Wednesday, June 28, 2006

Putin's "managed democracy"

The Financial Times is running an article series on Russia and its emerging political structure, described as a corporate state in an earlier article by Neil Buckley. Here is the latest article in the series, "The pull of power: how nothing is left to chance in Putin's 'managed democracy'".

The focus on Russia comes at an interesting time. The upcoming G8 summit in St. Petersburg has been prefaced by verbal sparring between American and Russian leaders over the state of democracy in Russia. This week, former Russian prime minister Mikhail Kasyanov appealed to G8 nations to confront Russia on its drift from representative democracy.

Meanwhile, preparation for Rosneft's IPO has refocused attention on how the Russian oil company snatched its main asset, Yuganskneftgaz, from the wreckage of Yukos' tax battle with Russian authorities. From the Toronto Star:

In a filing to the U.K. Financial Services Authority released yesterday, Yukos said its Yuganskneftegaz unit had been "expropriated from Yukos by actions of the Russian state in proceedings which were contrary to Russian law ... and under unlawful proceedings, which would not be recognized or enforced by the English courts.''

"There is a serious risk that the offering of shares ... would constitute the offering for sale of criminal property," Yukos said

Rosneft has apparently outlined some of the concerns and risks surrounding its IPO in a prospectus filing, but some seasoned investors did not need the written warning before expressing disinterest. From a June 13 Reuters article:

Mark Mobius, a seasoned emerging markets fund manager who runs $30 billion of assets at Templeton, was sceptical of Rosneft's IPO and the valuation of more than $100 billion which some have given the company.

"I don't know what they're smoking," Mobius told Reuters. "Frankly, we're not interested at all. We just don't see any reason why we should be owning a company subject to legal disputes."

As articles in the Financial Times and The Independent have pointed out, suspicion over recent political and business dealings in Russia seem to point us back to the original phase of murky deals, in which Russia's first generation of oligarchs took control of highly prized assets following the Soviet Union's collapse.