PUTIN TRIES TO MAKE FRIENDS

Global Finance, Dec 2004 by Iskyan, Kim

RUSSIA

In an effort to influence presidential elections in neighboring Ukraine, Russian jj President Vladimir Putin dispatched teams of campaign advisors and paid frequent visits in support of Viktor Yankovych, the chosen successor of outgoing President Leonid Kuchma. Putin is anxious that Ukraine remains firmly within the rapidly shrinking Russian sphere of influence-and that opposition candidate Viktor Yuschenko may try to move the country further from the Kremlin's reach. With Ukraine also the target of significant Russian investment, Putin is also eager that the country's investment environment should not evolve too rapidly.

Certainly, there is no fear that it is changing too rapidly in Russia. Ratings agency Standard & Poor's reports that there has been little progress in making Russian companies more transparent and better run and that the country's regulatory infrastructure frequently hinders, rather than supports, strong corporate governance. The agency assessed the implementation of 40 recommendations made by the OECD in April 2002 to improve corporate governance in Russia.

If payment of corporate taxes is a reliable measure of corporate governance, it seems that S&P is on the right track. Tax authorities opened investigations into 2001 tax payments by a range of oil firms and demanded that high-profile joint venture TNK-BP pay $87 million. The Kremlin appears more interested in making it appear that Yukos was not singled out for investigation than in spooking markets with a rash of tax-related inguiries that could further dampen investor sentiment.

Yukos shareholders are unlikely to be appeased. In fact, Group Menatep, the core shareholder of the embattled Russian oil major, is threatening to sue the Russian government in international courts to seek compensation for the decline in value of Yukos since the Kremlin initiated its legal onslaught. Meanwhile, market rumors surfaced that Italian oil and gas giant Eni may be interested in acquiring a stake in Yukos-a transaction that would need to be carefully brokered with the Kremlin.

In another step in the consolidation of the global steel industry, Russian steel giant Severstal submitted a bid to purchase the assets of Ontario steelmaker Stelco, which is emerging from restructuring. -Kim Iskyan