Simon Kordonsky: The Real Russia Refuses to Be Counted

kordonsky
Simon Kordonsky, academic director of the Khamovniki Foundation. Photo by Andrei Gordeyev. Courtesy of Vedomosti

Sociologist Simon Kordonsky: “There Are No Entrepreneurs Listed in the Census”
The Khamovniki Foundation’s Fieldwork Suggests the Country’s Leaders Know Little about Real Life in Russia
Vedomosti
January 29, 2019

The academic director of the Khamovniki Foundation for Social Research is Simon Kordonsky, renowned in Russia’s analytical circles and a former adviser on federal government policy. Nowadays, he has been looking at things from the other side. How does policy affect the lives of the rank and file? Or, rather, how do the rank and file escape the gaze of politics?

“Rosstat Is a Disaster”
Let us start with a simple question. How many people live in Russia?

I don’t know. Feel free to add ten to fifteen percent to the official figures for the mid-sized cities.

So, many more than 146 million people live in Russia?

There are many more. But we are completely at a loss when it comes to the big cities. It is impossible to count people there.

Why? Aren’t there firm indicators such as bread consumption and use of medical services and public transport?

And who in Russia counts this stuff?

I don’t know.

Sewers are used to count people. Judging by the sewerage, around thirty million people live in Moscow.

How do you use sewage to count people?

A certain volume of sewage is flushed into the sewers, and we have a rough sense of the amount of sewage each person generates. Electricity use, on the contrary, cannot give us a fix on numbers of residents, because people steal electricity. It is a rather complex system.

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The Khamovniki Foundation for Social Research was founded in 2006 by Russian investor and hotelier Alexander Klyachin, who currently serves as the foundation’s board chair. The foundation’s advisory board is headed by Simon Kordonsky, a professor at the Higher School of Economics.

The foundation finances and supports academic field research that contributes to describing Russian society. The foundation aims to make the outcomes of its studies accessible to society as a whole. It has supported over sixty research projects. Among the most discussed have been “Seasonal Workers in Small Russian Towns,” “The Garage Economy in the Russian Hinterlands,” and “The Constructive Role of Informal Relations in State and Municipal Administration.” 

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There are no scams involving shit?

Maybe there is an underground shit trade, but we have not studied it. I am saying that it is awfully hard to calculate the consumption of electricity in the 220-volt networks, which are municipal networks. Superimposed on them are other, high-voltage networks, and there are separate stats on each level. Total loss in the network is around fifty percent. It is hard to quantify how much is used by the populace, and how much by industry, because the rates everywhere are different.

It is the same thing with garages [as workplaces]: they usually survive on stolen electricity. They pay for the hookup, but off the books to the folks who do the maintenance work on the power networks. They pay thirty to fifty percent of the real cost and pay minimum usage rates. So, energy use will not help you count people.

Nor will water use. A considerable number of families do not get their water from centralized mains, but from wells, from their own local networks. Besides, in summer, many families live in the countryside at dachas. In winter, some people temporarily leave the villages, while others stay behind. It is hardly possible to quantify this migration.

Official statistical bodies make no effort to count them?

Of course not, but statisticians know all about it. They have their own professional journal, Statistical Issues [Voprosy statistiki]. Several years ago, the journal published an article explaining the discrepancy between the indicators taken into account and what we see with our own eyes. It was necessary to mislead our enemies in the west.

Camouflage the stats?

Yes. Rosstat is a disaster, you see. Their ontology is Soviet, while they imported their methodology from the west. They carry out the census using western standards, and so all the peculiar aspects of life in Russia disappear from their radar. For example, our census does not count entrepreneurs.

At all?

There are no such people as entrepreneurs in the Russian census. There are people involved in businesses of some kind, and there are people who practice the free professions. The census does not differentiate between them. Rosstat regards people who are paid salaries and people who earn their living by making profits as indistinguishable. So, Rosstat is not an organization from which we should expect anything.

Here is another example. What are cities and villages? There are no cities in Russia as urbanists describe them and, so, there are no villages, either. When he was alive, Vyacheslav Glazychev wrote that Russian cities were conglomerations of settlements. Take the district seat in Tula Region that borders Moscow Region. There are 14,000 people in the entire district. From April to late October, however, the population increases to 150,000 people.

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Simon Kordonsky was born in 1944 in Oirot-Tura (present-day Gorno-Altaysk). He graduated from Tomsk State University with a degree as a chemistry and biology teacher. In 1988, he was awarded a kandidat degree, writing a thesis entitled “Cyclical Procedures in Scientific Research.” State Councilor of the Russian Federation, First Class, he chaired the Presidential Expert Advisory Council in 2000. In 2004, he served as a senior aide to the president. He has been a professor of state and municipal administration at the Higher School of Economics since 2006. In 2011, he was appointed director of the Khamovniki Foundation.

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It increases to 150,000 people? Tenfold?

Yes, tenfold. These people are not accounted for. They do not register their residence.

What about medical services? They are designed to deal with 14,000 people. How do they handle 150,000 people? Or do they handle them?

Nearly all dacha dwellers have cars.

They drive to Moscow for medical care?

Why? Serpukhov and Pushchino are nearby, and they have excellent outpatient clinics. Doctors see patients privately everywhere, and you can always come to an arrangement. Medical care is not the problem. The real problem is trash.

That was going to be our next question. As of the new year, a new trash era has dawned in Russia. Does anyone calculate the amount of garbage Russia generates? Does anyone understand the extent of the disaster?

I don’t know. I saw a business plan drawn up by gangsters in the early 1990s. They wanted to take over the garbage business, and they were partly successful. Everything is alright in the places where they were successful. But in the places where first there were towns and villages, followed by municipalities, and now corporations, there is an utter mess.

Moreover, it has been compounded by another problem: gasification. When people used stoves, garbage was burned, metal and bottles were recycled, and there was relatively little plastic. Nowadays, people prefer to throw things away. As soon as a town or village is hooked up to natural gas, the garbage piles up. There is just nowhere to take it, and there are no institutions or stereotypes for dealing with it.

In the garbage business, there is not only collection but also sorting and recycling.

Yes, garbage collection is not what matters. What matters is sorting and recycling. People live in landfills. They even have conveyor belts. They sort the garbage and sell the recyclables to buyers. It is an ecosystem you cannot change by opening or closing landfills, because these are reliable sources of raw materials, with a production cycle and sales channels. It is difficult and dangerous to describe life in landfills and the cottage trades that thrive there.

Do the authorities give the Khamovniki Foundation a hard time?

Not in the least. But they do not support us, either. So far we have not overlapped with the authorities either regionally or federally, but during our expeditions we cooperate with local authorities, of course.

How do you decide where to go on expeditions?

Accidentally. We have done work in all the federal districts, from Kamchatka to Kaliningrad. We have made fewer trips to the south, but now we have seemingly made connections there, too.

Where you have been in the past year? What new things did you find?

We were in the Far East: Vladivostok, Arsenyev, down to Nakhodka, and back to Vladivostok via Bolshoi Kamen. Thirteen people traveled almost 3,000 kilometers, describing the different local cottage trades and crafts.

Artemy Pozanenko recently completed a series of hunting expeditions. He spent several months with hunters and poachers as an embedded observer. Yulia Krasheninnikova has been studying expert evaluations and expert evidence as an institution. It transpires that it has long ceased to exist in Russia as a professional institution. Instead, crappy quasi-expert evaluations and so-called experts have boiled to the top, especially in religious studies, medicine, construction, and science. Dissernet have gone after fake scientific experts, and you know the success they have had.

Olga Molyarenko has been studying ownerless property. It turns out a considerable segment of existing networks and infrastructure in Russia belongs to no one at all.

She started by examining cemeteries. She discovered there are a certain number of cemeteries officially on the books in Russia, but the real number of cemeteries is nearly ten times larger. It is a typical situation. In the villages and small towns, the cemeteries were located beyond the official border of these settlements. They were overgrown by forests and thus registered as forest lands. It is forbidden to bury people in them, but you have to bury people somewhere.

By the way, the land registry is a problem unto itself. Alexander Pavlov added up all the land registered in Russia. Its total area is 1.7 times larger than the country’s official land mass the country, including the northern lands.

Then it transpired that the Defense Ministry’s closed towns have not only collapsed structurally but have also disappeared juridically. The Defense Ministry has not transferred them to the municipalities because, in particular, the municipalities are not capable of dealing with them. They do not have money in their budgets for completing the paperwork and other formalities. You have probably seen concrete two-lane military roads. Most of them belong to no one in Russia. The same goes for the roads along power lines and other infrastructure networks Usually, they belong to no one. They have no legal owners, and they are not listed in anyone’s inventories.

No one maintains them?

They have de facto caretakers rather than de jure owners. Usually, an economy emerges around these ownerless chunks of property The power transmission lines often have no owners. There was a state-owned enterprise that produced its own heat and electricity. The enterprise vanished, but the power station was left running because it keeps the nearby town heated and lit. However, power station itself and its networks belong to no one. Wherever you poke your nose you find the sewerage and water supply all belong to no one. In Krasnodar Region, people simply refused to talk to Olga about it.

What about the city itself, Krasnodar?

It was the same story. In the region’s coastal areas, if they show anyone the real figures for utilities and infrastructure, it would reveal how many tourists actually go there on holiday. They cannot do that, because they would have to pay a lot more taxes.

But how does ownerless infrastructure operate? Don’t contracts have to be signed? Don’t procurements have to be made?

There are people involved, of course. Alexander Pavlov has been making a study of Ulyanovsk for us. There are observable stereotypes. Everything is kept running by relying on connections, relationships, and unwritten rules.

How are fees collected?

The people who benefit pay in cash or favors. Everything is done strictly by the unwritten rules.

Here is a more general question. Are you saying the Kremlin does not know about any of this?

None of it exists on paper. On a personal level, they know. But as officials… Where do you go with it?

Do the aides in the Kremlin show the big brass anything about it?

I don’t think Kremlin aides are capable of helping anyone solve their problems. People have business interests they lobby by tattling on each other. They ask the top brass to make certain decisions, but the top brass keep their distance. A balance emerges, but it is a really peculiar balance, the outcome of a permanent war for resources in which no one can win, since the amount of resources available decreases during hostilities. In turn, this ratchets up tension among belligerent interest groups. However, what really goes in Russia concerns very few people. At best, information about really goes on can be used as arguments in internecine conflicts.

If they are so poorly informed, how do they ensure presidential decrees are executed? For example, when the Kremlin set out to reduce mortality rates caused by cardiovascular diseases?

The rates did drop. There are three lines at the bottom of death certificates: primary cause of death, secondary cause of death, and tertiary cause of death. A person crashed their car because they had a heart attack, and they suffered internal organ damage during the crash. The statistics take stock of what we write on the first line. This is basically how medical statisticians calculate data about mortality. If the Kremlin orders cancer be put in third place, the statisticians will do it, and if the order comes down to reduce mortality as caused by heart disease, the rates will drop.

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Russia’s Underground Cottage Industries
“One of our grantees found a huge cottage industry in a region in the Volga Federal District: around forty illegal airstrips,” says Simon Kordonsky. “Some of them have markings and hard surfaces. They transport goods, teach people to fly, and work in agriculture. Agriculture is their main gig. There is currently no official agricultural aviation in Russia: not only crop dusting but also the constant monitoring of field required by high-tech agriculture. You cannot check out an entire field by walking around it, but these tiny airplanes, often handmade, can do the job.

“By the way, outside of Moscow, there are approximately fifty people who have different airplanes: handmade, store-bought, and imported. These people have the money for them. The circumstances are dicey: air traffic control is not adapted to deal with these aircraft. Pilots of small aircraft make their own deals with air controllers on the side. There are regulations, but complying with them is impossible, and so an administrative market has arisen around this cottage industry. The pilots make payoffs so no one pays them any mind.

“The cottage industries change when the authorities pay attention to them. They exposed the garage economy and started making rounds of the garages, so people have been gradually moving to workshops. Mansions outfitted with workshops are being built outside city limits, just as in the nineteenth century. In Krasnodar, it is plain to see because it is right downtown. There is the market, and the war monument with its Eternal Flame. They are surrounded by one- and two-storey buildings. These are workshops and dwellings.

“Everything you can sell is made there. They distill vodka, roll out meat dumplings, sew linens, build furniture, and rent appliances. There are hotels, prostitutes, hair salons, and hospitals.

“Yes, and the dental industry has gone off the Health Ministry’s radar in certain locales. Outside of Moscow, for example, there are people who own dozens of different clinics. The clinics have no signs on the front door, but the equipment is top flight, and the doctors are terrific. They treat the local elite, so no one is the wiser.

“Did you know that near University subway station in Moscow there is the Nauka research and production facility, an establishment well known in certain circles

“Close to the bluff there there was and partly still is a community known popularly as Shanghai. A few years ago, it contained around five thousand garages, and the artisans who worked there were into everything, including the high-tech production of spare parts for imported cars. They had huge Soviet-era coordinate drilling machines, heavy asynchronous motors, probably imported, and programmers from Moscow State University, and they did great work. Their products were sold as imports.

“Moscow city hall has recently been trying to demolish the place, but Shanghai has resisted. This was place that had an outpatient medical clinic and a barber shop. The cafeterias were really good, featuring food from all over the world.

“Another type of cottage industry is distributed manufacturing, as in the Novokhopyorsk District in Voronezh Region and the Uryupinsk District in Volgograd Region who produce down goods together. They breed sheep and goats, comb the wool, processing it using high-tech machines, equipped with thermostats that fluff the wool, and finally produce the down and weave it. Everything they produce is sold at a wholesale market two hectares in size, open from two to six in the morning. They sell their wares to Roma wholesalers, who distribute the down goods nationwide.

“The government is now in the midst of a campaign against self-employment, but the cottage industries themselves change all the time, regardless of attempts to combat them. In fact, it is not clear what self-employment is. After his state of the nation address, the president gave orders to define the social status of self-employed people. The comrades from the Finance Ministry and Labor Ministry defined their fiscal status, but this is meaningless without defining their social status. What do we call government officials who take kickbacks? Cops running protection rackets? Are they self-employed or not? How do they differ from a university lecturer who works as university exam prep tutor on the side? Or from a physician who puts an ad on the internet saying he will treat patients at any stage in their suffering at any clinic in Russia? 

“There is no difference.

“If we take this approach, we discover the entire Russian populace is self-employed. As I used to say, first we must force people to pay taxes on kickbacks, and then we can deal with self-employment.”

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What do we do in these circumstances? If, as you say, Rosstat has failed to take Russia’s peculiarities into account, and their stats are at odds with reality, this leaves room for playing fast with the facts. What must be done? Should we change the methodologies?

That is a philosophical question. The possibility of accounting itself arises when there is a market. Modern statistics emerged in the seventeenth century when the market emerged, when goods and money parted ways, and people had to account for goods and money separately. If there is no market in Russia (the only market in Russia, perhaps, is the one at our customs border), then accounting can be done arbitrarily, using any criteria you like. The conceptual apparatus of an economy based on accounting and measurement cannot be applied to the realities of an underground cottage industry economy, a clandestine workshop economy, to life in Russia, to an administrative market state organized around the distribution of particular resources. The problem is neither technical nor methodological, but ontological. This is why we cannot count the number of people who live in Russia. 

When you say there are instructions to reduce mortality to a certain level, where do the instructions come from?

Well, there is a Health Ministry in Russia. It reports on the state of the populace’s health. The phrase “increasing life expectancy” appears in all their white papers, although I have never been able to get either ministers or academicians to specify the connection between medical progress and life expectancy. They have different systemic variables. The Health Ministry drafts a report on its work. The report is discussed—I don’t know where nowadays, maybe in the Security Council, maybe in Prime Minister Medvedev’s inner cabinet. The ministry gets orders to improve its figures. This instruction is called a presidential order or government order. On the back of this piece of paper, this order, are the names of the people who will implement the order. They are the folks who come up with the figures and then vet them. You have never heard of these people who draft white papers and come up with figures. You do not know them and you never will, although their administrative weight is no less than that of public officials

Here is a question linked to inflation and estimates. What did Alexander Surinov do so badly he was forced to resign his post as head of Rosstat?

I don’t know the specific reason. He was from the old school, you know, a man taught by folks who belonged to the old school of Emil Yershov [an economist who ran the State Statistics Committee, Goskomstat, from 1989 to 1993, before becoming a full professor at the Higher School of Economics]. Of course, maybe the whole business with driving up the figures and getting phone calls from the top brass rubbed him the wrong way. Perhaps he just freaked out.

By tweaking the stats, however, or, rather by existing in a system in which stats are tweaked, the state does not have a more or less realistic picture of reality, and all the plans, programs, evaluations of these programs, and adjustments to these programs are based partly on stats that it tweaks and dreams up itself, and partly on stats dreamed up by God knows who, a faceless crowd of civil servants.

“The Oppositions Needs a Position”
There are the polls done by VTsIOM, but they say the FSO (Federal Protective Service) does its own polls that tell the truth. Does the FSO keep statistics that show the president the truth?

The FSO conducts polls that consist of around 40,000 direct interviews without sampling, but in the final analysis their data is quite similar to the data produced by Alexander Oslon (Public Opinion Foundation or FOM), when it comes to public opinion, at any rate.

Our government conceives itself, and it has operated this way for three hundred years. People would go abroad, people like Peter the Great or Dmitry Kozak. They saw something they liked, came home, and decided they would do things the way they were done abroad.

It is quite hard to find anything Russian about Russia. Everything has been built by the state, but part of what it built got away from the state, and it is this fugitive part that is regarded as unreconstructed and outside state control, a gray zone. When something happens in the gray zone—young people act up, say—the state registers it and becomes alarmed. People are on the move, meaning there is something to it, so they want to devise a youth police, establish a state agency, a ministry for youth affairs, and get funding for it. What happens, ultimately, is that young people live their own lives, and on the other hand there is a state agency that squanders the federal money allocated to channel young people and their energy. The state is on the lookout for something living or seemingly alive, and this thing is nationalized, it is assimilated by the state. The Russian state consists entirely of such agencies, which ape things that occur beyond the state’s reach.

The FSO’s officers also keep track of societal stability, the different protest movements and so on. If protest movements kick into high gear, it means it is time either to nationalize them, which initially happened with the nationalist organizations, or crack down on them. Otherwise, God forbid, interregional synchronization might occur, and then you call in the guys whose jobs it is to neutralize such things, the Center for Extremism Prevention (Center “E”) and the Russian National Guard.

Do you mean it is impossible for the opposition or protest movements to consolidate?

It is probably possible in quite extreme circumstances, as in the late eighties and early nineties. Local uprisings are more likely. You see, the opposition needs a position. What is the regime’s position? It has no position, and so there can be no opposition. Opposition is based on the very same rationale. The regime’s position is that it is opposed to opposition.

We travel around Russia and we see no one in the mood to protest. Yes, people are dissatisfied, but they have always been dissatisfied. Their dissatisfaction is based on the sense someone got more than they did and this is unfair. They will complain to the supreme arbiter, they think, and he will set things right. But the kind of dissatisfaction that existed in Soviet times in Novocherkassk and Biysk, in the ethnic republics, does not exist today.

Nowhere? Not in any of the regions?

Something quite interesting has been happening in the ethnic republics within the Russian Federation, in Mordovia, Tatarstan, and Bashkortostan, among the Soviet ethnicitie shaped by Stalin in 1927–1928 as part of his policy on ethnic groups. They are not really nations, but ethnic esthates, social groups shaped by the state and bound to particular territories, so that Bashkirs have a particular status in Bashkortostan and a completely different status in Tatarstan. Rustem Vakhitov, who is based in Ufa, has written quite interestingly about this.

After the Soviet Union collapsed, these ethnic groups took on lives of their own: nations have been emerging in all the ethnic republics, sometimes to the point of hilarity, as happened in Mordovia. We went into a shop where the clerks were speaking Russian. When we approached one of them, they started speaking Mordvin. In the local cultural center, the ladies were sitting around a table covered with albums filled with drawings of costumes. They were designing the Mordvin national costume.

You’re saying the process has not been astroturfed from the top down by the regional bosses?

No, it is a search for identity. People are trying to solve a genuinely timely question: who are we?

Ethnic Russians don’t have this problem?

Ethnic Russians alone have not been emerging as a nation. Russians were never the titular nation [in any of the Soviet national republics]. When Stalin’s nation-building was underway, the Russians were forgotten. Everyone who was pushed out from the the ethnic republics became Russians.

So, people in Arkhangelsk Region could have been called Pomors and also emerged as a separate ethnic group?

The Pomors have their own deal. Yuri Plyusnin, a professor at the Higher School of Economics, has described the Pomors as a special ethnic group. Some cunning people politicized his research, and the myth of Pomor nationalism emerged.

These episodes, involving ethnicity, and the absence and search for identity, have been breaking out all over Russia nowadays. What is Siberian identity? People are riled up about this as well. Who are we Siberians? they ask themselves.

Do these trends threaten Russia’s territorial integrity? Will things somewhere boil to the point reached in Chechnya?

This will happen when there is a shortage of resources. Gleb Pavlovsky has described it well. In 1996–1997, when it was obvious the system was disintegrating, it had to be integrated. Two methods of integration were devised. One was financial. There was a multi-currency system. The so-called young reformers nationalized the ruble, turning money into a financial resource distributed by the federal government. The regions and municipalities queued to get their hands on it, competing with each other in the bargain. Elementary order emerged.

The second method was ideological. Vladislav Surkov and his pals dreamed up United Russia and nationalized ideology, trying to manufacture at least a partial copy of the Soviet Communist Party. Their project was generally a success, too, but unlike financial policy, United Russia was not instrumental. No one knew how to use it, except for channeling certain forms of discontent.

So, if there is a threat to territorial integrity, it is a potential threat. However, it is a threat that can be turned to an advantage. An ordinary economy deals with the risks posed by the market: there are winners and losers. Due to its non-market foundations, Russia does not welcome risks. Threats are the dominant tool in Russia’a administrative markets. The people who invent the scariest stores get the cash and the resources. One of the scary stories has to do with the threat to territorial integrity, which the security forces use to obtain resources, because they are supposed to neutralize the threat.

Yet people are always dissatisfied with the way resources are distributed, and so there can be no means of assessing whether threats have been dealt with effectively or not. Once upon a time, threats to public health and public education were identified and prolonged. Resources were allocated for neutralizing these threats, and national projects were launched. Consequently, the threats became even worse. New national projects have been launched, and resources have again been allocated to neutralize the same threats.

We live in the midst of permanent threats, generated by all the stakeholders and pressure groups. The government is faced with the need to emphasize certain threatens and allocate resources for neutralizing them.

Russia was disoriented for a long time, since it had no customary external enemy. Subsequently, different forces united to manufacture this external enemy, and now it is a matter of neutralizing the external threat. I gather that a considerable amount of federal funds and extra-budgetary resources have been earmarked for producing means to neutralized the external threat.

So, we are fighting the good fight against enemies we construed ourselves, against enemies we dreamed up ourselves?

Yes, it’s a good fight. We are winning. We are earmarking resources foor the fight. We are retreating, we are advancing. We are forcing groups to scrap over resources and queue for them. Basically, the scrap going on in the queue is the basis of the current stability.

Russia has been functioning this way for hundreds of years. It generates threats, attempts to neutralize them, and exports its internal tensions through external aggression. This was what happened in Afghanistan.

Can we be completely defeated by such a threat?

We lost in 1991, didn’t we? It was then necessary to generate an internal hotbed of tension, known as “Chechnya,” getting rid of all conflicts in the country and booting them down there.

There were lots of people there who were quite aggressive and itching for a fight. Besides, there was a curious form of self-organization in Chechnya. The first Chechen combat units emerged from construction crews, not from the big clans. Chechens traveled to Siberia together to build cow barns and formed work crews.

“Repeating the Past Is Russia’s Future”
They went there to build cow barns, because there was no work of any kind in Chechnya?

That was not the only reason. It was a very good deal for the local authorities. Building was the only means they had of retaining resources in their area, so numerous construction sites popped up. I was then busy researching construction in the countryside and I saw what was actually happening. I would get an itemized list of the buildings, and there would be ninety sites on it. Then I would make the rounds of the sites and find only forty-two actually being built. The other sites did not exist, but I would find another fifty sites that were not on the itemized list, but which were nevertheless under construction, and it would be Chechens, Ukrainians, and Hutsuls building them. The Chechen work crews came together, because the objective was to protect the forest glades in Siberia.

There is something similar going on nowadays in Tyumen Region, for example. In Dagestan, there are villages that have full-scale diasporas in Tyumen and Surgut. The men have two families, one in Surgut, the other in Dagestan. They ship all kinds of schmutz and fruit to Tyumen, bringing back timber and fish to Dagestan. I imagine it is Tyumen is not the only place where such things go on.

Doesn’t Plato hinder them? It monitors cargo shipments.

Plato monitors the big rigs. There is no system for monitoring trucks under twelve tons. The government farmed out the big rigs with the hope of extending the new system of tolls to low-tonnage transportation. What do I mean by “farming out”? In particular, resources are redistributed from local authorities to corporations. The regions have become less significant in the distribution and redistribution of resources, while corporations have become more important. This will inevitably cause conflicts.

What conflicts?

In the first place, conflicts between the regions and the corporations. And conflicts along the highways, especially federal highways. They are like arteries pumping blood and supporting life: there are tons of gray-zone cottage industries that spring up around them, providing everything from food to prostitutes.

Take the village of Umyot in the Zubova Polyana Municipal District in the Republic of Mordovia, which is on the M5 Ural Federal Highway. Prostitutes are lined up for a dozen kilometers along the highway, along with different roadside establishments. The Zubova Polyana District is home of the famous village of Potma, where five prison camps built during Soviet times as part of the Gulag are still in operation. The district has a population of just over 60,000 people, and around 30,000 of them are convicts, while the non-convict populace are third- and fourth-generation prison guards. So, when a monopolist like Plato appears on the scene, people naturally try and fight back.

There are really interesting migrations underway in Russia nowadays. They say the country is becoming deserted. According to statisticians, people have been moving into the district and regional seats. That is happening, but some of the migrants are regrouping along the big highways. Russia has been shrinking down to a series of highways. New communities are being built, and life there is defined by a highway.

There is another trend, however, of people leaving the cities. These people are adherents of different environmental sects, the Ringing Cedars or Anastasians, for example. We counted several hundred thousand of them. Within a radius of a hundred kilometers from Moscow there are dozens of Anastasian settlements. They have no names,  addresses or anything of the sort. These downshifters are educated people, usually.

Pozanenko sailed several hundreds of kilometers down one of the rivers in the north and counted several dozen settlements that were not registered with the government in any way.  They usually are highly attached to a particular ideology. They go off to live in hermitages, grow cedars, and worship Nicholas Roerich. The ones who survive move away from the ideology after three or four years, becoming ordinary peasants. We have seen this in Altai and other places.

But the inflow is greater from the small towns and villages into the major cities than vice versa?

They are migrants doing seasonal work. Moscow sucks in people who live as far as 400 kilometers to 500 kilometers away. This radius is around 70 kilometers for a large regional capital like Novosibirsk. This is pendulum migration, while migration over great distances is seasonal migration. If we take the Zubova Polayana District again, it is around 400 kilometers from Moscow. The men go to Moscow to work as security guards, while the young women go there to work as “accountants,” meaning prostitutes. This was the case a few years ago, and I doubt whether much has changed.

What a great euphemism!

Here is another thing. A retail chain has agreements with villages to supply laborers for several months. There are several villages, and the villagers take turns going into the city to work. It is very hard to quantify migration like this. On Fridays, it is readily visible at the train stations: the cars are packed because people are going home. Daily migration can be quantified: you just take a look at the terminal stations of the subway and the train stations when people pile into Moscow on the commuter trains. Basically, these are the thirty million people we spoke about at the beginning, the people who shit in Moscow. These are the numbers of people who come to the city. In some regions, as much as forty percent of the population migrates to work.

There is a theory that, in the future, it will be megacities that compete with each other, not countries.

Russia does not have enough oomph for that. What kind of future awaits Russia? Repeating the past is Russia’s future in terms of public opinion and behavior. Look at what people say about the future: the country is going back either to Stalin or Nicholas the Second.

What about a palace coup? Russia has a rich tradition of those.

I don’t believe it.

Why not?

There are way too many competitors.

You said that the Soviet Communist Party collapsed and everything else collapsed with it. Isn’t Putin a similar force for consolidation nowadays?

Putin is not the problem. The problem, as Gleb Pavlovsky says, is transferring power while maintaining stability and territorial integrity. Some people have seemingly decided the problem can be solved by prolonging the leader’s life. Big money is currently being invested in biology and medicine. There are academicians who have long been receiving large sums of money for research on prolonging life.

Do you mean Vladimir Skulachev?

Yes.

They write that he has run into a dead end.

Practically, it is a dead end, of course, but politically the demand for his research is high.

Maybe they will go in search of the Holy Grail?

I think they have gone in every direction they could have. Where do you think their flashy religiosity comes from? What is the cause? They are hoping for a miracle. They really are praying, hoping for a miracle, because there is no rational way out of the impasse.

Translated by the Russian Reader

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Plato Is Invincible, or, The Fix Is In for RTITS

trans-siberian highway0

Russian Government Could Pay for Protests Against Plato Road Tolls System
Olga Adamchuk
Vedomosti
January 8, 2019

“No to Rotenberg’s extortion” read stickers on long-haul trucks in early 2017, when highways were blocked [sic] in protest against the introduction of the Plato road tolls system. An agreement that would establish an automated weight-and-size monitoring system on federal highways, fining overweight trucks, would protect its likely operator,  RT Invest Transport Systems (RTITS) from problems associated with such manifestations of dissent.

Currently, RTITS is 23.5% owned by Igor Rotenberg [son of Putin crony Arkady Rotenberg], 50% by RT Invest,  19% by Andrei Shipelov, and 7.5% by Anton Zamkov.

If there are rallies, demonstrations, meetings, and marches near the automated weight-and-size monitoring points, even if these events were authorized, and they hindered the construction or operation of the Plato system, incurring extra costs to the operator, the Russian government would be obliged to compensate the operator for these expenses, according to a draft concessionary agreement, published December 28 on the official Russian government bidding information website torgi.gov.ru. The operator would be able to bill the government not only for actually incurred losses but also for expected losses.

The government will wait for other bids until February 12. If other bids are submitted, there will be a tender for the contract. If there are no bids, the agreement will be signed on the current terms.

However, downtime in the operation of the scales will have no effect on the operator’s revenues, which will be supplied not by Russian truckers, but by the Russian government. For installing and maintaining the system, the operator will be paid 8.64 billion rubles annually [approx. $129 million] (VAT not included) over eleven and a half years. The government will shell out a total of 118.45 billion rubles [approx. $1.7 billion] (VAT included) to the system’s operator. The concessionaire would pay fines for the glitches for which it was responsible. An appendix to the agreement stipulates the system must identify three quarters of violators.

The agreement features a long list of special circumstances in which the operator can demand additional payments from the government, including when inflation is twice as high as was expected, and if the project goes over budget by ten percent or more.

The government would also permit the system’s operator to use the property it builds and installs, which remains state property, for any purpose, including commercial ends.

A concession deals insider notes this stipulation has usually not been part of projects in which the grantor made payments to the concessionaire, since, if there were an opportunity to earn money, it should reduce the fee paid by the grantor. The agreement also lacks the routine stipulation that key subcontractors must be approved by the grantor. Our source wondered why the government was thus willing to forfeit oversight of the project. If the concessionaire had managed to obtain cheap financing, the government could reduce its fee: the state and investors would usually share benefits equally, but there is nothing of the sort in the proposed agreement.

Currently, there are 28 weight-and-size monitoring points operating on Russian federal highways. After the new system has been completely installed, in 2024, there will be 387 automated weigh stations. Under the terms of the project application, eighty-eight of these weigh stations will be built by way of improving the current Plato road toll system, the Russian Transport Ministry has reported.

Investors are also protected in case the agreement is terminated. The Russian government shoulders a greater payout to the concessionaire than it would in similar agreements, said Sergei Luzan, director of PricewaterhouseCoopers Russia (PwC Russia). Even if the project never gets off the ground, the concessionaire can incur two billion rubles in expenses and have them repaid by the Russian government. Such conditions are possible in concessions, but the government usually only pays costs that have been itemized and authorized in advance, and at a discounted rate, Luzan said.

In 2017, protesters demanded the government terminate the concession agreement for the Plato road toll payment system. Andrei Bazhutin, [chair of the Association of Russian Carriers or OPR], said truckers were planning to protest the launch of the weight-and-size monitoring system as early as February. According to Bazhutin, Russia’s independent truckers had been engaged in serious discussions.

Alexander Kotov, chair of the Truck Drivers Trade Union, also confirmed discussions were underway, but he refused to say when protests could begin. He said carriers would like to see shippers bear the cost for overloaded vehicles.

Having to pay for an overloaded vehicle that travels through several weigh stations could simply ruin a small trucking company, but it would also go bust if it refused to dispatch the overweight vehicle, explained the head of a major logistics company, because the shipper would hire another carrier.

As cited by the Transport Ministry, the RADOR Association (a national organization of local road authorities) has claimed that overloaded trucks cause 2.6 trillion rubles in damage to highways annually. According to statistics, there are no longer any problems with federal highways, since they are in between scheduled overhauls. But the president has ordered an overhaul of regional roads, which are still in a state of chaos.

The truckers and spokespeople of truckers associations surveyed by Vedomosti were unhappy with the current weigh stations. Bazhutin said that, compared with the Plato system, the weight-and-size monitoring system still had numerous shortcomings, for example, the fact that weather conditions had a huge impact on the accuracy of scales. He also noted that drivers do not see whether they are running overweight when they drive over the scales, and so when they receive a fine of between 100,000 rubles and 500,000 rubles [$1,500 to $7,500] in the mail, it is a complete surprise to them. If a trucker fails to pay the fine, his or her account is blocked.

“It’s just like with Plato. It doesn’t matter whether you were running empty or loaded. You have to pay whether you were overweight or not, since the system registered a violation. It’s impossible to dispute a fine. Since this whole business puts pressure on self-employed carriers, there will likely be protest rallies and marches,” said Bazhutin. “But we’re unlikely to set up a protest camp next to a weight station in Yaroslavl Region, say, when it is the federal authorities who are making the decision.”

Kotov argued that, since the bulk of cargo in Russia is shipped by trucks, this new financial burden would ultimately be passed on to consumers.

Political scientist Abbas Gallyamov argued the state of public opinion is currently such that things could kick off anywhere whatsoever. Any action by the authorities that is deemed unjust is capable of setting off a wave of protests. Gallyamov notes that Russian truckers have demonstrated their willingness to fight back and their capacity for coordination; moreover, they did so in circumstances in which public opinion was generally much more inclined to side with the regime. Given this past history, the chances of Russian truckers rising in protest again were great, he concluded.

Spokespeople for the Transport Ministry and RTITS told that the terms of the agreement were standard.

Translated by the Russian Reader. Photo courtesy of dangerousroads

Unionized Independent Russian Truckers Persecuted by Putin Regime

Opponents of Plato Road Tolls System Complain to European Court of Human Rights They Have Been Victims of Political Persecution
Their Organization Was Earlier Ruled a “Foreign Agent”
Anastasia Kornya
Vedomosti
December 26, 2018

The Association of Russian Carriers (OPR), an organization of independent truck drivers  the Russian Justice Ministry placed on its list of “foreign agents” late last year, has filed a complaint with the European Court of Human Rights (EHCR) in Strasbourg, claiming its right to freedom of association had been violated and it had been subjected to political persecution, in violation of Article 11 and Article 18 of the European Convention on Human Rights, as reported by Alexei Glukhov, a lawyer with the Agora International Human Rights Group who represents the OPR in Strasbourg.

The OPR emerged during the campaign for the rights of truckers that kicked off after the Plato road tolls payment system went online in November 2015. The OPR brought together independent truck owners and truck drivers. In June 2017, it announced it was planning to nominate its chair, Andrei Bazhutin, as a candidate for the Russian presidency. Shortly thereafter, the Justice Ministry launched an audit of the OPR, resulting in its being ruled a “foreign agent.” The ministry cited four donations from private individuals in Germany, totaling 3,620 euros, as evidence of “foreign financing.”

In a report on its oversight of the work of “foreign agent” NGOs in 2017, the Justice Ministry claimed the OPR had engaged in “political activity” by “organizing and holding  events calling for the resignation of the Russian federal government.” In June of this year, the Krasnogvardeisky District Court in Petersburg fined the OPR 400,000 rubles [approx. $5,755] for failing to voluntarily [sic] register itself as a “foreign agent.”

The complaint says the OPR has been a nuisance to the Putin regime since the organization has led the campaign against the Plato road tolls payment system, which ultimately benefits businessmen closely allied with the Kremlin. The truckers are certain it was their grassroots activism that caused the authorities to persecute them. The fine leveled against the OPR not only was far in excess of the foreign donations it received but has also financially ruined the organization.

Glukhov points out the ECHR has received several dozen complaints from Russian NGOs labeled “foreign agents” by the Russian government, but the court has not yet ruled on Russia’s “foreign agent” law and its application in practice. However, the court has communicated the facts of the first large group of cases to the Russian authorities, while a second group of cases was nearing completion, meaning that a ruling on complaints filed by Russian “foreign agent” NGOs could be expected next year, argues Glukhov. The OPR’s complaint is part of a third wave of complaints filed in Strasbourg. As they await the court’s ruling, Russian NGOs continue to suffer from the harsh law.

Everyone has the right to complain to the EHCR, but the Russian Justice Ministry begins to work with a complaint [sic] only after the court has communicated its consent to hear the case, says Andrei Fyodorov, head of the office of Russia’s representative to the EHCR.

Lawyer Dmitry Agranovsky says the EHCR has rarely ruled that Article 18 of the European Convention has been violated. Recently, however, in response to a complaint filed by opposition politician Alexei Navalny, the court ruled Russia had violated Article 18. The ruling was a precedent of sorts. Agranovsky has the sense that, before the Navalny case, the court’s Grand Chamber had postponed other cases in which Article 18 had been invoked, but now it had worked out a common set of rules that could be applied in other cases as well. On the other hand, there was a risk Article 18 would be devalued, Agranovsky warns [sic].

______________________

[Three] Years of Plato: How Russian Authorities Forced Truckers to Pay Road Tolls

fullscreen-118c.jpg[Three] years ago, on November 15, 2015, Russian authorities launched the Plato system (“Plato” is an acronym for “payment for a ton” in Russian) to collect tolls from owners of heavy-duty trucks traveling on federal highways. The authorities claimed their goal was to compensate for the damage the trucks caused to roads. It was decided the toll would be applied to owners of trucks weighing over twelve tons. Photo courtesy of Maxim Stulov/Vedomosti and RBC 

fullscreen-12pmThe right to develop and implement Plato was awarded to RT Invest Transport Systems without tendering. The company is owned on a parity basis by Igor Rotenberg and RT Invest, which is 25.01% owned by Rostec and 74.99% owned by Andrei Shipelov’s firm Tsaritsyn Capital LLC. The Russian government agreed to pay Plato’s developer and operator 10.6 billion rubles [approx. $153 million at current exchange rates] annually.  Photo of Igor Rotenberg courtesy of Nikolai Galkin/TASS and RBC 

fullscreen-123u.jpgOpposition politician Alexei Navalny and Anti-Corruption Foundation (FBK) lawyer Ivan Zhdanov asked that the courts declare the government’s agreement with RT Invest Transport Systems null and void. Their lawsuit was rejected first by the Moscow Court of Arbitration, and later by the Russian Constitutional Court. Photo of Alexei Navalny courtesy of Yevgeny Razumny/Vedomosti and RBC 

fullscreen-12do Truckers in forty Russian regions protested against Plato in November 2016. They demanded Plato be turned off, a three-year moratorium imposed on its use, and the system be tested for at least a year. Photo by Yevgeny Yegorov/Vedomosti and RBC

fullscreen-12suWhen Plato was launched in November 2015, truck drivers paid 1.53 rubles a kilometer. Four months later, the authorities planned to double the toll, but after negotiations with truckers they made concessions, reducing the toll increase to 25%. Since April 15, 2017, the authorities have charged trucks 1.91 rubles a kilometer. Photo courtesy of Sergei Nikolayev/Vedomosti and RBC 

fullscreen-12d8However, even the discounted [sic] toll increase did not sit well with all truckers [sic]. On March 27, 2016, the OPR went on what it called an indefinite nationwide strike. Truckers protested the toll increases and demanded fairness and transparency at weight stations. Photo by Yevgeny Razumny/Vedomosti and RBC. [The slogans read, “Down with Plato!!! It’s Rotenberg’s Feeding Trough” and “We’re Against Toll Roads.”

fullscreen-12jxIn October 2017, the government approved a bill increasing fines for nonpayment of Plato tolls from 5,000 rubles to 20,000 rubles. If passed, the law would make it possible to charge drivers for violations that occurred six months earlier. The new rules were set to take effect in 2018. Photo of Dmitry Medvedev courtesy of Dmitry Astakhov/TASS and RBC 

fullscreen-1ghbPlato’s database has registered 921,000 vehicles weighing over twelve tons. According to the Russian Transport Ministry, during its first two years of operation, Plato raised 37 billion rubles for the Federal Roads Fund. In the autumn of 2017, the government selected three projects that would be financed by the monies raised by Plato: a fourth bridge in Novosibirsk and bypasses around the cities of Chusovoy (Perm Territory) and Khabarovsky. Photo courtesy of Georgy Shpikalov/PhotoXPress and RBC

fullscreen-11h3.jpgVehicles that transport people are exempt from Plato tolls, as are emergency vehicles, including vehicles used by firefighters, police, ambulance services, emergency services, and the military traffic police. Vehicles used to transport military equipment are also exempt from the toll. Photo courtesy of Gleb Garanich/Reuters and RBC

 

Russian Trucking News

DSCN0034“Delivery for a favorite client.” A short-haul freight truck in downtown Petersburg, August 8, 2018. Photo by the Russian Reader

Officials Want to Equip New Trucks with Special Sensors as of 2024
Carriers Are Worried Tightening Monitoring Weight and Size of Trucks Will Increase Load on Business
Elizaveta Bazanova and Vladimir Shtanov
Vedomosti
December 24, 2018

Officials have concocted a new way to monitor business. They want to equip trucks with axial-load sensors in order to combat trucks hauling loads in excess of legal weights. Legislation requiring such loads be transported by trucks weighing over 3.5 tons will be drafted by 2024. The plan is contained in the outline of the Russian government’s national Safe and High-Quality Highways project, two federal officials told Vedomosti. A spokesperson for Deputy Prime Minister Maxim Akimov said the project’s outline would be approved by the cabinet on Monday.

The Industry and Trade Ministry and the Transportation Ministry would have until 2022 to draft amendments to the technical regulations of the Eurasian Customs Union (EACU), forbidding the import to Russia of trucks not equipped with the sensors. The amendments should also be inserted into Russian technical regulations before 2024, according to the national highway project’s outline. (Vedomosti has seen part of this document.) As of 2024, all new trucks will have to be equipped by manufacturers with the sensors, explained Akimov’s spokesperson. Owners of old trucks will not be forced to install them. They will have the option of installing them, says a source who has learned about the plans from a federal official.

Regulations on equipping all Russian trucks weighing more than 3.5 tons with axial-load sensors have not yet been drafted, according to spokespeople at the Transport Ministry and Rosavtodor (Russian Federal Road Agency).

Russian authorities set about establishing weight-and-size monitoring system for freight trucks in 2016. Their goal is to maintain the quality of roads and reduce the number of accidents. Automatic scales that measure the axial load of trucks have been installed on highways in test regions. If a truck is overweight, the carrier must pay a fine of up to 450,000 rubles [approx. 5,800 euros]. A total of twenty-seven checkpoints in eighteen Russian regions have been set up on federal highways. By 2024, the number of checkpoints should rise to 387, covering federal and regional highways in seventy-five regions.

The pilot program in Vologda Region has shown the average overload is thirty percent, the Transport Ministry reported. During their first year of operation, the checkpoints reduced the number of violators from forty percent to four percent.  On the federal level, the weight-and-size monitoring system will be a public-private partnership. RT Invest Transport Systems, owned by Igor Rotenberg, son of Arkady Rotenberg, and RT Invest, jointly owned by Rostec and Andrei Shipelov, has shown interest in acquiring an operating license. In June 2018, the company proposed a public-private partnership with the government.

The regions will establish their own public-private partnerships. Truck owners will be able to purchase the sensors from any manufacturer. No directives will be issued on this score, a federal official assured us.

3.74 million trucks were registered in Russia as of July 1, reports Autostat. Under the European classification, trucks weighing between 3.5 tons to 12 tons are categorized as N2. Such trucks are manufactured by KAMAZ, Iveco, Mercedes-Benz, and Renault (Midlum), among other companies. They are usually employed for short hauls, for example, from a distribution center to retail outlets, a logistics manager from a company in the consumer sector told us.

Currently, truck owners rarely install the sensors, said Boris Rybak, director general of Infomost, because equipping a truck costs owners between several tens of thousands to several hundreds of thousands of rubles. Trucks manufactured in the west that carry goods in Russia usually have the sensors pre-installed.

Alexander Lashkevich, director for relations with industrial and infrastructure organizations at the Business Lines Group, said they did not install additional sensors, since they are a standard feature on most imported vehicles, but this applies to trucks with a capacity of more than 12 tons. The new K5 line of trucks from KAMAZ features axial-load sensors as a standard feature, said a company spokesperson.  Lashkevich said Business Lines used special calculators that facilitate loading semitrailers so as to avoid overloading.

Introducing weight and size monitoring will help maintain roads, but it is not clear why small-tonnage vehicles need to be equipped with axial-load sensors. Problems with overloaded axles happen to heavy haul vehicles. Ultimately, the load on the shipping business will grow, while the expediency of the planned measures is difficult to assess, warned Lashkevich.

The sensors are not needed on low-tonnage trucks. Problems with excess weight “occur extremely rarely due to the specifics of moving people’s things to new residences,” explained Arkady Usachov, director general of Gentle Move, a moving company.

The damage to roads caused by trucks weighing under 12 tons is considerably less, said Rybak, but equipping even light trucks with the sensors is a worldwide trend: you can load even a 3.5 ton truck with up to ten tons of freight. Such systems are in operation on roads in many countries, agreed Mikhail Blinkin, director of the Institute of Transport Economics and Transport Policy Studies at the Higher School of Economics.

The cost of buying and operating trucks could increase, warned Usachov.

“Freight haulage should be getting cheaper, but this approach will only make it more expensive,” argued Alexander Prokofiev, head of operations at the Moving Center. “Plato, ERA-GLONASS, and other systems will not provide real security, and they will not improve road quality. The amount of freight hauled on the roads will not decrease. Roads have to be built well from the get-go.”

Translated by the Russian Reader

Annals of Import Substitution: Got Milk?

Perhaps one of the big reasons the post-embargo Russian dairy industry has failed to achieve “total important substitution,” not mentioned in the otherwise comprehensive article, below, has been its penchant for gulling Russian consumers. Among the gullible is your correspondent, who was moved by the label on this milk carton (“Honest Natural Cow Milk […] from an Ecologically Pure District of Bashkiria”) to buy it the other day. My boon companion, however, immediately pointed out what the side of the carton revealed. In this case, “Honest Bashkir Natural Cow Milk” was actually reconstituted milk powder (“изготовлено из молока нормализованного”), not real milk. Since the embargo set in, every Russian has also encountered literally tons of fake cheese in the shops. Chockablock with palm oil, not milk, and sporting European sounding monikers to make them more attractive to “discerning consumers,” this fake cheese has generated massive popular distrust in domestically produced cheese and other dairy products. TRR

Why Import Substitution Has Failed in the Dairy Industry 
Despite the Produce Embargo, Milk Production Has Declined, Dairy Products Have Become More Expensive, and Demand Has Fallen
Yekaterina Burlakova
Vedomosti
January 22, 2018

“I’ve seen it myself, touched it with my own hands. The country is currently constructing three cheese factories with the capacity to produce fifty, sixty, and seventy tons daily, and in five years we will have forgotten the problem [the shortage of domestically produced cheese] altogether!” Russian agriculture minister Alexander Tkachov said recently, sharing his optimistic plans. “Let’s recall pork, vegetable oil, sugar, vegetables, and fruit. We also imported all this produce. We were seriously dependent.”

Tkachov and his colleagues never tire of talking of how the produce embargo, imposed by Russia in August 2014 on the United States, the EU, Norway, Canada, and Australia, has helped Russian farmers. Greenhouses have been built, orchards have been planted, and so on.

But import substitution has not taken hold in the dairy industry. Milk production has declined, dairy products have become more expensive, and demand for them has fallen off. Why has this happened?

Russia provides itself with only 75% of the dairy products it consumes; the rest is imported, mainly from Belaruas. However, Russia has always suffered shortages of domestically produced raw milk. But the circumstances have worsened. According to Soyuzmoloko, the Russian national dairy producers union, the production of raw milk decreased by two percent to 30.7 million tons between 2006 and 2016.

It is a complex and costly business, says a spokesperson for a dairy company. Vegetable production shows a profit after seven or eight years; fruit production, after four or five. Dairy plants take much longer to show a profit. According to different estimates, it takes between ten and fifteen years to put them in the black. Many potential investors are scared off by such figures, but our source said what the dairy industry needed were serious, long-term investments.

Indeed, the dairy business is considered complicated due to the long time it takes to see a return on investment, says Stefan Duerr, director general of EkoNiva, Russia’s largest milk producer. It generally takes three years to build a dairy plant and put it on line. Dairy production also requires considerable working capital: cows give milk only from the age of three. You have to prepare you own feed, and for that you need land: an average of about three hectares per cow, says Duerr. Pig breeders and poultry farmers have it much easier, since they can buy readymade feed.

Over the past four years, the price of raw milk has increased by about 60% to 25 rubles per kilo, says Artyom Belov, director general of Soyuzmoloko. This occurred after the ruble declined, and demand from processors increased. Yet the net price of milk has decreased after the ruble’s recovery. Belov is certain this makes dairy farming more attractive to investors. In his opinion, state support is also vital. In 2017, compensation of capital expenditures grew from 20% to 30%, while soft loans have been granted at an interest rate of up to 5%.

Investors Have Doubts
Investors still have doubts, however, For example, Rusagro’s principle owner Vadim Moshkovich recently announced he was willing to invest one billion dollars in milk and dairy production. But a decision on the project has not yet been made, says a spokesperson for the agricultural holding company.

“Dairy cow breeding really is a complicated business with a long-term return on investment, even taking subsidies into account. However much we cite the discounted return on investment model, seven years, which is mentioned in the press, we just cannot pull it off in Russia,” he says, raising his hands in dismay.

The processing and production of value-added products is needed to make the project viable. Total vertical integration—from feed production to the manufacturing of dairy products—is thus necessary, he argues.

Other investors have also spoken of possible investments in mega projects. Alexei Bogachov, a minority shareholder in the Magnit grocery store chain, has promised to invest 20 million rubles in a partnership with Rusagro. Miratorg has promised to invest $400 million, while Thailand’s Charoen Pokphand Group has promised to invest one billion dollars. In reality, only Vietnam’s TH Group has launched new, large-scale raw milk production facilities. Last year, the company began construction on dairy farms in Kaluga Region and Moscow Region that will accommodate approximately 40,000 head of dairy cows, and it recently announced plans to build farms in the Maritime Territory. It intends to invest $2.7 billion over the next ten years.

If circumstances on the market do not change, and milk prices do not go down, Belov forecasts it will be possible fully satisfy Russia’s milk needs in ten years. For the time being, processers deal with the milk shortage in different ways. For example, Oleg Sirota, founder of the cheese company Russian Parmesan, will soon bring his own dairy farm on line.  In turn, in order to insure stable supplies of milk, the French company Danone has invested in milk production in Tyumen Region in partnership with Naum Babayev’s Damate Group. The cost of the entire project is 5.6 billion rubles, but Danone’s share of the costs has not been disclosed. According to the agreement between Danone and Damate, all the milk produced at the facility will be sent to the Danone plant for eight years.

The Embargo’s Impact
“We saw that European producers with much lower prices would not arrive the next day, and we realized we could make long-term plans, that we had to invest in domestic production,” said Alexei Martynenko, owner of Umalat, a company that produces brined cheeses.

Almost as soon as the embargo was imposed, Martynenko gave up the day-to-day management of a feed production business and set about vigorously developing Umalat.

“I realized that if I didn’t change anything right away, we would sleep through the chance to grow the company,” he noted.

Many businessmen decided to tackle cheese immediately after imposition of the embargo, which among other things banned the import of cheese from the European Union to Russia. In 2016, according to Nielsen, Umalat was Russia’s leading manufacturer of sulguni, and took third place in the manufacture of mozarella and mascarpone. Since 2014, production at Umalat has doubled to 5,000 tons annually, says Rustem Mustafin, the company’s marketing director.

“The import substitution program and imposition of the embargo came in handy. We would have grown without them, but the growth would probably have been less considerable,” Mustafin continues.

However, the embargo’s impact wore off quite quickly, since it was immediately followed by a substantial downturn in household incomes, he stresses.

Sirota launched cheese production in the summer of 2015. Currrently, he produces semi-solid and hard cheeses, which retail for 800 rubles to 1,600 rubles per kilo. His cheesery’s first batch of parmesan will mature in August, when the embargo will celebrate its fourth anniversary. Currently, Sirota produces 400 kilograms per day. In 2018, he plans to ratchet production up to two tons per day.

Russian manufacturers have been most successful in producing hard and semi-hard varieties such as Russian, Dutch, and Altai, says Andrei Golubkov, a spokesman for Abzuk Vkusa [ABC of Taste], a Russian gourmet grocery store chain. There are also high-quality producers of brie, camambert, mozarella, and burrata. But the supply of good-quality ripened hard cheeses is still limited. The chain now mainly sells hard cheeses from Switzerland, which was not included in the embargo, and the South American countries, says Golubkov. Expensive Russian cheeses account for about 10% of all sales in terms of money and about 5% in terms of volume, Soyuzmoloko’s Belov says.

If the embargo is lifted, many businessmen involved in the manufacture of milk and cheese will be ruined, argues Sirota.

“Even if we could compete in terms of quality, we could not compete in terms of cost. The price of milk in Germany is currently around 20 rubles [per kilo], while it is 34 rubles in Russia,” says Sirota. [According to the industry website clal.it, the price of raw milk in Germany in November 2017 was 38.97 euros per 100 kilograms or approximately 27 rubles per kilo—TRR.]

Milk in Germany costs less due to cheap loans and government subsidies. In Russia, on the contrary, loans are short-term and expensive: they fall due between five and seven years. Investors have not yet managed to launch production, but the money has to be returned. There is always a shortage of good-quality milk for reprocessing. It takes 14 kilos of milk to make one kilo of cheese. Moreover, the highest grade of milk is required to ensure the desired quality of cheese.

Mustafin says Umalat is not afraid the sanctions will be lifted, however. The company has been vigorously promoting its brands, has found its customers, and has produceed cheeses that are better than their imported counterparts.

From Milk to Macaroni
Meanwhile, the consumption of dairy products has decreased by 5% from September 2016 to September 2017, according to Nielsen. Sales of kefir experienced the largest drop: 8.4%. Sales of sterilized milk fell by 7%, yogurt, by 5.8%, and cottage cheese, by 5%. For the first time in recent years, there has been a drop in the consumption of such traditional Russian dairy products as milk, smetana (sour cream), tvorog (cottage cheese), tvorozhki (quark), and ryazhenka (fermented baked milk), notes Anastasia Jafarova, director of customer relations in the department of sales and servicing of consumer panels at GfK Rus, a market research company. Perhaps the main reason is an increase in the average price by 10.4%, explains Jafarova. Price rises have mainly been due to the price rise of the raw material, i.e., the milk supplied by farmers, says a spokesperson at PepsiCo. In addition, a spokesperson for Danone cites other causes. Under the Plato road tolls system, the tolls imposed on heavy cargo vehicles rose by 25% in April 2017, and excise taxes on fuels rose by more than 8%. The decreased demand for dairy products has also been due to a decline in household incomes over the past few years, argues Belov.

The fact that people have started to skimp even on ordinary milk says they are likely to switch to cheaper products, notes Marina Balabanova, Danone’s regional vice-president for corporate relations in Russia and the CIS. This could be macaroni, cereals or other products, she speculates. As never before, Russians are rational in their spending and try to redistribute their expenses as efficiently as possible, says Jafarova. This testifies to the relative adapation to a protracted crisis on the part of Russians.

Agricultural minister Tkachov has also admitted that import substitution has not occurred in the dairy industry. He wrote about it in response to an official query from Communist Party MP Valery Rashkin. Although imports have dropped by 1.9 million tons since 2013, the production of milk has grown only by 1.4 million tons. The minister wrote that the demand for imported dairy products was currently 7.5 million tons. At a production growth rate of three percent annually, total import substitution would take at least nine to ten years. But work is currently underway to increase state support, which would reduce this period to five to six years, Tkachov hopes.

fullscreen-3dv

“How the Consumption of Dairy Products Has Fallen (from June 2016 to June 2017, in percentages). Cheese spread and smoked cheese: –6. Quark: –5. Milk: –4. Yogurt drinks:–4. Firm yogurt: –4. Sour cream: –2. Cottage cheese: –2. Source: GfK Russia.” Infographic courtesy of Vedomosti

We Consume Too Little
A person needs to eat at least three dairy products per day. Eighty percent of the daily recommended intake of calcium is thus supplied. According to Soyuzmoloko, calcium is absorbed most easily this way. Their argument is backed up by the Federal Nutrition and Biotechnology Research Center and the Russian Osteoporosis Association. The Russian Health Ministry recommends individuals consume at least 325 kilos of dairy products annually. But we are far from achieving these norms: individual annual consumption of dairy products was 233 kilos in 2016. However, a top executive at a Russian agricultural holding company argues these claims are a bluff. In Soviet times, there were meat shortages, so dairy products were consumed as the primary source of protein. Circumstances have now changed. Russia now produces enough of its own poultry and pork at affordable prices. So there is simply no longer the need to eat so many dairy products, he explains.

Translated by the Russian Reader

UPDATE!

Up to 25% of Cheese in Russia Is Fake, Smuggled From Ukraine — Watchdog
Moscow Times
January 25, 2018

Up to a quarter of ‘cheese products’ sold in Russia were produced in Ukraine, circumventing Moscow’s embargo on food imports, according to Russia’s state agricultural watchdog.

Russia placed restrictions on food imports, including dairy, from countries that enacted sanctions against Moscow after its annexation of Crimea from Ukraine in 2014. The embargo has been a boon for domestic Russian producers, but consumers have complained about a proliferation of “fake cheese” — dairy products made with milk-substitutes.

Up to 300,000 tonnes of Ukrainian cheese products are entering Russia every year after being repackaged in Belarus, Russia’s agricultural watchdog Rosselkhoznadzor spokeswoman Yulia Melano told the RBC business portal Tuesday.

“In all likelihood, we’re talking about the legalization of Ukrainian cheese or protein and fat products through Belarus,” reads a letter written by Rosselkhoznadzor head Sergei Dankvert that was obtained by RBC.

The Ukrainian ‘cheese products’ mostly consist of vegetable oils, rather than dairy, and are imported via Belarus under the guise of Macedonian or Iranian cheese, according to the letter.

Cheese-like products could account for more than half of all cheeses sold in Russia, Andrei Karpov, the executive director of the Association of Retail Trade Companies (AKORT), was cited as saying by RBC.

Rosselkhoznadzor does not yet regulate cheese products, which are made almost entirely out of milk substitutes, and does not officially track its imports.

Thanks to Mark Teeter for the heads-up

How to Shut Down an Independent Trade Union in Russia

How to Shut Down an Independent Trade Union
The reason for the rapid dissolution of Alexei Etmanov’s union was a complaint about what it does: defending the rights of workers 
Pavel Aptekar
Vedomosti
January 12, 2018

The St. Petersburg City Court’s decision to dissolve the Interregional Trade Union Workers Association (MPRA) at the request of the prosecutor’s office has not yet come into force. But the case itself clearly illustrates the current regime’s suspicious attitude towards independent trade unions that do not restrict their activities to handing out discounted holiday packages and tickets to children’s New Year’s celebrations.

MPRA was registered in February 2007. Its core consisted of the trade union of autoworkers at the Ford plant in the Petersburg suburb of Vsevolozhsk, famous for its pay rise demands and defense of workers’ rights. The emergence of a trade union that vigorously and effectively defended workers at foreign-owned plants was no accident. There is no legacy at such plants of servile, Soviet-era trade unions, which were once part of the management machine. Foreign companies have been forced to deal with the right of workers to go on strike and other means of self-defense against overtime and layoffs.

According to MPRA chair Alexei Etmanov, his career as a trade union activist kicked off randomly, in part. In 2001, soon after the Ford plant went on line, as one of the leaders of the Federation of Independent Trade Unions of Russia (FNPR) local at the plant, Etmanov was invited to a congress of Ford trade union workers in North and South America. According to Etmanov, it was then he realized a real trade union not only handed out benefits and formally coordinated management’s decisions but also consistently defended the rights of employees from groundless redundancies, unpaid overtime, and other forms of managerial tyranny.

MPRA never concealed its membership in the IndustriALL Global Union, which has fifty million members in 140 countries worldwide, nor did its activities previously trouble the Russian authorities. MPRA’s troubles began after a pro-regime blogger, who saw signs of political activity in the trade union’s work and accused it of hiding its status as a “foreign agent,” filed a complaint with the prosecutor’s office. The complaint led to an audit, and later, in December 2017, the prosecutor’s office filed suit with the court, asking it to dissolve MPRA.

The prosecutor’s key claim against MPRA (Vedomosti has obtained a copy of the lawsuit) was that it received financing from abroad and had not registered as a “foreign agent.” MPRA’s crusade to amend labor laws and its solidarity with protests by Russian truckers against the introduction of the Plato road tolls system in 2015—the ordinary work of a normal trade union in a country with a market economy—have been depicted as “political activity” by the prosecutor’s office. The lawsuit also includes claims that appear to be pettifogging, in particular, that MPRA incorrectly listed its official address, that it originally registered in a manner not stipulated by law, and so on.

Yet the lawsuit does not contain any mention of demands by the prosecutor’s office to eliminate the shortcomings it has, allegedly, identified. For example, in 2015, after such demands were voiced and corresponding changes made, the Supreme Court dismissed the Justice Ministry’s suit asking that Memorial be dissolved. In Petersburg, the prosecutor petitioned the court to dissolve the trade union, no more, no less. According to Yulia Ostrovskaya, a lawyer at the Center for Social and Labor Rights, this is excessive punishment. The judgment for the plaintiff is tantamount to calling into question Russia’s observance of the International Labour Organization’s Convention No. 87 on Freedom of Association and Protection of the Right to Organize, signed by the Soviet Union in 1956. The convention’s third article guarantees the right of workers and employers to draw up their own constitutions and rules, freely elect their representatives, and formulate their own programs, while the fourth article states that professional organizations shall not be liable to be dissolved or suspended by administrative authority.

The circumstances reflect the regime’s growing suspicion toward independent trade unions that have not joined the Russian People’s Front (the FNPR joined the Front in 2011, for example) and insist on defending the rights of workers, notes Pavel Kudyukin, a council member at the Confederation of Labor of Russia. Authorities in some regions have accused the MPRA that they scare away investors, while courts have ruled that IndustriALL’s brochures are “extremist.” If, however, the Petersburg court’s decision is upheld by the Russian Supreme Court, it would be a terrible precedent, argues Kudyukin. All trade unions could declared “foreign agents,” include pro-regime trade unions, since many of them of belong to international trade union associations, from which they receive funding for training activists and making trips abroad.

Labor protests in Russia in terms of percentages of those involved, 2008–first half of 2017. Red = spontaneous; pink = trade union locals; dark blue = national trade unions; gray = workers’ committees; light blue = political parties and grassroots organizations; pale blue = other. The percentage may exceed 100% if several actors were involved in the same protest. Courtesy of the Center for Social and Labor Rights

How a Petersburger Trucker Has Decided to Sue Plato

How a Petersburger Trucker Has Decided to Sue Plato
Venera Galeyeva
Fontanka.ru
October 16, 2017

After getting his first fine for non-payment of fees under the Plato road tolls system, a Petersburg trucker has challenged it in court. The case could become an important precedent. 

Как петербургский дальнобойщик решил «Платон» засудить
Truckers waiting outside a Plato office. Photo courtesy of Svetlana Kholyavchuk/Interpress

Individual entrepreneur Yuri Bubnov has two freight trucks, one of which is on the road, a MAN-produced box truck he uses to deliver consumer goods to Moscow and Vladimir. As a matter of principle, he has not registered the truck with the Plato road tolls system, has not put a transponder on the truck, and does not pay the new Plato fees. In 2015, he was one of the few people who took part in a road rally of truckers from Petersburg to Moscow. His runs take him past Plato sensors outside Tosno and in Tver, Klin, and Novgorod Region.

A sensor mounted on the Pokrov–Elektrogorsk segment of the M7 Federal Highway finally reacted to Bubnov’s truck on September 28. On October 6, the traffic police issued Bubnov a fine of 5,000 rubles for failure to pay his Plato road toll fees. Ironically, the very same day, the Russian government approved a fourfold increase in fines for non-payers. On October 14, Bubnov sent a letter to the Odintsovo City Court in Moscow Region challenging the decision to issue the fine and petitioning the court to move the venue for hearing the case to the Kalinin District Court in Petersburg, the plaintiff’s place of residence. The truck is registered in Bubnov’s wife’s name, so she will be acting as a defender in the case: “I consider the ruling in the administrative case unfounded and illegal, which I shall prove during the trial.” Yet Bubnov could pay a discounted fine of 2,500 rubles by October 26 and live peacefully.

Truckers have tried before to challenge the issuing of fines for failure to pay Plato road tolls, but for formal reason,s e.g., the paperworks was not drawn up properly, the truck’s owner was not behind the wheel during the alleged violation, and so on. Bubnov’s case if fundamentally different. He wants to challenge the law itself and is willing to give up at least a year of his life to do it.

Bubnov expounds his position.

“According to the Russian Federal Civil Code, damage must be paid be jointly by everyone everyone involved in causing damage. However much damage you caused that is how you pay,” he says.

[Bubnov has in mind the government’s original stated rationale for introducing the Plato road tolls system. Since cargo trucks, allegedly, cause more wear and tear on federal highways than other vehicles, the argument went, they should pay additional fees, based on the number of kilometers traveled, to compensate for this damage and thus provide more money for repairing major roads.—TRR]

“In addition, the damage I caused has to be proven. And, according to the Russian Federal Tax Code, payments cannot be arbitrary and should reflect the economic essence of the matter. Empty, my vehicle weighs 7,800 kilograms. The maximum weight of a loaded eighteen-wheeler is 44 tons. Obviously, we cause different amounts of wear and tear on the road. Why, then, should I pay the same amount as the driver of a loaded eighteen-wheeler?”

In May 2016, the Russian Federal Consitutional Court ruled the Plato road tolls system legal. Later, however, Constitutional Court Judge Gadis Gadzhiyev issued a dissenting opinion in which, among other things, he suggested clarifying the purpose of the fee, because, economically speaking, Plato is not compensation for damage, but a payment imposed on owners of heavy trucks for using the roads.

“As currently formulated, the Plato system is at odds with Russian federal laws,” says Bubnov. “By itself, travel on public roads is not an offense. There is a Russian federal government decree in which the maximum loads for different types of vehicle are set. The weight of my vehicle is legal.”

Bubnov also invokes an argument that truckers protesting Plato have made since 2015. If a toll is introduced for driving on a certain section of road, drivers should be provided with an alternative free detour. Otherwise, all federal highways would become toll roads for truckers.

Bubnov already has several legal victories under his belt. He has always served as his own defense counsel, and recently he has voluntarily defended his colleagues from different regions in court. On September 20, 2017, he won the so-called tachograph case, in which a trucker had been accused of violating work safety laws. A similar case is now being tried in Altai Territory.

If Bubnov’s appeal, as appended to his complaint against the Plato road tolls system fine, is rejected, first he will have to go to Odintsovo City Court, then to the Moscow Regional Court to appeal the ruling, and then to the Presidium of the Moscow Regional Court and, finally, to the Russian Federal Supreme Court and the Presidium of the Supreme Court. Bubnov plans to go to the bitter end with the final decision. According to his calculations, the whole process may take at least a year. If his petition is granted, the first three sets of hearings will be held in Petersburg. Bubnov plans on going the entire distance himself, without a lawyer.

“Essentially, Yuri Bubnov’s claims are correct,” says Irina Metel, executive director of the Northwest Carriers and Forwarders Union. “In practice, however, any case requires the assistance of a very competent laywer.”

“We are ready to support Yuri Bubnov in court,” says Maria Pazukhina, head of the OPR (Association of Russian Carriers) regional branch in Murmansk. “We have challenged fines before, but only on formal grounds, for example, due to incomplete lists of evidence or instances where agencies not empowered to do so tried to punish carriers. Yuri’s case is fundamentally different. In my view, the current authorities are unlikely to rule that Plato should be abolished. The OPR has been trying to detect the system’s faults in order to reveal its corruption and inefficiency. But so far we have not launched legal proceedings like this.”

“I’d been waiting for this fine for a year and a half, and I finally got it,” Bubnov told Fontanka.ru. “It’s good it came now, while the sensors have not been turned on everywhere. If the system were up and running normally, it would be harder to challenge the fine. The chances of a ruling in my favor are few, but what if suddenly the case is assigned to a judge who is about to retire and has nothing to lose, and he makes a ruling in accordance with the laws?”

FYI
According to Dmitry Pronchatov, assistant director of the Federal Road Agency, since the Plato road tolls system was launched, carriers have paid over 33.3 billion rubles [approx. 494 million rubles] into the road maintenance and construction fund. Over 900,000 vehicles have been registered in the system. The monies have been used to finance the construction of seven bridges and repairs on twenty-four emergency pipelines, as well as over a thousand kilometers of roads in forty cities and regions. Owners of twelve-ton trucks must pay 1.9 rubles for each kilometer of travel on federal highways.

Translated by the Russian Reader. Thanks to Comrade Koganzon for the heads-up