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GLEB FRANK CAUGHT THE CRABS FROM GENNADY TIMCHENKO, BUT NOW KSENIA SOBCHAK AND HER MOTHER WANT THEM — WHAT WILL PRESIDENT PUTIN DECIDE?

by John Helmer, Moscow
  @bears_with [1]

It’s embarrassing to be caught publicly with a case of the crabs, especially if you are a media celebrity. That is, unless you are in the business of selling your celebrity status to advertise other people’s crabs, not your own.

This is the case of Ksenia Sobchak, a socialite from St. Petersburg, and her mother, Lyudmila Narusova, a senator in the upper house of the Russian parliament. For years they have been trading on the fame of Anatoly Sobchak, Ksenia’s father, Lyudmila’s husband. He was the first elected mayor of St. Petersburg; first promoter of the post-KGB career of Vladimir Putin; and himself such a threat to the presidency of Boris Yeltsin twenty-five years ago he had to flee to Paris for a while and then on his return die prematurely. Sobchak suffered from many infections from the lice of his city at the time.  Crabs weren’t one of them.

The Russian crab business is so profitable than even an honest businessman considers it a licence to print money. Until recently, the estimated profit margin was between 60% and 90% — and that was on the crab cargoes properly counted, valued and officially recorded for tax and export purposes. The volumes shipped and money earned in the black trade — there are as many black schemes as there are species of edible crabs — may be twice as much.

This chart, published by Undercurrentnews of London [2],  fails to account for the importance of US imports.  Figures for Chinese imports of Russian crabs range above $400 million after cross-border and seaborne smuggling are included. The US is not shown in this chart; it has been reported officially at $463 million in 2018. South Korea follows, then Japan.  In 2019, the numbers were much larger.

In such a lucrative trade, since dishonest men will always try to push the honest ones out,  the crab business attracts Russian gangsters, and also oligarchs. It is because President Vladimir Putin had the good idea of putting the former out of the crab business, but then the bad idea of letting an oligarch and his family take over in their place, the crab story is being followed closely, starting here [3]  and continuing here [4].  

Source: http://johnhelmer.net/ [4]

What Putin did was to order the adoption of a new scheme of crab quota auctions which significantly raised the government’s bid price for the crabbers, and also imposed costly new requirements for the modernisation of the trawler fleet. The new money was then rationed so that the state banks, starting with Sberbank, favoured the Russian Fishing Company (RRPC), a conglomerate of smaller fishing groups controlled by Gleb Frank, his wife Ksenia, and her father Gennady Timchenko. In May 2014 Timchenko was the first Russian oligarch to be sanctioned by the US Treasury. His citation [5]was for “materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of, a senior official of the Government of the Russian Federation”.  The unnamed official was Putin.  

Ivan Mikhnov, a senior executive of the Antey group, a rival crabber in the Russian Fareast, told [2]the China Seafood and Fisheries Expo in Qingdao last November that with the rising cost of servicing the new quota debt, his company, like the rest of the Russian crab business, was even more dependent on the China market to sustain high crab prices and also growing trade volumes.  “Before the [new quota] auction,” Mikhnov said, “the margins were a lot higher. It could get to 60%, but even 90%. Now, factoring the costs of the auction, it’s closer to 20-25%.” Mikhnov was speaking on November 1, 2019.

DISTRIBUTION OF RUSSIAN QUOTAS, BY CRAB TYPE, REGION AND COMPANY —  2019

TO ENLARGE IMAGE CLICK ON FULL LIST OF QUOTAS HERE [6]. 

The boom still looked assured for the Russian crabbers in this March 2020 international study. [7] “The crab price is very volatile in the global supply chain, but due to rising consumer demand the future of crab industry is bright. The food service industry is the major end-user of crabs; the rise of the food service industry would directly surge the inclination of the global crab market. Worldwide, the food service industry is multiplying because of the new technology and innovations as well as customizations in menus, apart from that, inclination towards healthy and nutritious foods and increasing demand for the gluten-free diet. The major driving force of global crab market is rising per capita seafood consumption, rising incomes, increased urbanization to underpin seafood consumption is growing. Across the globe, the United States is one of the largest importers of crab; other importing countries are China, Canada, Thailand, and Indonesia. Moreover, China is the largest exporter of crab in the world.”

The US crab industry, based principally in Alaska, had already begun to complain to the Trump Administration that Russian imports were undercutting crab prices and damaging their business. In mid-February of this year, the headline in the Anchorage Daily News [8] was “Russia-Alaska seafood trade remains a one-way street benefiting Russia”.  The report [9], based on a white paper from the Alaska Seafood Marketing Institute,  attacked the Kremlin for its sanction on imports of US food, including crab meat. “In August 2014, Russia placed an embargo on all U.S. food products to retaliate for sanctions the U.S and other Western countries imposed over the invasion of Ukraine. The ban included Alaska seafood, which at the time accounted for more than $61 million in annual sales to Russia, primarily pink salmon roe. But here’s the bigger hurt: For the nearly six years that the embargo has been in place, no corresponding limits have ever been imposed on Russian seafood coming into the U.S. At first, Alaska seafood companies and the state’s congressional delegation made some ‘tit for tat’ noise about imposing a ban on Russian seafood. But in fact, the value of Russian imports has grown nearly 70% since 2014 — and it all comes into the U.S. almost entirely duty-free.”

The Anchorage newspaper reporter, the Alaskan crabbers, and their Washington lobbyists omitted from their pitch that the Russian sanction on crab imports was in retaliation for US sanctions which started in March of 2014. The Americans appear not to have realized that the principal beneficiary of Russian crab exports to the US, and the increasingly dominant fishing company in the Russian industry, was directly connected to the sanctioned Timchenko,  and thus to his family and their business interests.

Source: https://www.scribd.com/ [10]
 “The US imported $551 million of seafood from Russia in 2018, plus $50 million of pollock from China that was caught in Russia. U.S. crab constituted 84% of the value of Russian imports just in that one year. Through December 2019, the numbers increased again — federal trade data show that more than 80.2 million pounds of Russian seafood entered the U.S. valued at over $698 million. That included nearly 16 million pounds of red king crab valued at $293 million and 4.6 million pounds of frozen sockeye salmon worth over $16.7 million. Alaska and Russia harvest many of the same fish and crab species, and many Russian seafood products compete in the U.S. at much lower prices.”

The Anchorage crabbers have also been unaware of the dramatic new twist in the Russian crab news. So too the Russia-hate and sanctions lobby in Washington, DC, which likes its Russian snow crab  as much as its Chesapeake Bay soft-shell crabs. The lobby [11]has also been soft on Frank and his father Sergei Frank; the latter has run Sovcomflot, the state oil tanker fleet operator, shielded from sanctions by lobbying from Chevron, the US oil shipper.

In March, to defend himself from Timchenko and the Franks, an attempt was made by an old-style crab businessman, Oleg Kan, to sell a 40% shareholding in two of his crab-fishing companies, Kurilsky Universal Complex (KUK) and Moneron, to Ksenia Sobchak and a friend of hers, the wife of a senior executive at the state oil company Rosneft. Kan, a native of Sahkhalin, started as a trawler fisherman himself, then the representative of a Japanese fishing group, before he became the organiser of his own companies, in the process surviving assassination attempts by local rivals, reportedly arranging retaliation in kind.

The money Sobchak and her partner paid for the investment in KUK and Moneron they won’t reveal; it has been reported at Rb4 billion ($54 million). Sobchak and her partner don’t have the readies; Kan does. But to drive him out of the crab business, Timchenko and Frank arranged with the aid of federal prosecutors to prevent the transaction by freezing the two crab companies’ shares. Their excuse for that in a Sakhalin city court was that Kan is under investigation for several crimes – a 10-year old murder for which the killer is currently serving a prison sentence; and fresh charges of fraud and tax evasion in diverting to offshore havens the proceeds of his crab sales to clients in Japan and China.

THE CRAB WARS  — THE KAN GANG VERSUS  THE TIMCHENKO-FRANK GANG

Left, Oleg Kan [12], father;  centre, Alexander Kan [13], son;  right, Senator Lyudmila Narusova.                     

Left to right: Gennady Timchenko; Ksenia Timchenko, wife of Gleb Frank (right).  

At Kan’s prompting, Sobchak retaliated by asking her mother, Senator Narusova, for help; Narusova represents the landlocked southeastern Siberian republic of Tuva. There are crabs in Tuva, but only of the freshwater kind in rivers and lakes, tasty but not for profitable trade.  Narusova wrote a letter on her Federation Council letterhead complaining to the chief judge of the Russian Supreme Court that the local court injunctions blocking her daughter’s crab  investment were illegal. She requested the judge initiate a remedy. The judge turned the letter over to the prosecutors, and it was published on the Supreme Court website. Narusova is now under investigation by other senators for abuse of her legal authority and conflict of interest.

Through April this has been amplified in a battle of social media, tweets, tabloid journalism, and national television, in which the Timchenko-Frank side has been represented by a TV showman named Vladimir Soloviev and a socialite like Sobchak named Tina Kandelaki. They have attacked Sobchak and her media allies, calling them Kan’s gang. Sobchak has retaliated, calling the attackers Frank’s gang. Because of Timchenko’s well-known association with Putin, his name has been mentioned less.

Vladimir Soloviev (left) on the set of his television interview programme with Sobchak (right), “Soloviev Live”, broadcast in two parts, the first on April 28 which ran for 1 hour and 17 minutes; and the second  on April 29 for another 1 hour 14 minutes. Soloviev claims a combined viewing audience of more than half a million. Not so many Russians can afford to buy crab to eat. Part 1: https://www.youtube.com/watch?v=A8KiN5ql5FI&feature=youtu.be [14] Part 2: https://www.youtube.com/watch?v=P1S2DHnexNs&feature=youtu.be [15] .

The public spectacle and special media effects have been expensive. They have also ignored another twist in the Russian crab drama.  

This has been the impact of the corona virus since January, locking Chinese into their homes, closing fish markets and restaurants, halting crab imports, and wiping out the accelerating demand which has created the boom for the Russian crab business. German Zverev, president of the All-Russian Association of Fishing Industry (VARPE), has told the industry press that in the first quarter of this year to March 31, the Russian crabbers are likely to lose up to $80 million. An industry publication, Seafoodsource.com, reported Zverev as saying that “as of early March, the export price for one kilogram of Russian crab has fallen to USD 7.00 (EUR 6.26) against USD 15.00 to USD 18.00 (EUR 13.41 to EUR 16.10).” Zverev based his calculations on Russian Customs data. [16]

In the first quarter of 2019, about a quarter of all Russian crab exports in weight went to China. In January-March 2019, according to Russian Customs data, 10,500 tonnes in aggregate crab exports for $153 million; of those sums, 2,500 tonnes went to China for $50 million. According to Zverev of VARPE, total crab exports for the first quarter of this year may drop below 8,0000 tonnes, and at the falling price for crab meat, revenue will fall by more than half. In the longer term, Zverev said [17], the losses to Russian fishermen may exceed $150 million; some of the fishing companies will stop fishing.

Dmitri Trubnikov, chief executive of the Russian Crab group, part of the Frank-Timchenko holding, has said the impact is not as severe financially, nor as protracted. Although Frank and Timchenko have lobbied the government in Moscow for support of their fishing group as a strategic employer in the fareastern region – Narusova has done the same for Kan’s group and other crab companies — they also believe the trade losses will drive the smaller crabbers out of business, and accelerate their takeover of the sector.

“The development of quotas for crab production is generally progressing at a good pace,” Trubnikov (right) told [18]a Sakhalin business website on April 29: “In the first quarter, we produced more than 2,000 tonnes of crab out of 9,500 tonnes which comprises the total production of all the market participants fishing in the Far Eastern basin. In other words, the share of Russian Crab accounts for 21%, and this indicator makes us the leader among crab-producing enterprises in the reporting period.”

“In 2020, Russian Crab Group owns a quota for catching 12,970 tonnes of crab in the subzones of the Far Eastern basin, which is 19% of the total allowable catch for all types of extracted crabs and is the largest share among the holders of quotas for crab production in the region. In other words, our plans are ambitious ones. The situation with the pandemic has required adjustments to the plan of implementation. For example, in February the catch rates could be higher. But now they are levelled off, with lower [catch rates] in April the volume of production has already amounted to 1,300 tonnes. In general, by the end of the year, we expect to catch all the crab according to our quotas.”

“The main markets for crab are the Asian countries and America. Despite the objective difficulties caused by the decline in activity of these markets, we have managed to maintain a strong position in the share of live crab exports at the end of the quarter. In the period from January to March, Russian Crab Group was the only supplier of live crab to Japan among the crab-producing companies in the region. We are also the leading supplier of live crab to the China market. Now we see positive dynamics in the markets of China and Korea.”

The Covid-19 impact makes it unlikely that anyone, let alone the Sobchak family, would invest Rb4 billion of their own money in shares in Oleg and Alexander Kan’s crab companies. At the same time on the Timchenko-Frank side, the collapse of the Chinese trade has meant that the debts they contracted last year to expand their crab quotas , as part of their plan to squeeze Kan and other crab-fishing companies out of the market, can no longer be serviced with their dwindling income.

According to this report [19]published last week,   the “Crab Boy Gleb Frank’s empire is collapsing”. This followed Trubnikov’s announcement that all is well inside their group.  The headline is an ironic reference to Kan’s moniker in the industry, the Crab King.

Since 2010, wrote Maxim Bakulev, Putin’s policy of stopping the crab gangs from monopolizing the trade had “significantly reduced the volume of the illegal catch. However, the crab mafia, as it always happens, was replaced by legal sharks. And the main shark was the Russian Fishing Company (RRPC), owned by Gleb Frank, the son of the former Russian Transport Minister [Sergei Frank]…The secret to success, however, is simple. A year earlier, in 2010, Gleb Frank married Ksenia Timchenko, the daughter of famous entrepreneur Gennady Timchenko.”

Frank’s fishing group had not only dominated last October’s crab quota auctions. It had also “begun an aggressive investment policy by buying up fishing companies along with their quotas. The history of Dalmoreprodukt, whose owner Dmitry Dremluga suddenly discovered Ukrainian citizenship, is well-known in Primorye. Under powerful pressure from the security forces, the entrepreneur agreed to sell the company to Gleb Frank for no price.”

The criminal cases against the Kan group followed; Kan, too,  fled the country.

Bakulev claims, however, that the campaign has proved too costly for Frank. “By the beginning of 2019, RRPC ‘s total debt to Sberbank was about $1.5 billion. The new auctions were held in October 2019. The debt had to be restructured; as a result RRPC bought about a third of the Far East crab quota for 38 billion rubles [$60 million]. But Gleb Frank ‘s companies had put themselves in an extremely difficult situation. The SPARK Summary Report listed an increase in total debt by 289%, while equity grew by only 105%. Naturally, no one could predict the coronavirus pandemic, the fall in oil demand, or the related rise in the dollar. Players with small equity and a large volume of loans have deteriorated almost lightning-fast. Obviously, in Gleb Frank ‘s business empire, sentiment is close to panic. Following the spread of coronavirus and mass quarantine, demand for delicacies, which include crab meat, will inevitably fall. The lost revenue of RRPC for today is calculated, just for the first quarter of 2020,  in tens of millions of dollars.”

RRPC’s website publishes press releases without sales or other financial information. It promises shareholder investors financial reports, but there are none [20].  

According to Bakulev, whose byline has not appeared on the subject of crab business before his report against the Frank-Timchenko group, Frank is being forced to reduce his bank debt by selling some of his crab companies and their quotas to others in the market. “As they say,” Bakulev reported, “the rich cry, too.”

The crying on television and social media is even louder.   

For a full list of tweets, posts and advertisements between March 12 and April 30, including the full text of Narusova’s letter of April 7 to the Supreme Court chief judge, Vyacheslav Lebedev, click to read [21].