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. Last Updated: 07/27/2016

Forestry Industry: Ripe for Carving Up

Now that the oil and metals industries have been divvied up, the forestry industry is a prime object for carving up. In terms of output volumes, the sector occupies fifth place in the country's gross domestic product. However, its managers are not among the ranks of the oligarchs and their "administrative resources" do not stretch very far. Furthermore, the sector is highly concentrated, with 10 plants accounting for 85 percent of output. Control of the four largest plants would be sufficient to become a virtual monopolist.

The first person to appreciate the potential of the forestry industry was Lev Chernoi. Energoprom, a group allied to him, controlled 30 percent of Ust-Ilimsk Forestry Plant, and Chernoi decided to buy out the whole business. However, Chernoi only had 30 percent of shares in Ust-Ilimsk and the owner of the controlling stake, Nikolai Makarov, refused to sell him the rest. Chernoi's group, therefore, chose to deal not with the owner but with the mayor of Ust-Ilim. In August, the plant was seized and the owners of the controlling stake were removed from managing the enterprise.

Makarov desperately cast about for help, which came in the form of Oleg Deripaska, owner of Siberian Aluminum and long-time Chernoi foe. Chernoi's people were sent packing from the plant. Makarov still had to sell his business, but to Deripaska, not Chernoi.

Take note. This was an outrageous attack. And did the state protect the businessman? No, quite the reverse, it supplied the instruments for the attack in the form of the courts and the mayor of Ust-Ilim. For protection from one oligarch the businessman turned to another. Thus, in failing to fulfil its basic functions, the state has begun to wither away, and the vacuum is filled by a system based on personal relations. Deripaska saves Makarov, but the quid pro quo is that he becomes a Deripaska vassal.

In this way SibAl acquired a new resource: managers with a good understanding of the forestry business. Then the group started to cast around for other targets and its gaze alighted on the neighboring Bratsk Forestry Plant. However, there was one small obstacle: The controlling stake in Bratsk belonged not to SibAl but to the Ilim Pulp group, headed by St. Petersburg businessman Zakhar Smushkin. This proved to be just a minor detail and SibAl gained control of the plant by using a minority shareholder suit to bankrupt it.

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Now Smushkin had to go looking for a protector, and another oligarch, Mikhail Khodorkovsky, entered the fray. He provided the Ilim Pulp holding with cash for the purchase of the Bratsk Pulp and Paper Plant and Ust-Ilimsk Pulp and Paper Plant. Smushkin paid a total of $200 million.

However, SibAl, now called Base Element, did not abandon its original plan to consolidate the industry. The managers of Syktyvkar Forestry Plant refused to sell out to Deripaska, and soon after a criminal case was opened against them for illegal privatization of the plant. In the media, an unprecedentedly aggressive campaign was launched against the owner of Arkhangelsk Pulp and Paper Plant, Vladimir Krupchak. Then came Smushkin's turn. In June, he was stripped of his controlling stake in Kotlas Pulp and Packaging Plant, following a complaint made by two minority shareholders.

The main means of economic exchange in this country is war. In these circumstances, it is pointless to blame someone for being a better shot.

What is really worrying is that the state is incapable of defending someone from an oligarch, while another oligarch can. The result is not consolidation of an industry -- let us not deceive ourselves with Western phrases. The result is vertically integrated fiefdoms: the only force capable of defending businessmen from arbitrary actions, whether by a health inspector or another oligarch.

The only thing is that when the victim of arbitrary actions is defended by the law, he preserves his freedom. When the victim is defended by another oligarch, he has no choice but to become a vassal.

Yulia Latynina is a journalist with ORT.