Mr Putin Sells the Family Silver

6 mins. to read
Mr Putin Sells the Family Silver

On 01 February we learnt that Russia is planning to privatise seven major state-controlled companies.

They are: Aeroflot, the airline; Alrosa, the diamond miner; Rosneft, the oil major; Bashneft, an oil minor; Russian Railways (the most romantic railway company in the world, in my personal view); VTB, the state-wide retail bank; and Sovcomflot, the shipping concern. These are all huge and, as far as I can tell, well managed companies which generate massive cash flows and (with the possible exception of Russian Railways) healthy profits.

(Yes, many readers will associate Aeroflot with the bad old days of the Soviet Union when the stewardesses were all ex-USSR female shotput champions. I know this to be true because one of them karate-chopped me when, as a young adventurer, I complained, somewhere over Stavropol, that the mare’s milk was off. Yet I can assure you that these days, on all counts, on the London-Moscow route at least, Aeroflot compares very favourably with BA – and is invariably cheaper.)

It is has been widely asserted in the media (the FT amongst others) that this is part of some kind of desperate attempt to plug the hole in Russian state finances caused by the precipitous fall in the oil price over the last year.

Russia is now into a second year of recession, its economy having contracted by about four percent last year. Further, state finances have deteriorated because the state’s tax base is overwhelmingly reliant on oil revenues. Russian citizens pay a flat-tax, regardless of income, of just thirteen percent. That’s why my favourite actor, Gérard Depardieu, is now a Russian citizen. Corporation tax is modest. So the government is facing a serious budget deficit this year.

Privatisation is not new in Russia: you might say that it has been the consistent theme of state policy since the dissolution of the Soviet Union over Christmas 1991. But there have been no privatisations since Vladimir Putin returned as President in 2012. (Recall that the current Prime Minister, Dmitry Medvedev, was an interregnum President from 2008 to 2012.)

In Russia, privatisation is not of course without controversy. Many ordinary people associate it with the rise of the oligarchs in the 1990s: the hard men who seemed to come from nowhere to seize control of huge swaths of formerly state-owned assets. But if earlier privatisations were intended to re-structure an economy that was in transition from a planned to a market one, now their main purpose is to raise cash for the state. So Anton Siluanov, Russia’s Finance Minister, and George Osborne have a lot in common, then.

Mr Siluanov’s 2016 budget was conceived on the assumption of crude prices averaging US$50 per barrel – the price back in early November. Last year, lower oil prices drove taxes on oil and gas revenues down to 43 percent of total tax revenues. If the price of crude averages US$30 per barrel this year, according to Sberbank, that will fall to just 35 percent of total tax revenues.

The Russian government has already agreed to a ten percent expenditure cut which will save about Roubles 1 trillion (US$13 billion). But if oil remains at around US$30, they will need to find another Roubles 500 billion to one trillion even to attain their target three percent budget deficit.

In 2012, when Mr Putin swapped roles with Mr Medvedev, the government pledged to privatise stakes in a few state firms. But such plans have been delayed until now. On Monday, Mr Putin affirmed that the state must not lose control of strategic companies, and that shares would only sold to Russian-registered buyers. That leaves open the possibility that some Russia funds registered in Russia but effectively managed from London and elsewhere might be able to subscribe.

Mr Putin said that these assets must not be sold off cheap; but the fact is that the Russian market is cheap. The Moscow market, as measured by the Dow Jones Russia Index (in local currency) is only just up on the year; but has actually gone nowhere over ten years. Obviously, governments prefer to privatise state assets in a rising market – but market conditions are beyond their control, even in Mr Putin’s Russia.

One thing you can be sure of is that there will be no Russian investor roadshows in the City of London.


On 21 January a British (technically, English) Judicial Enquiry determined that Alexander Litvinenko was probably murdered in London in November 2006 on the direct orders of President Vladimir Putin.

Litvinenko was a former Russian FSB officer who defected. It is clear that he was fast-tracked for a British passport and was probably working for British intelligence. I don’t know about you, but I still regard Philby, Burgess, Maclean and Blunt as traitors to my country; you may be sure that most Russians regard Litvinenko as a traitor to theirs.

As a matter of fact, in my inexpert opinion, I very much doubt that Mr Putin approved the manner of Litvinenko’s death. Whatever you may think of him, Putin is not a chancer like the putative murderer, Lugovoi. He is, in a country where it is literally a spectator sport, a chess player. I simply can’t believe that he would have counselled the use of plutonium capsules (or whatever they were) – something simply too risky, messy and easily traceable.

There are many problays in history. Judas Iscariot probably tipped off the Jewish elders about Jesus for thirty pieces of silver – though I have never understood why, as the New Testament does not explain. (Perhaps we should hold a Judicial Enquiry.) Wicked old Richard III probably murdered the Princes in the Tower. (Though he still got a state-sponsored re-burial recently, befitting his status.) A French President whose statue can be found in central London probably ordered the assassination of Algerian rebel leaders during the Algerian War (1954-61). Incontrovertibly, President Obama ordered the extra-judicial killing of Osama bin Laden, and watched the snuff video of his end (with Hillary Clinton et al) in the Oval Office.

It is a strange country where matters of diplomacy and strategy are determined, not by the elected government, but by the media and the courts. The BBC and the mainstream British media have taken an increasingly anti-Russian tone in recent years, which at times I find almost racist. Most major countries have military-industrial complexes which tend to the right; in this country we have a media-judicial complex which gags for the left; and for them Putin is a bête noire.

You don’t have to like Mr Putin to understand that we have to do business with him. He is democratically elected President of Russia, and he is much more popular in his country than The Donald is in his. And, unlike The Donald, he is likely to be around for some time to come.

Thanks to Sir Robert Owen (the Chairman of the Judicial Enquiry) it is now diplomatically impossible for our PM to engage Mr Putin, even on the outskirts of a G-20 jamboree. Dialogue between Britain and Russia has now been curtailed. As one Russian diplomat recently said, it is impossible to imagine UK-Russia relations getting worse.

But last night (03 February, World War Three: Inside the War Room) BBC2 did just that. They showed a dramatised war game which ended with the Russians about to launch nuclear missiles on the UK.

Thanks, BBC. You can always be trusted to do the right thing. We look forward to your totally neutral coverage of the EU referendum.

And there I was looking forward to upgrades on Aeroflot because I was a shareholder; and instead, thanks to our judiciary and the BBC, I’ve now got to dig a nuclear bunker in this damp Kentish earth for me, my extended family and my dogs.

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