Weekly 30 March 2019

Russian PM says arrest of former minister Mikhail Abyzov is over a business conflict

Hello! This week we focus on the arrest of former government minister Mikhail Abyzov, which is being seen as another powerful blow against the so-called liberals in government. But we also have the highlights of our interview with crooner and property developer Emin Agalarov, who has close links with President Donald Trump and was subpoenaed by Special Counsel Robert Mueller, our rundown on this Sunday’s presidential election in Ukraine and what it means for Russia, and the very symbolic news of automaker Ford’s exit from Russia and the closure of three of its factories.

Russian PM says arrest of former minister Mikhail Abyzov is over a business conflict

What happened

This week’s big news story was the arrest of Mikhail Abyzov, a businessman and former minister of Open Government Affairs, on embezzlement charges. Abyzov, who is 162 on Russia’s Forbes list, faces up to 20 years behind bars if found guilty. However, there are many inconsistencies in the investigators’ version, which seems to suggest Abyzov stole money from himself. Unsurprisingly, few believe this is about corruption.

The assumption in Moscow is that the arrest is an attack on Prime Minister Dmitry Medvedev and government ‘liberals’ (Rusnano head Anatoly Chubais is seen as the leader of this group). The arrest of another prominent billionaire close to Medvedev, Ziyavudin Magomedov, took place a year ago. But this interpretation might be too simple: Abyzov crossed the paths of many influential people. In particular, of Alfa Group and billionaire Viktor Vekselberg. Alfa Group is still trying to recover a $500 million debt from Abyzov. On Friday, Medvedev commented on the case, citing the official version about a business conflict. He tied the arrest to a “conflict with creditors”, which almost unequivocally points at Alfa Group.

  • Аbyzov was always known for taking risks. After the collapse of the Soviet Union, he quit Moscow State University, began buying and selling office equipment and imported foods. In the course of the Russian privatization he turned into the owner of some energy assets in Siberia. At the end of the 1990s, he joined energy holding RAO UES, which was being run by Chubais. As deputy head of the management board, Abyzov focused on unpaid debts and forced the regions and businesses to pay their unpaid bills. Acquaintances called him “a man with a bulldog grip”. After RAO UES was privatized and dissolved, he grew his own business in energy engineering, E4 Group. For a long time, things went well (in 2013, Abyzov had a net worth of $1.3 billion), but by 2016 the company couldn’t pay its debts, including those to Alfa Group, and declared bankruptcy. In 2012, then-President Medvedev asked Abyzov to become the minister of Open Government Affairs. His task was to be an internal consultant on transparency, but almost all of his initiatives fell flat. Despite this, Abyzov topped ratings of the wealthiest ministers. After the presidential election in 2018, his ministry was disbanded.
  • Bigh-ranked liberals have spoken out in defense of Abyzov, including former deputy prime minister Arkady Dvorkovich, former head of the presidential administration Alexander Voloshin, Medvedev’s former press secretary Natalya Timakova, and Chubais. But their pledges to stand bail were to no avail. Indeed, people close to Chubais have been arrested frequently in recent years. In 2015, Chubais’ close associate, Leonid Melamed, spent three years under house arrest, and five other former RAO UES top managers had to leave Russia for a while (Rus) to avoid the same fate.
  • Alfa Group was E4’s largest creditor, and this is one explanation for Abyzov’s arrest. A few years ago, Alfa tried to begin a criminal case against Abyzov, and last year it filed a lawsuit trying to hold the ex-minister and his partners liable for E4’s debts. Another old lawsuit in which Abyzov has been embroiled is with Vekselberg’s Renova. Vekselberg and Abyzov were co-owners of energy company KES Holding and, after a falling out in 2013, they filed competing lawsuits against each other, both seeking $500 million.

Why the world should care

Abyzov’s story is another reminder of how corporate conflicts are solved in Russia. While many are stressing similarities with the recent arrest of U.S. investor Michael Calvey, the founder of Baring Vostok, the parallels only go so far. In the case of Calvey, it is fairly clear who needed him arrested and why, but in Abyzov’s case, this isn’t at all clear. Medvedev’s intervention raises more questions than answers.

Emin Agalarov’s exclusive interview on the Mueller probe & Russian meddling

What happened

Emin Agalarov, and his father Aras Agalarov, were prominent associates of Donald Trump in Moscow, and of interest to Special Counsel Robert Mueller. Not only did the Agalarovs, who co-own Russian developer Crocus Group, host Trump’s 2013 Miss Universe contest, but they discussed a possible Trump Tower in Moscow, and helped organize the now infamous 2016 meeting between lawyer Natalia Veselnitskaya, who supposedly had compromising information on Hillary Clinton, Donald Trump’s son, his son-in-law Jared Kushner, and the then-head of Trump’s election campaign, Paul Manafort.

In an interview with The Bell, Emin Agalarov, who is also a pop singer, shared his version of these events for the first time since the beginning of Mueller’s investigation. Here is what we learned:

  • Why Emin Agalarov decided not to testify to Mueller: “I was ready to answer questions as part of the investigation, I had prepared to testify during the [U.S] tour and a put aside two weeks to do this. I don’t have anything to hide. But, just a few days before my tour was due to begin, my lawyer called me and said Mueller was ready to hear my statement and had just sent the subpoena to the airport. If you receive a subpoena, you automatically become part of the investigation as a witness and you can’t leave the United States until the investigation is over. At that moment, the investigation had already been going on for two years, and I wasn’t ready to be detained in the U.S.”
  • Putin wanted to meet Trump at Miss Universe 2013 in Moscow, but had to host the King of Jordan instead: “If I’m not mistaken, my father invited Putin through his press secretary. And either he or someone else in the presidential administration said that the president would like to come, but cannot because the King of Netherlands was in Moscow. Putin did not attend the event. I think maybe he would have come if he had had the time.”
  • The organizer of the 2016 Veselitskaya meeting promised compromising material on Clinton just to get attention: “I think he [Rob Goldstone] simply wanted to speed up the process. Like, if there is bait, they will reply faster. In Trump’s organization, everyone is busy, if you simply call and say, ‘tomorrow I need to meet with some random people’, nothing will happen. But I think some kind of political topics might really have been discussed at that meeting.”
  • State contracts aren’t profitable for Crocus Group, but they can’t be refused: “Crocus works on these projects because they are assigned to us by the top figure in the country… It would be weird [to refuse]: you live in Russia, you do business here, the president asks you to build something and your answer is: ‘I can’t.’ At the very least, that would be stupid.”

You can read the full interview with Emin Agalarov in English here.

How will Ukraine’s presidential election affect relations with Russia?

What happened

Ukrainian presidential elections will take place on Sunday and, while the outcome is unclear, a second round seems inevitable. The current favorite is comedian and media mogul Volodymyr Zelenskiy, who was predicted to get 26 percent of the vote in a recent Reuters poll. Incumbent Petro Poroshenko is in second place, while former prime minister Yulia Tymoshenko, in third place, looks set to be eliminated before the run-offs.

What would each candidate’s victory mean for Russia?

  • The main pro-Russia candidate is 60-year-old Yuri Boiko, a former deputy prime minister in Viktor Yanukovych’s government. He doesn’t expect to win, nor even finish in the top three. But if he won, he has said he would repair relations with Russia and open talks with the leaders of the Russian-backed rebel enclaves in east Ukraine. Boiko’s financial backer is believed to be Viktor Medvedchuk, a shadowy veteran of Ukrainian politics who is close to Putin (the Russian president is allegedly the godfather of Medvedchuk’s daughter). Poroshenko has called Medvedchuk “perhaps the only channel through which information can reach Putin.”
  • Leading the polls is comedian Volodymyr Zelenskiy. A dark horse, no one can predict what to expect from him. On the one hand, Zelenskiy is popular in the Russian-speaking regions of southern and eastern Ukraine, he has spoken out against a proposed ban on the Russian language and himself often speaks Russian in interviews. He lived in Moscow for several years and ran a business in Russia. He does not promise to join NATO and his position on Crimea is relatively moderate: “Crimea should be returned,” he said, “but that will only be possible after a change of power in Russia.” On the other hand, Zelenskiy is allegedly financed by billionaire Ihor Kolomoyskyi, who Putin strongly dislikes. Putin has called Kolomoyskyi “a unique crook”, while Kolomoyskyi referred to Putin as a “short schizophrenic”. In 2014, Russia tried Kolomoyskyi in absentia for killing civilians. But while Kolomoyskyi is financing Zelenskiy, this does not mean Zelenskiy is just a puppet: Zelenskiy is a trickster, and Russia is as confused as everyone else about what to expect from him.
  • Former prime minister Yulia Tymoshenko has an impressive list of pro-Russian decisions. Above all, she is remembered for the 10-year gas contracts with favorable terms for Russia, which she signed in 2009. Putin openly supported her, and subsequently agreed to waive fines owed by Ukraine. Putin has said he finds it easy to negotiate with Tymoshenko. Despite this, Tymoshenko’s rhetoric on the campaign trail is close to Poroshenko’s: she demands stronger sanctions against Russia over Crimea and the return of Donetsk and Luhansk.
  • Incumbent Petro Poroshenko is very hostile to Moscow. He has had consistently terrible relations with Russia, and there is no reason to expect a reset if he is re-elected. But there are some glimmers of hope: for example, Medvedchuk is constantly threatened with criminal cases, but, in reality, nothing ever happens. This indicates that the Russian government might be able to make some kind of a deal with Poroshenko — but it wouldn’t be easy.

Why the world should care

The conflict between Russia and Ukraine is the main stumbling block to improved relations between Russia and the rest of the world. The trigger for sanctions on Russia was the annexation of Crimea and the fighting in Donbas, not interference in the U.S. elections. Who takes power in Ukraine, and how the new president approaches relations with Russia, is of crucial importance.

Ford’s final exit from Russia is a sad coda to the economic boom of the 2000s

What happened

U.S. car manufacturer Ford has decided to stop production of passenger cars and close three of its four factories in Russia by the end of June. This is not just another sign of foreign capital leaving Russia, but a sad coda to the “roaring 2000s” when, amid high oil prices, foreign car manufacturers flooded into Russia. In the early 2000s, Ford was the first foreign automaker to build a factory in Russia, and the Ford Focus became a symbol of an era when Russians saw incomes rise and living standards improve.

  • Ford said on Wednesday that it was leaving its Russian joint venture with Sollers and shutting three factories with “significant” job losses.
  • Sales of the Ford Focus began in Russia in 2002, and the car went on to become one of the top three most popular models in its class. In just nine months, the Ford Focus became (Rus) the best-selling foreign car in Russia.
  • With the rise of the Russian middle class, foreign car groups were enthusiastic about the potential of the Russian market. Following in Ford’s footsteps, other automaking giants came to Russia, and by 2009 the car market was the largest in Europe.
  • Then everything started to go in the wrong. Oil prices fell, Russia was engulfed in a financial crisis, and Ford itself began to struggle: most of the cars it produced were too expensive even for European markets, let alone Russian consumers. In 2018, Ford sold slightly more than 50,000 cars (including both commercial and passenger vehicles), compared to a total annual production capacity of 360,000 cars at the company’s three Russian assembly plants.

Why the world should care

Just as Ford’s belief in the Russian market in the 2000s was a sign of economic boom times, so its departure is a very important moment. Although the automaker’s problems are global, the company’s exit is a profound symbol of Russia’s economic woes.

Peter Mironenko contributed to this newsletter. Translation by Tanja Maier, editing by Howard Amos.

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

Anastasia Stognei