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. Last Updated: 07/27/2016

Oil Magnates Attack Anti-Crisis Plan




Russia's biggest oil and gas companies took a bold but somewhat botched swing at the Kremlin on Wednesday, protesting in an open letter that Russia's fiscal austerity program will heap suffering and hardship upon industry and society.


Angered by President Boris Yeltsin's weekend veto of big tax breaks to the oil industry, the nation's eight largest energy companies lashed out at the austerity measures the government has pushed through in order to secure an emergency loan from international lending institutions.


"We think the irreversible social and economic consequences that could arise in the next two to three months will be a direct result of the government's actions," read a letter released to journalists at a morning news conference.


Deputy Prime Minister Boris Nemtsov and International Monetary Fund liaison Anatoly Chubais immediately chided the oil oligarchs, and by the end of the day, at least three of the letter's supposed signatories denied signing it.


The epistle marked an embarrassing and very public rift between the Kremlin and big business.


The two have traditionally enjoyed cozy relations, but Russia's financial strife and low world oil prices have caused friction. Threatened by looming financial chaos, the government has in the past week radically altered its tax laws to win favor with the International Monetary Fund and secure a $17.1 billion emergency loan.


In the flurry of legislative activity Russian oil companies managed to push a major cut in oil excise taxes through the lower and upper houses of parliament, but Yeltsin, unhappy with legislators' failure to support enough tax hikes, vetoed the tax break over the weekend.


Oil companies, suffering from severely depressed world oil prices, began pleading in January for a reduction in their tax burden. Most oil analysts agree Russian oil firms are taxed too severely, but Russian officials argue they can hardly afford to lose revenue from their biggest source of tax income as they struggle to feed the starved federal budget.


The proposed cut in the excise tax from 55 rubles ($8.9) per metric ton to 25 rubles would have cost the federal budget $1.5 billion per year, given that Russia's oil industry produces about 300 million metric tons annually.


In their letter, oil companies blamed the IMF for Russia's tough treatment of the oil industry.


"We are obliged to declare that the economic policies of international financial organizations toward the key sectors of industry are unreasonable and irresponsible," the letter said. "It deepens the crisis, aggravates the social situation and will lead to the bankruptcy of those few enterprises that are capable of working efficiently."


Chubais, just off the plane from Washington, where after a hard fight he won the approval of the IMF board for the loan agreement, offered a chilly reply to the oil companies.


"I don't agree with the theory of big business setting the political atmosphere of a country," Chubais said in a television interview.


The IMF on Monday agreed to issue the loan but knocked $800 million off the first installment to punish Russia for its failure to secure a comprehensive fiscal austerity program.


The open letter represented a sharp turnabout for Russia's top tycoons, who pledged their loyalty to Yeltsin and his fiscal policies in a June summit at the Kremlin. Six of the 10 financiers who at the time signed a letter supporting the president were leaders of the nation's biggest energy companies.


But since the March ouster of former Prime Minister Viktor Chernomyrdin, the oil oligarchs have felt increasingly isolated from politics, according to one political analyst.


"Under Chernomyrdin all of these questions were decided in a private manner, face to face," said Yury Korgunyuk, a scholar with the INDEM think tank. But with new Prime Minister Sergei Kiriyenko, "it doesn't work that way," he said.


Chernomyrdin, a former executive with natural gas monopoly Gazprom, was widely seen as a protector of the industry. Kiriyenko has taken a more neutral approach to Russian business.


There was confusion Wednesday as to whether the companies listed on the letter had actually signed it. A copy of the letter, obtained from oil company Sibneft, simply listed the oil companies' names without any signatures.


According to LUKoil, which organized the press conference at which the letter was released, it was approved by LUKoil itself, Sidanko, Yukos, Sibneft, Surgutneftegaz, Tyumen Oil Co., Eastern Oil Co. and Gazprom.


But three of the companies listed on the document -- Gazprom, Sidanko and Surgutneftegaz -- claimed they didn't sign it.


"You cannot manipulate Gazprom's name so brazenly," Gazprom chairman Rem Vyakhirev was quoted as saying by Interfax. The giant monopoly is walking a political tightrope with the federal government for the billions of dollars it owes in unpaid taxes.


A spokesman for Sidanko said he was uncertain whether the company had signed the letter. Sidanko is controlled by Vladimir Potanin's Uneximbank, which is seen as an ally of Chubais.


A spokesman for Surgutneftegaz, which is controlled by the low-profile Vladimir Bogdanov, said the company did not approve the criticism of Yeltsin's overall fiscal policy. "Our company took part in preparing recommendations" on oil excise tax cuts, spokesman Alexei Sukhadoyev said. "But the letter that came out -- we didn't sign that."


But a spokesman for LUKoil maintained that all eight companies had approved the text, though he couldn't say whether the letter had actually been sent to the president or prime minister.


Vyakhirev "didn't sign the letter but gave his approval in a telephone conversation yesterday," LUKoil spokesman Ivan Filippov said. And Sidanko's president "gave his signature," he added.


Nemtsov on Wednesday sounded a conciliatory note, saying the government could be ready to consider an excise tax reduction should legislators support additional budget reforms.


"If as a result of the August session of the State Duma our package of laws is passed, we will be ready to return to the question of lowering oil excise taxes," Interfax quoted Nemtsov as saying at a news conference.