Weekly 11 January 2019

Russian officials wrote an economic program for Venezuelan President Maduro’s second term

Hello! In our first regular newsletter of the new year, we’ve got a scoop about how Russian officials are trying to help Venezuelan President Maduro extricate his country from economic collapse. You can also read about one particularly painful consequence of Western sanctions for the Russian aviation industry, the damning results of a compromised investigation into the murder of three journalists in Africa last summer and, finally, the extraordinary financial success that a billionaire-sponsored, slickly made Second World War tank movie has enjoyed at the box office over the last 10 days.

Scoop: Russian officials wrote an economic program for Venezuelan President Maduro’s second term

What happened

On Thursday, Venezuelan President Nicolas Maduro began his second term after being re-elected last year despite annual hyperinflation of 1,300,000% and an economic collapse that has created millions of refugees. Russia has long sponsored Maduro’s regime, like Hugo Chavez’s regime before that, and is the only international ally of the U.S.-sanctioned Latin American country. The Bell has learned that, in November, Russian officials wrote a roadmap for Maduro’s administration to help them find a way out of economic crisis.

The list of measures to save the Venezuelan economy was passed to Maduro’s government in November by a delegation led by Russia’s deputy minister of finance, Sergei Storchak. The recommendations, seen by The Bell, include:

  • Introduce a minimum income for households. Gasoline was free for Venezuelans before 1 January 2019, but now the government has introduced market prices. A guaranteed minimum income, according to the Russian officials, is the most effective way to fight poverty: “the money can be spent on gasoline, and on what households need.”
  • Stop financing the budget deficit by printing money. In August, Maduro removed five zeroes from the country’s currency and relaunched it as a “sovereign bolivar”. But without any other steps to reduce the deficit, the currency lost 95% of its value against the dollar in just a few months. Banks are reportedly already refusing to accept two bolivar banknotes, the lowest denomination, even though they are brand new.
  • Reform the tax code, with a new focus on indirect taxation.
  • Increase oil production and diversify exports (it was unclear from the document how this could be accomplished).

Russian officials also diplomatically praised Venezuela’s attempts to solve hyperinflation by creating a national crypto-currency tied to oil — the El Petro. But Storchak said Russia is not prepared to use this currency for settlements between the two countries.

Whatever the merits of the proposals, it is unclear if Maduro’s government is actually ready to implement them. Venezuela received what it needed most from Russia when Maduro met President Vladimir Putin in December. After the talks, Maduro announced Russia would invest over $5 billion in in Venezuelan oil assets and deliver 600,000 tonnes of grain. Altogether, according to calculations by Reuters, the Russian government and state-owned oil giant Rosneft have provided over $17 billion worth of loans to Caracas since 2006. Venezuela’s state-owned oil company, PDVSA, is repaying this via oil deliveries, but it is a very slow process.

Why the world should care

While Russia’s friendship with Venezuela is loss-making, the Latin American country’s economic collapse plays into the hands of Russian oil companies and was a major reason for crude price rises in 2018. If the Venezuelan government heeds the reasonable advice given to them by Russian officials, it would make life easier not just for Venezuelans, but the country’s neighbors, who took in 3 million refugees in 2018 and are predicted to receive another 2 million this year.

Sanctions could scupper production of Russia’s flagship passenger aircraft

What happened

Russian aviation’s most important project of the last decade — the mid-range MC-21 liner designed to compete with the Airbus 320 and the Boeing 737 — is at risk of falling apart because of Western sanctions. This is one of the most serious consequences of sanctions yet.

The MC-21, a medium-range passenger plane, completed its first flight in 2017, and deliveries to its first buyer, Aeroflot, were scheduled to begin by 2020. Now, none of this is likely to happen anytime soon. As Kommersant learned on Thursday, sanctions against the aircraft producer, state-owned United Aircraft Corporation (OAK), have caused U.S. and Japanese companies to refuse to supply materials needed for the wings. OAK only has enough material for six aircraft, which means the company has only two options if it doesn’t want to abandon the project:

  • Organize the production of Russian replacements — but this would take several years and it would only be possible to begin production in 2025.
  • Give the aircraft traditional metal wings — but this would make the project economically unviable and put OAK in a weak competitive position against Boeing and Airbus.

On Thursday, the head of OAK announced (RUS) that the company will pursue the first option, and look for a Russian replacement. OAK also said it would appeal against sanctions. But there were no details on how all this will impact the project’s timeline. It is very clear that a long delay will be a painful blow to Russia’s aviation industry:

  • After the collapse of the Soviet Union, Russian aviation had to start afresh. Because air transport was subsidized by the Soviet state, aircraft had never before been designed to be competitive in the free market.
  • The MC-21 is the second civil aircraft designed in Russia after the fall of the Soviet Union. The first, the Sukhoi Superjet, began commercial flights in 2011 and has never been that successful: problems with servicing and spare parts meant many Western buyers walked away. The largest foreign buyer, Mexico’s Interjet, bought 22 Superjets but had to dismantle some of them for spare parts.
  • Not only did the government invest 438 billion rubles (almost $10 billion) in the МС-21 project, but the aircraft was designed to be the flagship product of modern Russian aviation in the mid-range liner market. And the timing had been good: after recent acquisitions, the global aviation market is now less competitive than a year ago. ОАК might have been able to compete along with China’s state-owned Comac, scheduled to launch its first mid-range aircraft, the C989, in 2021.

Why the world should care

Sanctions have hit global businesses the hardest: we saw this clearly with Oleg Deripaska’s Rusal. And a modern aviation industry is impossible without international cooperation: in another example, Russian engineers and Moscow-based design centers owned by Boeing and Airbus participated in the development of the Boeing 787 and the Airbus A350. Moreover, the possibility of further sanctions threatens not just the MC-21, but the entire Russian civil aircraft industry, one of the few sectors in the economy that still has technological advantage.

Investigators link Yevgeny Prigozhin to the murder of three Russian journalists in Africa

What happened

The results of an investigation, funded by exiled oligarch Mikhail Khodorkovsky, into the murder of Russian journalists in the Central African Republic (CAR) have been published. The main finding is that local contacts used by the journalists were closely tied to employees of a company owned by Yevgeny Prigozhin, whose activities the journalists were investigating. Prigozhin, dubbed ‘Putin’s chef’, is suspected of owning a Russian mercenary company and was indicted in the U.S. for allegedly trying to interfere with the 2016 presidential election.

In July 2018, journalists Orkhan Dzhemal, Alexander Rastorguev and Kirill Radchenko travelled to the CAR to investigate the activities of organizations owned by Prigozhin on an assignment for a Khodorkovsky-owned media outlet. Two days after they arrived they were shot and killed by unknown assassins. The Bell wrote in detail about their murder and about the activities in the CAR of Prigozhin’s company and his mercenary outfit.

The investigation’s main conclusions were:

  • From the moment they arrived in the CAR, the journalists were accompanied by local police employee, Emmanuel Kotofio. On the evening when the journalists deviated from their pre-planned route and were killed, Kotofio had passed through the last checkpoint 20 minutes earlier. He was accompanied by two Africans and three Europeans. Kotofio warned the security team at the checkpoint that the journalists would be arriving and said they should be waved through. Several hours later, they were dead.
  • According to mobile phone call records found by the investigators, Kotofio was responsible for the driver-translator who drove the journalists to where they were murdered and who witnessed their killing. Kotofio was also in constant contact with Russian employees of Prigozhin’s companies operating inside the CAR.
  • Kotofio trained in Sudan with Russian instructors and after the murders he was promoted.

This sounds very cut and dry, but there are some valid questions to be asked about the credibility of the investigation:

  • The investigation was carried out by Dossier, a project financed by Khodorkovsky. An investigative journalism outfit owned by Khodorkovsky sent the journalists to the CAR to report on Prigozhin’s activities in the first place. This means that the investigation cannot be deemed impartial.
  • The names of the investigators have not been released. The Bell was told journalists were not among the authors. The BBC Russian Service reported (RUS) that one of the investigators is a former member of the Israeli secret service. To collect information in the CAR, the organization hired six local stringers — their names are also unknown.
  • Dossier quotes data from mobile phone operators, but it is unclear where the documents came from.  It is impossible to verify this information using legal means.
  • According to the BBC Russian Service, some of the information which Dossier used came from the Ukrainian intelligence services. On the one hand, they would be very familiar with the work of Russian mercenaries, who also fought in eastern Ukraine. On the other hand, they have a clear motive to discredit Russia.

Why the world should care

The story of this investigation is an excellent illustration of how information flows work. In order to try and understand the truth about these horrific murders, you are forced to analyze the degree of bias in an investigation financed by an opposition-minded billionaire. There are no other options: official Russian investigators spent just three days in CAR and haven’t made any public announcements. In the CAR, it has to be noted, the army is, to all practical purposes, under Russian control making an official Russian investigation relatively straightforward.

Blavatnik-produced Second World War drama breaks box office records

What happened

A tank thriller movie, T-34, released on January 1 earned $19 million during its opening weekend – a new all-time record (RUS) for a Russian-made film. Len Blavatnik, the 48th richest person in the world according to Forbes, was one of the film’s producers. Blavatnik is a British-American billionaire with Ukrainian roots and the business partner of Viktor Vekselberg, a Russian billionaire under U.S. sanctions.

  • The movie, which Russian media refer to as “The Fast and the Furious with tanks”, tells the story of a Soviet tank commander. Captured by the Nazis, he agrees to be a live target for German tank crews in the hope of escaping in the tank they provide him with. This is where the movie gets its name: the T-34 was the most famous Soviet tank and is still widely seen as a symbol of the Second World War.
  • Two companies were involved in the movie’s production: Russia’s Mars Media and Amedia, both owned by Blavatnik’s Access Industries. The billionaire said he had a personal motive in backing the movie as his grandfather was a war veteran.
  • The movie’s budget was reportedly $10 million. In other words, the film broke even during its second week in theaters. And it has continued making money: the total box office revenue for its first 10 days was an impressive $21.1 million. As a comparison, Fantastic Beasts: The Crimes of Grindelwald earned as much in Russia in 2018 as T-34 made in its first 10 days. However, T-34 still has a long way to go towards the absolute box office record, still held by Avatar, which earned (RUS) $119 million in Russia in 2009. This month, T-34 will also begin (RUS) showings in Estonia and Lithuania, and will be released in March in the Netherlands.
  • The success of a Second World War movie on Russia’s screens is unsurprising: in recent years, the state’s propaganda machine has worked in overdrive to exploit the topic, comparing present day “enemies of Russia” to the Nazis. But it is notable that, as one well film critic observed (RUS), T-34 almost managed to avoid overt patriotism.
  • T-34 owes its phenomenal popularity in part to the Ministry of Culture, which has been trying to boost the reach of Russian-made movies. Over the holiday period, from 31 December to 9 January, the ministry practically ‘cleared the field’ for T-34 with The Grinch, Transformers and Spiderman all released in the first half of December, creating a period ahead of the holidays without a single major premiere.

Why the world should care

Even when you take into account the support of the Culture Ministry and the deep pockets of Blavatnik, the popularity of T-34 should tell you something about modern Russian society. Not only is the Second World War a hugely emotive topic that draws in enormous crowds, but there is a hunger for slickly-made, not overly patriotic action movies.

Peter Mironenko

Show more