PUTIN’S ATTACK ON MECHEL – ANOTHER SILOVIKI POWER PLAY?

Prime Minister Vladimir Putin last week accused the Russian coal and steel producer Mechel of price-fixing and made a veiled threat against the company’s owner, Igor Zyuzin. Critics say Putin’s comments, which caused the value of Mechel’s shares to plummet 33 percent, show that despite the optimism that greeted President Dmitry Medvedev’s promises to combat “legal nihilism” and institute the rule of law, Putin and the siloviki hardliners in his cabinet continue to lord over the Russian economy.

In a meeting with metals tycoons in Nizhny Novgorod on July 24, Putin accused Mechel of selling coking coal, one of the materials used in steelmaking, to domestic customers at double the price it was selling it for abroad, and said the Federal Anti-Monopoly Service and perhaps even the Investigative Committee at the Prosecutor General’s Office should look into Mechel’s pricing policies. Putin also commented on the absence of Zyuzin, who was reportedly hospitalized with heart problems on July 23 after being invited to the meeting. “The director has been invited, and he suddenly became ill,” Putin said. “Of course, illness is illness, but I think he should get well as soon as possible. Otherwise, we will have to send him a doctor and clean up all the problems” (Moscow Times, July 25, 28).

As the Moscow Times reported, some analysts believe Putin’s demarche may have reflected the unhappiness of Mechel’s competitors over its policy of selling most of its output on the spot market rather than signing long-term supply contracts. The newspaper quoted analysts as saying that one or more of Mechel’s competitors, such as Novolipetsk Steel, majority-owned by Vladimir Lisin, could have urged Putin to express his displeasure. Speaking in Nizhny Novgorod following the July 24 meeting, Lisin told reporters that the pricing policies referred to by Putin were “an isolated case … when someone strays from the generally accepted lines of behavior for the market or business community” and that Mechel would be fine “if it behaves correctly on the market.” Mechel also supplies coal to the Magnitogorsk Metallurgical Plant, among others. Sergei Markov, a United Russia State Duma deputy, told the English-language newspaper that the metals tycoons had complained about Mechel’s behavior to Deputy Prime Minister Igor Sechin, who oversees industry and the energy sector, and that Sechin had brought the problem to Putin’s attention.

Some analysts have suggested Putin’s verbal assault on Mechel and its owner were part of a broader campaign by the siloviki to seize total control over the commanding heights of the Russian economy. That campaign began with the assault on Mikhail Khodorkovsky’s Yukos oil company, whose assets ended up in the hands of Rosneft, the state oil company whose board Sechin chairs. Many observers believe that the travails of TNK-BP, the Anglo-Russian oil joint venture whose CEO, Robert Dudley, recently left Russia amid visa problems, are also a result of this campaign. Indeed, it is widely believed that TNK-BP’s Russian partners are trying to force the British oil major out and that the joint venture will eventually end up in the hands either of Rosneft or the state-controlled energy giant Gazprom.

“The essence of the problem is that as a result of complaints by the owners of the Magnitogorsk and Novolipetsk combines, the FSB [Federal Security Service] has started determining how much coal should cost on the Russian market,” said journalist Yulia Latynina. “Igor Ivanovich Sechin shared his thoughts about FSB price formation with Vladimir Vladimirovich Putin, after which Vladimir Vladimirovich Putin promised to send a doctor to Zyuzin … In contrast to Mikhail Khodorkovsky, who will have to prove in court that the bad Sechin and the bad Putin don’t like him, nothing needs to be proven in the case of Mechel. Putin’s words can be regarded as a direct threat to the company, and one delivered in a tone that leaves no doubt about its illegality. In point of fact, it was a gangster’s threat. It’s the tone in which a gangster speaks to a merchant under his ‘roof,’ not the tone in which a prime minister speaks to the head of a company” (www.grani.ru, July 25).

Union of Right Forces (SPS) leader Nikita Belykh said he doubted that Putin, in verbally targeting Mechel, was acting in the interests of a competing company, but simply wanted to show who is boss and that “there are no untouchables not only in the oil or energy sphere, but also in others, including the metallurgical sphere.” However, Vladimir Pribylovsky of the Panorama think-tank suggested otherwise. “I think that offshore companies in the British Virgin Islands controlled by Putin’s friends are now in earnest buying up Zyuzin’s assets,” he said. “It is strictly commercial operation in the framework of Kremlin, Inc. Tribute is no longer enough for them; they want to take everything into ownership” (www.grani.ru, July 25).

Against this backdrop, it is worth noting that President Medvedev earlier this month approved the transfer of the state’s assets in 426 companies to Russian Technologies, the giant state corporation headed by Sergei Chemezov, who served with Putin in the KGB in Dresden, East Germany, in the 1980s (see EDM, July 16).