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. Last Updated: 07/27/2016

THE ANALYST: Kalyuzhny Deserves Title of World's Worst Oil Minister




Many remember how Central Bank chairman Viktor Gerashchenko was once called "the world's worst central banker." Assuming this statement retains any semblance of truth, Gerashchenko should not take particular umbrage. For he is not alone. The last six months have shown us that beyond any doubt whatsoever the world's most awful energy minister is Viktor Kalyuzhny.


Since becoming the pointman in Russia's most vital sector in May, Fuel and Energy Minister Kalyuzhny has shown that he is a narrow-minded lobbyist, with no strategic conception for the industry. He also possesses a warped understanding of market economics and a complete disregard for both the rule of law and corporate culture.


Why on earth Prime Minister Vladimir Putin continues to tolerate such a minister is utterly baffling. If Kalyuzhny is allowed to continue running the nation's massive energy sector, Russia's economy is destined to incur injuries that will require years to heal.


The day he was appointed, Kalyuzhny openly flaunted his loyalty. One of his first actions was to sign an order granting Sibneft - the oil company controlled by Boris Berezovsky and Roman Abramovich - participation in the oil-for-food program in Iraq. True, this is not a diamond mine, but it nevertheless smacked of an expression of gratitude for those who helped propel him to the ministerial post.


The minister then tried to flex his muscles at Gazprom, complaining that the government had too little influence despite being far and away the firm's single biggest shareholder. But while he had a point, his methods were amatuerish to say the least.


At first the minister tried to alter the list of government nominees for the company's board, for which he was rebuffed by former Prime Minister Sergei Stepashin. When this attempt flopped, he demanded a new shareholders' meeting be conducted, on the basis that the government should have five - not four - representatives on Gazprom's board.


This was a great waste of energy and expense. First of all, any Gazprom general meeting requires massive financial and human effort to carry out. Second, having a single extra member on the board makes virtually no difference in how the behemoth is managed on a day-to-day basis. Tactical control over Gazprom is with the executive board, and if Kalyuzhny had bothered to figure that out, hewouldn't have wasted people's time and money.


Then there was Transneft. Suffice it to say that Kalyuzhny insolently broke the law and the company's charter when he single-handedly moved to oust company president Dmitry Savelyev and nominate someone more loyal to the Kremlin.


Kalyuzhny has also turned the Fuel and Energy Ministry into a laboratory of the bizarre. One infamous experiment was the idea of merging Gazprom and Unified Energy Systems. This scheme - which makes almost no economic or practical sense - probably was born in the brain of one Boris Berezovsky, who has long despised both Gazprom's Rem Vyakhirev and UES's Anatoly Chubais. By merging these two behemoths and making them subordinate to one ministry, Kalyuzhny basically would be able to do whatever he wanted in the economy.


Another impractical idea, just recently announced, envisions the creation of a central dispatching center for the distribution of oil, gas, and electricity. Virtually unrealizable, this second plan is essentially the same as the first: spin off Gazprom's pipeline system and UES's grid and then the ministry can dictate its will over these two independent monopolies.


When Kalyuzhny's plans do come to fruition, they usually fail to achieve their declared aims thanks to his inability to understand basic economics. The July cartel agreement with the 50 or so leading energy companies is a classic example. Here the minister gathered the nation's industrial elite and beseeched them to sign a pledge not to raise domestic fuel prices regardless of how the cost of a barrel on international markets was fluctuating.


One month later, in order to bring filling stations under control, Kalyuzhny suggested that all pumps be re-licensed and that independent operators either work "under the wing" of an oil major or kiss their stations good-bye. So much for competition.


In the end, Kalyuzhny's crowning glory - the one that epitomizes his lobbyist, arbitrary mentality - has been the bankruptcy and subsequent sale of Kondpetroleum and Chernogorneft. Though these two companies are truly bankrupt, Kalyuzhny, instead of presiding over a transparent, impartial process, has allowed one company - Tyumen Oil Co., or TNK - to set the tone and pace. In other words, what should have been a procedure of precedent has, under Minister Kalyuzhny's watch, become a premeditated, discriminatory asset redistribution.


When approached by BP Amoco, which stands to lose the most from these sales, all Kalyuzhny could propose was that BP hand over control of these two companies to the government. The minister's reasoning: the state could manage and thereby save the two faltering oil producers.


Considering the government's record, that is a very unattractive offer.