Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

INSIDE RUSSIA: Monopolists Prepare for High Noon




As Russia's banks continue to feed off the budget in a game of no rules, the companies that sustain that budget f the national gas supplier Gazprom and Unified Energy Systems of Russia f have now attempted to halt the unwinding flywheel of inflation.


In a joint statement, three natural monopolists have undertaken not to raise tariffs any further unless agreed otherwise. Admittedly, only Gazprom and Unified Energy Systems are proceeding along genuinely altruistic lines, since the contribution of the third, the Railways Ministry, consists entirely in leaning on its own suppliers for concessions. All those that refuse to play ball are threatened with rail tariffs calculated in dollars. Following the ruble devaluation Aug. 17, for example, the Magnitogorsk Iron and Steel Works reduced the cost of its supplies to the ministry by 15 percent.


So what happened? After all, it was the two joint stock companies that first tensioned that inflationary flywheel between 1991 and 1995.


The government's combined debts to the two companies of 31 billion rubles ($2 billion) goes a long way to explaining this turnaround. If they were to raise tariffs, inflation will run away and the value of this debt will melt away like an icicle in spring.


It is also likely that as a major exporter to world markets, Gazprom regards its domestic supply obligations as an irritating but unavoidable payment for the right to work the natural riches that lie beneath Russia. In this context, what does it matter to Gazprom at which rate it is not being paid for supplying gas at home?


But the true, sobering motivation behind the monopolists' announcement can be found elsewhere. Their offer came after a number of regional governors followed the lead of the boss of the Krasnoyarsk region, Alexander Lebed, and prohibited any price increases on the monopolists' products. Although governors do not have any formal means of implementing such measures, informally they have many. It is enough to simply demand that the local monopolist enterprise pay its taxes to the regional budget in full and in money, not in kind. Within two months it will be bankrupt.


The governors have moved against Gazprom because it is a more serious centralizing force in the country than the government itself. Russia's main ruling class, the notorious group of seven bankers, has been steadily dying off since Aug. 17. Their shoes will not remain empty for long, however, and in the next six months it should become clear who will assume the role of main financial parasite (or, put another way, who will keep the government on its feet).


At the moment, there are three claimants to the vacancy: the former Soviet enterprise directors, the governors, and the natural monopolies. But regardless of whether the Primakov-Maslyukov government is willing to serve the directors, the real struggle for influence will clearly unfold between the governors and the natural monopolists. In their efforts to build a confederation, the governors will not so much try to usurp the functions of central power as they will the right to control regional monopolies.


It's difficult to say what form of death the monopolies will opt for: Freezing tariffs implies their economic demise, while increasing tariffs will incur a populist onslaught by the governors.


Yet one thing is certain; they will resist the governors far more bitterly than the long-since capitulated government ever did.