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28

The Putin Factor

Many Russians appear to be retreating from the free-market principles they fought for a decade ago. December?s parliamentary elections were rife with socialist rhetoric ''Russia is a rich country, but its people live in poverty!'' ran one opposition slogan.

Many Russians appear to be retreating from the free-market principles they fought for a decade ago. December?s parliamentary elections were rife with socialist rhetoric ''Russia is a rich country, but its people live in poverty!'' ran one opposition slogan. ''Return the nation's wealth to the people!'' said another. Historically, slogans like these find an audience when wealth goes to a few, and modern Russia is no different. The fact is simple, Russian oil has made multibillionaires of a few tycoons and the Russian people feel it's not fair that a small group got billions of dollars from exploiting natural resources when half the people live in poverty.

Oil businesses are by far Russia's largest taxpayers, but President Vladimir V. Putin can't ignore popular sentiment if he wishes to maintain his 80% poll rating. It?s no surprise then the Kremlin is moving to squeeze extra money from oil drillers. Yukos, Russia's No. 1 producer, was recently handed a $ 3.5 billion bill for unpaid taxes from the year 2000. Furthermore, the company?s influential Chief Executive, Mikhail B. Khodorkovsky, continues to sit in jail on tax evasion and fraud charges.

With Khodorkovsky behind bars, his once powerful oil lobby has lost steam, other interest groups are hiding, and lawmakers are having their way. In fact, laws have already passed banning the regions from offering favorable tax rates to locally registered companies. Closing this loophole should increase regional tax receipts by $ 2 billion this year.

Many analysts are concerned about the Kremlin?s new stance, predicting the $8 billion to $10 billion invested to upgrade industry operations will be lost and the industry will suffer greatly. Other analysts believe higher taxes could be used to help diversify an economy that remains heavily dependent on oil and gas. Either position is extreme but, nevertheless, credible.

Surprisingly, the oil industry appears to be taking the Kremlin?s new stance in stride. The majority of companies have not altered their plans in Russia and some, like BP, continue to invest heavily. This calm is due mainly to expectations - rising profit taxes have become the rule rather than the exception in post-Soviet Russia. In addition to expectations, both industry majors and the Kremlin realize any drastic action could backfire and lead to disinvestment in all sectors of the economy. The effects would, without a doubt, be devastating to all Russians.

Putin?s near-certain victory in upcoming elections means the world has another four years to enjoy the show. Russia?s wealth, security, and future will continue to lie in the hands of a privileged few and the Kremlin, as usual, will appear to be in control. Just remember, in a country where the only thing certain is uncertainty, the rule remains - wait and see.

Author: Nick Muessig

Source : Neftegaz.ru