Russia Update: Putin Hands Bashkortostan Controlling Shares in Bashneft

June 22, 2015
Bashneft headquarters. Photo by TASS

Putin signed a decree giving a little more than 25% of the shares of Bashneft previously under federal ownership meaning Bashkortostan can block votes.

Welcome to our column, Russia Update, where we will be closely following day-to-day developments in Russia, including the Russian government’s foreign and domestic policies.

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Lecture by Blogger Oleg Kashin in Gorky Park Banned by Administration

A lecture in Gorky Park by blogger Oleg Kashin, planned by the online news site Yod as part of their “Mediaquest” to train young journalists, has been banned by park authorities, Yod and Novaya Gazeta have reported.

Yod said they had obtained permission to conduct the event, which involved various activities for beginning journalists, including hearing a lecture by Kashin. But the park administration then said Kashin was “provocative” and “is a person who should not be on the park grounds.”

Kashin, a famous blogger beaten and seriously injured in 2010 for his reporting, recently returned to Russia with his family after spending two years abroad.

Later Marina Li, PR director for Gorky Park, told Ekho Moskvy that the issue wasn’t in Kashin’s persona or his “provocatively-minded audience” but in the fact that Yod didn’t supply a list of participants to the park. Li also didn’t publicize the event, claiming that she hadn’t received a written request to do so.

Both Kashin and Li previously worked at Kommersant, although she declined to say whether she knew Kashin; Kashin in turn said he knew Li only slightly.

When Yod tried out other alternatives, such as Ekho Moskvy editor-in-chief Aleksey Venediktov and TV Rain host Kseniya Sobchak, Li said of Venediktov that he had a “damaged reputation” and Sobchak was “unsuitable.”

Last week another lecture in Gorky Park titled “Should New Mass Protests in Russia Be Anticipated?” by Irina Soboleva, a political scientist and author at Novaya Gazeta, was cancelled by the park administrator. At that time, Li told the BBC, “In the future lectures with a political tilt, with a politicized accent will not be held in the park.”

Thus her objections to the Yod event, while they seemed like technicalities, did seem to be based on the “objectionable” political content.

Gorky Park, one of the largest and most famous parks in Moscow, is where Russians gravitate in the summer for all kinds of activities. It is under the authority of the Department of Culture of the Moscow Mayor’s Office. This position was recently taken over by Aleksandr Kibovsky, who is chairman of the Moscow branch of the conservative Russian Military Historical Society.

— Catherine A. Fitzpatrick

Three Russian Organizations Declared ‘Foreign Agents’ Fined $5500 Each

Three organizations declared “foreign agents” recently have been fined 300,000 rubles each ($5,562) as a penalty.

Dynasty Foundation, headed by scientist and businessman Dmitry Yasin, was declared a foreign agent last month, along with an associated organization, Liberal Mission, and was fined 300,000 rubles. There are now at least 67 such organizations listed as “foreign agents” on the Ministry of Justice’s website; some have been forced to close.

The Tverskoy Court issued the ruling to fine the foundation under the law on organizations, which was amended in 2011 to compel any organization deemed to be engaged in unspecified “political activities” that received funding from abroad had to be registered and submit to further scrutiny.

Liberal Mission, headed by Yevgeny Yasin, which was funded by Dynasty Foundation, was also fined 300,000 rubles, although their grant was from Zimin’s own funds made from his telecommunications business in Russia, with international offices, not any foreign entity.

Yasin said he received two installments of a grant from Dynasty in rubles from an account in the Bahamas but that it was from Zimin’s own money.

Dront, an environmental group in Nizhny Novgorod was also fined 300,000 for failing to perform the extra reporting needed for “foreign agents”. Dront objected that they had not received any funding from abroad for more than a year.

— Catherine A. Fitzpatrick

Russia Has More Challenges In Store
Putin Returns Controlling Interest of More than 25% Shares in Bashneft to Bashkortostan

Putin signed a decree giving 38.13 million regular shares to Bashneft which were under federal ownership, which is a little more than a fourth of the voting shares, meaning Bashkortostan can block votes. Bashkortostan will also receive 6.28 privileged shares. The transfer is to be made within two months at no cost to Bashkortostan.

Last year, Vladimir Yevtushenkov of Sistema was put under house arrest when the government contested his past purchase of an interest in Bashneft, accusing him of fraud.  The case was compared to Putin’s confiscation of YUKOS and jailing of Mikhail Khodorkovsky, although on the opposite side of the political spectrum — Yevtushenko was said to be close to deposed Ukrainian president Viktor Yanukovych and to have helped the Russian-backed separatists.

But ultimately the case ended differently. Yevtushenkov didn’t contest the confiscation and cooperated with the government, ultimately saying he bore no grudges. There had been rumors that Bashneft would be given to Rosneft, which needed to make up shortfalls in revenue, but that did not happen.

Bashneft’s profits dropped by 18.4% in the first quarter of 2015 to 11.39 billion rubles ($211 million).

In an interview with RBC.ru, Bashkortostan’s leader Rustem Khamitov said that the transfer was being made in time to give out dividends by August and September. The funds were needed to compensate the expenses of the Ural Foundation, which is Bashneft’s philanthropic organization. The total amount of dividends is about 20 billion rubles, so the fund would get 5 billion. Bashneft will add in more to cover the whole budget.

Asked if there were plans to privatize the 25%-plus ownership after the market settled down,  Khamitov said there were no immediate plans, because the value of the shares would be significantly higher 3-5 years from now. Asked if that meant a time-table for sales, he said “never say never,” but there were no current plans to sell off the shares. He noted that Bashneft is discussing projects with companies in China and India, but not Europe due to sanctions. Currently the Austrian company Kronosplan is completing construction of a wood-working plant in June. Khamitov said the company opposed the sanctions and “is a supporter of our side.”

He also mentioned a project with Alstom which was sold to General Electric but which was now stalled until GE studied it further after the purchase. There are other European companies including Saint Gobain with projects.

RBC.ru pressed Khamitov, asking him if Western investors had been driven away from Bashkortostan by the sanctions and chilling of relations between Russia and the West, but he denied this, and said China and India were not replacements for Western investors. Bashkortostan is among the top 10 areas for investment in Russia, he said, and also in competition with Tatarstan for first place in Russia’s milk production.

RBC.ru also asked about plans to sell a petroleum chemical complex to Sistema, Yevtushenkov’s company. But when the shares were confiscated, Sistema backed out of the deal. He explained why it wasn’t sold to the company Sibur, either (translation by The Interpreter):

“Subjectivism. This is one of the problems of the modern market economy. If suddenly somebody doesn’t like someone, someone looked at them the wrong way or told an off joke, then there will be no deliveries of raw materials, even if the company is right across the fence.”

Khamitov denied charges of corruption in his company, which were set forth in an anonymous letter from Bashneft managers to the state energy ministry, Minenergo and the Prosecutor General’s office. He said there could be a struggle for power in the company (which would explain why some factions were claiming others were corrupt). Khamitov then gave some insights into the expectations that large state companies like this should dispense social welfare as they did in the Soviet-era company towns.


“This is my point of view: the company must be modern, successful, grow capitalization, receive additional revenues and work in the interests of shareholders. Therefore when I am asked: ‘But will you still burden Bashneft with additional social obligations? Another billion and still another billion’ I reply: ‘No.” It is much more important for us that the company be stable and competitive. And everything else is secondary. If there is some additional profit and from that profit a small piece goes to the republic, we will not refuse. But what we had in the early 2000s, when the company was still Bashkirian and provide free fuel and fertilizer and covered many social issues, that will not go on.”

Finally, RBC.ru asked Khamitov if he was the one that initiated the complaint against Sistema that started the inspections of the company. Khamatov said he was interested in the story “as a resident of the republic” but “in reality, of course, completely different forces were involved.”

Asked if that meant Rosneft, he said he couldn’t comment. He said he learned about the inspection of the past privatization in February 2014 from the media. RBC.ru pressed further, inquiring why such a long period of time went by after shares in Bashneft were sold before the government complained about the transaction. Wasn’t that a bad signal for investors?

He didn’t think so, but saw the confiscation and return as restoring legality, which he thought was a signal to investors that they must be honest. Khamatov denied that any investors complained, but instead claimed they saw the events as a restoration of justice.

— Catherine A. Fitzpatrick