September 15, 2022
Did he get it wrong?
Does somebody need gas?!
Gazprom in tatters! Thank you, Vladimir!
The devil is in the details
Self comes first
It’s not time to sing and dance
Just a fact
Did he get it wrong?
Vladimir Putin met with Chinese President Xi Jinping on the sidelines of the Shanghai Cooperation Organization (SCO) summit and touched on the war in Ukraine in a public greeting.
We appreciate our Chinese friends’ balanced position regarding the Ukrainian crisis. We understand your questions and concerns about this. During today’s meeting, of course, we will also explain in detail our position on this issue, although we have talked about it before.
Although Vladimir Putin has a great deal of experience with Chinese leaders, he does not seem to have learned to understand their positions well. The day before, President Xi visited Kazakhstan and at a meeting with President Tokayev said:
No matter how the international situation changes, we will continue to strongly support Kazakhstan in defending its independence, sovereignty, and territorial integrity.
Because the territorial integrity of Kazakhstan, under its geography, can theoretically be threatened only by its neighbors—Russia, Kyrgyzstan, Uzbekistan, or Turkmenistan—it is well understood who was the addressee of this phrase. And that the Chinese leader was speaking not only and not so much about Kazakhstan as about Ukraine.
The Xi phrase evidenced this in response to the Russian President’s greeting:
In the face of the tremendous changes of our time on a global scale, unprecedented in history, we stand ready with our Russian colleagues to set an example as a responsible global power and to play a leadership role in putting this rapidly changing world on a path of sustainable and positive development.
Interestingly, China’s Xinhua news agency did not publish photos of Xi and Putin’s meeting, although it did post photos from other arrangements between the Chinese leader and Putin in Samarkand. However, the report of the meeting was very brief:
Chinese President Xi Jinping met with Russian President Vladimir Putin on Thursday afternoon local time in Samarkand.
I am willing to assume that this is because Putin categorically refused to put on a face mask, without which Xi does not appear at public meetings. All other members of the Russian delegation weared masks.
Does somebody need gas?!
At a meeting with Pakistani Prime Minister Shahbaz Sharif, Vladimir Putin said that Russia is ready to start supplying pipeline gas to Pakistan if the issue of stability in Afghanistan is resolved. However, the Russian leader’s statement struck me as very strange.
... we have good prospects in various sectors: In rail transport, in the energy sector, and there are exciting and large-scale projects. This is the so-called Pakistan Stream: We are discussing creating the necessary infrastructure to supply liquefied natural gas.
We are talking about supplying pipeline gas from Russia to Pakistan. And this is also possible, bearing in mind that part of the infrastructure has already been created—Russia, Kazakhstan, and Uzbekistan. We need to solve the problem with Afghanistan: Of course, there are problems related to political stability, but bearing in mind our good mutual relations with the Afghan people, I hope that this problem can also be solved, bearing in mind Pakistan’s influence on the situation in that country.
The fact is that the two projects are in no way interconnected. The first one is the Pakistan Stream, a gas pipeline from the south to the north of Pakistan, from the port of Karachi in the south of the country to Lahore, whose construction agreement the Russian and Pakistani governments signed back in 2015. However, there is still no significant progress in its implementation—the maximum that the parties have been able to agree on is the capacity of the pipeline and the diameter of the pipe. And there is a second project, the TAPI gas pipeline, which should bring gas from Turkmenistan to Pakistan, and further on to India; this pipeline should pass through the territory of Afghanistan. However, there is no evidence that Turkmenistan will share the capacity of the future pipeline with Russia, except that the Russian company ChTPZ has signed a contract with Turkmengaz to supply pipes for the construction of this pipeline.
Russian-Turkmenian gas relations deteriorated sharply in 2008 when Gazprom refused to allow Turkmen gas into Ukraine and Europe and offered a meager price to buy Turkmen gas for its own needs. Since then, Turkmenistan has made a “turn to the east” and, with the help of China, has built gas pipelines with a total capacity of 65 billion cubic meters to export gas to the Celestial Empire.
Gazprom in tatters! Thank you, Vladimir!
Vladimir Putin’s willingness to discuss any projects related to Russian gas exports can be explained by Gazprom’s disastrous situation. The company published data on gas production and exports to non-CIS countries (Europe and Turkey). It follows that during the first half of September, gas production fell by 38% and exports fell by 64%, compared to the same period last year.
I do not see how even the rapid implementation of both projects in Pakistan can help the Russian giant: Gazprom has no LNG plants (the construction of the LNG plant on the Baltic Sea was halted after the EU sanctions), and Turkmenistan is unlikely to agree to give the company permission to build a gas pipeline through its territory.
The devil is in the details
After President Putin supported the position of the Ministry of Finance two days ago on the need to maintain a solid budget structure (which means controlling the budget deficit), Prime Minister Mikhail Mishustin had little left to do but translate the President’s decision into hard spending limits for all ministries and departments. This was no easy task: According to the Finance Ministry, requests for additional spending exceeded 5 trillion rubles (20% of the expenditures in 2022). However, Mishustin is listed among the talented technocrats, not for nothing, which is why Vladimir Putin appointed him to his high post: He resolutely took on the task of balancing the budget from both sides.
On the one hand is the need to increase the tax burden. Yesterday I spoke about the government’s intention to introduce an export duty on fertilizers; today, it became known that a similar decision could be taken on coal and chemical products. Although Deputy Finance Minister Alexey Sazonov said the government is not considering raising the income tax rate, I would not take this statement to be 100% true. Budget revenues are challenging, and the Ministry of Finance has no direct interest in increasing the income tax proceeds—all revenues go to the regional budgets—so this step the government can take while reducing subsidies to the regions.
On the other hand, the Finance Ministry came to the Prime Minister’s aid, saying that all recipients of budget funding should sequester their budgets and reduce applications for so-called “unprotected items” next year by 10%. The Treasury Department made similar sequestrations when it drafted the 2016 budget and made budget adjustments in 2020 related to reallocating spending after the start of the coronavirus epidemic.
Self comes first
On Tuesday, Prime Minister Mikhail Mishustin held another discussion in the format of a strategic session. Such events are attended by government members and CEOs of private and state-owned companies; the debate is semi-formal and does not involve tough decisions. This time, the discussion focused on software import substitution.
At the end of March, President Putin signed a decree banning the use of foreign-made software on “critical infrastructure facilities,” of which there are about 50,000 in Russia, from January 1, 2025. The Prime Minister was responsible for executing this order. Knowing Vladimir Putin dislikes the invisible hand of the market, he suggested using the stiff hands of officials and heads of state-owned companies. The Prime Minister approved the list of 16 industry committees in crucial sectors of industry and the social sphere (mechanical engineering, metallurgy, electronics and microelectronics, communications, education, transport, environment, etc.), the leaders of which were appointed deputy ministers. After that, the Prime Minister formed a list of 35 industrial centers of competence (ICC), which should coordinate the interests of users and software developers. The centers were headed by “heads of leading companies—industry leaders.” To increase the participants’ incentives in implementing the President’s order, the government promised to compensate 80% of the cost of domestic software development from the budget.
In August, the centers began their work. They organized the collection of consumer applications, which were submitted to the Prime Minister along with proposals for the selection of a lead developer. To the Prime Minister’s great surprise, in most of the projects, the heads of the centers proposed to transfer the software development contracts to subsidiaries of state-owned companies and state corporations. He was even more surprised that the presented projects “did not take into account the Russian achievements and assumed software from scratch.”
According to the government’s press service, the Prime Minister criticized several leaders of the ICC and sent their drafts for revision.
It’s not time to sing and dance
Opinion polls indicate that a majority of Russians support the “special military operation” (SMO), the Russian army’s military action in Ukraine; according to various polls, the level of support ranges from 55% to 75%. My hypothesis, however, is that a large proportion of the Russian population has minimal information about what is happening on the fronts. Therefore, it is more likely that this supports Vladimir Putin’s policies in general. At my request, the Levada-Center conducted a mini-study on this topic, which I will publish in the next issue (spoiler alert: My hypothesis is confirmed). A vital factor in decreasing support for the war will be disseminating information about the number of dead and wounded Russian soldiers in Ukraine shortly. We can already talk about the appearance of the “first robins.”
Governor of the Voronezh Region Alexander Gusev said that the Day of the City in the regional center “in its usual format” will not be
I think it is unnecessary to explain why—too much has been said on this subject recently. There will be no grand opening of the holiday, no fireworks, no mass events
At the end of August, a petition, “3 million rubles instead of fireworks on the Day of the City of Voronezh to help the soldiers of the SMO and residents of Donbas,” was posted in the city, which more than 3,000 people signed.
In Bryansk, the city authorities decided to cancel the traditional festive procession dedicated to City Day.
The Governor of Krasnodar Krai ordered the celebration of the 85th anniversary of the region to be modest: In particular, “to refuse expensive guest pop stars, fireworks, and other entertainment events.” The Association of Regional Parents’ Committees asked the Governor to cancel all the festivities.
The Governor of the Rostov Region suggested canceling the events, which were to be held September 15 to 18, and using the money saved to help the soldiers and refugees.
A week before the scheduled holiday in Ryazan, the city authorities decided to remove the fireworks from the holiday program due to “weather conditions.”
Grigory Sokolovsky, head of Sovetsk, Kaliningrad Oblast, openly explained the decision to cancel City Day
The reason is the tense situation in the war zone and the deaths of our countrymen who performed their military duty. After the funeral of one of the participants of the SAS, which will take place this Thursday, we consider it extremely unethical and unforgivable to sing and dance joyfully to the memory of the fallen and their relatives.
Just a fact
The share of imported drugs sold on the Russian market decreased from 76% in 2009 to 65% in 2020-2021. This change occurred because, from 2010-2020, more than 100 foreign manufacturers localized the production of 400 drugs at the sites of Russian companies. However, Russia’s dependence on imported pharmaceutical raw materials (substances) remains high at about 80%. India and China account for most of the imports (76%), while the EU share is relatively small (20%).
Rosstat’s data on the dynamics of drug production in Russia look highly contradictory. On the one hand, the statistics show that in July the revenues of drug and medical material producers decreased by 10% compared to July last year; on the other hand, Rosstat estimates the production index in this segment (July ’22/July ’21) at 117.5%. Production of hormonal drugs (minus 66%), drugs affecting blood and blood-forming organs (minus 30%-40%), drugs to treat the cardiovascular system and sensory organs, and antimicrobials (minus 15%-25%) fell the most by certain types of drugs. At the same time, the production of drugs to treat the digestive tract and respiratory system increased (plus 30%-35%).