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. Last Updated: 07/27/2016

Oil Quota Reversal Linked to Korzhakov

Only three days after President Boris Yeltsin's chief security guard wrote a letter opposing liberalization of oil exports, Russia's cabinet backed away from a plan to abolish oil export quotas, Western and Russian officials said Thursday.

Major General Alexander Korzhakov, chief of the presidential security service, wrote a letter Nov. 30 to Prime Minister Viktor Chernomyrdin, warning him against the abolition of export quotas on oil, ordered by Yeltsin earlier this year. The Moscow Times has obtained a copy of the letter.

The Russian cabinet adopted a preliminary plan Dec. 2 to replace export quotas on oil by setting required levels of sales to the state and for the domestic market, according to Alexander Shokhin, who last month resigned as deputy prime minister in charge of trade. He said the plan is scheduled to take effect Jan. 1.

The International Monetary Fund and the World Bank, which had made a $600 million loan conditional on ending the quotas, criticized the decision as a de facto continuation of the export restrictions and warned that the loan, along with a $6 billion IMF credit, was in jeopardy.

"Nobody will say exactly how important this letter is. I think it was very important," a Western diplomat said, adding he had "put the odds at 50-50" that the cabinet would abolish the quotas.

The reported connection between Korzhakov's letter and the rollback on quotas lends credibility to recent suggestions by political insiders that the security chief wields major influence on Russian policy.

"Who is running the country? -- Yeltsin, Chernomyrdin or General Korzhakov?" the influential daily Izvestia asked in a frontpage headline. It added it was not clear whether Yeltsin had been aware of the letter, or whether the powerful Russian oil lobby was behind it."It's rather shocking," commented the Western diplomat. "It's a bad sign when someone like this is involved in economic policy."

The World Bank, supported by Economics Minister Yevgeny Yasin and Deputy Prime Minister Anatoly Chubais, has been pushing for abolition of oil export quotas and the freeing of domestic oil prices to end a complex system of restrictions, tariffs and exemptions that have prevented free trade and kept down Russia's oil export revenues.

Moreover, abolition of the quotas would encourage loans to develop the oil industry because the credits could be paid back with export revenues, economists say.

But opponents of the removal of quotas, including major oil exporters that now enjoy special privileges and tax breaks, have insisted that Russia's domestic market would be left without enough oil if exports were liberalized.

World Bank officials have said domestic production quotas would amount to the same thing as export quotas because they would determine the quantities left for export.

Korzhakov, whose experience is limited to the military and security, wrote that "the economy cannot be strengthened by foreign intervention in the raw materials sector, accounting for 60 percent of Russian exports."

Concluding these agreements will boost the dependence on foreign capital," he added, "raise export costs, roll back the development of domestic refining enterprises and consequently reduce the competitiveness of potential Russian exports."

This is absolutely impermissible," he wrote, occasionally using the term "we" as if to suggest he was speaking for Yeltsin.

But Shokhin said, "the Korzhakov letter did not seem a decisive factor in the introduction of domestic quotas."

"I don't really understand why he had to interfere with this process," Shokhin said in a telephone interview. "Even without the Korzhakov letter, the likelihood that the decision would have been made was very great, at least 90 percent."

Many cabinet members had fiercely objected to abolition of the export quotas for months, Shokhin said, adding that he had resigned because he felt he was losing control over economic policy and feared the abolition of the quotas would be canceled.

Shokhin would not comment on whether Korzhakov, charged only with safeguarding the president, had any ties to the oil industry that could explain his behavior.

The Western diplomat, however, said the content of the letter indicated that the policy change had not yet been decided when Shokhin resigned and added it demonstrated that the oil lobby was behind the move.

"If they were winning, why would they try to get this ally behind them?" The letter showed that Korzhakov had detailed information about the plan, he said, adding: "Someone was feeding information to this guy."

Shokhin, in remarks echoed by an official at the Foreign Trade Ministry, said the preliminary decision to impose domestic quotas, which reserve oil for state purchases, was unlikely to be changed.

He added that the decision would sharply reduce Russia's chances at ever receiving the World Bank loan.

"We will lose the loan," he said, adding that domestic quotas "are worse than export quotas."

"It's a return to the old Soviet practice," he said, "and it could set a trend for other industries."