Russian billionaire Arkady Rotenberg (R) and Rosneft President Igor Sechin during the openings of the 2013 IIHF U18 World Junior Championship on April 18, 2013 in Sochi, Russia
Having grown rich on government contracts during the boom in Putin’s Russia, friends of the president (Arkady Rotenberg, a member of Putin’s tightening inner circle, and friends) are benefiting anew as times grow tough. Lucrative orders keep rolling in for the favored few even as western sanctions and a collapse in oil prices push the economy to the brink.
The development has polarized Russia’s oligarchy and pitted Putin’s small circle against less well-connected rivals in a battle for money and privilege.
Companies linked to Rotenberg and another Putin confidant, Gennady Timchenko -- both targeted by U.S. sanctions for their ties to the president -- are landing a growing amount of state contracts. Together, they have won at least 309 billion rubles of work since U.S. sanctions were imposed in March, filings show. That figure -- which works out to about $8.1 billion at the average exchange rate over the period -- is 12 percent more than they received in all of 2013.
A Rotenberg-affiliated company is also about to secure a 228-billion-ruble order to build a bridge to Crimea, which Russia annexed in March, according to a high-ranking government official, who spoke on the condition of anonymity because the contract hasn’t been officially awarded.
The contract totals are based on a review of hundreds of documents made public on the government portal for state tenders and the SPARK corporate database, as well as on individual company websites in Russia.
In all, companies linked to Rotenberg and Timchenko have received orders since March that are equivalent to more than a fifth of what the government spent on contracts in the first nine months of the year.
Rotenberg and Timchenko, both 62, stand to gain most from the 770-billion-ruble Power of Siberia pipeline as the main contractors to OAO Gazprom, the energy company Putin has built into an instrument of state-sponsored capitalism. Gazprom declined to comment on who will receive the pipeline contracts.
Their boon is coming at the expense of other oligarchs as the weak economy pressures Putin to reduce public spending.
Executives who are used to prospering from government ties complain privately they are being elbowed aside. One Russian billionaire said Rotenberg and Timchenko have all but cornered the market in government contracts. He spoke on the condition of anonymity to avoid jeopardizing his companies’ chances of winning business.
With Russian companies cut off from international financing, winners and losers are starting to emerge. In July, the government stripped Alfa Bank, controlled by billionaires Mikhail Fridman, German Khan and Alexey Kuzmichev, of its exclusive contract to service the country’s wholesale electricity market. That business is worth an estimated 4 billion rubles a year.
Instead the Market Council, an industry regulator, shifted the business to OAO Bank Rossiya, which the Obama administration has called the “personal bank” of Putin’s inner circle. Bank Rossiya, also a target of U.S. sanctions, is controlled by Yury Kovalchuk, another Putin associate who was singled out by the U.S.
State contracts aren’t the only source of government money. Igor Sechin and Vladimir Yakunin, who’ve known Putin since his days in the St. Petersburg mayor’s office, have sought tens of billions of dollars in aid for the state companies they command, OAO Rosneft, the country’s largest oil producer, and OAO Russian Railways. Both companies have turned to the $80 billion Wellbeing Fund, (RUWFUSD) which was designed to safeguard the nation’s pension system. Rosneft and Russian Railways say helping to finance their investment programs will benefit the broader economy.
For the connected, the money is still flowing. Rotenberg’s SMP Bank, which is barred from U.S. and European markets, in April got a 10-year state loan of about 100 billion rubles at a rate of 0.51 percent to rescue another lender, Mosoblbank, according to two people familiar with the matter. SMP said by e-mail that it’s been tasked with cutting costs at Mosoblbank and returning the lender to profitability.
That loan was “a huge deal” for SMP because long-term financing at less than 1 percent is “impossible” to get in Russia, Sovlink analyst Olga Belenkaya said.
By Henry Meyer, Ilya Arkhipov and Alan Katz: Bloomberg
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