1. Putin’s inauguration is again threatened by potential mass protests
The beginning of May in Russia is not only a time for holidays, but also for acts of protest. The beginning of May on the eve of another inauguration of Vladimir Putin – doubly so. Six years ago, on the eve of the beginning of his third term, Moscow experience the last major protest in the series of protests which took place in 2011-2012. This protest was the catalyst for Russia’s largest political felony case, which resulted in 19 protest participants being handed prison sentences ranging from two and a half to four and a half years. Today, there isn’t anything close to the protest atmosphere that Russia had six years ago, but the Telegram ban scandal drew people to the opposition.
- We have been writing for the past several newsletters about the Russian government’s attempts to ban Telegram (here is the background, here the beginning, and here the continuation). The authorities’ defeat in their battle with the messenger service was evident in the first few days after the ban was announced. Now the story continues as a farce, giving a new reason to protest and at the same time, exposing contradictions between various Russian government officials.
- A funny and at the same time telling episode was the exchange over Facebook (another western service provider which might be banned in Russia) between Natalia Timakova, press secretary and head of Dmitry Medvedev’s administration, and Natalia Kostenko, who is now a Duma deputy, and earlier worked as a journalist for Vedomosti, which is published in cooperation with the Financial Times and the Wall Street Journal (yes, even these kind of career changes are possible in Russia). Kostenko asked her subscribers to stop writing to her over Telegram, claiming she “doesn’t receive the messages”. Timakova wrote a Facebook comment suggesting that Kostenko install a VPN, which would allow her to bypass the ban. “My god, you can’t even get away with a little light trolling of a Duma deputy!” was Timakova’s response when journalists spotted the conversation.
- However, for young citizens living in big cities, threats to a free internet are a more serious topic. 12,000 people gathered in the center of Moscow on April 30 in a protest in support of Telegram and internet freedom (here are photos from the event). For Russia, which has been suffering from political apathy since 2012, 12,000 people is a large number. The founder of Telegram, Pavel Durov, who lives abroad, became over the past month no less popular of an opposition figure than the traditional leader of protests, Alexey Navalny.
- Navalny, it seems, was able to jump on the bandwagon — he made a popular speech at the protest in support of Telegram and now he may count on more people attending his protest planned for Saturday, May 5, two days ahead of Putin’s inauguration. The consequences of the planned event are difficult to predict — unlike the protest in support of internet freedom, Navalny’s protest has been banned by city authorities, and Vladimir Putin has probably not forgotten how the opposition tried to ruin his celebration in 2012. Navalny traditionally calls on his supporters to ignore any bans on protests and to come out onto Moscow’s main boulevard, Tverskaya. A year ago, Navalny was able to draw out a crowd of up to 25,000 people — tomorrow we will see how many he is able to attract to protest against a more popular Putin.
Why the world should care
It is now clear that the consequences of the May 2012 protest showed us then how Vladimir Putin’s third term would look in terms of domestic politics: a tough show of strength against the opposition and no compromises. The authorities’ reaction to the banned Navalny protest this Saturday will also set the stage for the tone of Putin’s fourth term.
2. Russian oil giant’s new strategy hints at the end of aggressive state-capitalism
This major Russian company, having estimated the impact of new American sanctions, is preparing itself for tough times to come. Rosneft surprised investors this week. Russia’s largest oil company, which has spent $66 billion on acquisitions since 2013 and has taken on debt of almost $100 billion, announced that in 2018 it plans for the first time in many years to decrease spending and to begin to reduce its debt burden. It is a sign of a serious crisis in Russian state-capitalism if even Rosneft has run out of money to fund aggressive growth.
- In the 6 years that Rosneft has been managed by one of Vladimir Putin’s trusted friends, Igor Sechin, the company became a symbol of the expansion of Russian state-capitalism and at the same time, of its ineffectiveness. The best description of Rosneft’s business in the past several years was the report published by the major Russian investment bank, Sberbank CIB, with the telling headline: “Rosneft: We Need to Talk About Igor”. The report created a storm within Rosneft, and the bank had to apologize and publish a new, less provocative version of the report, but the overall message remained unchanged.
- The report drew one main conclusion: Rosneft spends a lot of money and it does so in a maximally inefficient way. In 2013, the company paid a record $54.5 billion (of this $44 billion in cash) for its Russian competitor, TNK-BP, and over the next four years Rosneft spent another $22 billion on M&A. All of these acquisitions were made without an overriding plan, and several expenditures — for example, $8.5 billion of loans to the government of Venezuela and Venezuelan state companies — were deliberately irrevocable, analysts explained.
- Rosneft has been under sanctions since 2014, which means that since then the company has had no access to western financing. So where did the company get billions for acquisitions? Primarily from the Russian Central Bank. The main source of funding for the company were bond issues, which were bought by Russian banks and immediately mortgaged to the Central Bank in REPO trades. These trades account for at least RUB 1.4 trillion ($22 billion) of Rosneft’s RUB 3.1 trillion ($49 billion) net debt.
- In February, S&P raised Russia’s sovereign rating, and together with this upgrade, S&P also upgraded the ratings of all major Russian state companies, except for one — Rosneft. With this volume and structure of debt, the company is completely dependent on the support of the state, but the Russian government’s actions “make one doubt” the strength of the bond between the government and the company, S&P analysts wrote in explaining their decision.
- Sberbank CIB wrote that Rosneft’s biggest problem is the company’s intransparency, and that decisions are taken by just one person — Igor Sechin. The company’s aggressive strategy will only change when he “changes his views” or will step down from his CEO role.
It is difficult to make a firm conclusion about why Rosneft suddenly started to behave like a publicly traded company. It is possible that Rosneft simply didn’t have a choice: this year, the company must pay back a record RUB 2.2 trillion ($35 billion) of debt, and state support will be limited — the new government will have to save money in order to finance Putin’s pre-election promises to the tune of RUB 10 trillion ($160 billion). “Rosneft” is not the only company which needed government help: just this week, Viktor Vekselberg, who came under tough U.S. sanctions, asked for government help in the amount of $5.5 billion. He needs this money not for new acquisitions, but to save his holding company which employs 130,000 people.
But it is possible, ahead of the formation of a new government, which will be charged with reforming the economy, that state companies could face real change, suggests (Russian, Telegram app needed) the former head economist of the Russian Ministry of Economics, Kirill Tremasov.
Why the world should care
In the end, it’s not important who initiated Rosneft’s change in strategy — the company itself or the government. The reason is only one: there isn’t enough money. That even Rosneft has admitted to the problem is a sign that under new circumstances, the Russian state-capitalism economy will need to adapt. Unfortunately, this doesn’t necessarily mean that it will become any more efficient.
3. Why Russia decided not to interfere in Armenia’s “Velvet Revolution”
The “Velvet Revolution” in Armenia, a rare post-Soviet country which remains Russia’s ally in 2018, prevented the country’s leader, Serzh Sargsyan, from holding on to power after serving two presidential terms, as Vladimir Putin did in 2008. Russia’s reaction was, for the first time in the history of post-Soviet “colorful” revolutions, unexpectedly reserved and even slightly positive. There are reasons for this.
- The world’s press have written in detail about the victory of street protests in Armenia, therefore we will not write about the events in Yerevan in detail. It is far more interesting to discuss the Kremlin’s atypical reaction. Until now, every time there were mass protests which resulted in a change of government in the post-Soviet sphere, Moscow was already strongly against any change. Moscow actively supported the local government during the Georgian revolution in 2003, and in Ukraine in 2004, and after the repeat of the “Orange Revolution” in Ukraine in 2014, this actually led to a military conflict on the territory of a neighboring country.
- This time, not once did the Kremlin say even the slightest word in condemnation of the overthrow of a legitimate government by street protesters. The press secretary of the Russian Ministry of Foreign Affairs, Maria Zakharova, usually doesn’t shy away from speaking her mind with regard to Ukraine. This time, she wrote an emotional post on Facebook: “Armenians are a great people, who have the strength to unify even in the toughest moments in their history. Armenia, Russia is always with you!”. Russian state television channels were neutral in their coverage of the protests in Yerevan, and internet trolls didn’t write thousands of posts about Armenia’s revolution being financed by the U.S. Department of State.
- After the events in Ukraine, the Kremlin’s goodwill and non-interference in Armenia seem surprising. But, actually there at least two reasons for the Kremlin’s reaction.
1) The Kremlin understands that Armenia doesn’t have a choice. The main factor in Armenia’s foreign policy is the ongoing since the 1980s conflict with its neighbor, Azerbaijan, over the unrecognized republic of Nagorno-Karabakh, who is controlled by Armenia, but Azerbaijan considers to be its territory. Armenia’s second neighbor is Azerbaijan’s ally, Turkey, with whom Armenia has irreparably hostile relations since the 1915 genocide. Both borers are closed, Russian troops guard the Turkish-Armenia border on the request of Armenia, and in the border city, Gyumri, there is even a Russian military base. Turkey is an important NATO member country, and this means that unlike Ukraine, Armenia has no chance of entering into NATO. The question of military security plays such an important role in Armenia that when the opposition shut down transport links across the country, an exception was made not just for ambulances and fire trucks, but also for Ministry of Defense vehicles. In this situation, no Armenian government will risk Russia turning towards supporting Azerbaijan. The leader of the opposition, Nikol Pashinyan, was never a pro-Russian politician, but during the protests he clearly stated that Russia remains Armenia’s strategic ally.
2) Moscow can influence Armenian politics with the help of business. The largest Armenian diaspora in the world lives in Russia — according to official statistics, 1.2 million Armenians live in Russia, which is equal to half of the country’s population. The richest Armenian in the Forbes list is the owner of the Russian construction holding “Tashir”, Samvel Karapetyan (net worth $3.7 billion), whose business is closely tied to Gazprom. During the last mass protests in Armenia in 2015 which arose over increases in electricity prices, Karapetyan helped to defuse the situation by buying from Russia a controlling stake in Armenia’s national energy company. This time, the billionaire at first tried to support the existing government, but after the protests grew, Karapetyan’s brother, a deputy in Armenia’s parliament, called on the government to agree to the protesters’ demands. Karapetyan is not the only influential Armenian businessman in Russia. For example, one of the country’s leading philanthropists is the founder of the Russian investment bank, Troika Dialog, Ruben Vardanyan, who used to enter into sensitive deals on behalf of the Russian government.
Why the world should care
One could come to the cheeky conclusion that Moscow’s restrained behavior stems from a desire to repair relations with the West, in order to lighten sanctions, which the FT has written about. But it is unlikely that this is the case: Russia simply doesn’t have serious reasons to get involved in the situation in Armenia.
4. A Russian who made his fortune during the dawn of the Russian internet became Google’s largest competitor in Vietnam
At the beginning of April we wrote about how small and mid-sized Russian companies are hoping to IPO in the West before new sanctions are announced (not one of these companies managed in time — after the sanctions were announced on April 6, all planned Russian IPOs were called off). The largest offering on Nasdaq — of $250 million — was supposed to have been made by Russia’s largest recruiting website, Headhunter.ru. Headhunter’s founder, Mikhail Frolkin, already sold his stake in the company and is now one of the largest investors in Vietnam’s internet business. The Bell’s founder, Liza Osetinskaya, spoke with Headhunter founder Mikhail Frolkin for our video project, “Russkiye Norm!” and we translated some of the interview’s highlights.
On founding a business in Russia in the 1990s. When I was really young, I was a hippy. In 1992, I was 22 years old. I never graduated from university. I studied at the institute of foreign languages. At that time, I wasn’t interested in business. I worked a lot as a carpenter, I built dachas, learned the ropes, and washed the windows. So how did I get involved in headhunting? I simply needed money. You needed to speak English and know how to use a computer. Today, everyone knows these things, but when I was hired by [a major HR company] Ancor in 1993, there weren’t such people around. The company was very logically built. Very little depended on the every day decisions of the founders, and that was smart. When I left, I simply copied those rules. I had a very nice first order. [The future billionaire] Mikhail Fridman personally gave me an order to find a chairman of the management board for Alfa Bank and paid me an advance. I built my company with that money.
On entering the internet market. When you look for expensive people, you must show your client that you identified everyone on the market, put together a long-list, talked to the people on that list, and then the long-list turned into a short-list. In order not to have to write down all of that, I developed a system — you call candidates, tape the conversation, and then press a button — and there is your report. When a few clients looked at the reports online, I got an idea — how could such resource look for those searching for work? In 1999 we began to actively look at the project, and we launched it in 2000.
On the sale of the company. Very quickly there were two interested buyers – Yandex and Yury Milner [then the owner of Russia’s second largest internet company, Mail.ru Group]. Yandex wanted only 100% or nothing, we talked for a year, and drew up a contract this thick. Then Milner came and said: I don’t need 100%, just sell me 10%, that’s enough for me. And the contract was only 3 lines long. The company was then valued at $15 million, and then five months later, at $110 million. The same people. [Milner] sat with us, and saw how fast revenues were growing. I really incredibly made the sale just before the 2008 crisis. That happened not because I’m smart, but because I’m lucky.
On his internet business in Vietnam. I met a person in a swimming pool in Moscow, he is Vietnamese. He was in a t-shirt with the logo of the Russian search engine Nigma.ru, and I began to ask him questions about Vietnam’s internet. He brought me an answer, and my partner said, that he wants launch a search engine in Vietnam. The company is now the largest internet company in Vietnam with revenues of more than $1 million per month. It’s called Coc-coc. One quarter of all clicks in Vietnam’s internet are made using our browser, and half via Google Chrome. In terms of searches, we have 6%, while Google has 92%. We are significantly less smaller than Google and Facebook in Vietnam, but we are the only search engine which took a bite of the pie away from Google. I think we are already worth $100 million.
About sanctions. I had an automotive project. As soon as we raised funding, Crimea happened. Then we had a large portion of our operations in Crimea; we hired cheap labor there. We immediately found ourselves under sanctions. In one wonderful moment we understood that we can’t raise any more money. In addition, our sales collapsed — car advertisements, and everything, on the very next day. I then got rid of that project, but I lost a lot of money, tens of millions. Now I don’t like internet projects which require a lot of up-front investment.
Why the world should care
The stories of international success achieved by Russian businessmen are very different — although Frolkin didn’t earn billions abroad, like Yury Milner. His is the story of a former hippy who made his money during the dawn of Russia’s internet boom, and then went on to challenge Google in Asia, which is no less interesting.
Peter Mironenko, The Bell
This newsletter is made with the support of the Investigative Reporting Program at UC Berkeley.
An insider view, in 5 minutes