The major stories you need
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1. Roman Abramovich’s UK visa drama — a worrying signal for Russian oligarchs

Alfa Group co-owner Pyotr Aven and Roman Abramovich. Photo credit: TASS

What happened

It appears that the UK has inflicted the most serious blow yet to Russia since recent tensions heated up between the two countries. Billionaire Roman Abramovich, who has invested billions in the British economy over the past decade, has been waiting almost two months for a UK visa. One could not imagine a better, more public example to illustrate what really makes Russian oligarchs nervous — especially those investing their Rusian profits in the West, like billionare owners of Alfa Group Mikhail Fridman and Pyotr Aven. The latter held a closed meeting with American foreign policy experts this week, and reportedly gave critical remarks over the Russian government’s actions.

  • The Bell was first to report last Sunday on Abramovich’s UK visa troubles. Abramovich’s Tier 1 Investor visa (which is issued for 3 years and 4 months and can then be renewed) expired at the beginning of April, and has not yet been renewed. Officially, British authorities have not rejected Abramovich’s application. The reason for the delay, according to The Guardian, is that British authorities can require Abramovich to explain the origins of the money that he invested in the UK. This is a new rule for Tier 1 visa applicants which came into effect in 2015.
  • Abramovich is not the only one of the 700 Russians who received Tier 1 investor visas over the past decade to have trouble with visa renewal. According to Yulia Grineva, a British solicitor who works with Russian clients, after toughening of inspections of Russian citizens in the UK following Sergey Skripal’s poisoning, the UK is now taking twice as long to review Russian investor visa applications. On average, applications now take six weeks to be reviewed vs. three weeks previously.
  • Of course it is possible that it is only a coincidence that others have experienced visa problems just like Abramovich. However, if UK authorities chose Abramovich to make an example for rich Russians that their money does not guarantee that no questions will be asked in Britain, then they really couldn’t have picked a better person to illustrate the point. In the mid-2000s, Abramovich was an example for Russian businessmen. He was the first of the oligarchs who made their fortunes in the 1990s and then was able, under Vladimir Putin, to successfully sell his assets to the state and build a life in Europe. Abramovich spent some of the $13.1 billion which he made on the sale of the oil company, Sibneft, to state-controlled Gazprom, on the purchase of FC Chelsea. Since 2004, the oligarch has spent more than £3 billion (almost €4 billion) on his Chelsea football club.
  • Abramovich’s troubles should be a warning to other businessmen who followed his path of selling assets in Russia and reinvesting those profits in the West in the 2010s. The best examples of this include the owners of Alfa Group, billionaire Mikhail Fridman (net worth according to Forbes $15.1 billion), German Khan ($9.8 billion), Alexey Kuzmichev ($7.6 billion) and Peter Aven ($4.8 billion). In 2013, the partners sold their largest asset, their stake in oil company TNK-BP, to state-controlled Rosneft for $14 billion. They then invested the money they made on this deal via their British company, LetterOne, which invests in a wide variety of businesses across the globe — from German oil and gas companies to American tech start-ups, including Uber. Just like Abramovich, Fridman and his partners did not come under U.S. sanctions, but they are on the Kremlin List’s “long list”. Each person included on this list, at least in theory, is at risk of becoming the next target of personal sanctions, like those which have already pushed billionaire Oleg Deripaska’s business to the brink of bankruptcy. In addition, Alfa Group was also named in the scandalous Trump Russia dossier, and the group’s owners are still suing the dossier’s author, Christopher Steele.
  • This week, Mikhail Fridman and Peter Aven arrived in Washington DC to participate in a closed meeting with American foreign policy experts hosted by the Atlantic Council, an influential think tank which also covers Russia. Between 2014-2017, the current U.S. ambassador to Russia, John Huntsman, served as Chairman of the Atlantic Council. According to anonymous reports (Russian) from people who were present in the meeting and who spoke with Echo Moscow, a Russian radio station, the billionaires were not keen to discuss sanctions, but they did make assurances that their own money is clean. Fridman and Aven criticized the Russian government’s actions, including the Telegram ban, and were pessimistic regarding the outlook for the Russian economy in light of sanctions. It would be logical to suggest that the billionaires are trying to distance themselves from the Kremlin in order to reduce their own chances of coming under sanctions.

Why the world should care

Just last fall, when it became clear that a “Kremlin List” was being prepared, many Russian billionaires began to avoid public appearances at Kremlin-sponsored events. However, it would be naive to conclude after hearing the remarks made by Alfa Group’s shareholders at the Atlantic Council that sanctions have driven a wedge between the Kremlin and major businesses. Fridman and Aven aren’t close friends with Putin; the myth that all Russian big business owners are equally close to the Kremlin has always been an exaggeration.

2. A major Russian investment bank fires its research analysts after they published a report critical of Gazrpom and Putin’s friends

What happened

Sberbank equity research analysts published a research report for clients in which they accused gas monopolist Gazprom of working not in the interest of its shareholders, but rather in the interest of its major contractors, the largest of which are owned by Vladimir Putin’s friends. One day later, Sberbank head German Gref apologized, the report was retracted and the analysts were fired.

  • The report itself which caused the scandal can be read here (Telegram app required). It’s primary argument is that Gazprom spends tens of billions of dollars building gas pipelines, but not because it makes economic sense for the company, for its shareholders, or even for the Russian state. “We have discovered that Gazprom’s decisions become absolutely understandable if one suggests that the company is being run in the interests of its contractors, rather than for commercial gain,” the author of the report, analyst and former FT journalist, Alex Fak, wrote. The report doesn’t make any further conclusions, but in Russia this is clear to everyone: the primary contractors building gas pipelines are registered companies officially owned by Vladimir Putin’s friends: Gennady Timchenko and Arkady Rotenberg.
  • The Gazprom report is not the first time that Alex Fak has spoken out. Last fall, the analyst rose to fame with the publication of a report on another “untouchable” state company, with the telling headline: “Rosneft: We Need to Talk About Igor”. The report drew one main conclusion: Rosneft spends a lot of money and it does so in a maximally inefficient way. It 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.
  • This time, one didn’t have to wait long to see the impact of the report — already on May 22, the next day after the report was published, Sberbank CIB announced that it had fired Alex Fak, and the day after, the head of research, Alexander Kudrin, was also fired. The bank also had to apologize: Gennady Timchenko told The Bell that on May 23, Sberank head German Gref called him and personally apologized and reported that those responsible for the report had been fired. That same day, the bank issued a press release with a quote from Gref stating that the analysts’ report was unprofessional, unethical and was misleading for the market.

Why the world should care

What happened to Sberbank’s analysts is bad news for foreign investors investing in Russian equities, for whom Alex Fak’s report was intended. Now, Russian analysts (and employees of local offices of global investment banks — they are also not excluded) will think three times before writing in their research reports what they actually think about major Russian companies. Investors will be less likely in the future to find objective information about the stocks that they are investing in.

3. A major internet company is launching a “Russia’s Amazon” with government help

Russia’s largest internet company, Yandex, launched an online marketplace which it hopes will become “Russia’s Amazon”. Until now, no one has succeeded in creating anything in Russia which dominates like Amazon in terms of market share.

  • As is the case with most other major projects in Russia, this project would also not have been possible without state involvement — Sberbank will have a 50% stake in the new marketplace “Beru!” (roughly translated “I Buy!”) and the bank is investing $500 million in the project. The project is being launched on the basis of the “Yandex.Market” price comparison site. In 2017, roughly 10% of all online purchases in Russia were made via the website, but Yandex.Market only began to generate commission income (just like Amazon) one year ago.
  • Sberbank was the main initiator of the project. To be fair, Russia’s largest state-owned bank is not just in the business of firing analysts — under CEO German Gref the bank has actively developed digital businesses and has become Russia’s largest player in the online and mobile payments market. At first Sberbank planned to build “Russia’s Amazon” itself, and then the bank negotiated for more than a year about a potential JV with Alibaba. But at the end of 2017, the negotiations broke down. Sources told The Bell this occurred for political reasons. A potential deal was discussed at the government level, and bureaucrats found it too risky to give a Chinese company access to the infrastructure of Russia’s largest bank. Then, the search engine company, Yandex, appeared as a new potential partner — a private company, but the state retains a “golden share” in the project which allows it to block a change of ownership.
  • It is not surprising that the joint Sberbank-Yandex project is the first serious attempt by a major Russian internet company to conquer the online shopping market. By global deal size the $1 billion venture is not big, but for Russia this is a record investment. The Russian e-commerce market was valued at $17.1 billion in 2017 — 26 times smaller than the U.S. market ($453 billion). This figure is comparable to India’s e-commerce market ($17.8 billion), but Russia doesn’t have a single player which compares to India’s online shop Flipkart, which was acquired by Wal-Mart at the beginning of May for $15 billion. 80% of Russia’s online purchases are made in Chinese-owned online shops, led by AliExpress.

Why the world should care

The Russian e-commerce market is not growing that quickly (in 2017 it grew by 13%), but for new investors the market offers at least one advantage: it is still fragmented, and unlike most other major markets in Russia, the market has not yet been divided up by major players amongst themselves. In addition, Amazon doesn’t have a local site and will not come to Russia. Companies willing to risk dealing with Russian logistics, which are challenging given the huge distances, poor roads, and terrible postal service, can try to grab significant market share in Russia, which they would not find so simple to achieve in, for example, China or India.

4. The last independent mayor of a major Russian city resigns

What happened

We continue to follow the political signals arising at the beginning of Vladimir Putin’s new term. The first was the rough crackdown on the opposition protest on the eve of the May 7 inauguration. The latest signal appeared this week — Yevgeny Roizman, Russia’s only independent mayor in a major city, resigned from his mayoral post. Roizman resigned in protest over the regional parliament’s vote to cancel direct mayoral elections in Yekaterinburg. Roizman is a politician with a contradictory biography, having begun his political career with a semi-legal campaign against drug dealers. By the mid-2010s, he had become one of Russia’s most popular opposition politicians 

  • Residents of most Russian cities do not elect their mayors directly — local duma deputies vote on their behalf in the city parliaments. Only nine cities are exceptions to this rule, including Moscow and St. Petersburg. Until recently, Yekaterinburg was one of these nine, but in May, local deputies decided to do away with direct mayoral elections in the city. Roizman explained that this happened after pressure from the regional governor, who has a conflict with Roizman. In reality, this doesn’t change much, as the role of mayor in Yekaterinburg was largely ceremonial: the mayor held office hours for citizens, spoke with journalists, and the city economy was managed by a deputy named as “city manager”. City government is structured in this format in many major Russian cities.
  • Roizman’s departure is illustrative because he was considered “the people’s mayor” or “our guy”. His biography helped created this image, and it was typical for a resident of a Russian industrial center: he didn’t really finish school, he got in trouble, and then he served a two year jail sentence for theft. After that, he went into business, and just like all regional businessmen, he was on good terms with many local criminal groups. Roizman made a name for himself as a politician with his fight against drug dealing. He created a fund which helped the police to catch drug dealers in Yekaterinburg and he aided drug users to undergo rehab using highly questionable methods. Young people who were brought to Roizman’s rehab centers by their parents were held against their will, refused replacement therapy, and were tied to radiators during withdrawal episodes. The fund included among its managers people with criminal pasts, and Roizman’s closest associate was found guilty of illegally holding drug addicts against their will and of heroin possession, which he allegedly used to frame drug dealers.
  • In 2007, Roizman was elected a State Duma deputy from the pro-Kremlin nationalistic party, Rodina, and in 2013 he was elected mayor of Yekaterinburg with the party, Citizens’ Platform, which was founded by billionaire Mikhail Prokhorov. Prokhorov is yet another oligarch who successfully sold his assets in Russia and now owns the Brooklyn Nets, an NBA team. You can read in more detail about Roizman’s career here. Prokhorov’s political career didn’t last long, but Roizman was able to distinguish himself on a national scale, and he was able to create a reputation for himself among opposition players as a truly independent politician. Indeed, it is unclear at this point how his career will develop in the future.

Why the world should care

It would seem that the mayor of one (albeit large) city is not a serious position in a country of almost 150 million, but when the government experiences a crisis, opposition politicians who have been elected in direct elections can suddenly have more power in their official roles. However, Russian authorities are now far from in crisis mode, and this confirmed by the fact that the mayor’s resignation did not lead to any serious protests.

Peter Mironenko, The Bell

This newsletter is made with the support of the Investigative Reporting Program at UC Berkeley.