MOSCOW - The National Strategy Council is preparing another document that might have serious implications for the development of political process in Russia, according to the draft of the Council’s report “New course and new instability”. (The group is known for its controversial report “State and oligarchs”, which coincided with the start of a massive campaign launched by the Russian Prosecutor General’s Office against YUKOS’ co-owner Platon Lebedev.)

The main idea of the document is that the re-distribution of property and persistent pressure on big business, aimed at taking the largest part of ‘super profits’ from large financial and industrial groups, is a key priority for the authorities, especially for the presidential administration. “The intensification of the struggle inside the elite, which became obvious on July 2003 (the day of Mr. Lebedev’s detention), a split within the “party of power”, the inefficiency of law enforcement agencies, the remaining problem of terrorism, all this prompts the authorities to offer a new concept that would work for the prospect of the second presidential term (for President Putin). This concept could be the review of privatization results of the 1990s and fair distribution of raw material resources,” it is said in the report.

As an initial measure of the concept change, the National Strategy Council proposes resuming a dialog on taking oil royalties out from the profits of oil companies. This should be based on the system proposed by Sergey Glazyev, a Communist leader. According to the authors of the report, this mechanism will allow the authorities to build “a civilized model of state control” over the basic industries in the economy.

The document suggests that the state control system should include “the setting of effective taxes on the super profits of companies exporting raw materials; the taking of oil royalty revenues away from oligarchs, in favor of the state”. “Oil royalty revenues will enable the state to acquire a share in raw material companies. As a shareholder, the state would have its representatives on the Board of Directors and in the management of the companies, which will allow it to control financial flows,” the report says. In the opinion of the National Strategy Council, this program could be implemented by 2008. In practical terms, this contradicts the President’s multiple statements that the results of privatization would not be reviewed. It also means the return to the Communist past.

The authors of the report seem to forget that, even if the Council’s ideas find support in political circles (as it happed with the YUKOS case), and some political force manages to legalize the government’s right to take natural resources royalties from the profits of raw material industries, several problem might arise, which will have a most negative impact on the entire Russian economy.

This opinion was expressed by some officials of Russian raw material companies. Firstly, if natural resources royalties are taken away from raw material companies, there will be no economic stimulus to work in this sector. Secondly, the economy of the fuel and energy sector, the main extractive industry of Russia, is very capital intensive. Investments in this industry only pay off in 5-6 years or even later.

Additional tax pressure on raw material industries will lead to the reduction in investments in the development of new fields and geological exploration. Having increased pressure on raw material industries, the government will get additional budget money, but in the future, budget revenues will drop because of the overall fall in production. Natural resources (not oil, gas, coal, iron ore etc., but their deposits) vary infinitely. It is impossible to find two absolutely identical deposits. That is why natural resources royalties would have to be calculated separately for each deposit, ‘clearing’ the profits of extracting companies of all factors but one – that of nature. In practical terms, this problem seem to be unsolvable.