Work But No Pay

“The current economic crisis is in many ways different from the 2008 economic crisis.” People are not being laid off “en masse”. Instead, Dmitry Remezov writes:

“Many [employers] prefer to cut wages or send employees on unpaid leave. They have also started to increase the delay of salaries. Therefore a sharp surge in registered unemployment has not occurred, but there has become an enormous reservoir of hidden unemployment.”

In Primorye, for example, thousands of workers are owed hundreds of millions of rubles, though officially the unemployment rate sits at 5.9%.

One indicator of how bad the situation is in Russia’s Far East is that since the beginning of 2016, approximately 4000 people attempted to migrate to South Korea to work without visas, but were turned away. It is unclear how many tried and succeeded.

“The Russian Foreign Ministry called the situation in Vladivostok “appalling” and compared it to the 1990s, when thousands of Primorye residents also sought salvation from lack of money in South Korea.”

On the opposite side of the country, in Kaliningrad, wages fell and hidden unemployment increased due to the region’s loss of its status as a “special economic zone”.

According to a local trade union leader:

“Enterprises have cut working hours, people were more likely to be sent on unpaid leave. This is especially noticeable in the private sphere. But the general crisis also affected public sector workers: they also started curtailing wages and earning capacity. In general, people are living worse.”

He said that the reason there has been little “social unrest” is due to three factors:

  1. “…that job cuts took place progressively”;
  2. “the salary cuts were small”; and
  3. “part of the dismissed workers managed to find another job with roughly the same level of pay.”

“Employers curtailed production…. Therefore, workers gradually changed workplaces. And the salaries at the enterprises in the Kaliningrad region are small. Even at “Avtotor” [the local automobile manufacturing company] which imagines itself a leader of regional industry, the wages of mechanics and assemblers are often less than the average for the industry. Therefore it was not difficult for people to get another job with the same “not exorbitant” salaries,” he said.

“The crisis has hit the economy of the Russian regions in varying degrees.” In Kaluga, for example, the authorities shut down the central market.

“According to Rosstat, the unemployment rate in Kaluga is 4%, which is higher than the average for the Central Federal District (3.4%). Three hundred workers from the market who had to join the army of the unemployed, came to the rally.”

Of course, the places with the highest unemployment rate are in the North Caucasus Federal District [Chechnya, Daghestan, Ingushetia, etc.]. “As a whole, the unemployment rate in the district was 10.7%. The leaders are Ingushetia (29.7%) and Karachevo-Cherkessia (16%).”

“The high level of corruption and the outflow of the qualified workforce leads to higher unemployment in many Russian regions,” said State Duma deputy and vice-president of the Confederation of Labor of Russia, Oleg Shein. “And the North Caucasus Federal District has been hit the hardest by these social plagues.”

And it is driving local investment away, Shein continues. Not only will outsiders not want to invest there, but neither will local businesses seek to expand in the region, but look outside of it.

“Another factor undermining economic development is the departure of most of the skilled working population. This factor too has hit the regions of the North Caucasus Federal District, guaranteeing economic depression.”

“There was a serious “emigration” of ethnic Russians and Ukrainians from the North Caucasus which peaked in the 1990s. This departure was an additional blow to the local economy. And agriculture cannot be the basis of the national economy in the 21st century. It is, indeed, the product that provides the security of the country, but it does not create a high added value.” said Oleg Shein.

In Rostov the general director of a coal company was arrested and charged under several articles of Russia’s Criminal Code. The company itself is undergoing bankruptcy proceedings. The miners have not been paid and have been holding protests. “The total amount of the debt to the miners was 340 million rubles.” 2300 employees have been affected by the ongoing problems. “Many could not find new jobs locally and have left the region to work in other cities.”

“The leader of the protests said he believes regional authorities and law enforcement agencies are responsible for the current crisis…. The government has long turned a blind eye to the violations of the company.”

And in Tolyatti the automobile component manufacturer AvtoVAZ Aggregate owes 1500 employees back pay.

OLYMPUS DIGITAL CAMERA
Photo of AvtoVAZ Aggregate taken in 2010 (from Wikipedia entry)

 

“The company was declared bankrupt in August and the top managers of the company were involved in criminal cases. According to the prosecutor’s office, the debt amounted to almost 53 million roubles as of 1 November.”

The head of the trade union at Tolyatti noted that over 40% of the shares of “AvtoVAZ” are owned by a company registered in the British Virgin Islands. “The reason for not paying workers is that there is no money. The court bailiff could not find the account of director Viktor Kozlov. We understand that the money went offshore. Perhaps in the near future this will be the case for many companies: no money, because they go offshore to violin and cello [a reference to the Rodulgin story and the Panama Papers.]”

The situation where people are formally employed, but not paid, has become one of the signs of the current crisis.

Rosneft Privatization

Contrary to rumors, Rosneft has not bought its own 19.5% stake in the company from Rosneftegaz. Instead the privilege has gone to commodities trader Glencore and Qatar’s sovereign wealth fund. Each will own half of the stake, according to Rosneft CEO Igor Sechin.

The discussions were kept very quiet. There was no hint in the media at all that Glencore was even interested. I personally still have questions about the legality of the transaction, since Rosneft is (technically anyway) under sanctions. But I doubt that Glencore would have gone through with the deal if there had not been guarantees that they would not be taken to court or fined for participating. They have managed to keep to the letter of the sanctions, but not the spirit. But we are talking about Glencore, after all, as many Russians were quick to point out on Twitter.

So the deal has gone through, Sergei Aleksashenko writes on his blog, and the Reserve Fund can “sit untouched for another couple of months.”

There are four main takeaways from the deal, he says.

First, Igor Sechin came out the winner in this round. It is clear that Prime Minister Medvedev and his government knew nothing and had no involvement in the transaction. As a result, “we need to expect some external manifestation of this.” That is, Rosneft may win in other conflicts as well. For example the ongoing legal battle to access of Gazprom’s Sakhalin-2 pipeline.

That being said, it does appear that Sechin did lose on at least one of his preconditions for the sale to “outsiders”: that new shareholders would have to wait to get seats on Rosneft’s board of directors. But, Aleksashenko writes, “…judging by the words of the president… this condition has been removed, and, to some extent, Igor Sechin will be forced to live by the rules and not by concepts.”

“Third, we won’t know the whole truth about this deal for a long time. At least as long as it [Rosneft] is headed by Igor Sechin. And the main thing here is the unknown question: did the new shareholders receive any other benefits as part of this transaction or not? With Glencore it is easier. The company could be satisfied with the long-term contract with Rosneft to sell a substantial portion of its oil [220,000 barrels per day – ed.], perhaps even at about market conditions – as one of the world’s largest traders, Glencore can earn on sales of oil, and its purpose is to hold the maximum share of the market.”

But with the Qataris it is more difficult to say, Aleksashenko continues, “…they don’t need oil”, but they’re businessmen and don’t want to take a loss on their purchase.

“And, judging by how all the other transactions of Arab funds in Russia are structured, we can assume that Rosneft (or Rosneftegaz) issued the sovereign fund a protective option in case of falling prices, pledging in this case to buy back the shares.”

And finally, but not the least important, Aleksashenko concludes: “the privatization of Rosneft has not happened.” The State (in the form of Igor Sechin) is still calling the shots, with nobody to check it, “and will continue to do so.”

Ulyukaev Affair

Rosbalt held a round-table earlier this week on the so-called “Ulyukaev Affair”. Former Economic Development Minister Ulyukaev remains under house arrest for allegedly taking a $2 million bribe for his decision on the Rosneft takeover of Bashneft.

The round-table included the Director of the “Political Experts Group” Konstantin Kalachev, and Nikolai Mironov of the Centre for Economic and Political Reform.

Kalachev told the group that he thought that what happened to Ulyukaev was a signal to Prime Minister Dmitry Medvedev that his future prospects were not bright. And that Medvedev had no hope of being President again.

Kalachev also did not rule out more arrests:

“The genie is out of the bottle, and none of the elite can feel completely safe. The temptation to turn this story into the start of the presidential campaign – in response to a request for justice in society – is there. The popularity of officials is not high, as you know, and the old theme of “Good Tsar, bad boyars”… just might be implemented through high-profile arrests.”

Nikolai Mironov thought (as I do) that the case against Ulyukaev was to show people that the Kremlin was doing something to fight corruption.

“At the same time… data from the latest opinion polls shows that Russians’ belief in anti-corruption policies remains low even after the detention of a member of the government.”

Mironov recalled that after former Defense Minister Anatoly Serdyukov was let off easy for his role in the Oboronservis fraud case it became clear that there was one set of rules for the elite and another for everybody else. And Russians have not forgotten this.

Mironov also suggested that the rules of the game had changed, and that nobody could be considered safe. But, he pointed out, Russia still has a clan system that relies on “backroom agreements”.

Kalachev agreed, saying that “…the Ulyukaev affair continues to demonstrate “the Byzantine nature of our politics”.”

Meanwhile Reuters reported earlier this week that Ulyukaev had been discussing diluting the state’s share in Rosneft further than currently planned, though not right away. Rosneft’s sale is supposed to go through next month, with 19.5% of the state’s holding in the company up on the auction block. The state will then own 50% of the company, “a blocking stake”. The government is anxious to offload the shares before the end of the year in order to get the cash that it desperately needs.

Clan War

Everybody is making much of what has happened with Ulyukaev, and calling it “a decisive turn in the fight against corruption…” former MP and KGB man Gennady Gudkov wrote on Facebook. But this is all just the “wishful thinking” of “naive fools”.

He says that a week ago he had a conversation with a friend who, he implies, is well-connected. According to Gudkov, the friend said,

“”You… cannot even imagine what terrible bickering has started at the very top! Soon there will begin a war between the clans the likes of which we have not seen before!” And he named some very famous surnames in Russia, warring with each other for live and death, including in the government and in the Kremlin.”

He continues:

“All that we see today, is not a fight against corruption (it is inseparable from the “vertical”…) but a fierce… struggle for influence, financial flows, and positions.”

And every method will be used in this clan conflict. From blackmail to corporate raids to physical violence. Gudkov also implies that more assassinations are likely.

Ulyukaev, he says, “was never part of the inner circle of “untouchables””.

“But not everybody has understood that the situation has changed dramatically… the rules have changed…”

Gudkov concludes:

“Describing the tensions in the highest levels [of power], my informed source said: “It will soon come to the point that Putin’s entourage will begin to blame each other for the most deadly sins on live TV… so that the opposition can sit back and relax: the snake will start eating its own tail.””

Anti-Corruption Sideshow

Alexei Ulyukaev appeared in court last night and was placed under house arrest until the middle of January. Prosecutors said he posed a flight risk. At about the same time, it was reported that President Putin had sacked the Minister for “loss of confidence”.

This is reportedly the highest ranking arrest since Beria was ousted.

Most of the opinions in Russian circles are still based on speculation. Most people seem to think that Ulyukaev is not even guilty of the crime he has been accused of, that of taking a $2 million bribe to make a decision that likely wasn’t even his to make.

Political analyst Gleb Kuznetsov told Rosbalt:

“This is a demonstration of the determination of the state in the fight against corruption. It demonstrated that we have no untouchable class. That not only a provincial governor of a region can be detained, but also one of the most influential government ministers. He can be prosecuted in the same way as any other person.”

Rosbalt also talked to the director of the Institute for Contemporary State Development, Dmitry Solonnikov:

“It is a hallmark of our time. The heads of regions, and security officials with the rank up to General, are not simply dismissed, but publicly and openly sent into custody. So in that sense, the detention of Ulyukaev seems logical and is not surprising.”

Solonnikov added that it was clear that Ulyukaev was not the only one who was being monitored. “…the control of policymakers is not a secret.”

His speculation was likely correct as the Russian media reported today that four other high-ranking officials were being monitored. They were named as Deputy Prime Minister Arkady Dvorkovich, Presidential Aide Andrei Belousov, another official at the Ministry of Economic Development, Oksana Tarasenko, and Marina Romanova, who is an aide to First Deputy Prime Minister, Igor Shuvalov.

Others saw this as a continuation of the fight over an ever-shrinking pie of assets.

Political analyst Yevgeny Negrov told Rosbalt that he thought the fight was not over ideology but rather that “the ultimate beneficiary was some kind of “financial-industrial group”.

The President of the “Center for Political Technologies” Igor Bunin thought the conflict was of a more personal nature between Ulyukaev and Rosneft chief Igor Sechin.

But, as I said yesterday, this seems to be mostly about the continuation of the Kremlin’s faux anti-corruption campaign that they have co-opted from Alexei Navalny.

People are fed up with the corruption they see around them. And performing show trials for TV is an effective way to show people that the authorities are doing something, even though nothing will change.

Anti-Corruption Campaign

Russians woke this morning to the news that the Investigative Committee [known as SledKom, in Russian] had detained the Minister of Economic Development, Alexei Ulyukaev.

A statement was released at three o’clock this morning, but it appears to have been taken down at the time I am writing this.

As usual, most of what is happening and what happened are mere conjecture and speculation based on rumors. But according to Bloomberg, the charges relate to Rosneft’s recent purchase of a controlling stake in Bashneft. Allegedly, Ulyukaev took a “$2 million bribe related to his ministry’s approval of the sale of a 50 percent stake in Bashneft…”

“Ulyukaev was caught red-handed while taking a bribe. We are talking about extortion, the dual threats against representatives of Rosneft,” a SledKom representative told Interfax.

Rosneft paid $5 billion for the stake (which was over-priced, as I pointed out at the time).

As usual, there was some hysteria among Western analysts, but Chatham House’s Ilya Zaslavskyi had a more level-headed opinion:

According to Gazeta.ru, Ulyukaev wrote a resignation letter in October, and approval was expected after budget discussions in the Duma. The reason for his resignation was due to his poor forecasts of the macroeconomic situation in Russia.

Meduza reminded its readers:

“His [Ulyukaev’s] ministry was not afraid to give tough forecasts – in particular, the Ministry of Economic Development in October suggested that in the next 20 years the country’s economy expects stagnation, GDP growth would be below average. Ulyukaev said that the country’s economy as a whole needed to adapt to the new foreign policy conditions, including sanctions.”

The first Deputy Chairman of Russia’s Central Bank, Sergei Shvetsov, told reporters:

“I have great respect for Alexei Valentinovich [Ulyukaev]. He is the last person anybody would suspect of anything like that…. What is written in the press seems absurd. Right now nothing is clear.”

Or as the President of Russian Union of Industrialists and Entrepreneurs said:

What I think is happening here, however, is a little more mundane that it first appears. Yes, a Minister has been detained, and accused of corruption. But this goes back to the Sergei Ivanov interview I highlighted a few weeks ago. At the time, Ivanov said that the government would continue its anti-corruption efforts. What he meant, of course, was not that there would be an actual effort to crack down on corruption, but that they would make a show of it for the general population. And I think that is why we are seeing this drama played out in the media.

Mutko

Russia’s Sports Minister Vitaly Mutko has been removed from his post, and given a new role in the Russian government.

BBC’s Richard Conway had reported Mutko’s potential transfer last week:

And Conway’s sources were correct. Yesterday, President Putin named Mutko his 9th Deputy Prime Minister. Mutko’s portfolio will be that of sports, youth, and tourism.

In theory this would give Mutko more power because the more you are responsible for, the more rents you can extract. So rather than just getting kickbacks for sports, he can now take kickbacks for youth and tourism. And he can also give out more favors to more people. And I think that is why the Western media and analysts are reporting this as a promotion. But those of you who have been reading me for awhile know that I don’t view these moves as anything but lateral transfers. Because titles are not usually a true reflection of responsibilities and placement in the hierarchy.

Anton Orekh writes in Ekho Moskvy:

It is possible to simultaneously promote a person and send him to the bench. We can say this, since we are talking about sports. The appointment of Mutko to Deputy Prime Minister formally raises him in the hierarchy, but in fact, it is unclear [if this is the case]. The position may be purely nominal. Only Mutko himself became a living anecdote.

A chief might be good or bad, but should not be funny. Mutko sometimes says sensible things, and puts forward some interesting ideas, but all of this is drowned out by his eccentricities and flows of rambling verbiage.

But the truth is that Mutko had to be sacked after the Olympics, because of what happened at Rio, Orekh continues.

Sport is a showcase of Putin’s rule, because apart from sporting victories, and the bombing of Syria, we have nothing to boast of.

And with the doping scandal, he writes, “it was Mutko who primarily demonstrated a complete inability to accurately respond to the situation. Every time he was late, not by a step, but by a hundred paces. He constantly answered at random, was unable to give at least some explanation. And each new scandal was a surprise for him. He did not even have to come up with the role of scapegoat, because he chose [to take on] this role himself.”

But to sack Mutko would have been to admit that Russia was guilty, and so that option was impossible. But it was equally impossible to allow him to keep his position as Sports Minister.

“However, you could do worse: to merge into one the Ministry of Sport, Tourism and Youth Policy. That is three completely different areas of activity. It is somehow believed that sport is for young people. That tourists do sports. That young people are constantly traveling with dumbbells and skipping ropes. But, thank God, that did not happen.”

Instead it all went under “the duties of the new Deputy Prime Minister. And in this sense, the appointment of Mutko was the correct one.”

And the Sports Minister will be Pavel Kolobkov. Who performed a lot of draft organizational work, and if something in the Ministry was sensible, it was largely thanks to Kolobkov. And foreign “partners”, so to speak, are not allergic to him.”

And if Mutko will leave Kolobkov alone to get on with his work, Orekh concludes, “the current reshuffle can be evaluated as a solid four.”

Sergei Ivanov

Sergei Ivanov granted his first interview after he was transferred out of the Presidential Administration to Komsomolskaya Pravda.

The English language press will likely focus on KP’s question about the rumor that Ivanov “…would lead a new super-ministry of state security…”.

To which Ivanov answered:

“This is one-hundred percent fake! A ministry of state security is not intended… I can say this confidently.”

He also said that such a move would be a mistake from his point of view.

But I want to talk about a couple of Ivanov’s other statements in the interview, mostly because they confirm what I have said in the past about these moves.

Of course, the first question KP asked Ivanov was about his new position, and whether or not it was a demotion.

Ivanov dismissed any rumors that he was in disgrace or was ill.

“I don’t feel any disgrace. And I am generally optimistic about the fact that now I can finally do specific things that I love [emphasis added -ed.] and have actually worked toward for a long time, but, you know, in fits and starts.”

I have brought this up before when speaking about former Russian Railways Chief Vladimir Yakunin. Many people thought that Yakunin had been ousted from his position due to corruption in the company. But it turned out that Yakunin had been freed to work more closely on a project that was very important to both him and the Regime. And I think that this is also what happened with Ivanov, and Ivanov seems to confirm that in this interview.

Ivanov also stated that he had wanted to leave his post in the Presidential Administration earlier, but that Putin had asked him to wait a bit longer. He squashed rumors that there were problems with his health, but said that he was tired of working nearly every weekend, while insisting that he was not tired.

Ivanov described himself as:

“A pragmatic and enlightened patriot. I am doing what I think is useful and necessary for Russia. No matter the scope of this economy, transport, and communications (I, by the way, still remain chairman of Rostelecom’s Board of Directors). I love culture, am engaged in supporting it, and lead the board of trustees of the Kremlin museums.”

He said that his contact with the President “…is not so intense [as it was before], but it still exists.”

On the subject of corruption, Ivanov cited plans to push through revisions to the criminal code. He also confirmed that the government will continue its “fight” against corrupt “officials, security services, the banking sector, and ordinary crooks”.

KP noted that high-profile arrests were increasing.

Ivanov replied:

“This proves that we are sincerely trying to fight corruption, and there are no untouchables.”

He named the banking sector specifically, saying: “It is necessary to tighten banking supervision, in my opinion.”

KP followed that up by asking if the government intended to continue their anti-corruption course, and Ivanov answered affirmatively.

P.S. Compare this with Ivanov’s interview with the FT in June 2015.

State Monopoly

The Moscow Times reports:

The state has rapidly increased its presence in the economy. Together with state-owned companies, its share in GDP rose from 35 percent in 2005 to 70 percent in 2015. The number of state and municipal unitary enterprises has tripled in the last three years alone, and they continue to appear in markets with highly-developed competition where their use of administrative resources and government financing poses a serious threat to other players. Such businesses have mushroomed at the regional and municipal levels, squelching competition in local markets.

The article continues:

The state’s expanded presence in the economy has deepened monopolistic tendencies in the “economic space uncontrolled by the state,” the FAS lamented.

Meanwhile, business people are unhappy with the status quo.

Nearly half — 48% — of respondents in a survey by the Russian Union of Industrialists & Entrepreneurs said that the authorities treat businesses like a “personal piggybank.”

As I have stated numerous times here on the blog, and on Twitter, this is the Russian system. The people complaining know that this is the system they signed up for. They have chosen to operate within it.

The FAS has proposed a plan to help resolve the situation, but it sounds like more state control rather than less:

Artemyev said that to combat monopolies and counterproductive actions by government officials, the FAS recommended focusing on a national plan for developing competition that is being prepared by order of the president. The FAS proposed setting economic indices as performance goals that governors and ministers would have to achieve or lose office.

Former Russian MP Dmitry Gudkov wrote:

What is wrong with the state corporation? First of all, it does not depend on the market. No profit, theft, inefficiency?

Its sole purpose, Gudkov writes, is to take more money from the state budget. The only thing the state corporations are doing is providing jobs for family members of their board members.

Ribbons & Yachts

The World Economic Forum recently placed Russia 43rd in its “Global Competitiveness Index“.

screen-shot-2016-09-29-at-10-09-33

Vladimir Milov wrote on Facebook:

“Russia has improved its position in the rankings of global competitiveness,” rising for the year just two places – from 45th to 43rd, the media tells us happily.

Let’s see what is in this ranking. It can be found here.

There are five positions for which we are in the top 20 in the world ranking of competitiveness:

  • provision of mobile services;
  • provision of air transport infrastructure;
  • higher education;
  • low debt;
  • the large size of the domestic market.

Well, that’s all true.

But, he says, these are the places where Russia is not doing so well:

  • Inflation – 132nd place in the world;
  • Property rights – 123rd;
  • Quality of roads – 123rd;
  • Stability of banks – 121st;
  • Reliability of police services – 109th;
  • Prevalence of AIDS – 106th;
  • Burden of government regulations – 103rd;
  • And so on.

On average we obtained 43rd place in the world.

Alexei Navalny posted a more mocking post on the subject to his blog:

Never mind that by some measures we are below Africa: the incidence of AIDS in the adult population in Russia is at 106th place, TB – 88th, life expectancy – 97th.

But the 70-meter yacht of Russian billionaire Vagit Alekperov [president of Russia’s Lukoil] Galactica Super Nova (the largest aluminum yacht in the world) won the Monaco Yacht Show, received awards in the categories of best new yacht and best interior design!

The boat was built in just 41 months at the Dutch Heesen shipyard and delivered to the billionaire this year, it was among the three winners selected from 13 nominees.

He goes on to note some of the yacht’s more prominent features [photos here], including a helipad that can be transformed into an outdoor dance floor or a cinema.

We will get TB and die at 60, but know that somewhere in a beautiful location floats a winning boat, bought with the money from our mother-oil flowing from our land.

And in whatever form the helipad on the yacht takes – the open-air dance floor or the cinema – somewhere in the corner on one of the designs will certainly be tied an inconspicuous St George Ribbon.

We will survive all hardships and endure any difficulties for the sake of these ribbons.

bmir_lucmai5_o5