Did President Putin let the genie out of the bottle when he placed Russia’s elite under surveillance? The arrest of the Russian minister of Economic Development Alexey Ulyukayev signals that Rosneft chief Igor Sechin and his small cadre of current and former FSB officers have the upper hand. According to Russian political commentator Konstantin Gaaze it is clear that no one has the power to challenge this group.

by Konstantin Gaaze

When the Ministry of Economic Development’s employees arrived at work on the morning of November 15, they learned that their boss, Alexey Ulyukayev, had been arrested and charged with taking a $2 million bribe. The news agency TASS reported that the ministry’s electrician was surprised by the news but said that he ‘intended to do everything he could to make sure the lights stay on at the ministry and everything functions properly.’

He was much more restrained than many of Russia’s top officials. Andrey Belousov, the Kremlin’s economic adviser (and Ulyukayev’s predecessor), lost his temper with a Life News journalist who asked him for comment, exclaiming: ‘What I’d really like is to put each one of you in jail for fifteen days and then give each of you a broom so you keep busy and stop pestering people.’ Early statements from government officials and representatives of state-owned companies—including individuals linked directly to Ulyukayev—suggested that they knew nothing about the situation and had learned of the minister of economic development’s arrest from media reports. They were shocked, scrambling to decide whether they were ‘for’ or ‘against’ the minister.

Arrested ex-minister Ulyukayev at a government meeting, chaired by PM Medvedev (photo government.ru)

But two islands of calm quickly emerged from the sea of chaos: siloviki (security hardliners) from the Federal Security Service (FSB) and the Investigative Committee, and Rosneft, the oil behemoth whose chief Igor Sechin was at his office at 4 a.m. on the night of Ulyukayev’s arrest, perhaps waiting for the matter to be finalized. Rosneft and the siloviki presented a united front almost immediately. Their position was that Rosneft had helped the Investigative Committee unmask Ulyukayev, and that law enforcement agencies had no qualms with Rosneft or its privatization of Bashneft, the oil company at the center of the Ulyukayev drama. Their message was: nothing to see here, everyone is free to go except Ulyukayev, who is now under house arrest.

Ulyukayev is accused of shaking down Rosneft for $2 million, according to the Investigative Committee’s website, ‘in exchange for a positive assessment by the Ministry of Economic Development that allowed Rosneft to carry out the acquisition of the government’s 50 percent stake in Bashneft.’ The Investigative Committee’s version of the story is that Rosneft wanted to buy Bashneft, but that Ulyukayev and the government resisted. Ulyukayev then asked Rosneft for a bribe, at which point Rosneft informed the authorities and promised the minister a payoff. Ulyukayev completed all of the paperwork needed for the deal and helped Rosneft carry it out, thereby sealing his fate.

The Inner circle

The day after Ulyukayev’s arrest, a retired top-level Russian official gave me a very succinct explanation of the previous night’s events: ‘Sechin is off limits.’

Is Igor Sechin, Rosneft CEO, off limits? (photo Kremlin.ru)

Sechin has a reputation for being perhaps the most formidable member of President Vladimir Putin’s inner circle. He does not play by the rules. When he needs something, he masterminds a series of moves in order to get it instead of going through official channels. He almost never loses, preferring to plot rather than negotiate. When Sechin wanted to stop the privatization of Rosneft and other state-owned enterprises in 2011, he did so with a single letter addressed to then prime minister Putin. When Sechin was the one who sought privatization five years later, he set it in motion the same way. Of course, there was also a bribe, allegedly given to the minister in charge of privatization in the form of a small fee ‘for legwork and wear and tear on shoes.’

President Putin reportedly had been aware of the operation targeting Ulyukayev since Russia’s special services took an interest in the minister last year; when Ulyukayev’s phones were tapped, the president was briefed. A Kremlin staffer says that Putin even dropped the minister a hint, signaling to Ulyukayev that he should reconsider his actions. In early October, the president was asked at a VTB Bank forum (Ulyukayev heads the supervisory council of VTB) whether he was surprised that the government first opposed the sale of Bashneft to Rosneft but then allowed Sechin’s company to participate in its privatization. Putin’s response was cryptic: ‘You know, you might find this strange, I myself was somewhat surprised by the government’s position, but this really is the position of the government of the Russian Federation, and above all the position of its financial and economic bloc.’

It is unclear when exactly Prime Minister Dmitry Medvedev found out about the Ulyukayev operation, though he does seem to have known about it while he was in Israel the week before the minister’s arrest. If it turns out that he didn’t know about the operation much earlier, the saga would begin to seem Stalinesque: the president is aware of an operation against a minister but does nothing to stop it; does not warn one of the closest members of his inner circle; and watches one of the prime minister’s key cabinet members dig his own grave with help from the Investigative Committee and a company that is headed by another member of the inner circle.

The Ulyukayev vs. Rosneft affair may impact not one but perhaps two or even three top government officials. It will definitely be a problem for Ulyukayev subordinate and Medvedev protégé Dmitry Pristanskov, the head of the Federal Property Management Agency. It might also affect Igor Shuvalov, a first deputy prime minister who is responsible for economic policy and development and to whom Ulyukayev answered. Shuvalov was in Japan when Ulyukayev was arrested and was apparently also caught off guard by the minister’s fall. All of the documents regarding the privatization of Bashneft carry these men’s signatures, including the appraisal of the government’s stake and the draft of the Rosneft directive.

Siloviki surveillance

When relations with the West soured after the annexation of Crimea, the siloviki allegedly received orders from the Kremlin to keep a close eye on most of the country’s top political figures—national and regional officials, and even some of the siloviki’s own bosses. Some of the most controversial arrests of the past two years are said to have resulted from operations launched on the basis of this surveillance.

Medvedev and chairman Bastrykin of the Investigative Committee with the banner of the organisation. (photo Kremlin.ru)

Did President Putin let the genie out of the bottle when he placed Russia’s elite under surveillance? It didn’t seem that way a year ago, when the governors of the Sakhalin region and Komi Republic were arrested. Back then, everything appeared to be under control: top politicians were being monitored simply to make sure they didn’t take bribes from each other or inform for the CIA.

The situation has changed dramatically since then. If the rumors about the surveillance are true, it would seem that some members of the FSB who were involved in monitoring ministers and managers of state corporations decided to capitalize on the surveillance measures upon getting new jobs. A key player in the operation against Ulyukayev was Oleg Feoktistov, the head of Rosneft’s security service who was a deputy head of the Internal Security Directorate of the FSB until August 2016. Rumor has it that this was the FSB unit that oversaw the surveillance of government officials. Feoktistov is a longtime ally of Igor Sechin, and the New Times once even referred to the FSB Internal Security Directorate as ‘Sechin’s special-ops.’

Privatization problems

The main friction in the sale of Bashneft to Rosneft seems to have been a disagreement between Sechin and the government about the process by which Bashneft would be privatized. Rosneft saw it as a two-part process in which Rosneft shares would later be purchased by Rosneft itself and distributed among the company’s top managers. Ulyukayev and Shuvalov, on the other hand, thought it was enough simply for Rosneft to buy Bashneft.

Shortly after the privatization was completed, government officials began saying that Rosneft’s purchase of its own shares was a temporary measure that was necessary to reduce the budget deficit in 2016. When the government approved Rosneft’s purchase of its own shares, it simultaneously required Rosneft to resell the stake to investors not directly connected to the company’s leadership by either July 1 or September 1, 2017. Rosneft did not like this idea, and Ulyukayev’s detention seems to be a clear sign that the privatization was intended to deliver bonuses to the company’s managers.

A new status quo

Uncertainty has become the new status quo for top officials. Two years ago, they began to have to adapt to the twists and turns of Putin’s foreign policy, to the complete absence of strategic priorities in their work, and to an “après nous, le deluge” approach to dealing with problems. This uncertainty broke the traditional siloviki, liberal, and bureaucratic coalitions into small cliques that are now often formed spontaneously and in response to specific events. If Russia can be friends with Turkey one day and enemies the next, then why can’t one official cooperate with another today and stab him in the back tomorrow?

That system, despite all its problems, could have hobbled along until the 2018 presidential election. ‘It might be chaos, but it’s managed chaos,’ some joked. Since the spring, however, it has become clear that this managed chaos is devolving into a free-for-all in which Igor Sechin and his small cadre of current and former FSB officers have the upper hand.

Sechin and a small group of FSB officers (who should not be conflated with the larger siloviki bloc) are now doing the political work for everyone. They are deciding who will own Russia’s largest oil company, who will work in government, who will survive the transition and who will not. It is clear that no one has the power to challenge this group. The prime minister is steering clear of the Ulyukayev case entirely and even the Kremlin is remaining enigmatically quiet.

There look to be two parallel universes in contemporary Russian politics. One is still deliberating over the contours of the influx of new officials into government, the future of the Constitution, and the possibility of tolerating liberals. The other is all action and no talk; it is already dividing up Putin’s legacy, something others don’t even dare think about. Soon we are likely to see new figures on the chess board, which will change the game in the president’s favor, lest Putin himself be knocked off the board.

Konstantin Gaaze is a reporter and political commentator
This commentary was initially published on Carnegie.ru

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