Systemic Opposition

A short article by Anna Nemtsova in The Daily Beast about the march commemorating the one year anniversary of the murder of Russian politician Boris Nemtsov. What stood out (once again) was that Russia’s systemic opposition is too focused on the petty to be truly effective.

“We went to court against the ban, we made lists of activists who were ready to be detained and spend a few days in jail just to pay our tribute to Nemtsov,” Dmitritevsky said. “We were very stubborn.”

Meanwhile, peoples livelihoods are being destroyed by the Regime. I am, of course, talking about the illegal destruction of small shops by the city of Moscow in the middle of the night. These are not oligarchs who could afford to take the hit. These are people who depend on their small kiosks and shops to survive. And did people take to the streets to protest? Were they willing to go to jail for supporting their neighbors? Did the so-called opposition even make a collective statement condemning the actions of Moscow’s City Hall?

And that’s just one example of the multiple ways that the Russian Regime is destroying the lives and livelihoods of ordinary citizens. The destruction of the mono-cities (towns dependent on only one industry for its livelihood), the blatant destruction of food by the authorities, the new system set to destroy the trucking business. All of these have received minimal condemnation from the systemic opposition.

Russia’s systemic opposition is allowed to survive precisely because they do not actually oppose the Regime. They are perfectly fine with the system as it currently exists except for one thing: they are not the ones running it.

This is why rather than support movements that oppose the Regime and its actions, these people who claim to oppose it would rather march and go to jail over a street name.

PaNOrama

A protest took place yesterday in Tbilisi against the proposed Panorama project in the historical old district of the city. I tweeted a few links with the background of the project, but I’d like to bring up another aspect to all of this.

 

In March 2014, the Georgian Co-Investment Fund brought its proposal for the Panorama development to Tbilisi City Hall.

The following month City Hall rejected the plans saying that the Fund had provided insufficient documentation. The city authorities also indicated that they were unhappy with the location Ivanishvili had chosen for the project, and suggested an alternative.

“The planning and technical-economic research of the project needs more justification. It is also important to make the correct selection of city planning in terms of a comparative study, based on the analysis,” read the report.

City Hall was not opposed to more development for tourism, but the location of Panorama was problematic for both environmental and historical reasons.

The local NGO “Green Alternative” says that “the project will upset the ecological balance in the region. In addition, historic conservationists assert that the development plans will end any chance the city has of being a UNESCO World Heritage site, and Tbilisi will lose money as a result. The old district of Tbilisi was proposed as a World Heritage site in 2007.

The Fund’s CEO, Giorgi Baciashvili, insists that Panorama will boost tourism. But Ivanishvili, who says he’s doing this out of the goodness of his heart, admits that the project is unprofitable. At least at first. He claims that the project could become profitable eventually if others join. But so far Ivanishvili still appears to be the only investor in the estimated $500 million project.

In addition, several plots of land that Ivanishvili owned were sold to the Georgian Co-Investment Fund. The Fund was established by Ivanishvili in 2013, with an initial investment of $1 billion by the billionaire. The amount paid by the Fund to Ivanishvili has not been disclosed.

Meanwhile, Ivanishvili appears to be stacking Tbilisi City Hall with his own people. In January, a new Deputy Mayor was appointed. Grigol Liluashvili previously worked at Ivanishvili’s Cartu Bank, and at another company associated with the Panorama Project.

According to the news portal Civil.ge: “Liluashivli…said that “timely” implementation of infrastructure projects would be among his priorities.”

His predecessor had reportedly been sacked due to the fact that he was taking too long to implement infrastructure projects.

A former City Hall employee has recently alleged that he was sacked and then charged with bribery due to his boss’s refusal to approve Ivanishvili’s pet project. This has not been confirmed, but rather denied by others involved.

City Hall’s Irakli Abesadze has also accused Ivanishvili of installing his own people at City Hall to further his own agenda.

“The recent personnel changes have nothing to do with the problems at the capita or improvement of the living standards of citizens. The appointment of Cartu Group employees at the government of Tbilisi serves for contribution of Bidzina Ivanishvili”s personal interests,”- Irakli Abesadze said.

What should be a straight-forward request for the municipal government to follow standard procedures has now turned into another example of the country’s king-maker imposing his will on the local government.

Yashin & Kadyrov

As promised, opposition politician Ilya Yashin released his report on Kadyrov yesterday. His report is all open-source. There is enough evidence and documentation by different human rights organisations and the media to make this possible. In the report, Yashin accuses the Chechen leader of ordering the murders of his political opponents and human rights activists in Chechnya.

RFE/RL reported:

The nine chapters in Yashin’s report cover topics from Kadyrov’s authoritarian rule in Chechnya, to his lavish personal lifestyle and alleged corruption at the expense of the federal budget, his “personal army” of some 30,000 fighters, his purported ties to organized-crime figures, the high-profile murders of Kadyrov critics like politician Boris Nemtsov and journalist Anna Politkovskaya, and his alleged support for terrorists abroad.

What bothers me about Yashin’s overall message is that he is essentially saying that:

1. the Kremlin has completely lost control of the situation in Chechnya; and

2. all of the crimes Yashin mentions were committed solely at Kadyrov’s behest.

“My report’s key purpose is to attract Russian public attention to the ongoing situation and to demand Ramzan Kadyrov’s immediate resignation as leader of Chechnya,” Yashin said.

Yashin is separating the Kremlin and Kadyrov’s Chechnya and treating them as two separate entities. In doing so he is absolving the Kremlin (and therefore the Russian Regime) of any and all blame for the crimes committed by Kadyrov and his men. I do not think this is an accurate representation of the true situation.

Meanwhile, in what was most likely an attempt to distract attention from Yashin’s report, Kadyrov (whose term as head of Chechnya is due for renewal next month) stated that he felt his work was done and that he was ready to be of use elsewhere fighting Russia’s external enemies. I jokingly asked if that meant he was running away to fight in Syria. But in reality, Kadyrov sounded like a petulant child threatening to run away because he isn’t appreciated.

I do not believe that the Regime will remove Kadyrov in the near future. Too much time and effort and money has been invested in the Kadyrov Project for a change at the top to make sense at this point in time.

Domodedovo

Paul Gregory had an article today in Forbes discussing the Domodedovo drama, and what it means, and I don’t quite agree with him. I wrote a bit about Domodedovo already, but to clarify my position:

Domodedovo’s Dmitry Kamenshchik was given an opportunity and he took it and made something of it. But he also knew that he had signed a deal with the devil. And the devil always demands something in return. In this case, the airport was only ever his on loan.

There is no private property in Russia, as I’ve discussed here on numerous occasions. The system is not crony capitalism. It is neo-feudalism. The State gives, and the State takes away. This is the how Regime operates. Those within the system know it.

You can hold Kamenshchik up as an example of how the Russian Regime operates, but don’t make him a victim. He knows how the system works, and he knew what he was doing when he refused to sell back to the State what was not his to begin with.

One more point (well, actually tw0): Vladimir Yakunin was never arrested, and Russian Railways was definitely never his because it is a state corporation.

Matthias Warnig

As the discussion on Nord Stream 2 remains heated in Europe, one person’s name keeps coming up in the discussion. Enough has been written on Matthias Warnig’s alleged past in both books and newspaper articles that I don’t feel it’s particularly valuable to repeat much of it. A quick review of this article from 2014 should be enough to give you a brief background.

For whatever reason, Matthias Warnig remains an integral part of the Russian business community. According to his biography on VTB’s website, he is currently connected to the following companies:

  • Nord Stream AG (Switzerland), Managing Director
  • United Company RUSAL Plc, Chairman of the Board of Directors
  • Gas Project Development Central Asia AG (Switzerland), Chairman of the Administrative Council
  • Rosneft, Vice-Chairman of the Board of Directors
  • Gazprom Schweiz AG (Switzerland), Chairman of the Administrative Council
  • Transneft, Member of the Board of Directors
  • Interatis Consulting AG, Chairman of the Administrative Council
  • Interatis Engineering AG, Chairman of the Administrative Council
  • Interatis AG (Switzerland), Director

Most of these companies are well-known, and their details easily found online. But the company I’d like to focus on today is the last one.

Warnig makes no secret of his connection to Interatis AG. But even if he did, a 2012 article by Forbes Russia reported that the company is controlled by Warnig.

According to his CV on VTB’s website, Warnig claims that his responsibilities at Interatis are: “Managing the company in accordance with the law and internal documents.” A nicely vague statement that reveals nothing, and certainly not the fact that Warnig reportedly holds a stake in the company.

But what does Interatis AG do and what projects is it involved in?

One of Interatis’ interests is a company called Lambert Energy Advisory Limited which is registered the UK. The company went through several name changes before settling on its current one. It was incorporated on 8 September 1999 under the name Addsport Limited. 3 months later, the name was changed to Lambert Oil and Gas Advisory Limited, but only kept that name for one month before changing to its current name.

There are 9 current officers of the company, according to paperwork filed with Companies House. The company is majority owned by Philip Stephen Owen Lambert, and his wife Joanna. Between them, they hold 60.50% of the company.

Interatis AG currently holds a 10.60% stake in Lambert’s company. It also holds 1 single non-voting B share (the purpose of this sole share is still a mystery to me). Interatis is the second largest shareholder in the company after the Lamberts. It became a shareholder in 2009.

Warnig is also the president of Interatis Engineering AG (registered at the same address as Interatis AG in 2010). According to a December 2014 RBK article, Warnig is a beneficiary of Interatis Engineering AG.

But even if these clues were not sufficient evidence, Warnig’s signature does appear on documents filed with Companies House by Lambert’s company in 2010.

Warnig's Signature (2010)
Warnig’s Signature

The remainder of the shares in Lambert’s are divided out between family members of the officers or companies associated with them, including Norway’s Tore Sandvold, and former British Diplomat Sir Jeremy Greenstock.

Another shareholder is Alexander Landia, who says he is a German citizen, but who is originally from Georgia. Landia graduated from Tbilisi State University in the early 1990s, and then immediately went on to join Dresdner Bank, where Warnig worked at the same time. Landia’s 3.91% stake is held through the holding company Varny Business Corp.

But what is Lambert Energy Advisory Limited? Who is Philip Lambert? And why is Matthias Warnig a shareholder?

A 2011 article in the Evening Standard describes Lambert as “the quiet man behind the historic BP-Rosneft deal”. According to the article, Lambert opened his firm with the backing of Kleinwort’s Lord Rockley (who died in late 2011).

Lambert has no website, relying on old connections and word of mouth.

This is apparently enough as an FOI filed by environmentalists in 2014 revealed. Lambert met in July 2013 with then Energy Minister Michael Fallon at the latter’s request. The email exchange setting up the meeting is sadly redacted and only really reveals that a meeting took place, and the agenda. A second member of Lambert’s team also attended the meeting, though that person’s name is also redacted.

The UK Guardian also notes that Lambert gave his expert opinion on shale gas and its impact on the UK’s economy to a House of Lords committee in 2013.

I have found no evidence of any wrong-doing with Lambert or his company, but Matthias Warnig’s connection to it is worth keeping an eye on as Nord Stream 2 gains traction.

Domodedovo Fire Sale

On Wednesday, the managing director of Moscow’s Domodedovo Airport was arrested for not doing enough to prevent the January 2011 terror attack on his airport. 37 people died and another 172 people were injured in the blast.

The airport is Moscow’s only fully private airport, according to the BBC. But for years, investigators insisted that Kamenshchik was just a front man for the mysterious beneficial owner.

Within days of the attack, President Dmitry Medvedev made statements that made it pretty clear that the authorities were eyeing the airport for an acquisition, and were looking to use the terror attack as an excuse.

Kamenshchik made light of fears of his arrest in 2011.

That may have been because at the time he was reportedly in talks about selling the airport to Alfa Group. But those talks apparently fell through.

Russia’s business daily Vedomosti writes:

“The arrest of the owner of Domodedovo on the eve of privatisation is a perfect example of how the state relates to business, ironically managing the investment fund. At auction on Wednesday the “Domodedovo” bonds at $300 million maturing in autumn 2018 fell by 4.4% to 94.8% of the nominal value.”

The Russian Regime is either looking for a cheap deal on the airport, or even to acquire it at no cost. How this will play out is unclear, but Kamenshchik would be well-advised to cut a deal now.

Extending Sanctions?

On Twitter earlier, Anna Nemtsova wrote:

This was somewhat misleading, as according RIA Novosti what Orban actually said was:

“Up to know the sanctions have been automatically extended. I think that this period is behind us.”

I would interpret this as meaning that the EU’s sanctions would not be renewed by rubber stamp in July, but that there would be some wrangling over parts of it (probably over specific individuals and organizations).

This is certainly not a promise not to renew.

In the full read-out of the press conference with Putin and Orban, the question was asked:

“…do you expect progress [re: the sanctions] in the near future? And if so, what form will they take?”

Putin drones on about Ukraine not keeping to the Minsk Agreement, and keeps denying Russia’s involvement in the conflict in eastern Ukraine, and saying that the sanctions should not be linked to Minsk.

“Today, it is pointless to associate the elimination of sanctions against EU nations with the final decision to bring the Minsk process to a logical conclusion, because, again, this ball is not in Russia’s court.”

Note that some analysts believe that the only reason Russia is attending and participating in the negotiations at all is because of the sanctions.

Prime Minister Orban’s statement begins:

“Hungary is a loyal member of the European Union.”

He then emphasizes the importance of “regional cooperation” in economic advancement, including free-trade zones.

“That is why I believe that if Russia and the EU are unable to establish economic and regional cooperation, an alliance, then we will all lose in this global economic competition.”

He continues to hammer home the idea of cooperation, saying:

“If we look at this issue from the point of view of the European Union, I must say that the EU’s economic growth is exceedingly slow, and this region cannot allow itself the luxury of not cooperating with everyone who could be a driving force for the development of its economy. In other words, common sense shows that we must cooperate. I think these are entirely clear political concepts.”

As far as renewing the sanctions, Orban states:

“I think that this year, in the middle of the year, there will be no opportunity for the European Union to automatically extend the sanctions, because there are more and more nations that hold the same opinion that I have expressed.”

What seems to be implied in Orban’s comment is that Hungary will not vote to continue the sanctions regime against Russia, but I’d stop short of calling it a promise.

Russia has been using the carrot and stick method in trying to get the European sanctions lifted. Unfortunately, this tactic appears to be working. In his comments, Putin highlighted the fact that: “Russian companies’ capital investment in the Hungarian economy exceeds $1.5 billion…”

In addition, the Russian President noted:

“Russia supplies more than two thirds of Hungary’s hydrocarbon energy needs: 75 percent of oil needs and 65 percent of demand for natural gas. Last December, Gazprom extended a gas supply contract with our Hungarian partners to the end of 2019.”

“A substantial amount of Hungary’s electricity, up to 40 percent, is produced with Russian specialists’ help at the Paks Nuclear Power Plant.” Putin continued, later saying:

“As you know, the overall volume of financing for the Paks Nuclear Power Plant is 12 billion euro, with 80% of the amount to be provided through a Russian loan. I confirmed to Mr Prime Minister today that the Russian side is fully prepared to meet all the commitments it has undertaken.”

Russia is bringing a lot of pressure to bear on the individual EU member states to not renew the sanctions come July. This meeting with Hungary’s Orban simply serves to highlight that fact.

NATO’s Future

I wrote this back in July 2015, and it was originally published by The Center for Intelligence Studies on their website. However, I have had difficulty linking back to the article, so I’ve decided to put it up on my blog.

The Implications of Russia’s Aggression Against Ukraine for NATO

Since Russia’s annexation of Crimea early last year, and its subsequent invasion of Ukraine proper, discussions about the country’s ambitions and goals have become common in European capitals. Even more so as Russian adventurism has not been limited to Ukraine. Flybys with transponders turned off, and dangerous maneuvers mid-air in international airspace are now a regular occurrence. The search for a Russian submarine in Swedish waters last year brought back memories of the Cold War era.

The rhetoric from Moscow about nuclear capability and intent is escalating at the same time. In March, Russia’s military claimed that it was sending its Iskander missiles to Kaliningrad, a Russian province on Poland’s border. It additionally stated that it was planning to “deploy long-range, nuclear-capable Tu-22M3 bombers to Crimea”. Conventional weapons and troops are also being moved into Kaliningrad, a recent article in RFERL confirmed. The sabre-rattling is concerning.

Questions about NATO’s future and capabilities are increasing in conjunction with rising Russian adventurism. There is a growing belief that NATO is fractured and does not have the political will to act in the face of the threats it faces from a resurgent Russia. There are questions about the alliance’s cohesiveness, and commitment to one another. Is the alliance able to respond adequately to the current threats it faces from Russia?

NATO faces dual threats from Russia. The threat of a conventional war with Russia is being debated, with both experts and dilettantes trying to anticipate which alliance member Russia will invade first. Alongside this, the phrase ‘hybrid war’ is being bandied about, though its meaning and what it entails is not agreed upon. In essence the group is facing the threat of war by unconventional means. Tactics include propaganda aimed at minority populations in order to destabilize domestic politics in NATO countries, and cyber warfare, among others. These are threats that the alliance was not designed to counter.

It seems unlikely that Russia could win a conventional war on the battlefield with NATO. As a result, Russia is resorting to asymmetrical attacks, and intimidation tactics. Attacks that NATO was not designed to counteract. While the alliance has only recently stated that a cyber attack would be considered a reason for action on Article 5, the parameters are unclear. Poland, for example, has experienced seven reported cyber attacks in the last year alone. Although it is unclear if the source of the attacks is the same, as it has not been publicized.

At the same time, an internal fracturing appears to be taking place. NATO has always been something of a loose confederation of nations who could be relied upon to act if a member was attacked. It has become even looser in the last couple of decades. The common enemy it was initially designed to counter no longer existed, as the Warsaw Pact collapsed, and Russia was transformed from a threat into a partner. New threats emerged to fill the vacuum left by the USSR, but rather than acting as a unifying force, they sometimes led to discord. The alliance struggled to define their purpose and common interests in the face of these changes and challenges.

Pew Research Center recently released a poll about attitudes to the alliance and the conflict in Ukraine with Russia. The polling agency dramatically declared that more than half of Germans thought their country should not abide by Article V in coming to the aid of an alliance member if they got into conflict with Russia.

The Pew poll was criticized, however, for misrepresenting their findings. In fact, the poll question did not specify the instigator of the hypothetical conflict. Something that would almost surely make a difference in the way someone answered the question, and certainly would change how NATO reacted.

Even so, it appears that NATO lacks the political will to act as a whole. Articles 4 and 5 may not be the guarantee they were once believed to be. Politics still play a role in the alliance’s decision-making process. This principle was laid out as early as 1956, when the Secretary General of NATO, Lord Ismay, stated: “NATO is a political as well as a military alliance”.

Immediately following Russia’s annexation of Crimea, Poland and Lithuania called for “extraordinary consultations” based on Article 4 of the Washington Treaty, on the premise that Russia’s actions were ‘a threat to NATO’. Consultations based on Article 4 have only been called four times since 1949.

Article 4 of the NATO treaty reads:

“The Parties will consult together whenever, in the opinion of any of them, the territorial integrity, political independence or security of any of the Parties is threatened.”

Article 5 of the treaty has only been invoked once, by the United States after it was attacked on September 11. Article 5 requires all members to agree to act, and does not mention technological advances. There has been some question of what happens in the case of a cyber attack. But NATO Chief Stoltenberg reassured allies earlier this year, saying, “NATO has made clear that cyber attacks can potentially trigger an Article 5 response.”

Another question that has been on the coalition’s backburner for years is the budget. According to numbers just released by NATO, only five countries (Estonia, Greece, Poland, the United Kingdom, and the United States) are spending the suggested two percent of GDP (gross domestic product). This percentage is not mandatory, but the fact that it is not has caused some resentment among the various members. In addition, there are 18 countries who plan to increase their contribution, Stoltenberg stated on Monday. Nevertheless, he continued, the budget is expected to fall “by 1.5%” this year.

These budgetary disputes demonstrate a lack of commitment to other alliance members, and have led to some resentment about countries who do not contribute, but still expect to benefit.

Some NATO members were also hesitant to allow former Warsaw Pact countries to join the alliance after the end of the Cold War. And accession has been frozen since 2009, when Albania and Croatia joined. Both Ukraine and Georgia have been denied entry despite statements of intent. However, in the face of increasing Russian sabre-rattling, there has also been interest expressed by non-NATO countries in expanding their partnership, or even joining the alliance. Polls conducted in Sweden, for example, show that popular support for NATO ascension is the highest it has been in years — 31% according to a recent poll.

Russia’s ambassador to Sweden has recently responded with threats, saying: “The country that joins Nato needs to be aware of the risks it is exposing itself to.”

On a recent visit to Finland, former Russian Finance Minister, Alexei Kudrin, also asked for guarantees that the alliance “would not continue to expand”. A promise Russia has claimed they were given at the end of the Cold War.

It is difficult not to be sceptical of the capability of a fractured NATO to respond to Russian aggression. NATO has demonstrated clearly that it is technically and technologically capable in the face of a conventional invasion.

As Stoltenberg recently stated: “NATO is here. And NATO is ready.”

He continued by laying out the coalition’s future plans, including deployments, and new “logistics headquarters”.

Nevertheless, it seems frozen when confronted with unconventional attacks. Additionally, it appears to be politically incapable of reaching a consensus on so-called existential threats, and even identifying its common enemy.

Russia’s current hostile behavior presents NATO with the opportunity to address questions concerning its purpose and function. There is a small window of opportunity for the alliance to come to an agreement on these issues and develop a new strategy, but unfortunately this looks increasingly unlikely. NATO failed to adapt to new realities following the end of the Cold War, leaving itself unprepared for the current threats it faces. Any attempts to rectify the situation now would be reactionary and may not be successful.

Discouraging Growth

Russia’s former Deputy Finance Minister Sergei Aleksashenko gave an interview to RFE/RL the other day identifying the problems currently facing the Russian economy.

According to Aleksashenko the Kremlin is lying about the drop in GDP last year. Rosstat says “GDP fell by only 3.7 percent last year.” But according to Aleksashenko, the real number is 9 percent.

“Aleksashenko said that the real problems facing Russia’s economy are lack of investment, high inflation, and the declining ruble, which lost half of its value against the U.S. dollar since early 2014.”

But these are still symptoms rather than the root problem: lack of rule of law.
Russia’s economic problems are, as I often discuss here, systemic. In a country with no property rights, and little or no recourse to the courts when those rights on infringed on, the level of risk that people are willing to take on is minimal, if not non-existent.

Russia’s Supreme Court ruled last week that only 6% of the businesses destroyed by Moscow’s city government were illegal. How many people have lost their livelihoods as a result of the government’s illegal act? And how many would be willing now to take a similar risk, or even to start over again?

When Prime Minister Dmitry Medvedev talks about economic growth, where does he think this growth is going to magically come from? It certainly will not from small businesses, who are afraid to take the risk required to expand their businesses and much less open one.

And who is going to invest is projects that will stimulate growth? The oligarchs? As I so often like to repeat, the oligarchs are nothing more than glorified state bankers. They “invest” where and when they are told to by the Regime. But, in general, these are not projects to help the economy. These are special projects that the State needs either to line its own pockets, or, as in the case with the privatization of the oil company Bashneft, when the State needs a bailout.

The Regime can continue to gloss over the problem, and hope for higher oil prices to return to the previous status quo. But unless and until Russia reforms legally, these issues will always be there, blocking real growth.

Private Property?

The concept of private property ownership in Russia has always been rather foreign. Even in more recent history, getting the state to pay for eminent domain has been difficult, if not impossible. Nothing showed this more than the lead up to the Winter Olympics in Sochi, where residents were forced out of their homes to make room for roads, and other public works related to the Games. And, of course, who could forget the Yukos case?

On Monday night, the city of Moscow began to destroy small shops that dot the city, claiming that they were built “illegally”. These were not just lean-tos that had been put up the day before. And this was not a spur-of-the-moment decision. It was planned and deliberate. The Moscow Times reported that the decision had been made in early December. At least one of the strip malls had taken the city to court, and gotten a reprieve. The city ignored the court order. And it apparently plans to continue with its demolition plans.

You can view photos on Ilya Varlamov’s blog here to see what kind of destruction the city wrought.

These were legitimate businesses with the appropriate licences allowing them to operate legally. The city government plotted to take them down, for reasons that are unclear. And then to add insult to injury, a representative of the Russian Orthodox Church said the city should give these now empty properties to the Church.

Journalist Sasha Sotnik asked Muscovites in a vox-pop if they thought private ownership in Russia had been suspended because of the city’s actions. When asked the more personal question of what they’d do if the authorities came to evict them from their own apartments, the respondents mostly answered to the effect: “what are you supposed to do?”

We talk about what Russian society’s limits are. It’s almost as if the Russian Regime is testing those limits to see if they can find the breaking point. If the Sotnik street interviews are any indication, this is not the breaking point that the Regime is looking for.