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August 3rd, 2016

Barefoot Toward an Empire

Photo by vladtime.ru

AvtoVAZ plant / Photo by vladtime.ru

The news of the suspension of production at the major Russian car manufacturer AvtoVAZ in Togliatti, on the Volga River, neither comes as a surprise nor dominates the front pages. Considering the current economic situation this is quite logical: AvtoVAZ is not the first car maker in Russia to recur to this option. The Ford Sollers plant in Vsevolozhsk, the Volkswagen plant in Kaluga, Peugeot, Citroen, Mitsubishi, and other automobile manufacturers have suspended production at one time or another. It is obvious that even Putin’s KGB friend Sergei Chemezov, the current CEO of the Rostec state corporation that controls more than 700 machine building and defense plants in the country, including AvtoVAZ, cannot force Russia’s drastically impoverished population to buy new cars. It is also clear that the problem lies not with AvtoVAZ itself—whose Lada cars are world-famous for their low price and their simplicity—but with the overall crisis in the Russian economy that is suffering because of low oil prices and Western economic sanctions imposed in response to the military aggression against Ukraine.

Despite the assurances by Putin’s press secretary in early 2015 that “the fall in sales will be followed by a rapid growth,” the situation so far is the opposite. According to the Russian Auto Dealers Association, the automobile market has lost 40 percent of its model range in the last two years—and that is not the limit. Even the once-popular and inexpensive Ford Focus dropped out of the top 25 models sold in Russia, and the top rankings are now held by the cheapest cars that are two decades behind the 2016 European economy-class vehicles in terms of quality and technology. Even the sales of these “naked” cars are >> Read more

July 26th, 2016

Hydroelectric Power in Service of Cooperative Ozero

Bratsk Hydroelectric Power Station / Photo by evrosib.ru

Bratsk Hydroelectric Power Station / Photo by evrosib.ru

Hydroelectric power plants – gigantic dams across the country’s biggest rivers that supply cheap energy to entire Russian regions and their extremely energy-intensive industrial enterprises – used to be one of the key symbols of the Soviet Union’s industrial might. Up to this day, Russia’s hydroelectric power plants have been cumulatively providing around 20 percent of the country’s energy.

Out of more than 100 major hydroelectric power plants, with the total number of them in Russia reaching almost 200, most are owned by RusHydro PJSC that was founded as a public company by chief architect of the Russian privatization, Anatoli Chubais. However, the state still owns 67 percent of the company’s shares.  Another three major hydroelectric power plants belong to En+ Group controlled by Oleg Deripaska who is also president of the world’s second largest aluminum company Rusal. Deripaska’s interest toward hydroelectric power industry is not surprising since aluminum production is a highly energy-consuming process, and Rusal uses most of the electricity generated by Deripaska’s hydroelectric plants. Deripaska’s Russian assets can be considered private only nominally. A classic Russian oligarch of the 1990s, Deripaska is well-known for a statement he made in his 2007 interview to the Financial Times: “If the state says we need to give it up, we’ll give it up. I don’t separate myself from the state. I have no other interests.” Since in recent years global demand for aluminum has been steadily decreasing, Deripaska has no plans to extend his energy assets. As to the situation with RusHydro, its future is less clear. What is obvious that it shows much more signs of corruption and lack of professionalism. >> Read more

July 13th, 2016

The Russian Orthodox Church during the Tsar (President) Putin’s era

Photo by asianews.it

Photo by asianews.it

The newly established authoritarian regime in Russia has chosen to make the promotion of spirituality that is being served up as an intrinsic part of Russian culture and self-identification of the Russian nation as one of its priorities. It is obvious however that the regime’s real purpose consists in using this simple method to force its nationalist and patriotic rhetoric onto the population by glorifying the county’s past successes and inspiring pride in the “centuries-long history of the Russian empire” which in its turn allows the regime to draw the population’s attention away from the authorities’ lack of competence in governing the country and to cover up the most flagrant corruption by top Russian officials.

Responsible for spirituality, the Russian Orthodox Church (ROC) is formally separated from state institutions that, according to the law, are supposed to be secular by nature. However, ROC enjoys a number of economic advantages that have been granted to the Church during the Putin’s era. Thus, for example, it is impossible to use standards methods to calculate its “market capitalization” because legally, ROC is divided into more than 30,000 different organizations and since the mid-1990s it has not been disclosing either its gross budget or expenses. According to certain estimates, ROC’s income possibly reaches 5.6 billion rubles (or around $87 million) a year, without including federal funds that are being allocated annually to ROC and structures close to it which amount to another 3.5 billion rubles (or about $54 million). This does not seem such a large sum for a Church with more than 50 million faithful, does it?

However, this is only a part of the Church’s budget that different sources or ROC representatives themselves disclose from time to time in their statements. >> Read more

July 6th, 2016

A Lesson in Political Science: On Merging Black Cashboxes into the Kremlin’s Common Cash Funds

Nikita Belykh / Photo by TASS/Getty

Nikita Belykh / Photo by TASS/Getty

In political science, the term “democratic transition” is used to describe a transition period in the history of a country that has recently gotten rid of a totalitarian regime and is “in transit” toward the formation of democratic institutions, that is a regime that is neither totalitarian nor yet democratic. There probably should be another term to describe the reverse process from half-established democracy to a dictatorship. This is the totalitarian transition we are witnessing in today’s Russia, and the authorities have not yet tightened screws enough to prevent the information about different aspects of this process from reaching the population. Thus, the much-publicized arrest of former leader of the Union of Right Forces opposition political party and Kirov Region governor Nikita Belykh brought to light a sensitive topic of “black cashboxes” controlled by government structures.

What exactly is a “black cashbox” of a Russian governor? First, it is worth noting that according to official estimates, 40 percent of monetary assets in Russia are circulating in the shadow sector of the economy. Unofficially, this number is much higher. According to Russia’s Central Bank, in 2015, the volume of cash in open circulation reached 400 billion rubles. It has to be said, however, that in 2014, it amounted to 1.8 trillion rubles. Russia is a recognized leader in illicit financial flows. A report released by Global Financial Integrity (GFI) examines Russia alongside India, Brazil, Mexico and Philippines. More than 40 percent >> Read more

June 28th, 2016

Greedy Insurers and Bloodthirsty Collectors

Picture: ubu.ru

Picture by ubu.ru

Like many other sectors of the economy, Russia’s insurance market is going through bad times: the extent of insurance is declining, and, even according to the most optimistic forecasts, the nominal growth in insurance contributions in 2016 will not exceed 5 percent, which will be easily lost to inflation. This is hardly surprising, given the decline in car sales, decline in loans issued to the population (which results in the fall of revenues from life insurance,) and the general decline in business activity.

Given this context, the issue of lowering insurance compensations is coming on the agenda. In order to do this, insurance companies are resorting to analysis by “their own” experts who undervalue damages; deliberate slowness with insurance payments, especially with regard to health insurance and life insurance on trips abroad; as well as traditional Russian formalism that demands every document to be printed on a letterhead and to bear a seal. Car owners almost always have to argue with their insurance companies about the amount of compensation for the physical damage to their car, and hire an independent expert to evaluate the cost of repair. Such a situation would be unthinkable in a civilized market: for instance, in the US any repair to an insured vehicle damaged in a car accident would be reimbursed to a maximum estimate, and the only thing the insured has to worry about is whether his or her insurance limits cover the medical costs of the injured party. But even with the exaggerated costs of healthcare in the US, insurance payments in most cases are enough to cover all the costs of the injured.

Apart from manipulations with insurance payments, insurers are increasingly resorting to recourse and subrogation–that is, demanding compensation of their expenses from the guilty party. >> Read more

June 23rd, 2016

Putin, Roldugin, Shamalov, Patrushev and the Rest of Homeowners

Apartment building in Moscow / Photo by apb1.ru

Apartment building in Moscow / Photo by apb1.ru

The widely known problems in Russia’s housing and communal services sector are not new. The entire sector is slowly but steadily deteriorating. This is no surprise since the average age of the Russian housing stock exceeds 40 years. Several tragedies happened over the last year. A residential building partially collapsed in Mezhdurechensk; household gas explosions occurred in Omsk, Perm, Yaroslavl and Volgograd; a bridge collapsed in Vladivostok; cars regularly get stuck in potholes as pavement collapses. Well-known Russian blogger Ilya Varlamov has repeatedly supplied evidence of dire housing conditions of ordinary Russians.

The federal authorities do not at all seem concerned about this situation. In 2016, federal allocations for the repair and replacement of utility lines as well as for the upgrading of the housing stock will amount to around 75 billion rubles or about half of the obviously ill-gotten $2 billion belonging to Putin’s close friend violinist Roldugin. There are plans to further cut federal spending on the housing and communal services sector in 2017 to more than half its 2016 amount.

In fact, why should Russia’s budget be spent on housing around 85 percent of which is privately owned? On the other hand, despite the mass privatization of apartments in the 1990s, public spaces and communal services of most apartment buildings such as entrance halls, courtyards, stairs, gas, electrical and plumbing have not been privatized and remain the responsibility of municipalities. The budget situation on the local level is obviously much worse than on the federal one. >> Read more

June 16th, 2016

Putin’s Regime Thumbs its Nose

Russian Prime Minister Dmitri Medvedev during a visit to Crimea. Photo by A. Pupysheva / kafanews.ru

Russian Prime Minister Dmitri Medvedev during a visit to Crimea. Photo by A. Pupysheva / kafanews.com

On May 23, during a visit to Crimea, Russian Prime Minister Dmitri Medvedev made a fool of himself with a cynical and provocative phrase that quickly became one of the most popular hits on Russian Internet. Answering the question from an elderly lady about why pensions are not being raised, Medvedev, without so much as a thought, retorted: “There’s simply no money. If we find the money, we will raise pensions. You hold on here, I wish you all the best, good spirits and good health.” But the money is lacking not only for pensioners: all those who had for years depended on the needle of “Putinomics” are experiencing problems.

Russia’s largest car manufacturer, AvtoVAZ, is once again finding itself in a difficult situation: beginning on June 6, its workers were transferred from a four-day to a three-day week; layoffs of between 5,000 and 8,000 people are expected. According to AvtoVAZ’s report, the company’s debt arrears of more than 45 days after the first quarter of 2016 has reached 25.3 billion rubles—3.8 times greater than during the same period of 2015. The company’s total debt to suppliers and contractors during the same period amounted to 66.5 billion rubles (including arrears of 25.3 billion.) After the first quarter of 2016, the company’s net loss has increased 48 times, reaching 8.6 billion rubles. To cover its losses, AvtoVAZ will ask its French partner, Renault-Nissan, for a loan of 20 billion rubles. If it is unable to pay that loan back, AvtoVAZ will have to pay with its shares and assets. >> Read more

June 8th, 2016

Foreign Trade: An Unlearned Lesson

Picture: rusrand.ru

Picture: rusrand.ru

In 2013, Russia’s external turnover reached its highest level in modern history, amounting to the hefty $864.6 billion. Oil prices that from 2011 to 2014 constantly exceeded $100 per barrel had no small share in this. Thanks to this situation, such notions as budget deficit and state debt have become part of the history (albeit recent) of the 1990s that is being actively rewritten on Putin’s initiative.

Satisfied and content, Russian citizens – not everyone, but certainly the majority – came to believe that their financial stability was secure and demanded that the Kremlin come up with something more entertaining than the long-familiar reality TV shows, such as Dom 2 and Let Them Talk. Having tamed Siberian tigers and flown with Siberian white cranes, Putin responded to popular yearning for something better than TV fencing by treating his loyal people with the Sochi Olympics, and then the annexation of Crimea and the war in Donbass.

However, Russia’s foreign partners did not particularly like such reality shows and responded to them by introducing economic sanctions. Furthermore, the historic cycle of high oil prices came to an end, and in the summer of 2014 oil prices plummeted. That same year, Russia’s external trade decreased by around 7 percent, and in 2015, the country’s foreign trade dropped by 33 percent year-on-year from 2014. Statistical data for the first quarter of 2016 shows that this decrease will continue, since foreign trade is falling by more than 25 percent compared to last year. Consequently, in less than three years, the drop reached 65 percent.

The export and import patterns >> Read more

June 2nd, 2016

Innovative Type of Doping or Firing Bulava Missiles at Armata Tanks

Photo by oko-planet.su/

Photo by oko-planet.su/

In the modern world, minerals, land and other natural resources are gradually losing their value while knowledge and technologies are steadily gaining in importance. There are many examples that prove this point such as the Uber app that put the company that had created it at the top of the 2015 list of companies with the highest rates of market capitalization growth, leaving far behind both Russia’s “national treasure” Gazprom and the Kremlin’s “pride” Rosneft. Elon Musk launches reusable spacecrafts, and even Roman Abramovich invests money in the advanced US and Israeli apps Via and BlindSpot.

It is no surprise though that the same cannot be found Russia.  Domestic manufacturers have almost nothing to boast about on high-tech markets, except for tight oil pipeline valves the potential demand for which is far from being obvious. The state-owned corporation Rusnano that was established in 2007 specifically for the purpose of boosting the development of high technologies, has been deeply unprofitable since the very beginning.

Dedicated patriots who are “getting up from their knees” could object to the previous statement, and reinforce their argument by mentioning certain achievements in the development of military equipment. Russia’s innovative Armata tank, the Su-35 fighter, the Bulava missile and other “Iskanders” are staples of Russian state-run TV channels, especially in the context of the militarist frenzy that hit the country after the annexation of Crimea, support for pro-Russian separatists in Donbass and bombing raids in Syria. >> Read more

May 25th, 2016

The Privatization of Bashneft: An Exercise in Futility

Photo by Bashneft

Photo by Oil Company “Bashneft”

The Kremlin finally decided to approve the privatization of Russia’s major oil company Bashneft that had belonged to privately-owned AFK Sistema until its shares have recently been literally robbed while its owner Vladimir Yevtushenkov was being held under house arrest. Bashneft shares that used to belong to Yevtushenkov have been returned to the state, and the government now hopes that the sale of Bashneft will bring the much-needed money to replenish the Russian budget. However, the way the Russian authorities are preparing the sale of this valuable oil asset makes one think of yet another shady transaction.

On May 16, President Putin excluded 50 percent plus one share of Bashneft from the list of strategically important companies thus paving the way for the sale of the state’s majority stake. Today, the Russian Federation owns 60.16 percent of Bashneft’s voting shares (or 50.08 percent of its authorized capital). The regional government of the Republic of Bashkortostan, which is a federal subject of the Russian Federation, owns an additional 25.79 percent of the company’s voting shares (or 25 percent of its authorized capital).

The first question that comes to mind: What exactly is being sold? The Russian Federation is currently considering whether to sell a stake of 25, 50 or 75 percent together with the stake of the Republic of Bashkortostan. The regional government of Bashkortostan, however, does not support the idea of selling its stake in the company. The republic expects to at least keep the blocking stake (25 percent plus one share) in >> Read more