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News Analysis: Ulyukayev Arrest Could End Up Costing Russia Dearly

Aleksei Ulyukayev attends a hearing on bribery charges at a Moscow court on November 15.
Aleksei Ulyukayev attends a hearing on bribery charges at a Moscow court on November 15.

The arrest of Economic Development Minister Aleksei Ulyukayev -- the most senior official to face trial in post-Soviet Russia -- threatens to shake the country's political and economic structures to their foundations.

Moreover, while the particulars of the case relate to the controversial sale of a $5 billion chunk in one state-owned oil company to another, analysts suggest the real risk could be the government's planned selloff of a major share in the world's largest publicly traded oil company, Rosneft, and the fortunes of the Kremlin insider who runs it.

"The moral and psychological consequences will be similar to those that came with the arrest of [former oligarch Mikhail] Khodorkovsky in 2003," Valery Solovei, a political science professor at the Moscow State Institute of Foreign Relations (MGIMO), told RFE/RL in a reference to the exiled former Yukos oil CEO and Putin critic who spent a decade as Russia's best-known prisoner.

Ulyukayev was detained overnight on November 14-15 on suspicion of accepting a $2 million bribe in exchange for approving the state's sale of the Bashneft regional oil company to Rosneft, which is also controlled by the Russian state. President Vladimir Putin fired him on November 15, the Kremlin said, after a court ordered him placed under house arrest.

Rosneft is effectively controlled by Igor Sechin, a member of Putin's closest inner circle who is widely considered one of the most powerful people in Russia.

Putin said in September that the government hoped to bring in $11 billion with the sale of a 19.5 percent stake in Rosneft, which was to be overseen by Ulyukayev.

"It seems clear that this whole matter will, if not stop the privatization of Rosneft entirely, at least make it much more difficult," said Moscow-based political analyst Dmitry Oreshkin. "The privatization would, on the one hand, weaken Sechin's position as head of Rosneft and, on the other, help the government's economic managers to solve the budget-deficit problem."

Falling Revenues

Russia has seen budget revenues plummet amid a prolonged drop in global oil prices and economic woes brought on in part by Western sanctions over Moscow's seizure of Crimea from Ukraine and Russian countersanctions.

"After the latest events, it is perfectly obvious that there will be much fewer players who are willing to buy into Rosneft and defend their stockholder interests against Sechin," Oreshkin added. "So I am sure that the privatization of Rosneft will be postponed, if not entirely canceled."

Prosecutors were quick to state publicly that Rosneft was not under investigation and that the Bashneft privatization was not in question.

But Mikhail Krutikhin, a partner in the RusEnergy consulting firm, suggested that Ulyukayev's arrest was "a beautiful way out of an ugly situation" for Sechin that will "close the matter of a Rosneft deal."

Aleksei Ulyukayev (left) and Rosneft President and Chairman Igor Sechin earlier this year.
Aleksei Ulyukayev (left) and Rosneft President and Chairman Igor Sechin earlier this year.

​Unable to control the privatization, Krutikhin speculated, Rosneft could have come to see Ulyukayev's arrest as "Plan B."

Novaya Gazeta quoted unnamed law-enforcement sources as saying that Oleg Feoktistov, the head of security at Rosneft and a high-ranking Federal Security Service (FSB) officer who was seconded to the company, actively participated in the investigation against Ulyukayev.

Rosneft spokesman and longtime Kremlin-friendly state-television commentator Mikhail Leontiev told that the arrest of Ulyukayev was "excellent work" by the security services.

Rise Of The Siloviki?

More broadly, Ulyukayev's arrest could signal the ascendency of the so-called siloviki bloc -- shorthand for those connected with the security agencies and the military -- over relative liberals in the sphere of economic policy, said Solovei.

Ulyukayev, 60, was a member of the economic-reform team of 1990s acting Prime Minister Yegor Gaidar. He is considered an advocate of the liberalizing reforms -- including reducing the role of the state in the economy -- advocated by former Putin-era Finance Minister Aleksei Kudrin.

"Not many people realize that there is an alternative economic program that one might call 'moderately directed,'" Solovei told RFE/RL. He suggested that scheme was "being prepared with the support of the siloviki and the oil companies."

Solovei distinguished the siloviki program from the "fully directed," state-dominated economic model advocated by leftist presidential adviser Sergei Glazyev. That model, he argued, is a red herring, intended to make the siloviki proposals seem more moderate.

"Since the government liberals were standing in the way of the 'moderately directed' model, it would seem that they struck at the weakest link," Solovei said. "Ulyukayev does not have particular influence in this arena and doesn't have powerful connections."

'Preemptive Strike'

Moreover, Solovei cited unconfirmed speculation that Ulyukayev planned to resign in the near future over disputes with Finance Minister Anton Siluanov.

"They carried out a preemptive strike in order to show what happens to anyone who stands in their way or dreams of some sort of 'cursed liberal reform,'" he alleged.

Asked whether the arrest of Russia's economy minister could rattle foreign investors and darken the investment climate, Putin spokesman Dmitry Peskov said, "I don't think so," according to the TASS news agency.

"On the contrary," Peskov said, "understanding that the fight against corruption, irrespective of positions, is held on a regular and consequential basis, is an extra plus to the investment appeal of any country."

"It is absolutely clear that Russia's prestige and the investment climate will not be improved by this development," analyst Oreshkin said. "That is, the victories of administrative influence are achieved by sacrificing real economic growth. Under the current system of power, the most important people are those with their hands in the vault, rather than those who are concerned with making sure the vault is full."

Written by RFE/RL correspondent Robert Coalson based on reporting by RFE/RL Russian Service correspondents Valentin Baryshnikov and Lyubov Chizhova

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