King of the Hill
- By Georgy Bovt
- Jul. 31 2008 00:00
Putin's harsh criticisms on July 24 of the Mechel coal and steel company caused the value of its American Depositary Receipts to fall by 36 percent, or nearly $6 billion, on the New York Stock Exchange. Two days later, when Mechel's management admitted that it had been selling raw materials to overseas customers at half the price it charged on the domestic market -- precisely as Putin had claimed in his public rebuke -- its share price rebounded by 22 percent.
Few noticed that Putin's statements coincided with the ongoing speculation in both the liberal and conservative press about the possibility of former Yukos CEO Mikhail Khodorkovsky gaining an early release from prison. A hearing will be held in August to decide that question. It seems to me that Putin, among other things, was trying to send a signal that this is not the time to be soft on corruption from big business. I think the court will have to carefully consider the importance of Putin's message when it decides the Khodorkovsky case next month. In this sense, Putin's verbal assault against Mechel was well timed, and it reminded everyone that there are certain rules of the game governing the relationship between businesses and the state.
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Paradoxically, Mechel is one of main sponsors of the pro-Kremlin United Russia party, having contributed about 80 billion rubles ($3.4 billion) to its war chest. Moreover, it has never been singled out by the State Duma for "suspicious" activity, nor accused of supporting any nongovernmental organizations the Kremlin considers "undesirable." The fact that neither of these circumstances saved the company from Putin's withering attack demonstrates once again that one person alone determines the rules in the big game of Russian politics. It is also noteworthy in this context that Medvedev did not respond to Putin's comments with any corroborating evidence or accusations of his own against Mechel.
Another interesting aspect of the Mechel case concerns the departments that Putin instructed to investigate the company's alleged violations. Putin called on the Federal Anti-Monopoly Service and the Federal Inspection Service for Resource Usage to look into the matter -- both of which answer directly to the prime minister. But he also asked the Investigative Committee, which is under the president's jurisdiction, to get involved in the case.
Putin padded his remarks by saying that "maybe it would be worthwhile" for that agency to become involved. But his gesture to the Investigative Committee was probably intended as a show of support for the agency's embattled head, Alexander Bastrykin, who has come under fire by the Prosecutor General's Office and muckraking journalist and Duma Deputy Alexander Khinshtein, who has accused Bastrykin of illegally running a real estate business overseas.
Since Putin suggested that Bastrykin be entrusted with handling the important job of investigating Mechel's purported corporate crimes, this is another signal to Bastrykin's ill-wishers to back off.
In the coded language of the ruling elite, Putin's pronouncements against Mechel owner Igor Zyuzin carry two additional messages -- this is not the time to give Khodorkovsky an early release or to punish Bastrykin. Even if Putin did not intend either message, this is how his words will be interpreted.
We can draw a lot of important conclusions about Putin's power base based on how the Mechel affair turns out. If the investigation results in significant fines or even criminal proceedings, it will mean that the power-vertical model that Putin created over the last eight years remains unchanged.
If, however, Mechel's problems somehow blow over, this will probably mean that Putin's next tirade won't cost anyone anything near the $ 6 billion loss that Mechel had to swallow in one day.
Georgy Bovt is a political analyst and hosts a radio program on City-FM.