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. Last Updated: 07/27/2016

THE ANALYST: Aksyonenko Railroads Russia's Magnificent Seven




Over the past six months -- since the government of Yevgeny Primakov was sent packing and Russia's economy was effectively placed into the hands of First Deputy Prime Minister Nikolai Aksyonenko - control over the nation's most powerful companies has shifted dramatically.


If Primakov and his economic team, led by former First Deputy Prime Minister Yury Maslyukov, largely left the nation's financial behemoths untouched, then Aksyonenko has unabashedly used all possible means to acquire them.


The logic is simple: He who controls what I like to call the Magnificent Seven monopolies - Gazprom, Unified Energy Systems, the Railways Ministry, Sberbank, Transneft, Svyazinvest and Rosvooruzheniye - controls Russia. Economically, financially and, most importantly, politically. With these gargantuan financial machines at one's back one can win just about any election in any country.


No one can say for sure which of the Magnificent Seven is potentially the most powerful, but judging by the fuss it raised over the summer, the Aksyonenko government apparently considers it to be Gazprom. The result: the gas monopoly now has a new chairman in Viktor Chernomyrdin, and Rem Vyakhirev has been humbled by vituperative attacks on both his performance and his son (also a Gazprom employee).


At UES, Aksyonenko fell short of his mission to remove CEO Anatoly Chubais. Still, Alexander Voloshin, chief of the presidential administration and the person who lobbied for Aksyonenko when the government of Sergei Stepashin was being formed, managed to get the chairmanship. Why the president's chief of staff, in this case a person who has no experience in the energy industry, was chosen to chair UES is a question that was never adequately addressed, and ultimately confirms the adage that the only economics in Russia is politics.


And the key to controlling the oil industry is Transneft. You can extract and refine all the oil you want, but if you can't get it through the pipeline, your business will mean nothing. For this reason the government, which realized that replacing management legally would take at least two months, went the extra mile to take over Transneft, violently executing a change in management in an armed siege.


The railroads, a $10 billion-per-year business and arguably the least transparent of the Magnificent Seven, were directly placed back into the first deputy prime minister's hands, thereby allowing Aksyonenko to return to the industry from whence he came. Not surprisingly, his first order of business at his old job was to have rates on both cargo and passenger trains raised.


Next, describing (accurately, if self-servingly) the state of the nation's telecommunications system as a "disgrace," Aksyonenko attacked Svyazinvest, and eventually had a new general director appointed. For although it is the financial weakling of the seven great monopolies, Svyazinvest does wield control over Rostelecom, the long-distance phone operator with annual revenues of up to $1 billion.


And though it is unclear what role Aksyonenko himself played in the change in management at Rosvooruzhniye, the state monopoly on arms exports, naturally the government could not allow its $3 billion to $4 billion annual sales in weaponry to be left unaccounted for. A new general director, therefore, was appointed.


Finally, there is Sberbank, where the fight for control has yet to reach its conclusion. However, last summer the government did decide to revamp the entire strategic concept of Sberbank, which controls over 80 percent of the retail banking market and boasts excellent short-term liquidity (perfect for an election campaign). As good as any, this was the shot signaling the start of a battle to be waged for the heart of Russia's No. 1 financial institution. But Sberbank, one must remember, is wholly subordinate to the Central Bank, and thus cannot be easily acquired.


That is why we are likely to see fresh attacks on Central Bank chairman Viktor Gerashchenko in the near future. After all, the greatest of all financial flows, greater than the Magnificent Seven, is the Central Bank. We all know what difference this bank can have in presidential campaigns.


To be sure, Aksyonenko couldn't have accomplished all this alone. Along with Voloshin and Fuel and Energy Minister Viktor Kalyuzhny, he was undoubtedly assisted by Boris Berezovsky and Roman Abramovich, the figurehead behind Sibneft. Those who doubt Aksyonenko's fondness for these two men should recall how, in one televised interview, the first deputy prime minister expressed admiration for Berezovsky, in particular for his political views. Then, in August, he praised Omsk Refinery, a subsidiary of Sibneft, saying it was the best in the industry (though apparently Sibneft directors don't think so - they recently sacked the entire upper management at the refinery).


In sum, Aksyonenko, true to his immediate background, has "railroaded" Russia's economy. Within six months, billions of dollars of financial flows have been relegated to his dominion, and the overall economic prosperity of Russia has been disregarded for the sake of the narrow ends of the few.