July 21, 2022

1. Help! Business is collapsing

2. Save the bear!

3. Russia’s wealth grows with oil. Oilers’ wealth grows with Russia

4. Trials, trials, trials...

5. Doesn’t it work? Get an award!

6. Banks as hostages

7. The government, instead of sanctions

Help! Business is collapsing

Alisher Usmanov (Russian Forbes #6, $15.6 billion) has decided he can convince a court to lift the EU sanctions he fell under after the Russian invasion of Ukraine. The reason for lifting the sanctions, he believes, should be that the sanctions could lead to the bankruptcy of his companies.

Usmanov is the largest shareholder of the mobile operator Megafon; Metalloinvest, Russia’s largest iron ore mining company; and Udokan Copper, which is preparing to develop Russia’s most significant and the world’s third-largest copper deposit in the Trans-Baikal Territory, 600 km east of northern Lake Baikal.

The Udokan deposit was discovered in December 1949, but for more than 50 years, its development was considered unprofitable. In 2008, Usmanov’s company received a license to develop the deposit; four years later, a project was launched for which Usmanov received a $2 billion loan from a group of state banks. Construction of the first stage of the ore processing plant should be completed early next year. In his lawsuit to the European Court of Justice, Usmanov claims that the company risks not getting the ordered equipment and software, due to which it will not be able to start production and repay the loans.

Alisher Usmanov is known in Russia for being the hero of Alexei Navalny’s 2017 investigation, which described how the oligarch donated an expensive estate (5 billion rubles, or $100 million at the exchange rate at the time) in the Moscow region to a charitable foundation—the only beneficiary of the foundation and user of the estate was then-Prime Minister Dmitry Medvedev. Navalny claimed that this was a form of bribe that Medvedev received when he was chairman of Gazprom and authorized using the company’s resources to buy up industrial assets in Russia by Usmanov.

Save the bear!

On Wednesday, a polar bear came to the northern village of Dixon, asking people for help: It had found an abandoned open can of condensed milk, and its tongue got stuck in the metal can.

This animal tragedy stirred and brought many people together. The head veterinarian of the Moscow zoo and his colleagues flew to Norilsk with surgical instruments and special guns that shoot vials of sleeping pills. Workers at the metal plant built a cage to transport the bear after the surgery, and Norilsk Nickel provided a cargo helicopter to transport it. Three bags of fish were collected for the bear—this will help him recover until he can hunt. The helicopter could not take off for several hours because of a snow curtain, but everything was well in the end: The bear was sedated, and the can was removed.

People’s attention to the animal’s problems did not please Alexander Sergeev, head of the village’s Council of Deputies, who had to answer numerous calls from all over the country. Sergeev’s displeasure was caused by the fact that there is not a single medical worker in a settlement with a population of 300 people, and the outpatient clinic building is closed.

No one called, no one asked how people live, how children grow up. Here are three days of calls about the bear. The nurse, who worked for us for a year, is now on vacation, and it is 700 kilometers to another settlement where there is medicine, so you understand... There is no modern CT scanner, no ultrasound machine, no laboratory, I can go on and on.

On the one hand, I can understand Sergeyev—it is complicated to live in such conditions, and he often has to solve the problems of the settlement’s inhabitants. On the other hand, the bear rescue resulted from different people’s joint efforts and did not require a single penny of budget money. But Sergeev’s complaints are addressed to the people who helped the animal and not to Vladimir Putin, during whose rule Russia received more than $4.5 trillion from hydrocarbon exports and who did not find several thousand dollars to equip the medical facility in Dixon, which, according to Sergeev, has only an enema and a thermometer, with at least a minimum set of medical equipment.

Russia’s wealth grows with oil. Oilers’ wealth grows with Russia

Since the beginning of 2017, Rosstat has calculated the share of the oil and gas sector in the Russian economy, including not only the production and processing of hydrocarbons but also their transportation, sales, and services of service companies. This figure rose to a record 21.7% in the first quarter of this year.

High prices for oil and gas and recovery of oil production after a 20% reduction in the second quarter of 2020 contributed to the growth of the index. Although oil production growth in Russia has stopped, and world prices have begun to decline, this indicator may grow at the end of the second quarter. The reason for this will be a super-complicated mechanism of regulating domestic prices for oil products, which turned into significant payments from the federal budget in favor of oil companies.

This mechanism was introduced in the fall of 2018 after Vladimir Putin was concerned about rising retail gasoline prices. After that, the government signed an agreement with oil companies that the retail prices of gasoline and diesel fuel in Russia would be indexed according to inflation, and the budget will compensate refineries for the difference between domestic and export prices of petroleum products. In 2021, aggregate budget payments to refineries totaled 540 billion rubles (0.4% of GDP), and the budget paid twice as much for the five months of 2022, exceeding 1% of GDP.

After the sale of Russian oil and petroleum products in Europe became difficult, Russian companies had to sell them at a discount, and a kind of price scissors formed: Domestic oil prices dropped sharply, which reduced the cost of gasoline and diesel fuel production, while European prices of petroleum products rose rapidly, following the rise in oil prices. As a result, in June, the margins of high-performance refineries rose by more than 2.5 times from February. The Petromarket agency estimates that the combined share of government subsidies in net refining margins is 78% for refineries with gasoline configurations and 46% for refineries focused on diesel production.

Trials, trials, trials...

Twelve Rosgvardiya[1] officers who were fired for refusing to participate in the war in Ukraine have filed lawsuits for reinstatement in the Supreme Court of Khakassia. The cases are considered in the closed mode because, according to the security forces, the case materials contain state secrets.

Journalist Mikhail Afanasyev, whom the Russian authorities accused of “public dissemination of deliberately false information about the use of the Russian Armed Forces,” was the first to speak about the refusal of the Rosgvardiya officers to participate in the “special operation” in Ukraine. Since April 13, Mikhail Afanasyev has been in pre-trial detention. From the materials of the criminal case of Afanasyev, it became known that members of the Russian State Guard from several Siberian regions were sent to training exercises in the Smolensk region on February 12-13. On February 22, they were told that

there is a high probability of redeployment of officers to the territory of Ukraine to participate in a military operation. It was tentatively indicated that the combined detachment personnel were to move to the territory of Ukraine on February 25 after the troops of the Ministry of Defense had moved out.... The task [of the Rosgvardiya personnel]... was to guard the streets and intersections of Kyiv.

A high-ranking security official confirmed to the investigator that 11 riot police officers were dismissed on March 21 “committing misconduct defaming the honor of a member of the National Guard.”

On March 9, on demand of the Office of the General Public Prosecutor, Roskomnadzor blocked access to the information site Taiga.info. Today, the Tverskoi District Court of Moscow dismissed Taiga.info’s lawsuit to restore access to the site and to recognize unlawful the authorities’ actions in blocking it.

The law on military censorship in Russia was passed by both chambers of the Russian Parliament and signed by President Putin on March 4. The next day, the law went into effect. According to the law, information that does not correspond to the published reports of the Russian Ministry of Defense, regardless of references to other sources, is considered inaccurate. During the court session, a representative of the Prosecutor General’s Office stated:

.. while performing routine monitoring by the General Prosecutor’s Office on March 9, we revealed the existence of a series of reports on the Taiga.info website called ‘Current Events Chronicle: Economy, Society, Politics.’ I made a selection of screenshots showing that these reports’ cycles are permeated with unreliable, publicly significant information regarding a special military operation.

The editorial board informed the court that on March 5, it published a statement about cessation from covering the course of military operations in Ukraine and removed from the site all information that had been previously posted on this topic. In addition, the Current Events Chronicle is entirely devoted to Russia’s economic and social situation.

When the lawyer was asked to provide specific facts of violations that the Prosecutor General’s Office found on the website, the prosecutor provided a quote, stating that he could not say “from what date this publication was published”: “The city is heavily destroyed. The city is being bombed all the time.” According to the editorial office, the quote was taken from a monologue by a Siberian woman in Kharkiv. The text did not specify who was destroying the city, nor did it mention Russian soldiers.

A Prosecutor General’s Office representative could not confirm that the site contained “calls for mass unrest,” which were mentioned in the Roskomnadzor decision to block it. When asked by attorneys how the “threat to the public interest”—which, under the law, is the basis for the Prosecutor General’s Office to demand the site be blocked—the prosecutor clearly admitted that he had no such evidence.

I am not ready to comment on this particular resource right now. But perhaps there still is because the resource is huge in size.

Despite this, the court dismissed Taiga.info’s lawsuit.

The district court in Krasnodar fined Vadim Kiselev a thousand rubles because of a message on WhatsApp in a house chat room. Kiselev was found guilty in the administrative case of “publicly identifying” the actions of the USSR with Nazi Germany and denying the “decisive role” and “humanitarian mission” of the USSR in World War II. This was the first case of application of the law adopted in mid-April of this year. Repeated violation of the law implies the possibility of arrest for up to 15 days. 

Kiselev suggested that chat participants read Memories of War by veteran Nikolai Nikulin, who entered Berlin in 1945. Nikulin wrote the memoir in the early ’80s, telling the harsh truth about the war, including the attitude of Soviet soldiers to the civilian population of Germany. The book was printed in 2015.

Doesn’t it work? Get an award!

Vladimir Putin has repeatedly boasted that Russia was the first country to develop and authorize a coronavirus vaccine. In fact, three vaccines were approved for use in Russia, one of which, EpiVacCorona, was designed in Novosibirsk at the state scientific center Vector. The center received 3.5 billion rubles to develop the vaccine, and the Ministry of Health purchased 12.5 million vaccine doses. In late 2020, it became known that one of the patent authors for this vaccine was Anna Popova, head of Rospotrebnadzor, the government agency that oversees the use of vaccines.

From the beginning of the use of EpiVacCorona, it was reported that its effectiveness was extremely low; volunteers on whom the vaccine was tested did not detect neutralizing coronavirus antibodies. However, this did not prevent the government from buying the vaccine and Popova from receiving royalties.

Scientists and physicians from the European University in St. Petersburg and the Berezin Medical Institute conducted a study of the vaccine’s effectiveness, involving nearly 24,000 people. The study was conducted from October 1, 2021, to April 28, 2022, when Delta and Omicron strains were spreading in Russia. According to the study, the efficacy of EpiVacCorona was 2%. A similar figure for the Sputnik V vaccine was 71%, and for the CoviVac vaccine, it was 46%.

In January 2022, the Russian Ministry of Health “temporarily suspended purchases” of EpiVacCorona on the pretext of its “substantial stockpiles.” In May 2022, the end of its production became known.

On July 15, 2022, President Putin awarded the Order of Pirogov to Rinat Maksyutov, head of the Vector Center.

Banks as hostages

I have already said that hostage-taking is part of Vladimir Putin’s policy of having law enforcement agencies go after political opponents of the Kremlin on his orders. The other day, the government’s financial officials extended this practice to the banking system and prohibited foreign banks from selling their subsidiaries in Russia. Deputy Finance Minister Alexei Moiseyev said this:

Our state banks, which are under sanctions, and in general our banks under sanctions, have had quite severe problems with the work to resolve situations with their banks abroad. In some cases, we can observe that they (foreign regulators—RBC) remove the shareholder’s right to manage—this is legal lawlessness. We discussed it at our subcommission [for issuing approvals for asset purchase and sale transactions with non-residents from unfriendly countries]. We will not permit the selling of the assets of foreign banks in Russia until the situation improves. If we receive [appeals], we will reject them.

HSBC jumped on the last bandwagon of a departing train, saying that it had managed to sign an agreement with Expobank to sell its Russian bank just days before the ban was enacted.

After French bank Société Générale sold its Rosbank (No. 11 in rating) to Russian oligarch Vladimir Potanin in April, it became known that three other major foreign banks operating in Russia—Unicredit (No. 10), Raiffeisen (No. 12), Citibank (No. 27) —were seeking buyers for their assets. But it looks like they can forget that wish.

The government, instead of sanctions

The International Medical Device Manufacturers Association has warned of the possibility of a shortage of equipment in Russia. The reason for this will not be the Western sanctions but the bans imposed by the Russian authorities.

After the first wave of sanctions, the Russian government feared a possible mass recall by manufacturers of imported equipment installed in Russia. On March 9, it banned the export of 200 types of equipment and machinery without special permits. This ban included exporting medical equipment or parts for repair or replacement, which is the standard practice of many companies. The Ministry of Industry, whose head, Denis Manturov, was appointed Deputy Prime Minister a week ago for the export of medical equipment from Russia, should be given licenses. The Head of the association, Sergey Vanin, claims that the ministry has not yet developed a procedure for issuing such permits and thus blocked the usual service of medical equipment in Russia, not fallen under sanctions of the United States and the European Union.

According to our estimates, now or soon, several thousand positions of medical devices, spare parts, and accessories will have to be taken out of Russia for repair or service. At the same time, most of the Russian market of medical equipment, especially when it comes to high-tech equipment such as CT, MRI, and ultrasound machines, is represented by manufacturers from Europe, the USA, and Asian countries—and their production sites and service centers are located in these countries. Even if the agency is ready to issue us permits, the customs service does not approve the export of medical equipment.

To avoid a crisis, experts of the association propose to change the government’s decision and remove the ban on the export of medical equipment. The Russian Ministry of Health leadership strongly disagrees with this proposal, insisting on launching the mechanism of issuing individual permits.

When Denis Manturov was confirmed in the State Duma, the deputies did not ask him any questions on this topic. Mastering his new powers seems to me will not allow Manturov bandwidth to deal with such insignificant issues. 

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[1] The National Guard of the Russian Federation, or Rosgvardiya, is the internal military force of Russia that reports directly to the President. Its mission is protecting public order, ensuring public safety, combating terrorism and extremism, taking charge of gun control, and guarding essential state facilities. In fact, Rosgvardiya is Putin’s private army used to suppress public protests. The National Guard numbers approximately 340,000 personnel across Russia.

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