy Prime Minister Kudrin, but no compromise was reached. Our sources testify that the meeting was a difficult one. Kudrin told the oil chiefs that the government was determined to wrest the shortfall from them at any cost, to which they responded that the government’s policy was “irresponsible” and would lead to a repeat of the 1998 crisis; and they made it clear that they would not give up without a fight.
It goes without saying that nobody thinks the oil companies were capable of arranging the Promstroibank spectacle on their own. Even though Sibneft boss Roman Abramovich is one of those who feel particularly aggrieved, it was probably someone from outside the oil industry who assigned the Petersburg prosecutors their task. Attempting to identify the oil barons’ allies, interested parties note that Prime Minister Mikhail Kasyanov has not contributed one word to the entire debate on oil taxes. Furthermore, it is no secret that Kasyanov’s relations with Kudrin and the whole Petersburg crew are not particularly comfortable. Some think that St. Petersburg Governor Vladimir Yakovlev may also be involved in Moscow’s game: He is regularly given hints that at the first convenient opportunity Moscow will appoint him in place of Chubais or even Kudrin himself. Some of those we talked to suggest that disgraced oligarch Boris Berezovsky masterminded the operation carried out by the oil bosses: From his refuge abroad, Berezovsky was serving notice to the president and his colleagues that his warnings that Putin might not even survive his first term in office were no idle threats. We are thus seeing the formation of a rather strong team which is capable either of persuading Putin that his fiscal demands are unrealistic, or of pushing him into a major purge of the government and his administration.
Elena Dikun is a political columnist for Obshchaya gazeta.