Igor Sechin is an interesting phenomenon in modern Russia because he is both a politician and a businessman. He is Deputy Prime Minister of the Russian Federation, but he is also Chairman of the Board of Directors of Rosneft, the predominantly state-owned Russian oil company. Like the President of the Russian Federation, Dmitrii Medvedev, Sechin is a close associate of the Prime Minister of the Russian Federation, Vladimir Putin. Until he became President, Dmitrii Medvedev had been Chairman of the giant Russian gas company, Gazprom. Another important difference in the backgrounds of Sechin and Medvedev is that whereas Medvedev has a legal background, Sechin’s background is in diplomacy. A gifted linguist, he served in the Soviet era in Africa as a translator for Soviet diplomats in Angola and Mozambique, countries which during the 1980s were fronts in the Cold War. He may in fact have been a translator for Russian military intelligence.
Conflict of interest
Igor Sechin is at the centre of one of the most important developments in modern Russia. In the 1990s the oligarchs, men like Boris Berezovskii, were genuinely powerful people. They had come from outside the state apparatus, but through their acquisition of banks, oil companies and newspapers they acquired an influence over the government. Under Vladimir Putin, the political climate changed. In the Russia of Putin, big business is at the mercy of the state and the big prizes now go to those, like Sechin, with a background in government service. There is an obvious conflict of interest in Igor Sechin’s position. Sechin’s political role means that he has loyalties and obligations to people outside the company of which he is chairman. At the same time, as long as he is Chairman of the Board of Rosneft, he cannot be expected to be a disinterested Deputy Prime Minister. According to the Kremlin’s website, helping coordinate government policy on energy and industry comes into Sechin’s sphere of responsibilities. However, given his dual role, he can hardly be relied on to ensure a ‘level playing-field’ in Russia’s energy sector, and his natural adversaries in the Russian government include figures like the President himself who are specially associated with Gazprom. But in theory, the President and the Deputy Prime Minister are united by their loyalty and obligations to Putin, to whom they both owe their careers. Sechin and Putin have worked closely for many years, and by all accounts Sechin is devoted to him.
The Khodorkovsky affair
Sechin has been the winner in this large-scale transfer of property away from the private sector and back to Russia’s traditional ruling class, the bureaucracy and the secret police. The big loser was Mikhail Khodorkovsky, now in prison in Siberia. The story of Mikhail Khodorkovksy and his oil company Yukos is very involved. For a variety of reasons to do with the direction in which Khodorkovsky was taking the company and with Khodorkovsky’s political ambitions, Khodorkovksy became Putin’s enemy. Khodorkovsky wanted to turn Yukos into an oil major that could deal on equal terms with the big American oil companies. Putin wanted the Russian state to be in control of Russian natural resources so as to add to Russia’s clout on the international stage. Under President Yeltsin, Russian tax law had been very confused, and the line between tax avoidance and tax evasion was unclear. So, while tax fraud was not the reason for Putin’s hostility to Khodorkovsky, the Kremlin found it very convenient as a pretext for ruining the oil baron and confiscating his wealth. The trial of Khodorkovsky, as is clear from Valerii Paniushkin’s book, was a parody of justice. The imprisonment of the tycoon inaugurated a new era of large-scale transfer of assets into public ownership. Sechin became Chairman of Rosneft in 2004 and Khodorkovsky was sentenced to jail the following year. Throughout Putin’s presidency Sechin continued to serve as Putin’s aide in the presidential administration. By 2007, Sechin’s company, Rosneft, eventually acquired the bulk of Yukos’s assets. Indeed, Khodorkovsky believes Sechin egged Putin on to destroy him and the company out of greed, though deference to his master’s wishes was probably just as powerful a motive. Incidentally, Sechin’s daughter is married to the son of Vladimir Ustinov, the Russian prosecutor who was involved in the Yukos case.
A centrifugal force
The Khodorkovsky affair demonstrated to everyone that Putin and his ‘strong men’ from the KGB, the ‘siloviki’, would now be writing the rule book for Russian business. Bishop Stubbs’s description of later medieval England as an era of “bastard feudalism” came under subsequent criticism from medievalists, but the term seems entirely appropriate to describe the Russia of Putin and Sechin. A clan or gang has a gang-leader. The gang-leader has carved out a network of supporters from within a bureaucratic hierarchy. (In Russian business, the letters KGB are now thought of as a much more valuable qualification than the letters MBA.) The gang-leader retains the loyalty and support of the group because he has a grip on the apparatus of state, and therefore can reward his ‘tail’ of clients. A hundred friends are worth far more than a hundred roubles. An influential bureaucrat will shake down a private company, or even break it up, for the benefit of his friends and relatives, or to reward the business rival of the target company. This system has some disturbing implications for modern Russia. Through state contacts and state collusion, it is possible to do over a business rival and advance one’s position. But the mechanism of intrigue and judicial manipulation can be turned against oneself at any time by one of one’s own rivals. The new generation of Russian businessmen has profited from the ruin of their predecessors; but unless they constantly strive to win the favour and approval of Sechin and his ilk, they can never be sure of avoiding exile or imprisonment in their turn. By definition, an arbitrary and capricious government undermines respect for the law and thereby weakens the authority of the state. Sechin is widely suspected to be behind the hounding of the oil baron Mikhail Gutseriev last year; his business, Russneft, was then sold to a businessman with close ties to the Kremlin, Oleg Deripaska. But Sechin has been implicated in infighting which has led to the arrests of people within the state apparatus as well as outside it, including, last year, a senior official in the Ministry of Finance, Sergei Storchak. The factional rivalry even with the circles of the siloviki is very bitter: although, given the amount of money at stake, this is perhaps to be expected.
Velvet reprivatisation
If the Czech Republic experienced a ‘velvet revolution’, Putin’s Russia has enjoyed a ‘velvet reprivatisation’, the description by the Russian official and businessman, Oleg Shvartsman of the strong-arm tactics used under Sechin to reassert state control in the energy sector. In an interview with Kommersant newspaper from 2007, Oleg Shvartsman claimed to be in charge of a developing organization called ‘Social Investments’. The organization, according to Mr Shvartsman, resembled a “vacuum cleaner” that “gathers assets into a structure that will later become a state corporation”. According to Shvartsman, velvet reprivatisation is not the same as corporate raiding, but it does involve minimising the market worth of the target enterprise through various instruments, “voluntary-coercive methods”, like blocking its growth “with all kinds of administrative stuff”. He added that he has an army of officials who are ready to oust owners disloyal to the authorities through the use of greenmailing or legal action by minority shareholders. The interview adds that Sechin, who gives the orders, runs an outfit of 600,000 people “with fuck all else to do who are looking for ways to make some money.” No one with the level of influence Shvartsman claims would ever talk like this, so the interview has to be taken with a pinch of salt. Possibly, it represents an attempt to embarrass Sechin by Gazprom. Although Shvartsman is a boastful man, inclined to exaggerate his own importance, his picture of heavy-handed state interference in private enterprise cannot simply be ignored.
Foreign investment
If Russian-owned assets get hoovered up by this ‘vacuum cleaner’, it is hardly surprising that foreign-owned assets should suffer the same fate. Shell and BP have already had to scale back their holdings in Russia in order to please the Kremlin. In the energy sector, what ‘velvet reprivatisation’ often means in practice is that a state company gets hold of the assets of a private company, and foreign investors are then given the opportunity to invest in the enlarged state company. Shell and BP’s losses in Russia have been Gazprom’s gains, and today non-Russians are happy to buy shares in Gazprom. The response of the CEOs of Shell and BP, Jeroen van der Veer and Tony Hayward, to Kremlin pressure has been to put a brave face on it and try to cut the best deal they can with the authorities, but it is clear that their status in Putin’s Russia is no higher than that of the hired help: in an era of dwindling oil reserves, they need Russia much more than Russia needs them. BP is now in a delicate position. In 2007 it attended, and therefore legitimised, the auction of some of Yukos’s assets to Rosneft in proceedings that appear to have been a foregone conclusion. BP also has a 1 per cent stake in Rosneft. This investment, dating from the 2006 IPO of Rosneft, has, according to BP’s CEO, Tony Hayward, been “really successful”. Tony Hayward attended the Rosneft AGM where he called in that very same speech for “respect for property rights” and “the consistent application of the rule of law”. Ever diplomatic, he also stated his “confidence in” and “respect for” Rosneft’s management, whom he knew “very well”. BP is likely to lose part or all of its joint-venture in Russia, BP-TNK. BP is in dispute with its Russian partners, and administrative difficulties with the Russian authorities have impeded its work. Sadly, the quarrels have overshadowed BP’s genuine technical achievements and its efforts to be a socially responsible employer. Reportedly, BP’s leadership was actually pliant and familiar with the rules of the game in Russia, so that the solution to the dispute with its partners it had been working on was to sideline them by throwing itself on the mercy of Gazprom. If so, this cannot have endeared BP to Igor Sechin, who no doubt wants BP-TNK’s assets to go to Rosneft.
Nationalism and foreign policy
Igor Sechin is noted for his hard-line views on foreign policy and is hostile to the West. Like Vladimir Putin, and like many of his fellow countrymen, he wants Russia to be more powerful and respected around the world. In August of this year he visited Cuba on a Russian mission to strengthen ties with the Castro regime. Sechin was never a professional oilman before he got the job at Rosneft, and yet it is hard to believe that he was once any sort of professional diplomat, given the way he treated Havana. He warned the United States that Russia was going to step up its military presence on Cuba, but he failed to discuss the matter with Castro first, causing unnecessary offence to the Cuban government as a result. Both Sechin’s attitudes and his clumsiness are likely to make Russia harder for Europe and the United States to deal with. But for the West there is also cause for concern about the disunity that Sechin can create within the Russian government. In a veiled attack on Sechin’s influence, the secret policeman Viktor Cherkesov publicly condemned the clan feuding within the secret police, warning that it might make Russia dangerously unstable. The murky internal rivalries within the Russian government make its foreign policy harder to predict. However, these rivalries may be not entirely to the West’s disadvantage. Although Putin and Sechin want energy to be a means for Russia to assert its power, Gazprom and Rosneft are competitors, making it harder for Sechin to coordinate Russia’s energy strategy in a way that maximises Russia’s advantages in its dealings with Europe. For the sake of Rosneft, which has large gas reserves, Sechin is now trying to break Gazprom’s monopoly control of Russia’s gas pipelines, something which, if it encourages Gazprom to become more efficient, may even result in cheaper gas for Russia’s European customers. Tony Hayward observed at the Rosneft AGM that energy security is now at the top of everyone’s agenda. Energy dealings with the EU are part of Sechin’s remit, and one way or another, Europe’s energy security is something on which Igor Sechin will have a considerable impact over the coming years.
Written for Hii Dunia by Joseph Altham