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‘Unidentified Shareholders’: the Impact of Oil Companies on the Banking Sector in Russia

2005; Routledge; Volume: 57; Issue: 3 Linguagem: Inglês

10.1080/09668130500073506

1465-3427

Anastasia Gnezditskaia,

Global Financial Crisis and Policies

Click to increase image sizeClick to decrease image size Notes I would like to thank Michael Shafer and Juliet Johnson for research assistance and Robert Kaufman for his valuable comments and helpful suggestions on this article. Research for this article was supported by the Central European University (CEU) and Rutgers University. The opinions expressed herein are the author's own and do not necessarily express the views of CEU. See for example Aris (2001). I use the terms ‘oil economy’ and ‘mineral economy’ interchangeably, because Russian banks are strongly involved with all the enterprises engaged in mineral extraction in Russia, though oil enterprises having the most outstanding influence. Petrostate theory asserts that developmental prospects of states are shaped by oil as the leading sector of their economy and analyses the ways in which this happens. Petrostate theory is an oil sector-focused part of a more general sectoral analysis which deals with the role of economic sectors in states' fortunes. Euromoney, 1 January 2001. Solntsev & Khromov (Citation2002), p. 25. According to Matovnikov (Citation2001), 43% of all loans extended by banks in Russia are connected. Other data supplied by him show that two thirds of the largest Russian banks have more than 50% of the loans in their loan portfolio extended to one borrower or to a group of connected borrowers. CBR data show that among the top 100 Russian banks loans to banks' shareholders constitute 13.8% of the entire banks' capital (www.cbr.ru). Apparently, the majority of these loans is extended in violation of CBR regulation. Another indicator is the amount of subsidised loans to connected parties, which in the Russian banking system equals 45% of the entire loan portfolio. Mikhail Matovnikov, ‘Problema karmannykh bankov’, 2001, http://matov.narod.ru/reform.htm#POCKET. M. Matovnikov, ‘Kaznachei, a ne kreditory’, 2001 www.matov.narod.ru. Even Gazprombank, the leading pocket bank in Russia, has announced a plan to become ‘universal’, in particular by expanding retail activities and diversifying its clients (Vedomosti, 1 May 2002, interview with Yurii Lvov, head of the bank's management). Andrukovich, Kraskov & Lepetikov (Citation2002), pp. 101 – 102. According to the news issue available from http://english.pravda.ru/economics/2003/01/30/42754.html , ‘Russian Industry and Science Minister Ilya Klebanov has pointed out that during some years, products of the fuel and energy industry and the metal industry made up about 70% of the total value of exports. In 2002 the proportion of products by the fuel and energy industry in exports reached 56%, the corresponding figure for the ferrous and non-ferrous metal industry was 15%, whereas the share of machines and equipment was 7.7%; the corresponding figure for the chemical industry was 6.5%, and the share of the timber industry and the pulp and paper industry together reached 4.9%’. Grayson (2003). One of the largest Russian banks, Alfa, was created by employees of Sovfintrade—the institution that dealt with securities trade under the USSR; hence the bank's ability to exploit numerous profit opportunities at the beginning of the 1990s related to Soviet foreign debt trading. In 1997 Alfa-bank was the key participant in Eurobonds placement by the government of the Russian Federation and the city of Moscow. Another part of Sovfintrade became one of the pocket banks of Gazprom (Pappe, Citation2000, p. 165). See Allan (Citation2002). See Alexeev (Citation1999). Hill (Citation2002) describes this as follows: ‘In 2001 oil companies boosted production and expanded their international reach. Russian companies are drilling for oil in Algeria, Sudan and Libya. In 2000 LUKoil acquired a chain of gas stations along a stretch of the American East Coast and planned to strengthen its position in the United States by refining crude oil. In Eastern Europe, LUKoil acquired refineries in Ukraine, Romania and Bulgaria; and YUKOS purchased a major stake in Transpetrol, a Slovak crude pipeline operator. New regulatory instruments and fixed tax rates implemented by the Putin government in 2001 greatly improved the investment climate for international operators. In October 2001 Exxon Mobil announced a five-year $4 billion commitment—Russia's largest single foreign investment to date—to its projects in Sakhalin, Russia's energy-rich island in the North Pacific. By the end of 2001 Russia was becoming a real international energy player. New stretches of export pipelines had been completed, and a new Russian oil terminal was operating on the Gulf of Finland. Russia concluded an ambitious agreement with the European Union on long-term energy cooperation that would increase oil exports to its neighbour. The European Union already buys more than half of Russia's total oil exports, accounting for some 16% of its oil consumption’. Karl (Citation1997) applies her arguments to all mineral states, including petrostates. Thus she uses the notions ‘mineral sector’ and ‘petroleum sector’ synonymously. One of the largest oil companies in Russia. Helmer (2003). Data based on a rating of economic openness are presented in detail in Sychova, Mikhailov & Timofeev (Citation2001). Apart from information availability, it is important to emphasise that oil is extracted and processed only in a handful of Russia's regions. This incident is described in Irkutsk regional news update, http://apn.ru/lenta/2001/8/20/6821. A high – high sector is characterised by high capital intensity, high economies of scale, production inflexibility and asset/factor inflexibility. See Frye (Citation2002); Solanko (Citation2003). According to Zudin (Citation2002), A. Dolgopaev, the president of the League of defence enterprises, threatened to leave RSPP at its meeting in summer 2001 if the military enterprises' interests did not receive adequate representation within the new composition of RSPP. Hainsworth (Citation2002). See note 6. Solntsev & Khromov (Citation2002), p. 25. The situation with unknown shareholders is described in detail in Matovnikov (Citation2002) and Petrova (Citation2002). Tavernise (2003). To quote Johnson, ‘this process of institutional change created a Russian central bank with enormous political autonomy vis-à-vis both the Russian government and the commercial banks, but with little technical capacity to carry out market-oriented central banking tasks. Thus, when the Soviet Union collapsed and the Central bank of Russia swallowed Gosbank, Russia had a central bank that the executive could not control and whose institutional framework and actors had changed relatively little’ (Johnson, 2001, pp. 264 – 265). Oil companies represent the major part of Russian borrowers. The former Russian Prime Minister Mikhail Kasyanov frequently complained in the press during the late 1990s that Sberbank should direct its funds towards some ‘socially useful projects’. However, the CBR, which formally owns Sberbank, has managed to keep it away from any distributional or developmental role assigned to it by the state. The major part of illegal capital flight has to do with foreign trade operations of the key Russian exporters, who use schemes of undervaluing exports and overvaluing imports. The distributive state is a primitive type of state that exists in countries like Libya. Its major function is redistributing oil revenue among social groups and economic actors. Distributive states tend either to bypass banks in their activities or to rely on state-owned banks. Hainsworth (Citation2002), who has been involved in Russian banking throughout his career, states: ‘The financial condition reported in the financial statements does not always correspond with reality, with the bank having reasons both to exaggerate capital and assets, as well as to diminish (!) profits. The important point is that the reported financial condition does not reflect the success of the bank in the same way as it does in developed economies’.