– Jason Bush is a Reuters columnist. The views expressed are his own —

Former Yukos shareholders are set to sue Russia for up to $100 billion in damages after an international court ruled in their favour. Successful claims against a sovereign state are rare. But the case is embarrassing for Russia. If successful it could even lead to the confiscation of Russian assets.

The biggest problem for the former shareholders of the bankrupt oil group was proving that international courts had jurisdiction in the matter. But they have found an ingenious way to make their case, suing Russia under the Energy Charter Treaty, which protects investors in Russia’s energy sector. Russia signed this treaty, but never ratified it, creating ambiguity over whether it is actually binding.

The answer, according to yesterday’s ruling by the Permanent Court of Arbitration in The Hague, is that it is. That’s extremely worrying for Russia. The legal justifications for its actions against Yukos have long met with widespread scepticism abroad.

The core shareholders’ stake was worth an estimated $25 billion at the time Yukos was dismantled, but the litigants are asking for a multiple of that amount to reflect Yukos’s estimated capitalisation today and interest.

Former Yukos shareholders have already fought successfully in European courts. In April, a Dutch court awarded $389 million in damages to a Yukos affiliate. And in 2007, the Swiss high court ruled that the Yukos case was “political”, rejecting Russia’s request to freeze Yukos assets.

True, there’s little chance of the Russian government actually recognizing any damages claims. The Yukos shareholders have therefore spoken of seizing Russian assets abroad, such as Gazprom’s gas and Aeroflot planes.

Russia has been talking up its privatisation plans. Earlier this month, Prime Minister Vladimir Putin described the sale of state assets as “one of the key tools of structural reform”. His deputy, Igor Shuvalov, has talked of privatising 5,500state enterprises over the next few years, with the first 450 to be placed on the block next year. This has led to excitable talk about Russia’s “new wave” of privatisation.But a reality check may be in order. Russia’s privatisation plans are less impressive than the exciting rhetoric suggests. If the government really wants to make an impact, it will need to be a lot bolder. Don’t hold your breath.Putin and his government have long touted the advantages of private ownership. This talk has not been matched by results. Indeed, the value of the state’s share of those companies that are publicly-traded on the stock market has actually increased from 27 percent to 52 percent over the last five years, according to Uralsib, a Moscow bank.The reason? State-controlled enterprises have been on an acquisition binge. Gazprom, for example, owns major assets in oil, electricity, media and banking, as well as its core gas business. Russian Technologies, which began life as Russia’s arms export monopoly, owns stakes in over 400 companies, including the largest car-maker AvtoVAZ.Russia should break up these unwieldy conglomerates if it wants to reform the structure of the economy. For example, there is no logical economic reason why Gazprom continues to own NTV, one of Russia’s largest commercial TV stations. The sorry state of near-bankrupt AvtoVAZ shows that arms-exporters have no business managing Russia’s car industry.In contrast with what is needed, the privatisation plans presently on the agenda look like chicken-feed. True, the target for privatisation revenues has risen from $240 million to $2.4 billion. But that’s less than 25 percent of what Poland is targeting for 2010 and represents just 0.3 percent of the total capitalisation of the Russian stock market.Selling off thousands of state enterprises may look like a big move. But Russia has been trying to sell most of these companies for years. Between 2004 and 2006, it sought to sell state stakes in around 1,500 companies each year, but only achieved about one third of its target. Most of these companies, mainly little-known Soviet relics, are probably unsellable.The government has also promised to reduce its shareholding in large state companies, by floating minority stakes. Oil company Rosneft, the banks Sberbank and VTB, telcoms operator Svyazinvest and the aviation holding company UAC are among the crown jewels eventually slated for partial privatisation.But while this may cut the state’s direct stake in listed Russia Inc, it’s only a halfsolution. The state remains determined to hang on to majority ownership. Nevertheless, a greater share for private investors would aid corporate transparency and oversight, and stimulate the growth of the capital market.But investors shouldn’t expect Russia to move fast, even with these half measures. None of these companies are on the block next year. So far, officials have named just two major assets slated for sale next year: a 13.1 percent stake in insurance company Rosgosstrakh, and a 20 percent stake in shipping company Sovcomflot.Finance minister Alexei Kudrin thinks that the government should wait at least three years before selling stakes in large strategic companies. A lot can change within three years. If oil prices continue to rise, the reform impetus in Russia could easily lose steam.

Something quite extraordinary is happening in Russia. Slowly but surely, the monolithic political system that has held together in Russia for most of the past decade is coming apartToday, in an unprecedented step, deputies from all three of the opposition parties in the Russian parliament staged a walk-out, demanding a meeting with Russian President Dmitry Medvedev. They are protesting against the results of local elections that were held in various parts of Russia on 11 October. Not for the first time, the pro-government United Russia party largely swept the board, amid widespread allegations by the opposition of vote-rigging.

The Russian Interior Ministry is about to seek the arrest of William Browder, the chief executive of Hermitage Capital Management, for illegally evading taxes. That’s according to a front-page article in the Russian newspaper Kommersant, a leading political-economic daily.Browder, a British and US citizen who resides in London, has been denied entry into Russia ever since 2005, when his visa was annulled for obscure reasons. His Hermitage Fund, managed by the British bank HSBC, was once the largest portfolio investor in Russia, but has more recently been embroiled in a series of interconnected scandals.Today’s newspaper article, based on anonymous sources within the Russian police, is evidently the latest shot in a long-running media war that has pitched Hermitage against elements of the Russian police. Over the last year and a half, the British investment fund has made a series of sensational allegations, claiming that senior Russian police officers were involved in a corruption scam designed to fleece the Russian budget of hundreds of millions of dollars.Following these claims, Russian authorities have been busy upping the pressure against the Fund. A lawyer working for Hermitage in Russia, Sergei Magnitsky, was arrested last November, and his trial in Moscow is due to begin shortly. Today’s Kommersant article lays out the case that the police intend to bring against Magnitsky, which relates to alleged underpayment of taxes by two Hermitage subsidiaries several years ago.According to the sources cited in the newspaper, Browder is also implicated, and investigators now intend to approach Interpol with a request to place him on the international wanted list. The paper quotes Hermitage’s view that the case is fabricated “to discredit Hermitage Capital”.Given the circumstances, the latest allegations against Browder will command little credibility outside Russia. According to court documents recently submitted by Hermitage in the US, the criminal case against Magnitsky was initiated by the same police officers previously accused by Hermitage.If Russia does request Browder’s arrest and extradition, legal authorities in Britain are also likely to consider the findings of a recent report into the case by the Parliamentary Assembly of the Council of Europe, which slams Russia’s criminal justice system. The report states that Hermitage was “the victim of the corruption and collusion of senior police officials and organised criminals.”In any case, this isn’t the first time that anonymous police sources have made similar claims about Browder in Kommersant. In April last year, the newspaper ran an article that alleged that a Russian arrest warrant had already been issued for the British fund manager, and an international one would be requested shortly. However, a Moscow police spokeswoman subsequently denied that any such warrant had been issued, and nothing more was heard about it.

You might think that, when property worth more than a billion dollars is at stake, there’s nothing worse than having a court rule against you in a commercial dispute. But as a matter of fact there is one thing. And that’s when the court refuses to take any decision at all.

Just ask Telenor, the Norwegian telecoms company, which has been engaged for over a year in a bitter legal dispute in Russia. On 30 September, a Russian commercial court in the Siberian city of Tyumen declined to hear an appeal that had been brought by Telenor, instead postponing the hearing by almost six months. It’s the second time that the case, originally due to be heard on 26 May, has been postponed for several months.  

The irony is that the Norwegian company would be much happier if the court had instead ruled against them. In that case, it could have appealed against the ruling at the Supreme Commercial Court in Moscow, where it is more confident of getting a fair hearing. Instead, it has been left hanging in legal limbo.

The latest court decision (or rather non-decision) is just the latest chapter in a convoluted legal saga that has raised serious questions about Russia’s court system and the overall investment climate. At stake is Telenor’s shareholding in Vimpelcom, one of Russia’s largest mobile phone companies.

Hasbro, one of the world’s largest toymakers, opened its first rep office in Moscow on Sept. 23, citing “good growth” in Russia, which it dubbed “the most attractive market for us”. That seems like a strange description, for a country whose gross domestic product is set to slump by 8 percent this year. But Hasbro explained that despite the crisis, sales of toys were holding up. And it isn’t the only consumer-focused company still reporting surprisingly good results.Look at the Swedish furniture retailer Ikea. In June, Ikea created headlines when it threatened to halt its investments in Russia because of concerns over bureaucracy. There were far fewer headlines when Ikea reversed its decision in August, once the problems were solved. And few people cottoned on to the most remarkable thing contained in Ikea’s announcements. Despite the crisis, the Swedish company has said that is still seeing double digit sales growth in Russia this year.This seems highly mysterious, to say the least. On the face of it, Russian consumers appear to have taken a huge hit. In August, retail turnover fell 9.8 percent year-on-year, according to the latest official statistics. In some segments, especially those that depend heavily upon credit to shift products, sales have plummeted. Russian car sales, for instance, were down 54 percent year-on-year in August.Yet the picture may be far less grim than these alarming figures suggest. While some Russian consumers have undoubtedly seen their incomes squeezed, others are faring remarkably well. A recent report by Renaissance Capital, a Moscow investment bank, illustrates the extremely uneven impact of the crisis on different segments of the consumer market.The crisis has been especially bad for high-earners and for Russians employed in private sector firms, as these are the most aggressive in terms of cutting costs. Anyone whose business in Russia is based on selling high-end products to wealthy customers has seen their sales plummet.Yet it’s a rather different story when it comes to the poorer layers of the Russian population. Eager to avoid any social backlash, the Russian government has been generously pumping money into the pockets of public sector employees and pensioners. This year the Russian government has boosted public sector wages by 19 percent and pensions by 25 percent, which is well above inflation (around 10 percent).That’s a significant stimulus to consumer demand, considering that around one third of all Russian workers are employed in the public sector, while pensioners represent a quarter of the overall population.These measures explain why overall disposable income is holding up much better than one might expect. During the first eight months of the year (the most recent data) average real disposable income was down a modest -0.7 percent compared with the same period in 2008. That implies that recent falls in consumer spending have more to do with diminished consumer confidence — hopefully a temporary factor that will wear off as the economy recovers.And with state sector workers and pensioners still enjoying significant real income increases, it’s less surprising that some retailers are continuing to do well. Ikea, for instance, may be benefiting from the fact that it charges relatively low prices, leading consumers to trade down from more expensive products. Renaissance Capital notes that for similar reasons, major Russian food retailers, discounters and hypermarkets also continue to see strong sales growth this year — up 20-30 percent in rouble terms.That may be small consolation for anyone selling expensive kit such as cars or laptops, where a rebound will have to await overall economic recovery and the revival of credit. But it helps to explain why, for less expensive segments, the Russian consumer market still shows surprising signs of resilience.

Russia is a “primitive raw materials-based economy”. It is blighted by “chronic corruption” and “shamefully low” productivity. Its citizens are subject to “arbitrariness, lack of freedom, and injustice”. The words, no doubt, of an implacable Kremlin foe? Stangely enough, these scathing comments about Russia today come from none other than Dmitry Medvedev, Russia’s President.

In a surprise move, Medvedev has published a 4,000-word treatise about the state of the nation, which also lays out his priorities for Russia’s political and economic development. Entitled “Go Russia!”, the manifesto was first published online on a news website, Gazeta.ru, which is often critical of the Kremlin.

What to make of it? There’s plenty to agree with in Medvedev’s analysis. His frank assessments of Russia’s defects largely echo the sentiments of Russian liberals and western investors, as do his proposed remedies. These include improved relations with the West, openness to foreign investment, a crackdown on pervasive corruption, and a more democratic political system.

Medvedev presumably has hidden political motives, of course, for opening his heart to the Russian public in such a way. Russian analysts have interpreted his step as the latest attempt to boost his political authority, and carve an identity independent from his predecessor, Vladimir Putin. Putin is still more popular than Medvedev, and widely assumed to be really in charge of the country.