Russia's new oligarchs
Financial Times - August 28th 2003
Andrew Jack's otherwise excellent article "In the reign of the new tsars" (August 25) failed to explain fully the increasing popular resentment of the power and wealth of the oligarchs.
When President Boris Yeltsin announced his privatisation programme 11 years ago, it was not widely appreciated in the west that he intended only the dud industries to be distributed via vouchers to the people while the most valuable assets would be auctioned off to his friends. Thus Mikhail Khodorkovsky, entirely legally and according to the rules of the day, was granted the right via his now defunct bank Menatep to organise the auction of 78 per cent of Yukos Oil.
Offering a bid of only $309.1m, he acquired 2 per cent of the world's oil reserves. It is alleged that Menatep even threw out a higher bid and still announced itself the winner. The company is now capitalised at more than $20bn and it is hard to believe that the massive value added is solely due to its good management since it was privatised. To his credit, Mr Khodorkovsky admitted, in a recent interview, that the privatisation rules were skewed.
Mr Jack also mentions in the oligarchs' favour their payment of "more taxes" but omits to mention the current indictment of Platon Lebedev, Yukos's billionaire co-owner, for tax evasion, accused of channelling Yukos's national profits through the Lesnoi preferential tax regime, designed by the federal government to encourage local investment in that underdeveloped region of Russia and not as a tax shield for what will be the world's fourth largest oil producer if its scheduled merger with Sibneft is allowed to proceed
Clearly, the revisiting of the privatisations of the early 1990s is a delicate matter; but if capitalism is to regain the respect of the Russian people, which is essential to the west if it is to remain as a stable trading partner and if the Communist party is to be contained, perhaps one solution would be for an expert commission, with international membership, to be set up by President Vladimir Putin to look at the true valuation of the state assets at the time of privatisation and then impose a one-off capital levy based on the difference between this and the purchase price, then declare the matter closed.
(Conservative, London Region)