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DwB_1641

By John Helmer, Moscow

War, devaluation, and recession aren’t usually something to drink champagne to. So it was inevitable that Abrau-Durso, Russia’s only champagne house listed on the stock exchange, would suffer.

When President Vladimir Putin told the leadership of the Federal Security Service (FSB) on Thursday that “the situation cannot remain like this forever. It will change, for the better I hope,” he wasn’t exactly raising a toast in bubbly. The situation, added Putin, “will not change for the better if we succumb and yield at every step. It will only change for the better if we become stronger.”

Abrau-Durso has an anti-crisis strategy. This is to expand its vineyards; substitute home-grown for imports of wine-making materials from South Africa, Chile, and southern Europe; reduce costs and the sale price of each bottle; sell more wine at a lower margin of profit; combat what Abrau-Durso executives regretfully call “contempt for Russian wine.”
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DwB_1640

By John Helmer, Moscow

The late Yegor Gaidar, when acting prime minister of Russia, thought up the idea of the Yeltsin Tax. The late Boris Nemtsov didn’t think it was such a bad one when he was first deputy prime minister. The one still surviving officeholder responsible for the idea is Anatoly Chubais, chief executive of the state technology corporation Rusnano; he is unelectable to anything and fortunate to be alive. Their idea was the 100-percent withholding tax which Russians name after President Boris Yeltsin and his reforms.

In practice, it was the outcome of deliberate delay in paying wages by state and public institutions, for lack of budget funds from the federal Finance Ministry; and refusal to pay wages by commercial organizations, shareholding corporations, and private companies.
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DwB-1642

By John Helmer, Moscow

A porcelain figurine (lead image, left) produced by the Popov Manufactory of Moscow sold in London on Wednesday for £2,700. The auction by MacDougalls revealed unusually strong demand from Russian collectors. They paid record prices for some figurines, including Tsar Nicholas I (right), from the Sipyagin Manufactory, who fetched £29,700. The pre-sale estimates for the dancing Kolomoisky and the tsar had been in the range of £2,000 to £3,000. Bidding interest in the tsar pushed him to a value almost ten times the estimate. According to Catherine MacDougall, co-director of the leading Russian art auction house, “it is the first mid-season sale outside the biannual Russian art week [in June]. We were very impressed by the result.”
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DwB_1639

By John Helmer, Moscow

Igor Kolomoisky, the single largest beneficiary of international lending to Ukraine and until Tuesday night the most powerful figure in the country, has lost his residence permit for Switzerland, according to a reliable source in Geneva. Coming after the news of Kolomoisky’s armed and vocal clash in Kiev with Ukrainian President Petro Poroshenko and US Ambassador Geoffrey Pyatt, the Swiss action adds to Kolomoisky’s isolation.
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DwB-1637b

By John Helmer, Moscow

Works of art are only reliable investment assets if the trade in them is tested and transparent enough to prove they aren’t stolen goods, forgeries, or what is known in Russian as falshak (фальшак), a term originally applied to counterfeit coins.

Naturally, as the art trade generates higher and higher prices for individual works, the lure of expensive objects becomes irresistible for those with cash on the run. That is, if it can be laundered, er exchanged, through international auction houses like Christie’s, Sotheby’s, and Bonhams – institutions less regulated, and apparently more reputable than banks. Just as these house names claim to be setting records for auction prices for their goods, the margin of profit to be gained from fraud and forgery attracts almost as many well-heeled crooks for sellers as for buyers.

The relatively short time in which Russian art has been traded in international markets has meant that the swiftly earned riches of the Russian oligarchs have been bidding up auction house prices for objects with dim histories, uneducated demand, and short or non-existent records of ownership. For a London auction house like Bonhams, the record-setting value of Russian art it has been able to find for sale has turned into an opportunity for exchanging the auction house itself for cash. If the privately-owned Bonhams, whose turnover is a tenth of the two bigger houses, were to trade at the price to earnings ratio (P/E) of Sotheby’s, it might fetch over £530 million. But prices like that don’t fetch if there is slightest suspicion of falshak.
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DwB-1636

By John Helmer, Moscow

In Ukrainian villages they still say a dog won’t cry if you beat him with a bone. In the Zaporozhye region of eastern Ukraine, there are exceptions – bones on which even dogs fear to choke. The Zaporozhye Alumina and Alumimium Combine (ZALK) is an example. Owned by the Russian aluminium monopoly, Rusal, it has been closed since 2009 because Rusal judges it is unprofitable to operate. That has been a bone of contention between Rusal and the Ukrainian authorities for almost a decade.

This week, the State Property Fund of Ukraine announced it has begun “enforcement proceedings by the executive service after the decision of the highest court to return the [ZALK] shares to the state. We are following the process.” The Ukrainian Supreme Court ruled on March 11 to renationalize Rusal’s shares in ZALK.

Oleg Deripaska (lead image, left), the chief executive of Rusal, says through a spokesman he will appeal the Supreme Court ruling in the international courts. Rusal is “a bona fide purchaser of the plant”, the company spokesman told a Moscow wire service.
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DwB-1635

By John Helmer, Moscow

The International Monetary Fund (IMF) has decided to give the Ukrainian banks R&R&R – that’s rest from regulation and refinancing. Inspection of the foreign exchange book, unwinding related-party credits, recovery of non-performing loans, and obligatory recapitalization, which were all conditions of the Fund’s 2014 Ukraine loan, have been relaxed. The new loan terms announced by the IMF last week, postpone reform by the commercial banks until well into 2016. In the meantime, the IMF says it will allow about $4 billion of its loan cash to be diverted to the treasuries of the oligarch-owned banks. That is almost one dollar in four of the IMF loan to Ukraine.
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DwB-1634

By John Helmer, Moscow

The International Monetary Fund (IMF) has agreed on a scheme of war financing for Ukraine. For the first time, according to Fund sources, the IMF is not only violating its loan repayment conditions, but also the purposes and safeguards of the IMF’s original charter.

IMF lending is barred for a member state in civil war or at war with another member state, or for military purposes, according to Article I of the Fund’s 1944-45 Articles of Agreement. This provides “confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.”

To deter Russian and other country directors from voting last week against the IMF’s loan, and releasing their reasons in public, the IMF board has offered Russia the possibility of, though not the commitment to repayment for Gazprom’s gas deliveries, and the $3 billion Russian state bond which falls due in December.
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dwb1633
By John Helmer, Moscow

For the first time Moscow analysts have issued precise estimates of the ferrous scrap sold in the domestic Russian market by the major scrap companies, and identified the market shares of the leading companies by name. The disclosures also confirm that the state-owned Russian Railways (RZhD) is one of largest scrap producers and traders in the market, trailing three of the large steel groups – Novolipetsk, Magnitogorsk, and Evraz – but far ahead of the scrap operators which are independently owned.

Reliable is not, however, the term to use for volumes of scrap either in the domestic or export trade. What is missing is not only a measure of the size of the black trade in scrap, but also the reluctance of everyone, including the industry analysts in Moscow, London, and Washington, to acknowledge, let alone count the value of what is going on.
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DWB -1632

By John Helmer, Moscow

Next to prostitution, collecting scrap metal is the oldest trade in the world. Like prostitution, it prefers to do its business in the dark.

Because it’s so easy and cheap to turn sex and stolen goods into cash, the expensive capital requirement for both lines of business is in protection from price competitors and asset raiders. This helps to explain why at least half the Russian ferrous scrap trade is controlled by the seven oligarchs who run the largest steel and pipemaking mills. Of the other half, among the so-called independent scrap traders, the state-owned Russian Railways (RZhD) is dominant. That’s a fact which noone dares to report.
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