Weekly 27 April 2019

No reset on the cards as Moscow doubles-down after Zelenskiy victory

Hello! This week we examine the aftermath of Ukraine’s presidential elections and why peace in the Donbas looks, if anything, further and further away. We also look at state-owned Sberbank’s acquisition of what was once Russia’s third biggest internet company, the blackmarket for personal data in Russia and Russian billionaire Gavril Yushvaev who has just made an extraordinary profitable investment in ride-sharing firm Lyft.

No reset on the cards as Moscow doubles-down after Zelenskiy victory

What happened

The first week after Volodymyr Zelenskiy’s victory in Ukraine’s presidential election showed Russia is not going to attempt a reset. In the past week, moves from both sides mean it is much harder to see an end to the war in Eastern Ukraine.

  • On April 19, just three days before the presidential election, Russia introduced (Rus) new sanctions against Ukraine, banning exports of oil and oil products to the country. This is a serious blow: Russia supplies 80% of Ukraine’s oil and gasoline imports (although half of this volume arrives via transit through Belarus).
  • After the presidential election, in which Vladimir Zelensky won 73% of the vote, President Vladimir Putin was the only world leader not to congratulate the president elect on his victory. However, three days later, on April 24, Putin signed (Rus) an order to simplify the procedure to offer Russian citizenship to residents of the separatist republics in the Donbas. In Ukraine, that step was seen as a threat of a new military conflict — everyone remembers that, in 2008, Russian citizenship for residents of the republics was the trigger for Russia’s entry into the war with Georgia. Nationalists in Russia, on the other hand, accuse Putin of making the decision too late, arguing that Russian citizenship should have been offered during the active phase of the war in 2014-2015.
  • Ukraine’s Verkhovna Rada responded with a step seen in Russia as no less aggressive: on April 25, deputies passed a law “on the Ukrainian language”. It requires using Ukrainian in all public spheres: in education, culture, for services, such as, for example, in restaurants and stores. Russian is the primary language for 30% of Ukraine’s citizens, including Zelenskiy. Thus, the new president, not yet having taken office, is under double pressure: from Moscow and from Ukrainian nationalists, according (Rus) to Balázs Jarábik, Carnegie Endowment’s expert on Ukraine.

Russia’s new economic sanctions can be circumvented via Belarus, but the last two decisions were more serious, as both of them make it much harder to return the disputed territories in Donbas to Ukraine.

  • Residents of the separatist republics will likely do everything they can to acquire Russian citizenship, as this would give them the chance of receiving medical services in Russia and social payments. The minimum pension in Russia is twice as large as Ukraine’s, and four times larger than than the minimum pension in the disputed republics of eastern Ukraine. In Abkhazia and South Ossetia in the early 2000s, up to 90% of local residents received Russian passports with exactly this calculation in mind.
  • But there is a clause which illustrates that Russia is not yet planning to use the issue of passports to Donbas residents for its final separation from Ukraine. Normally, a person wishing to become a Russian citizen is required to give up his existing citizenship, but an exception was made for residents of the DNR and LNR — they will be allowed to keep their Ukrainian passports.
  • The new Ukrainian law on language makes it even more difficult. A total of 80.6% of the population of the disputed republics speaks Russian. Oppression of the Russian speaking population in Ukraine was and remains an important argument fueling anti-Ukrainian propaganda in Donbass.

Why the world should care

Both Russian (Rus) and American (Rus) experts believe that the first decisions by the Russian authorities after the election in Ukraine do not mean that Moscow wants to start a new open military conflict in Donbass. But the signals are clear: the Kremlin is showing Zelenskiy that it will only speak with him from a position of strength. The fears of Zelenskiy’s opponents and the hopes of his pro-Russian voters — that he would sign an agreement with Moscow — have proved to be false even before the new president’s inauguration.

State-owned Sberbank buys a former titan of the Russian internet world

What happened

The Russian tech market saw one of the deals of the year this week: state-owned banking giant Sberbank is buying internet company Rambler Group. At the end of the 1990s, Rambler, together with Yandex and Mail.Ru, was one of Russia’s three leading internet companies. But now the company’s only tech asset is a popular online cinema. Rambler was valued in the deal at no more than $350 million, 35 times cheaper than Yandex. But the acquisition of Rambler also gives Sberbank two of Russia’s largest online media outlets.

  • For Sberbank, Rambler is a weak substitute for Yandex, in which the bank tried to buy a major stake last year. Sberbank CEO German Gref wants so badly to turn the bank into a tech company that, this year, he already registered a new brand for this purpose without the word “bank” — simply “Sber”. But Yandex was able to fend off the acquisition, and the owner of Rambler, well-connected businessman Alexander Mamut, sold his company to Sberbank (the company had debt of $100-200 million).
  • After the deal was announced, Gref said it “will set a new standard in Russia for quality media content”. Sources who spoke with The Bell said that among Rambler’s assets, Sberbank was most interested in Russia’s second largest online cinema, Okko. Just like the U.S., television channels, social networks and mobile operators are all investing in online content. Russia’s largest mobile operator, MTS, is currently battling Russia’s sovereign investment fund, RDIF, to buy Okko’s primary competitor, ivi.ru.
  • But the deal has another angle: together with Rambler, Sberbank acquires two of the four most popular online media publications in Russia — Lenta.ru and Gazeta.ru. Each of these platforms has a daily audience of more than two million viewers. Until 2014, both publications had independent editorial boards, but after Crimea was annexed by Russia, the Kremlin took control over both platforms. Media manager Aleksei Goreslavsky, who was responsible for Rambler’s takeover of these outlets, went to work for the Presidential Administration in 2017.

Why the world should care

Politically important assets with unclear profitability and a state-owned buyer might be the hallmark of deals in Russia’s internet market in 2019. The only sweet spot is the potential for entertainment content, which should be a profitable endeavor in Russia in coming years.

Personal data is up for sale on Russia’s blackmarket — and it’s cheap

What happened

While the U.S. prepares to fine Facebook $5 billion for the irresponsible treatment of personal data, Russia has totally different problems. As a BBC article revealed, data on individuals, including information on their physical movements, can be bought for $200 — and to do so you don’t need to be a hacker, or have connections to the security services.

  • Over several years, a Russian market has emerged that trades in personal data. It consists of a network of internet forums on which you can purchase passport details, information about a person’s movements, details of their telephone calls, and even the password to their bank cards. A BBC Russian service correspondent was able to buy all of this information about himself for just $200.
  • The main suppliers of this information are low ranking (and therefore low paid) employees of mobile operators’ stores, bank branch offices, or the police. “A typical profile of someone convicted of selling personal data is a young man or woman from the provinces, with a low salary, a small child, and a dream about a beautiful life.” The buyers are fraudsters, private detectives, employees of the security services of private companies and people, who, for example, want to see if a spouse is cheating.
  • Those selling the information don’t face much in the way of punishment: for such crimes in Russia there are no more than 100 convictions annually, and the punishments are insignificant. And it is very difficult to establish the identities of those ordering the information, as orders are anonymous.

Why the world should care

If you own a business in Russia or are simply visiting, bear in mind — your personal data can be bought here by any competitor or adversary.

The Russian juice billionaire who made a 500% return investing in Lyft

What happened

This year will be a year of big tech IPOs, and, for the first time since the Facebook IPO, investors from Russia will be among those looking for a profit. The Bell found the most successful investor in such tech companies, the former owner of Russia’s largest juice producer, Gavril Yushvaev, who has made a 500% return on his original investment in Lyft.

  • “While everyone was running to Uber, he was smarter and invested in Lyft,” a colleague of Yushvaev told The Bell last year. The billionaire (net worth of $1.5 per Forbes) invested $100 million in Lyft at the end of 2015 when the company was valued at $4 billion. At its March 2019 IPO, Lyft was valued at $23.4 billion, and Yushvaev made a 500% return on his investment. However, the company has since seen its valuation fall 30%, and early investors are forbidden from selling their shares for almost another half a year. But even at the current value, the billionaire tripled his original investment.
  • Lyft is likely the largest investment Yushvaev has made in a Western start-up, but it is by no means his only one. By the end of 2017, Yushvaev had invested approximately $500 million in foreign companies.
  • Yushvaev was the co-owner of one of Russia’s largest producers of juices and dairy products, Wimm-Bill-Dann, which was bought by Pepsico in 2011 for $3.8 billion. Yushvaev received $1.1 billion for his stake. In Russia, Yushvaev is known for his criminal past — in 1980, he went to prison accused of robbery. In the 1990s, Yushvaev and his partners owned Moscow’s most famous casino, Metelitsa, and also owned car dealerships. They got into the juice business at the end of the 1990s. The last time that Yushvaev’s last name was in the Russian press was after a shootout in his skyscraper in Moscow City, where a local mafia boss was having his birthday (Yushvaev’s security team was involved in the incident).

Why the world should care:

The Lyft IPO is only the first of a number of major tech offerings planned for 2019. Russian investors have invested in many major start-ups which will be going public soon, including Uber, Airbnb, and Robinhood.

Peter Mironenko

Translation by Tanja Maier, editing by Howard Amos.

This newsletter is supported by the Investigative Reporting Program at UC Berkeley

Peter Mironenko