Tatyana Stanovaya: «Why Did Sechin Need Ulyukayev’s Arrest? — Tatyana Stanovaya on Conflict Between Rosneft and Government» Carnegie.ru 17 Nov 16

Rosneft is one of the largest Russian companies and its head, Igor Sechin, is one of the most influential people in the country. Nevertheless, in recent years, many of the company’s decisions have encountered resistance from Russian ministers. The deal to purchase Bashneft, which took a year to go through, is just one examples of the manifestation of this conflict. Effectively, this is a clash between the weakest Russian Federation government in history, on the one hand, and a very influential corporation with siloviki sidekicks, on the other. Political analyst Tatyana Stanovaya debates the reasons for and consequences of this clash on the Carnegie Moscow Center’s website.

Economic Development Minister Aleksey Ulyukayev extorted a bribe, with threats, from Rosneft for assisting in the privatization of Bashneft, and Rosneft complained to the FSB about the minister. That is how events were presented to us. The largest oil company in Russia as the victim of a corrupt minister changing his position, probably depending on the size of the bribes offered. The problem is that it is possible to believe in the existence of a corrupt minister, but it is much harder to believe in money being extorted from Rosneft. Why Sechin needed Ulyukayev’s head is the main intrigue of the affair.

Liberators against Managers

Throughout 2016, we have seen work being completed on the construction of the FSB own security administration [USB], on whose initiative high-profile cases have been started against governors and mayors, and investigations directly or indirectly affecting heavyweights such as Yevgeniy Murov and Andrey Belyaninov (both lost their posts). The media have actively written about the work of the mysterious sixth department of the FSB own security administration, whose head until July 2016 was Ivan Tkachev.

In May, the process of the Economic Security Service [SEB] being taken over by the heads of the USB started – subdivisions, with which the USB supposedly had a competitive relationship. Sergey Korolev, a former head of the USB, became the head of the SEB. And Tkachev himself, who is ascribed the role of a new demiurge – a fighter of the corrupt regardless of their rank and merits – became head of the SEB K administration (banks and finance).

However, something unexpected then happened: the influential Gen Oleg Feoktistov, the deputy head of the USB, was sacked although it is he who had been tipped for the post of head of the USB – the most influential structure, and one that is essentially accountable to no-one. It soon became known that Feoktistov had moved to work as vice-president for security at Rosneft. Both Feoktistov and Tkachev were called «Sechin’s special forces» – siloviki particularly close to the head of Rosneft. Feoktistov’s appointment indirectly confirmed this.

Novaya Gazeta, citing its own sources (and the Russian Investigation Committee confirms this), is now reporting that it was Rosneft that initiated the case against Ulyukayev. Feoktistov collected the data, the newspaper wrote. Moreover, Tkachev, as the overseer of finance and banking activity, conducted the investigation.

Thus, Ulyukayev was added to this group’s list of cases – from the point of view of the defendant’s status, this is the FSB’s largest case. What do the proceedings involving Aleksandr Khoroshavin, Vyacheslav Gayzer, Nikita Belykh, Sergey Mikhalchenko, and Andrey Belyaninov have in common? Only the fact that their cases are being conducted by the FSB and the initiator of the prosecution is Igor Tkachev.

It is possible that the reasons for Ulyukayev’s arrest should not be sought in his own actions but in the actions of those who brought about his arrest. A division can be seen in the power vertical between two sectors: security agency and civilian. The chekists [security agency officials], having offered their services to Putin and received the conditional go-ahead for a purge, have started to form a political superstructure, an unofficial oversight body over the civilian administrative structure.

The news agencies have reported, citing their sources, that the FSB started investigating Ulyukayev more than a year ago, and permission to tap his conversations was obtained in the summer. Reports have also emerged that the FSB was tapping the heads of the Investigation Committee and the heads of the Economic Security Service. This is quite sufficient to assume that not only Ulyukayev was being tapped but also the other ministers, heads of state corporations, siloviki competitors, and the heads of the Presidential Staff.

After the start of the wars in Ukraine and Syria, the «security agency elite» in Russia began to pick up the levers of administration in the security sphere. The military consolidated their hold in the sphere of foreign policy, squeezing the diplomats out. In domestic policy, the security function in its broadest sense is monopolized by FSB generals linked politically to Sechin: first intra-corporate competition was neutralized, then the Investigation Committee was crushed.

Sechin and the FSB can be compared to a cable and electric current: the chekists are the charge, the energy; Sechin is the conductor who also determines the direction in which the current moves. Wartime and siege logic feed the legitimacy of the topic of security and its beneficiaries, which systematically and almost uncontrollably increases the tension in the system, and those who succeed in directing it correctly, gain new dividends. The security superstructure as a kind of safety device guarding the regime against internal vulnerability and provocations has been legitimized at the highest level, and it is particularly in demand in a situation where Putin is not in a position to deal with domestic policy. The scale is wrong. What price is he willing to pay for the effectiveness of this safety device? The same as for the stability of his regime.

But Was it Putin?

And it is against this backdrop that cooperation is being built between the weakest government in modern Russia and the most powerful and politically influential corporation – the company Rosneft. And let us now contemplate something that is hard to imagine: what if Putin did not give his direct and unequivocal consent to the sale of Bashneft to Rosneft? It seems that this scenario has been ruled out a priori as impossible. The sale of Bashneft is a political decision, and political decisions in the country are taken by just one man – the president.

But the Bashneft sale is shaky precisely because the deal did not get a public guarantee from the head of state. Putin distanced himself from it in every way he could in the public arena. You may recall that the president’s position was that «on the one hand» (Rosneft does not have the right to take part in the privatization), and «on the other hand» (officially, it is not actually a state company). The president himself, reading between the lines, was inclined to allow Rosneft to take part in the sale but he left the matter for the consideration of the Cabinet of Ministers. The president’s deliberate and, it would seem, provocative detachment could have been a sort of test for ministers.

At the end of September, the government unexpectedly changed its position. After a month had passed since the abandonment of the privatization, preparations for the sale of Bashneft were deblocked and Rosneft was allowed to take part. Less than two weeks later, Igor Sechin’s company completed the deal. A deal that «somewhat surprises» Putin, who explicitly admitted this on the VTB Kapital forum on 12 October.

Let us suppose that the government did not get direct and unequivocal instructions from Putin at all to sell Bashneft to Rosneft, and it was forced to make do with abstract advice along the lines of «do what is best for the budget». And Medvedev’s cabinet did what it thought best. Such a decision entirely suited Putin, however, the subject of the experiment, it seems, was not Bashneft but the government, which was taken for a ride on a merry-go-round, allowed first to defend a «normal privatization», and then pushed into an effective nationalization of Bashneft in Rosneft’s interests, if the latter is actually considered a state company. The striking flexibility and weakness of ministers in the Bashneft case, their willingness to abandon their previous position in an instant – that is one of the main results of the deal, a mechanism for self-abasement.

Wind Resistance

What is Rosneft’s main problem today in its relationship with the government? The company seemed to have got what it wanted even before Ulyukayev’s arrest. Bashneft was bought through an effectively constructed special operation, and a decision is being prepared on Rosneft buying back its own shares from Rosneftegaz. There was resistance, but it was overcome.

But let us now look at the situation from the other side. Rosneft has spent almost a year on getting the deal done. Putin, who did not wish to lobby directly and hard for the interests of Rosneft in the government, left Sechin to deal on his own with ministers, who did not mince words. Belousov called the sale of Bashneft to Rosneft «stupidity», Ulyukayev said that Rosneft was «an inappropriate buyer».

And this is just one item in the strained relations between the government and the oil company. Before this, there were a lot of other problematical areas: allowing private oil companies to develop the shelf, the seizure of Rosneftegaz’s dividends, the tax reform, the handover of a stake in energy companies to Rosneftegaz, and so on. For four years, Sechin accumulated dissatisfaction with ministers, probably irritated not so much by their stubbornness as their weakness.

Rosneft, burdened with huge debts and at the same time with a special state mission, has regularly met with resistance from ministers. There is neither ideology nor a desire to gain something here. Rosneft’s motives are to reduce the wind resistance – an integral part of a habitat where the government is a club of dull-witted idlers.

It is he, Igor Ivanovich Sechin, who is saving the Russian budget by overpaying with a 50 percent premium for Bashneft. It is he who spent months trying to breach virtual walls erected by ministerial bureaucrats, debating the market and reforms. The constant minor and irritating resistance could not help but evince the desire to strike once, so that they would think twice next time. Now that a minister has been detained in a Rosneft office, the company has acquired special status.

As Rosneft sees it, Ulyukayev could turn out to be the personification of the annoying government officials who Sechin has got tired of brushing aside. Let us now link the security resources he has at his disposal to the desire to put an end to this resistance once and for all. Right now, when Bashneft has been sold, when there is no longer anyone much to get in the way. And then there is also the crisis, which is aggravating confrontation within the elite.

Ulyukayev’s arrest is a consequence and not an end in itself. Moreover, the result of the proceedings is far from as easily manageable as it may seem at first glance. The privileged security agency superstructure that is gaining power over the civilian vertical has accumulated too much energy, under the weight of which it might collapse like a roof under the weight of snow. The security agency awning is putting pressure on the civilian institutions of governance, and there will be local collapses in various places. It is just that the Kremlin must understand that without new supports, it may sooner or later cover everyone, and this means that in the medium-term a big reform of the security services can be expected.


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