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Generational Dynamics Web Log for 19-Dec-04
After a week of high comedy, who the heck is Baikal?

Web Log - December, 2004

After a week of high comedy, who the heck is Baikal?

Baikal Finance Group, an unknown company with unknown backers, is the new owner of Yukos' principal asset, its Yuganskneftegaz subsidiary. after their $9.4 billion bid won at auction on Sunday.

Yukos is the Russian oil giant that President Vladimir Putin's government has been determined to nationalize for over a year. The game began when Yukos' CEO Mikhail Khodorkovsky announced that he was going to challenge Putin politically. Khodorkovsky was almost immediately jailed in October, 2003, and Sunday's auction completes the destruction of the company that Khodorkovsky once headed. It's not really a game for Khodorkovsky, however, since he's still in jail, and may never get out.

The bidding at the auction lasted just 10 minutes. The representatives of the company that expected to win, Gazprom, appeared shocked at being outbid by Baikal, but did not have the funding to top Baikal's bid. Gazprom is controlled by the Kremlin, so ownership by Gazprom would mean that the Kremlin had succeeded in nationalizing Yukos.

The auction was the climax of several days of high comedy. In an attempt to prevent the bankrupt Yukos from being auctioned off, Yukos' lawyers went to an American bankruptcy court in Houston, Texas (!!!!), to get the auction stopped. And the Houston court obliged, ordering the Russian government not to hold the auction on Sunday. The bankruptcy court's ruling was upheld on Saturday evening by an American federal appeals court.

Well, guess what? Russia held the auction anyway. But Gazprom didn't win, as expected. Baikal did, and no one knows who or what Baikal is.

The Houston court ruling did have one major impact: It meant that Deutsche Bank and other European banks that had been planning to finance Gazprom's bid announced that they were backing out since, even though a Russian court couldn't be bound by a Houston court, a European bank doing business in the U.S. could indeed suffer serious consequences.

So here's one possible explanation of what happened: The Houston court ruling may have forced the Kremlin to abandon acquisition plans by Gazprom, and move in a different direction. It's possible that Baikal is simply a front for the Kremlin, or perhaps for Gazprom. Either way, it's pretty certain that Putin has finally succeeded in getting his hands on Yukos.

From the point of view of Generational Dynamics, this is all part of a pattern where Putin is repeating the kinds of actions pursued by Nicolai Lenin, leading to the Bolshevik Revolution of 1917, and the ensuing decade-long civil war that killed tens of millions of people.

I find myself very impressed by Putin's ingenuity in nationalizing Yukos this past year. He could have simply ordered the company taken by force, but that would have infuriated the international community. Instead, he wove a complex web of tax assessements, regulatory rulings, and court suits. It took him a year to nationalize Yukos, but he did it with a veneer of legality that gave him plausible deniability. Analysts in international community have not really been fooled, but there's really nothing that they can point to as a "smoking gun" proof that the nationalization was illegal.

I get exactly the same feeling when I see what's happening in Ukraine. As we've previously said, there is no way that Putin is going to lose control of Ukraine's valuable resources, and allow Ukraine to become more closely allied with the European Union. Putin has lately been keeping quiet about Ukraine, and the country appears to be in a state of suspended animation, awaiting the December 26 runoff election. We'll be waiting to see what Putin will do if the election doesn't go his way. (19-Dec-04) Permanent Link
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Generational Dynamics Web Log for 19-Dec-04 After a week of high comedy, who the heck is Baikal?

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Generational Dynamics Web Log for 19-Dec-04
After a week of high comedy, who the heck is Baikal?