War is out of focus
A severe blow. In the future
Insubordinate region
May we make a deal?
The government instead of the market
Creativity vs bureaucracy
Mosaic
War is out of focus
The war in Ukraine is gradually withdrawing from the focus of Russians’ attention. In May, 56% of respondents closely followed the events around Ukraine (including 22% who followed “very closely” and 34% “quite closely”), compared with 64% in March, according to a poll conducted by the Levada-Center.
People aged 55 and older follow events more closely: 71% of them do; in the 40-54 age group, 57% of respondents closely follow events; in the 25-39 age group, 45% do; and in the youngest group, 18-24, 34% do.
Although television remains the primary source of news information for Russians, slightly more than half (53%) of respondents believe it is objective in its coverage of the situation around Ukraine: 21% consider it completely accurate, and a third (32%) consider it mostly objective. At the same time, 15% consider television to be completely biased, and 26% consider it not a very objective source of information on this issue.
Concern about the events in Ukraine is also beginning to decrease gradually. The youngest respondents are the least concerned about what is happening: 66% of them are concerned, with only 14% of respondents being very concerned and just over half (52%) being somewhat concerned. The most significant concern is characteristic of the oldest age group (55 years and older).
Support for the actions of the Russian armed forces in Ukraine remains high and stable: A slight decrease compared to March but an increase compared to April. 77% of respondents expressed their support (including 47% who “definitely support” and another 30% who “rather support”)[1] while 17% do not support . The older respondents demonstrate the greatest support; among younger people, the “unconditional support” of special operations is markedly lower.
About one-third of respondents believe that people like them bear moral responsibility for the deaths of civilians and destruction in Ukraine; 58% believe that they do not. Compared with April, the share of respondents who admit fault has increased by 8 percentage points.
There is no clear opinion about how long the “special operation” can last. About a third (37%) think it can last up to six months; 2%, no more than a month; 9%, from a month to two months; 26%, from two months to six months. Another 44% of respondents believe it can last more than six months; 23%, from six months to a year; 21%, more than a year.
A severe blow. In the future
The EU’s sixth sanctions package, published last week, was—on the one hand—expected, but on the other hand, it brought some surprises.
The embargo on oil and petroleum product imports will be a severe blow to the Russian economy—the EU countries accounted for 50% of Russia’s oil exports in 2021 and more than 50% of Russian petroleum product exports. It should be considered that this embargo, as well as the ban on providing payment and insurance services for the transportation of Russian energy products, will come into force in six to eight months—that is, by the end of the year this decision will not have any significant effect on the Russian economy and the Russian budget.
Although the Russian government has ordered a halt to publishing many types of statistics, this ban does not work very effectively. At least as far as oil production data is concerned, the journalist found ways to get such data: In April, Russia’s average daily oil production dropped by 9% to 10 mbd, but in May, it rose slightly to 10.2 mbd. If we assume that the reduction in output is due to the inability to sell oil for export, then we can discuss a 14%-15% reduction in oil exports from Russia. Considering the rise in world prices and the strengthening of the ruble, this may mean about an 8% reduction in the current federal budget revenues from oil production and exports compared with the level budgeted in the law on the budget. Not a disaster.
A big surprise was the introduction of sanctions by the European Union against the National Registry Depository, through which Russian investors could buy and sell securities traded on the European market, including shares in Russian companies registered in Europe (such as Ozon and Globaltrans) and Eurobonds.
For Russian holders of Eurobonds of Russian companies, this decision will be a decisive factor in moving their bonds to Russia for safekeeping. On the one hand, it will make them much less liquid due to the low capacity of the Russian market. On the other hand, transferring the securities into custody in Russia would practically guarantee the receipt of current revenues and redemptions.
Insubordinate region
On June 1, a law on public authority came into force in Russia, which obliged regions to use a single name for the head of the executive power—“head of the region”—instead of “governor” and/or “president.” However, back in 2016, a law was enacted in Russia that prohibited the use of the word “president” for the name of a regional head. But this law did not work in the Republic of Tatarstan, and Rustam Minnikhanov, elected president of Tatarstan in 2010, continued to wear the former title proudly. The regional parliament postponed consideration of this issue until after the change of the republic’s leader.
The law of 2022 was more demanding: It banned the use of the word “president” in official documents. However, it turned out that this federal law doesn’t work in Tatarstan. On Minnikhanov’s official website, all the news items that appeared after June 1, 2022, refer to him as “president.” According to the press secretary of the head of the republic, the authorities of Tatarstan decided that Minnikhanov would keep his former title for the “transition period”—while the regional legislation was being brought in line with the federal one. Tatarstan authorities didn’t say how long such a transition process would take. One of the problems they cited was the need to amend the republic’s constitution, which would require a two-thirds quorum of the parliament. And it is impossible to do this at the moment—because of the continuing restrictions associated with COVID.
Of course, republican legislation must not contradict federal legislation. This was one of President Putin’s central themes in the first weeks after his inauguration in May 2000, when he started a full-scale war involving the FSB with the authorities of those regions that were in no hurry to clear up the contradictions. But respect for Rustam Minnikhanov in Russia is so high that the Kremlin will not be overly principled in this matter and will allow him to retain his current title.
May we make a deal?
Taking advantage of President Putin’s and Prime Minister Mikhail Mishustin’s loud statements about the need to reduce bureaucratic pressure on business, the business community is once again trying to change the criminal legislation that allows entrepreneurs to be put in jail in a variety of situations, regardless of the gravity of the transgression. These rules have become so severe that to repeal them, businessmen are willing to make material sacrifices and give up the corrupt loopholes in the law that allow judges to mitigate punishment.
This time, we are talking about changing the penalties associated with violations in the execution of public contracts. This topic escalated after the sanctions were imposed against Russia and many Russian banks and companies because Russian lawmakers and courts do not want to treat these events as force majeure.
Russian court practice is arranged so that in case of actual budget losses, which are measured at 2%-3%-5% of the amount of the state order, the courts impute to entrepreneurs damages in the amount of the entire value of the state order. And if the damage exceeds 250,000 rubles, the entrepreneurs are threatened with imprisonment. In reality, experienced lawyers know very well how to “negotiate” with judges and change the qualification of the crime to a milder one, which does not entail imprisonment.
Recently, however, the number of accusations of disrupting the execution of a government order has begun to rise sharply. This is due either to high inflation, which the budget accounts for, or to the fact that many contractors are derailing their obligations, citing the imposed sanctions. As a result, experienced lawyers have become scarce, and experts have proposed an original idea: To allocate violations in the execution of public procurement in a separate part of the Criminal Code, which would prohibit the use of imprisonment as a punishment if the accused compensate the damage to the budget in double measure. At the same time, it is proposed to remove the “corruption loophole” from the law.
Of course, such a “deal” with the government cannot be called fair: It will not lead to an improvement in the quality of work of Russian investigators or courts, and the presumption of innocence will be restored. But I am ready to welcome any step in the direction of abandoning the use of imprisonment as a measure of punishment for disputes related to economic interests.
The government instead of the market
Deputy Prime Minister Viktoria Abramchenko recognized the measures to curb the growth of prices for mineral fertilizers as effective and suggested the government extend them until May 31, 2023.
Russia has imposed quotas on the export of nitrogen and complex nitrogen-containing fertilizers outside the EEU since December 1, 2021. Initially, quotas were effective up to May 31, 2022, inclusive; later, the quotas were extended from July 1 to December 31: The quota for nitrogen fertilizers will be a little more than 8.3 million tons, and for complex fertilizers, just over 5.9 million tons. In addition, a ban on the export of ammonium nitrate has been imposed since February 1, 2022.
The reason for restrictions was a sharp rise in gas prices and, consequently, in prices for nitrogen fertilizers in Europe. Exporting nitrogen fertilizers became highly profitable, and fertilizer producers refused to supply Russian agrarians. After that, the government required companies to deliver fertilizers inside Russia in fixed volumes at prices that were significantly lower than export prices, with payment deferred for several months.
Creativity vs bureaucracy
In April, heavy haulers from Russia and Belarus were prohibited from entering and transiting the European Union. But that did not become an insurmountable barrier for Russian drivers, who immediately found ways to circumvent the ban.
According to the idea of the European bureaucrats, at the border of Belarus and Poland, drivers would have to transfer goods to European cars, making the transportation of goods significantly more expensive. As an immediate alternative, Russian and Belarusian drivers began to form partnerships with their Polish counterparts to replace a tractor at the border that could haul a trailer on European roads. However, this cooperative scheme did not become widespread: Disputes over how to divide income destroyed all agreements.
And then Kazakhstan came to the rescue of drivers from the brotherly countries. Because the ban imposed by the European Union did not apply to cars from this country, very soon, most of the vehicles arriving at the Belarusian-Polish border sparkled with new Kazakh license plates.
Mosaic
The volume of e-commerce in Russia in January-April 2022 increased by 50% compared to the previous year, while its share in total retail turnover reached 11.8%, according to the Association of Internet Commerce Companies.
In the total sales volume, 20% accounted for digital and household appliances, 17% for furniture and household goods, 16.5% for clothing and footwear, 13% for products, and 8% for beauty and health.
In May 2022, sales of new cars and light commercial vehicles in Russia decreased by 83.5% to May 2021.
[1] 53% and 28% in March; 45% and 29% in April, respectively.