Saturday, March 19, 2005

Anatoly Chubais - politics of electricity

Yesterday, the Unidentified Gunmen attempted to kill Anatoly Chubais, former Russian cabinet minister and head of UES, the Russian electricity monopoly. Apparently there was an explosion by the roadside - funny how these things get around - followed by small arms. Chubais's bodyguards shot it out with the attackers and he survived.

It should never be any surprise that a Russian tycoon has plenty of people who want him dead, but Chubais is worth discussing in some detail. He was responsible, back at the end of the Soviet Union, for preparing a shock-therapy economic plan that foresaw the rapid privatisation of everything, preceded by the overnight termination of price controls. This procedure certainly achieved one of its goals - converting Russia out of communism - at the cost of truly massive social horrors. Over great tracts of Russia, the social and economic structure just vanished - the kolkhoz buses stopped calling, wages were no longer paid. The traffic lights weren't switched off, but it wasn't that far off.

Chubais's answer to who should own Russia's industry became a classic. "Speed is more important than accuracy" was the motto - what mattered was getting something that looked like capitalism at least installed. This meant that some truly evil things could happen without anyone noticing very much who wasn't directly affected. In many firms, the plan was that everyone would get vouchers. They would entitle you to either convert your voucher into shares in your firm, or swap it for shares in another. But if you are an oilfield fitter in some godforsaken Siberian driller camp and your wages aren't being paid, owning a few hundred shares in the refinery is a bit of an abstract concept. The reason why your wages weren't being paid, by the way, is in part because Chubais couldn't at this stage persuade the other CIS states not to let their new central banks issue rouble credits. As they proceeded to inflate like hell, Chubais then had the Russian central bank crank down the money supply to mop up the inflation - which put a liquidity squeeze on industry, but didn't stop the inflation because, after all, you could borrow from the other CIS states.

Now, Chelsea fans may wish to skip this paragraph, cowards that they are. Roman Abramovich got his start in business due to these linked phenomena. Basically, he borrowed a shedload of roubles. He got them because Russian banking was a tad wilder than your local HSBC manager at the time. He then went off to Siberia with his rouble s and travelled around the oil towns offering cash for the vouchers. Needless to say, anyone who had hung on and converted their voucher would have bee far better off - but they were hungry, so they accepted, and very quickly yer man had a controlling stake in what became Sibneft. Now, he of course had to do something about the debts he'd contracted. This is where the inflation played a role: by the time he got back from Siberia, his debts were worth peanuts, as was the cash he'd paid out to the oil drillers. He was now in the perfect position to be in a big inflation - sitting on a real asset, and one whose income stream is paid in hard currency too. So he became insanely rich.

Now, by the mid-90s, everyone was tiring of this kind of scam. It became painfully clear that Chubais was never going to be president, because around 70% of the public hated him in the blood. He settled for the directorship of United Energy Systems, the old Soviet national grid, and being joint kingmaker in the Kremlin. UES, you see, was more than just a really big public utility. Like the other kingmaker - Gazprom - it was also an arm of government power. One way of getting Russia's way in the "near abroad" and also internally was to give the people you like cheap gas and electricity; and if they pissed you off, to turn off the lights. This wasn't new: a crucial factor in holding the Soviet bloc together had always been the subsidised gas and oil the USSR pumped to its allies. (A question for future blogging - what role did the counter-oil shock of 1985 play in the break-up? Suddenly, central Europeans could get cheap fuel elsewhere.)

So - in conclusion, there is an endless queue of folk who have a motive to shoot the bugger and no shortage of means either. There is absolutely no reason to think of him as a "Western-leaning liberal reformer".

1 comment:

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