Water, water, everywhere
Flooding spreads across western Siberia as the Ural River continues to rise
Hello from the Bear Market Brief.
This week in the news:
Massive spring flooding continues in western Siberia, causing significant damage in the Orenburg, Samara, Tomsk, and Kemerovo regions.
The government seized control of Russia’s largest wine producer, Kuban-Vino, as well as other companies in the Ariant agricultural group.
The Finance Ministry published data on the execution of the federal budget in 2024, reporting high oil and gas revenue.
Ukrainian drones attacked an aviation training center and repair plant in the Voronezh region.
— Sara Ashbaugh, Editor in Chief
Orenburg flooded
The emergency situation brought about by spring floods in Russia continues to worsen. Over the past week, the government and the general public have focused on the Orenburg region, where the level of the Ural River continues to rise in the worst flood for more than 80 years. As of April 11, the level of the river reached 10 meters (33 feet) near Orenburg, the regional seat and a city of 550,000 people. More than 2,000 buildings are underwater, and local officials predict that the flood will damage at least 2,500 additional buildings. Evacuations from the district continue. Earlier, the flood devastated Orsk, an industrial center near the region’s border with Kazakhstan, when water burst through a dam protecting the city. The city’s oil refinery suspended operations and declared force majeure, four people died, and thousands were displaced.
According to forecasts, the floods may soon result in critical conditions in the nearby Kurgan and Tyumen regions too. Flooding has already caused substantial damage in the Samara, Tomsk, and Kemerovo regions.
So far, the political consequences of the floods seem to be developing the way they are supposed to in Russia’s crisis management system, which focuses on the deflection of responsibility from upper to lower levels. A large group of desperate citizens in Orsk recently protested against local officials, especially the mayor of the town, accusing them of failing to prevent the dam from bursting and of offering meager compensation to victims. The region’s governor met with the protesters, but President Putin is not planning to visit the Orenburg region (or other regions affected by flooding), despite residents appealing to him directly for help. Instead, the President sent Irek Faizullin, the federal government’s Minister for Construction, to Orenburg, Kurgan, and Tyumen, along with Alexander Kurenkov, the head of the Ministry of Emergency Situations.
Faizullin raised the possibility of corruption probes, saying that the dam that burst near Orsk was not worth its price and that it resembled an earth embankment. The Investigative Committee opened a case into irregularities during the dam’s maintenance. Pro-government newspaper Izvestiya also blamed local officials for neglecting the upkeep of the dam, all while, as the news outlet Vyorstka spotted, pro-Kremlin bots were praising the activities of federal officials. It also appears that, according to a leaked document, the government has been aware of the flood risk for at least a month, yet local officials did not start evacuations until much later. Shortages of food and potable water also raised questions about the authorities’ preparation for the disaster. There is nothing indicating that the federal government will face any political consequences for the floods, however.
— Andras Toth-Czifra
Russia successfully launched the Angara A5 space rocket from the Vostochny Cosmodrome on Thursday. The launch was initially scheduled for earlier in the week, but was aborted at the last minute on Tuesday and again on Wednesday due to technical issues. The Angara A5 is a heavy-lift rocket that is capable of launching satellites into geostationary orbit—a step towards Russia’s eventual goal of creating a Russian space station to rival the ISS. “This launch began flight development tests of the Amur space rocket with Angara heavy-class launch vehicles at Vostochny,” Roscosmos posted to its Telegram channel. (photo: Roscosmos)
Winemaker nationalized
Russia’s largest wine producer, Kuban-Vino, was seized by the state this week. Kuban-Vino is the largest winemaker and vineyard owner in Russia, producing popular brands such as Chateau Taman, Aristov, and Vysoky Bereg. In 2023, the company produced 95.5 million bottles of wine. In addition to Kuban-Vino, other assets of the Ariant Group of Companies were nationalized as well, including agricultural company Yuzhnaya, wine producer Center for the Food Industry-Ariant, and Agro-firm Ariant, a company that specializes in breeding pigs.
The Prosecutor General’s Office requested the seizure of these companies as compensation for damages caused by founders Yuri Antipov and Alexander Aristov. On April 5, the Arbitration Court of the Chelyabinsk Region ruled in the prosecutor’s favor, and Ariant companies appeared on the Unified State Register of Legal Entities five days later. The state alleged that Antipov and Aristov illegally privatized their metallurgical company, the Chelyabinsk Electrometallurgical Plant (ChEMK), in the early 1990s. ChEMK and Ariant were originally part of a single holding, but the businesses were divided in 2020: Aristov received the agricultural assets and Antipov received the metallurgical plants. In February, three of ChEMK’s steel plants were also seized by the government and Antipov was detained for fraud. In addition to having allegedly illegally privatized ChEMK, prosecutors claimed that Antipov recently exported ChEMK assets to “unfriendly countries,” harming Russia’s national security.
According to Prosecutor General Igor Krasnov, last year the Russian government nationalized a total of 15 defense companies worth a combined 333 billion rubles ($3.6 billion). However, Krasnov denied that any large-scale “de-privatization” was taking place. “The enterprises ended up in private ownership as a result of abuses by their leaders, as well as government authorities, including former governors and former law enforcement officers who did not have the authority to dispose of state property,” he said.
The Ariant Group has filed an appeal with the Russian Supreme Court against the seizure of its assets. In the appeal, Ariant representatives claim that the Chelyabinsk judges were under “significant pressure” to rule in favor of the prosecution, and the ruling “grossly violated the fundamental principles of the judiciary—independence, legality, equality of all before the law and the court, equality of parties and competition.”
— Sara Ashbaugh
Flooded with money
The Russian Finance Ministry published data on the execution of the federal budget in the first quarter of 2024. In the first three months of the year, fiscal income was 53.5% above last year’s figure in the same period, with oil and gas-related income increasing by 79.1%. Some of this increase is seasonal and related to the collection of a quarterly tax on oil producers (which was paid in March). Additionally, part of the revenue realized in February was a partial payment of last year’s mineral extraction taxes. However, in every month of 2024 so far, oil and gas revenues were higher than the year before, thus the situation also signals the ineffectiveness of the G7 oil price cap.
At the same time, other revenues also saw an increase of 43.2%, higher even than the Finance Ministry’s expectations. Since the Ministry does not publish a breakdown of the tax receipts by kinds of taxes (except for VAT), it is difficult to assess what led to this increase. Additional tax collection, the fiscal stimulus provided by supercharging defense production through state orders, and the growth of consumer prices are certainly all part of the reason.
Federal expenditures grew by 20% over the same period. This itself is significant given that this year, similarly to 2023, many expenditures on state orders are frontloaded due to the war and social payments are rising. However, with the current amount of fiscal receipts, the federal deficit is only at 607 billion rubles ($6.5 billion)—less than a third of what it was at the end of March 2023. The position of the federal budget seems to be comfortable as long as oil prices remain high and sanctions are not tightened.
However, the risk of inflation remains. In her expose to the State Duma, Central Bank Governor Elvira Nabiullina claimed that inflation has peaked, but the Bank will keep its key interest rate at 16% in order to stave off the danger of the economy overheating. This keeps borrowing expensive, including for the government. As a result, the Kremlin may move towards introducing higher taxes and a more substantial reform of Russia’s taxation in order to guarantee high fiscal incomes for military production and the expansion of the army’s headcount, the price of which is also going up steeply.
— Andras Toth-Czifra
Russian Foreign Minister Sergei Lavrov traveled to Beijing this week to meet with Chinese leader Xi Jinping and Chinese Foreign Minister Wang Yi. At their joint press conference, Lavrov praised the “unprecedentedly high level” of Russian-Chinese bilateral relations and the countries’ shared commitment to “a fair multipolar world order.” Wang also praised the relationship, adding, “Today’s good relations between China and Russia are hard-won and deserve to be cherished and carefully maintained by both sides.” (photo: Russian Foreign Ministry Press Service)
Ukraine hits an aviation training center
On Tuesday, the Russian Telegram channel ASTRA posted a video of an attack on an aviation training center located in Borisoglebsk in the Voronezh region. The training center is used to train flight personnel for Russian frontline bombers and assault aviation. Additionally, an aviation repair plant is located on the training center’s premises. Interestingly, the plant does not repair planes or helicopters. Rather, according to the facility’s latest available annual reports obtained by Defense Express, the plant is tasked with the repair and refurbishment of various aircraft missiles. These missiles include the R-33, Kh-22, and Kh-55, which are often used by Russia to attack Ukraine.
Later that day, Ukraine’s military intelligence confirmed that the aviation repair plant was struck by drones. “We will not disclose the details, but according to preliminary information, the main production facilities of the enterprise were damaged,” military intelligence spokesperson Andriy Yusov commented. This claim has yet to be verified independently. While the Russian Ministry of Defense did not specifically comment on the strike on the Borisoglebsk training center and adjacent repair plant, it reported that its air defense systems shot down four Ukrainian drones on April 9: two in the Belgorod region and the other two in the Voronezh region. According to the Ministry, no damage was caused by the drones.
— Lisa Noskova
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On this episode of Report in Short, Aaron Schwartzbaum is joined by Egle E. Murauskaite, author FPRI’s new report “Russian Women in the Face of War Against Ukraine,” to discuss the multifaceted role of Russian women in the conflict.
Quickfire: Regions
United Russia deputies in the city council of Novosibirsk, Russia’s third largest city, will vote for deputy governor Maxim Kudryavtsev to become the city’s next mayor on April 16, according to a report in Sibirsky Express. Kudryavtsev, who is strongly supported by Governor Andrey Travnikov, has been the favorite from the start of the selection procedure (which replaced direct mayoral elections last year). The procedure was not competitive in the least. Regional authorities made it impossible for known opposition politicians to run for office; five candidates withdrew after applying, and the committee chosen to evaluate the remaining candidates picked only two for consideration by the city deputies. Apart from Kudryavtsev, local deputy Igor Ukraintsev, who has plenty of business and political opponents in the council, is the designated runner-up. The vote will put a decisive end to the power sharing agreement that Travnikov (and through him, the Kremlin) had with elites in the local branch of the Communist Party. Another regional capital will also soon choose a new mayor; Denis Spirin, the head of Cheboksary, the capital of Chuvashia, resigned for unclear reasons mere months after being appointed to the position.
Bashkortostan’s Supreme Court changed the sentence of political prisoner Liliya Chanysheva, the former coordinator of the late Alexei Navalny’s campaign in Ufa, to 9.5 years instead of 7.5 years in prison. Chanysheva was sentenced on charges of “extremism” last year, two years after Navalny’s office in Bashkortostan was forced to disband. The Prosecution, however, appealed the sentence and requested a ten-year sentence instead. The lengthy sentence is widely seen as an attempt to further intimidate opposition activists. Bashkortostan has also recently harshly cracked down on protesters who took to the streets in Ufa and Baymak against the sentencing of Fail Alsynov, a nationalist leader who championed conservationist causes. The independent media outlet Kholod calculated that at least 53 former associates of Navalny have become defendants in “extremism” cases in which they face long prison sentences, and several thousand could plausibly face similar harassment by the authorities.
The government will spend at least 300 billion rubles ($3.2 billion) next year from Russia’s rainy-day fund, the National Welfare Fund (FNB), on building a high-speed railway between Moscow and St. Petersburg. This is a resurrected Soviet-era plan which Russian Railways expects to put into operation by 2030. It comes on top of the 28.5 billion rubles ($305.4 million) from the federal budget that will be used to buy the land for the railway, as well as 221 billion rubles ($2.4 billion) from the budgets of regions that the railway will cross through (primarily Moscow). The decision is remarkable given that the liquid part of the FNB may be almost completely exhausted this year and the (significantly more expensive) Far Eastern and North Siberian railway projects are arguably more important for Russia’s ongoing trade pivot to Asia.
— Andras Toth-Czifra
Quickfire: Ukraine
A new mobilization draft law was approved by the Ukrainian parliament on Thursday after its National Security and Defense Committee finished reviewing over 4,000 amendments to the draft bill. The law seeks to update the legal framework around conscription to bolster mobilization efforts in the country. The full text of the law is not yet publicly available. According to Oleksiy Honcharenko, a member of the parliament, the Committee removed provisions on demobilization and rotation. Instead, there will be a separate bill on rotation and demobilization of military personnel. According to the Ministry of Defense, it will take another eight months to draft the demobilization bill.
Over the past month, Russia has intensified attacks on Ukraine’s energy infrastructure. In a comment to Financial Times, Ukrainian officials said that the damage is worse now than it was in the winter of 2022-2023. Military intelligence spokesperson Andrii Cherniak estimated that Russia has enough missiles to carry out one or two more attacks on critical infrastructure in the near future. In March alone, Russian forces attacked Ukrainian cities with 400 missiles of various types and 600 drones. During the most recent strike on Thursday, Russia launched 42 missiles and 40 drones and targeted energy facilities in the Kharkiv, Kyiv, Zaporizhzhia, Odesa, and Lviv oblasts. The Trypilska thermal power plant—the largest in the Kyiv region—was destroyed as a result of this attack. The plant was supplying energy to the Kyiv, Cherkasy, and Zhytomyr oblasts. Luckily, none of the power plant employees were injured during the attack.
— Lisa Noskova