Kremlin crony in Gazprom share deal
Wednesday, 28 March 2012 12:41
An interesting piece by Catherine Belton in today’s Financial Times reveals that the family of Igor Shuvalov, Russia’s first deputy prime minister, bought nearly $18m of Gazprom shares through an offshore company as the government’s liberalisation of share trading boosted their market value.
Belton estimates that Sevenkey, the offshore holding company, would have made more than $100m in gains by 2008 from the shares, which were bought in mid-2004 when Shuvalov was an economic aide to then-president Vladimir Putin.
She adds that the share purchase was carried out via a vehicle belonging to Suleiman Kerimov, one of Russia’s richest men.
The FT has seen a letter from a director at Sevenkey Limited, a fund registered on behalf of Shuvalov’s wife Olga Shuvalova. It refers to a ‘fiduciary agreement’ under which “$17.7m was granted in June-July 2004 to Nafta Moskva [Kerimov’s investment vehicle]” to buy Gazprom shares.
In December 2005, the Russian government lifted a ban on foreigners investing in Gazprom’s domestically traded stock predicatably fuelled a surge in the share price.
“This is one of the basic problems of Russia,” former Kremlin aide Georgy Satarov tells the Wall Street Journal, which also has the story. “The separation between government and business just doesn't exist.”
Belton argues that news of the Shuvalov family’s share dealings raises important questions about conflicts of interest within the overlapping circles of government officials and wealthy oligarchs.
Shuvalov made an $18 million fortune in private business in the 1990s, working closely on the privatisation of Sibneft with the tycoon Roman Abramovich, who rewarded Shuvalov with hefty fees and a 0.5%-option in the oil company.
He entered government service in 2003 as an economic aide to Putin. A year later his family co-invested in Corus Steel with pro-Putin oligarch Alisher Usmanov, owner of Metalloinvest, earning $120 million, according to the WSJ.
A spokesman for Shuvalov told the FT that the deputy prime minister had always acted within the framework of Russian and international law and declared his family’s income to the tax authorities.
“As a lawyer, I have without fail followed the rules and principles on conflicts of interests,” Belton quotes Shuvalov as saying. “I welcome rigorous journalistic and legal scrutiny. I am confident of my record as a private businessman and subsequently a government technocrat.”
Bankers have always expressed concern about in culture of cronyism in Kremlin circles, but Shuvalov’s supporters cast him as a poster boy for liberal transparency among Putin loyalists and fear a backlash over the FT report, with other government officials declining to come clean about their business dealings in future.
Shuvalov “was the first person to declare anything,” one of his associates told the FT. “Any word about Shuvalov being corrupt is a signal to others not to declare their incomes.
Usmanov is also the boss of the Gazprom subsidiary Gazprominvest, which was set up in 1997 to undertake gas momnopoly’s large investment projects, and which is, like Metalloinvest, a big player in the Russian metals industry.