Wall Street Journal exposes Lukoil insiders

“On the last day of August in 1997, a Russian oil tycoon named Vitaly Schmidt sat down to lunch at his Moscow apartment with his woman friend and his sister. The 48-year-old engineer downed a large helping of boiled-meat dumplings and a couple of shots of vodka. Three hours later, he was dead.
Mr. Schmidt was a multimillionaire with luxury residences in four countries. Much of his fortune came from a group of small offshore energy companies he oversaw on behalf of himself and a few fellow executives of a big Russian oil company, OAO Lukoil.”

• This compelling 3,000-word story, titled “At Lukoil, an Executive’s Death Exposes Network of Inside Deals,” by Glenn R. Simpson, was published by The Wall Sreet Journal on December 6th, 2006.
  
• Thanks to permission from The WSJ, you can read the article here in English and here in Russian.

Kerimov crashes, Sberbank holds $9 bn share issue

Gazprom’s major shareholder, Suleiman Kerimov, is still recovering from a near fatal car crash in Nice, France last week. A business friend of Kerimov tells me the billionaire is in a stable condition in a Marseille hospital.

The business woman said Kerimov, a Duma deputy, was in much better shape after a car crash than media reports suggest. She said Kerimov had burns on less than 30 percent of his body, not 70 percent as Russian media reported.

Because of Kerimov’s accident, the state-owned Sberbank’s supervisory board postponed a decision on a share issue worth $8.7 billion. “No decision has been made – so far all that’s been decided is to examine more closely the proposed details, and that could be could be finalised within two weeks,” a finance ministry official said.

About 37 percent of Sberbank shares are in the hands of private investors, including billionaire Kerimov, who is believed to control about 6 percent of Sberbank shares through his investment firm Nafta Moskva, but he is not represented on the supervisory council.

The state, represented by the central bank, is a majority shareholder in Sberbank, creating a potential conflict of interests when the banking sector regulator is also owner of the largest bank.

In a report issued Monday, the Organization for Economic Cooperation and Development in Paris called the expansion of Russian state ownership in general a “step back” for Russia’s economy.

“Of particular concern is the state-owned gas monopolist OAO Gazprom’s seemingly insatiable appetite for asset acquisitions, often at the expense of a focus on its core business,” the report said. “At the same time, the absence of any significant steps to restructure the gas industry as a whole constrains the growth of other producers even as concern about the sustainability of Russian gas supply is growing.”

Poisoning the business air

There is no doubt the poisoning in London of former KGB officer Alexander Litvinenko, will further damage Western investor confidence in Russia. Not that there is much confidence to write home about anyhow, given the corruption, chicanery, dishonesty and downright criminality of some of the top sectors of Russian business under Vladimir Putin and the goons of the Kremlin, security services and oligarchies.

There is unprecedented interest in Russian companies raising money on the London Stock Exchange at present. A huge list of Russian companies – many coming from the energy sector such as Rosneft – have had full shares or depository receipts listed on the London Stock Exchange.

While we must wait to see who is responsible, this bizaare murder will add fuel to the smouldering fires of distrust in the western media about the rule of law in Russia and the activities of the Russian state.

Investors read more and more reports about Russia being an authoritarian state where opposition is stifled, and where the legal system is controlled by the government and used mainly for taking over cash generating companies.

The Organisation for Economic Co-operation and Development (OECD) this week criticized the Russian government for its expansion into important economic sectors. It also noted concerns about Gazprom the state-run energy company, and its insatiable appetite for acquiring assets.

The fact is, the Kremlin is more concerned about asserting its own political power than worrying about what foreign politicians or investors think.

Last week Putin said business in Russia has improved its sense of social responsibility, and that “business has become much more responsible than in the mid-1990s. The state, too, has toughened its response to businesses’ antisocial behavior.”

Pardon those of us trying to do honest business in Russia for spluttering in disbelief. There is an old saying the the fish rots from the head, and here we have the head speaking to us about business ethics, while the FSB is running around with its dirty tricks, implementing the Kremlin’s own antisocial policies of industrial grab, smash and burn.