1990s Redux
Putin to Privatize Like It Was 1992

Last month, with low energy prices fast depleting the Kremlin’s coffers, Russian President Vladimir Putin announced that he was putting up seven state companies for privatization. The goal: with oil prices hovering near $34 a barrel, Moscow had to patch up an additional one trillion ruble hole in its annual budget, which was already running at a deficit. An earlier 10 percent cut in national expenditures (which spared pensions and civil servant salaries) wasn’t doing the trick. Putin reached for the family silver, but warned that this would not be a repeat of the 1990s free-for-all: “There shall be no sale of shares for a pittance or at knockdown prices,” he said at the time.

Well, with oil prices up a tad since then, the privatization scheme is nevertheless going through. And the big beneficiaries, surprise-surprise, are likely to be Putin’s business friends. The Financial Times has the scoop:

A childhood friend and judo sparring partner of Russian president Vladimir Putin is looking to buy half of the state’s controlling stake in airline monopoly Aeroflot, according to three people familiar with the issue.

Mr Putin is sympathetic to Arkady Rotenberg’s attempts to obtain a 25 per cent stake in Aeroflot, which currently has a total market value of Rbs69bn ($970m), two of the people said. Another person close to Aeroflot said management was aware of Mr Rotenberg’s ambitions. […]

Numerous formal hurdles remain to the privatisation process, and Mr Rotenberg could still decide not to pursue a stake.

But Mr Putin approves of Mr Rotenberg’s attempt to increase his influence over the air sector, according to a source knowledgeable about his efforts. “It’s entirely logical,” the person said. “They own the terminal, they own the runway, so why shouldn’t they own the planes flying there?”

Knock me down with a feather: the Kremlin indulging in corrupt practices? Putin’s cronies lining up to feed at the trough?

It’s true that there isn’t anything so surprising about any of these developments in and of themselves. But it does point to an emerging reality in Russia, which Karina Orlova outlined for TAI about a week ago:

There is a Russian saying that goes something like this: “Why is it impossible to share everything with everyone? Because there are too many of everyone and there is too little of everything.” When oil prices were well above $100 per barrel, as they had been for most of Putin’s reign, that saying was not strictly true for the elites: there was plenty for everyone to steal. But as oil prices continued to plummet—blowing through $100 in August 2014 and hitting the mid-forties in January 2015—the energy export-dependent Russian economy began to contract. The pie is shrinking, and there are fewer and fewer opportunities for elites to get their unfair share around. […]

There is a story that has been circulating around Moscow for some time now: After the West imposed sanctions on various firms and individuals surrounding Putin in 2014, the Rotenbergs let the President know that they were feeling real economic pain. Putin reassured them: “Don’t worry,” he said. “I will make up all your losses.”This conversation, if it really happened at all, would have coincided with crude oil prices starting their descent from highs of $110 per barrel. Today, oil is trading at around $30 per barrel, and the consequences of Russia’s various wars are contributing to the country’s economic pain. There is less and less of everything, but the number of people stealing is staying the same.

That’s a trend to watch: Putin has to keep his friends happy, especially those like Rotenberg who are currently feeling the pinch of Western sanctions directly. Will the theft privatization schemes get more and more brazen as Russia’s economy continues to contract? It’s quite possible.

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