Russia's auction eerily familiar

The Russian government's fascination with appearances has a long history. Be it Potemkin villages, political show trials, or rigged privatizations, government fixers have always had a flair for deception.

President Vladimir Putin and his supporting cast are no exception, as illustrated by Sunday's auction of Yuganskneftegaz, a key unit of the troubled Yukos oil firm. The backdrop for the sale of the century was appropriately dramatic, with a $1.7 billion cover charge and supertight security. The set looked strikingly real. The auctioneer wore a tuxedo, and tables were set for three delegations, complete with bidding lollipops.

The required minimum of two delegations showed: Gazprom, the state-controlled natural gas company that Mr. Putin is trying to fashion into a multifaceted rival to Western supermajors, and Baikal Finance Group, a mere foil to add credibility to the play. As in the last two major auctions under Putin, the question was not who'd win, but how little the Kremlin agreed to let the "winner" pay. The starting price for Yugansk, the heart of jailed businessman Mikhail Khodorkovsky's Yukos oil empire, was cheap. Such a bargain that the Kremlin had to persuade unwanted suitors from India and China to stay away. Gazprom, however, has a cash-flow problem, and had to rustle up a $13 billion loan from a consortium of Western banks. In an 11th-hour move, Yukos filed for bankruptcy in Houston last week, winning an injunction against Gazprom and its bankers from participating in the auction.

What was clear to the US judge - and to every impartial observer - was that the Russian government is acting beyond the bounds of its own laws. The only legal concerns the authorities appeared to have were the lawsuits Gazprom could face abroad if it violated the US injunction and bought Yugansk on the cheap. So once again the Kremlin demonstrated its contempt for due process by simply bending the rules.

Enter Baikal Finance Group. Registered in the sleepy town of Tver, it had no record of having done any kind of business. According to the hastily rewritten script, Baikal won the largest, most-watched auction in the country's history - and the officials running the auction claimed to know nothing about the winner. Gazprom didn't even place a bid, while Baikal bid twice, paying $500 million more than it had to.

Putin's "dictatorship of the law" grows more hollow each day. As the Yugansk auction so farcically demonstrated, laws are nothing more than tools that the Kremlin uses to neutralize unwanted actors on its stage. The irony of this story is that a rigged auction is exactly what landed Mr. Khodorkovsky in jail in the first place and triggered the wider assault on Yukos. With this most recent ersatz auction, we're right back where we started.

This editorial is reprinted with permission from the Tuesday issue of The Moscow Times, an English-language daily in Russia.

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