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By John Helmer, Moscow

In the history of the privatization of Russia’s industrial polluters no oligarch has been dirtier, penalized more often,  and avoided court and state regulators more regularly than the steel, coke and coal producer, Igor Zyuzin. No one has more faithfully and profitably lobbied for Zyuzin’s benefit in parliament and government than Alexander Shokhin (lead image, right).

Their successful collaboration at prevailing over the declared pollution policies of President Vladimir Putin, the regional governors, and the federal anti-pollution agency Rospriradnadzor (RPN),  have been reported since 2017.    Zyuzin’s record, including his concealment of his profits abroad through the New York Stock Exchange, the New York Times,  and the Financial Times,  has been documented for much longer.  

In the most recent tale about Zyuzin and Shokhin a month ago,  it was reported that a state bank was planning to nationalize Zyuzin’s assets through a bankruptcy court case, and that he and Shokhin were appealing for Kremlin help to stave off that outcome,  in part by relieving the group of its pollution liabilities.  

Until now, Zyuzin has always seen off the bank court claims, with Shokhin’s help. In this new report, published yesterday by the Moscow business daily Vedomosti – no longer owned by the Financial Times and Wall Street Journal — the overwhelming majority of the parliament’s deputies have had no qualms voting approval in a first reading several months ago of another Zyuzin bailout, despite the evidence on their desks that a strong faction of government ministers, agencies and banks want to put a stop to Zyuzin. This faction proposed to State Duma deputies that they vote on much tougher measures this week.

There are limitations in the way the Vedomosti reporter, Nadezhda Sintsova, can compose and can publish this story. But Russian readers know how to read between the lines. Compared to the coverage of Zyuzin’s business in the New York and London papers, the Russian text has meaning in the lines, even more between them. The American and British reporting has printed falsehood on the lines, and corruption between them.

Read the original here.  The translation into English has not been acknowledged or approved by the newspaper or its reporter. The text has been edited to clarify meaning, syntax and punctuation. Illustrations and their captions have been added for reference.

April 20, 2023
Business asked to keep compensatory measures if emission quotas are not reached
The RSPP considers the rejection of them to be an obviously impossible requirement until the end of 2026
By Nadezha Sintsova

The Russian Union of Industrialists and Entrepreneurs (RSPP — in English RUIE) has asked the State Duma for postponement of the adoption of legislative amendments according to which business will not be able to carry out compensatory measures if quotas for reducing emissions of pollutants are not reached by the end of 2026.

This is declared in letters from the President of the Union, Alexander Shokhin, to Prime Minister Mikhail Mishustin and Chairman of the State Duma Vyacheslav Volodin,  dated April 19 (Vedomosti holds a copy).

New amendments to the law “On conducting an experiment on quotas for emissions of pollutants” have been prepared by the State Duma Committee on Ecology, Natural Resources and Environmental Protection. They were published in the electronic database of the State Duma on April 18. In the first reading, the bill was adopted in November 2022. The second reading of the draft is scheduled for April 20.

Shokhin writes that among the amendments  “a decision has been adopted that was not discussed with the business community” and was not included in the bill adopted in the first reading. According to Shokhin, there are a number of methodological problems, the consequence of which was “the establishment of disproportionate and in some cases obviously impossible requirements to reduce emissions for individual organizations.” The current version of the law on emissions, Shokhin emphasizes, allows “flexibility to overcome these shortcomings [pollution law violations] through the implementation of alternative (compensatory) measures.”

According to the government decree of December 24, 2019, compensatory measures may include the development of environmental protection and green areas; the conversion of transport vehicles to new fuels; the reduction of air pollution from thermal power plants and boilers through modernisation and other measures.

If the option of implementing such compensatory measures is canceled, companies will be given a fundamentally different task – “to achieve the established emission quotas regardless of the availability of technical capabilities,” the head of the RSPP concludes.

Shokhin recalls that there are less than four years left before the completion of the experiment on emissions quotas, which is half the “normal investment cycle for heavy industries.” Opportunities to purchase foreign, especially western, equipment have sharply decreased due to sanctions, he writes. In practice, the amendments establish “obviously unenforceable requirements,” Shokhin concludes. 

Top: Chelyabinsk is the headquarters for Zyuzin’s Mechel Group coke colliery and steel plant. This was the winter air in the city on December 3, 2020. Read more on the attempts by Chelyabinsk city residents, environment groups and anti-pollution regulators here. Bottom: Igor Zyuzin, controlling shareholder of the Mechel Group.

A government experiment on emission quotas within the framework of the Clean Air project is currently being carried out in twelve cities of Russia (Bratsk, Krasnoyarsk, Lipetsk, Magnitogorsk, Mednogorsk, Nizhny Tagil, Novokuznetsk, Norilsk, Omsk, Chelyabinsk, Cherepovets and Chita). This assumes a reduction of harmful emissions by enterprises in these cities by 20% by the end of 2026 compared to the indicators of 2017. These cities are mainly home to large metallurgical enterprises.

At the end of 2021, Russian President Vladimir Putin issued an order to introduce liability for failure to achieve or out-of-time compliance with quotas; the order included a new formula for fines. At the beginning of 2022, the Ministry of Natural Resources proposed to introduce fines of 5%-10% of total revenue of the violating companies for the year preceding the violation (Vedomosti wrote about this on January 31, 2022).

This bill was opposed by the Ministry of Energy and the RSPP. The Ministry of Energy believes that the proposed amount of fines is unreasonably high.  In assessing the regulatory impact of the bill, the Ministry estimated the amount of fines at 19-50 billion rubles [$250-$670 million] per year (Vedomosti has a copy of this document).

Deputy Prime Minister Victoria Abramchenko (right) said during the government hour [Question Time] in the State Duma on April 19, 2023, that fines would amount to 5% of the gross revenue of enterprises. “If you, as a polluting company, carried out a genuine  environmental modernization program and  reduced your emissions – that would cost you 0.1% of gross
revenue. If you didn’t do anything – and you and I will discover this in 2027 – 5%,” she said.  Abramchenko explained that the initiative has been coordinated, including with the RSPP, and will be submitted to the State Duma in the near future. 

According to a representative of the Ministry of Natural Resources, the agency supports the amendments. The source for Vedomosti noted that in December 2022, all large enterprises in the cities of the “Clean Air” Project represented at a meeting with the government confirmed they would implement the plans on time. “There is no need to use compensatory measures,” the ministry source concludes, calling this old formula “non-implemented.”

A representative of Deputy Prime Minister Abramchenko says that compensation measures do not replace the need to achieve quotas. “People in cities with high pollution expect companies to modernize the environment and reduce emissions, and not just to plant trees,” she concludes. 

Vedomosti sent requests for comment to the RSPP, the State Duma, the Government of the Russian Federation, the Ministry of Energy, as well as representatives of companies whose production is located in the cities of the “Clean City” – Norilsk Nickel [nickel], Rusal [aluminium], Severstal [steel], NLMK [steel], MMK [steel], Evraz [steel, coal, coke] and UMMC [copper].

According to a source in one of the industrial companies in a city participating in the experiment, the proposed government replacement of compensation measures changes the rules of the game: enterprises had been planning to implement them if it was impossible to reach quotas on time. “Such important milestones should be discussed with the business in advance,” concludes the Vedomosti source.  

Andrei Makarov, manager of the operational risks and sustainable development group of the audit and consulting firm Kept, believes that, potentially, the adoption of amendments could make the idea of upgrading equipment more attractive to companies. At the same time, according to Makarov, in the conditions of sanctions over the short and medium term, it is advisable to strive for a balance between the rigour of legislative initiatives and the interests of business. In long-term planning, it is necessary to take into account the current level of progress in the import substitution for technological (including gas cleaning) equipment and its availability, he clarifies.

Left: Andrei Makarov. In March 2022 KPMG and other international accountancy and audit firms announced they would leave Russia “to respond to the Russian government’s ongoing military attack on Ukraine”.   The Russian staff of KPMG then formed their successor company, Kept.  

According to Mikhail Burmistrov, CEO of Infoline Analytics, because “unfriendly countries” have restricted Russian access to technologies and equipment, the environmental requirements should be as flexible as possible. “The environmental agenda is important. But many enterprises are forced to revise their investment programs, and compensatory measures would be a necessary help for them in meeting the requirements,” the expert notes.

Sergei Grishunin, managing director of the NRA rating service, notes that many large polluters have lost a large share of their exports and are forced to rebuild logistics. Requiring them now to upgrade their equipment is “a kind of shot in the foot.” In general, the expert notes, the proposals of the RSPP look reasonable: if it is impossible to eliminate the damage caused to the environment, it is reasonable to leave the option of compensation for damage through landscaping and the arrangement of recreational areas. Otherwise, there is a risk of an additional decrease in production. It is incorrect to completely remove the task of reducing harmful effects, but it should be postponed to a later date as enterprises adapt to new conditions, Grishunin adds.

NOTE:  On April 20, by a vote of 331 with no vote against and no abstentions, the second and final readings of the new law, No. 202708-8, were adopted by the State Duma.  Shokhin’s lobbying failed; Zyuzin was defeated. The Interfax news agency has reported that by this action “the  government plans that from 2027 it will start collecting turnover fines from enterprises that pollute the environment; these fines can reach 5% of revenue.”  

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