Raked over the coal
Russian coal producers struggle with low prices and transit bottlenecks
Hello from the Bear Market Brief.
This week in the news:
Russian coal producers are struggling with decreased global prices, the reintroduction of export duties, and a lack of transit capacity on Far Eastern railroads.
Russian government workers, including paramedics and firefighters, are demanding higher salaries.
A man was arrested in Poland in relation to a Russian assassination plot against Ukrainian President Volodymyr Zelenskyy.
President Zelenskyy signed a new Ukrainian mobilization law, but provisions on demobilization and rotation were not included.
U.S. House Speaker Mike Johnson announced that he plans to separate the Ukrainian military aid package from aid packages for other American allies.
— Sara Ashbaugh, Editor in Chief
Coal and metal troubles
Last week, the government of the Kemerovo Region, Russia’s main coal-producing region, published a report on the coal sector’s problems. Sergey Tsivilyov, the region’s governor, also complained about these problems in the State Council (along with the governors of the Tuva and Khakassia regions, which also produce coal). The governor highlighted three main issues: decreasing global coal prices (which are at the level they were during 2021), the reintroduction of export duties, and transit bottlenecks. Last year, Kemerovo’s coal production dropped by 9.4 million tons (from 223.6 million to 214.2 million), a relatively insubstantial amount. However, Tsivilyov claims that the problems are building up and are negatively affecting both the region’s production and budget.
One issue—which coal companies complained about even before the 2022 invasion of Ukraine—is a lack of capacity on Far Eastern railroads. Over the past two years, demand has grown substantially, as several export-driven industries lost access to Western markets and reoriented their commodities and wares towards Asia. Last year, demand for cargo transit in the Eastern direction was more than twice the throughput capacity of the railways. As a consequence, a considerable amount of coal is shipped to Asia via Western Russian ports, rendering it unprofitable. In Yakutia, another Far Eastern region with a strong coal sector, Kolmar, a major coal company, had to halt production in two of its units due to its inability to ship more than a million tons of coal. Earlier, Yury Trutnev, the President’s Far Eastern plenipotentiary, complained that a lack of cargo capacity on the network of Russian Railways (RZhD) was endangering jobs in the Far East.
This issue is likely to worsen in the near future. The capacity of Far Eastern lines is expected to expand, but more slowly than demand is growing. Cargo capacity is not the only issue: exporters have also faced higher tariffs, higher prices for equipment, and, like every other company looking to take out credit, have suffered from higher rates.
The coal industry is not the only industry aggressively lobbying for help from the federal government. This week’s decision by the U.S. and the UK to ban the import of Russian aluminum, copper, and nickel (but not of palladium and platinum), prompted Rusal, Russia’s biggest aluminum producer, to apply for state aid. The company, owned by Oleg Deripaska, requested that the government buy half of the volume of its pre-sanctions exports and remove export duties to stimulate selling to third countries. Rusal fears that the sanctions could negatively affect up to a third of the company’s exports, including to countries such as Turkey. The Kremlin confirmed that it is in contact with the representatives of the metals industry. Helping these industries is a priority for the government because of their significant (and often geographically concentrated) impact on employment. However, agreeing to special favors for one industry can attract similar requests from others.
— Andras Toth-Czifra
Coal dust pollution is plaguing Murmansk, a city in northwestern Russia near the Barents Sea. Coal dust from the local seaport has been a problem in Murmansk for over a decade, but this year the level of pollution surged considerably. This is partially due to transit bottlenecks in Russia’s Far East, which have forced coal producers to ship more of their goods to Asia via Russia’s western seaports. Murmansk residents are concerned about the adverse health effects of breathing the coal dust, and local officials have promised to address the issue. However, it is unclear how effective this will be, considering that coal accounts for over 80% of Murmansk Commercial Seaport’s cargo turnover. (photo: t.me/AoMurmansk)
Pressure on wages
Over the past few weeks, paramedics from several dozen regions have requested the government and the Kremlin increase their salaries. Paramedics’ salaries are often only around 20,000 rubles ($213) per month after taxes, well under the average wage across the country. The paramedics asked that the government increase their salaries by paying out bonuses that, according to them, had already been promised to all health care workers. The State Duma put the issue on the agenda; however, it is not only medical workers who are demanding higher pay from the government. In the Sverdlovsk Region and the Perm Territory, firefighters complained about similarly low salaries over the past few weeks—shortly before Russia’s wildfire season is expected to start. Several regions have reported severe shortages of police officers, and the Interior Ministry claimed to be short by 100,000 personnel in October 2023. This is arguably also because of the meager salaries that federal and regional governments can offer.
Over the past year, inflationary pressure and a labor market made much tighter by overt and covert military mobilization, demographic pressures, and a defense industrial complex working in overdrive have resulted in a steep growth of salaries, but only in certain sectors. In some industries, salaries grew by more than 20% over the past year (e.g. by more than 25% in the sector of finished metal products and by 21% in the production of electronic equipment, albeit a lack of granular data makes it unclear at what levels). In the army, contract soldiers can now expect to make over 200,000 rubles per month ($2,130) in addition to their sign-up bonus, which is now up to five times that amount. In general, however, median salaries have remained around 50,000 rubles per month ($533), based on data from job postings.
This is significant because it puts pressure on both regional and federal budgets to increase allocations for the salaries of employees providing key public services (or face the consequences of neglecting these services). For example, regional budgets had to substantially increase their expenditures on transit last year due to labor shortages and more expensive maintenance.
— Andras Toth-Czifra
Assassination plot against Zelenskyy
A man was arrested in Poland this week over an alleged plot to kill Ukrainian President Volodymyr Zelenskyy. The Polish citizen, identified only as Pawel K., is accused of passing information to Russian military intelligence. He reportedly established contact with representatives of the Russian Armed Forces “on his own initiative” and signaled his “readiness to work” for them. He was then tasked with gathering information about the security of the Rzeszow-Jasionka Airport in southeastern Poland. “This was, among other things, to help Russian special services plan a possible attack on the life of the head of a foreign state—President of Ukraine Volodymyr Zelenskyy,” the Polish National Prosecutor’s Office said in a statement. The Rzeszow-Jasionka Airport is a key transit hub for Western military aid traveling to Ukraine, and President Zelenskyy has been known to travel through it during his trips abroad. Pawel K. was charged with “readiness to act for foreign intelligence against the Republic of Poland,” which is punishable by up to 8 years in prison.
Ukrainian law enforcement agencies informed Polish authorities of the threat and provided “key evidence” in the case. “Thanks to successful actions and prompt exchange of information between the countries, it was possible to identify and detain a recruited agent of the Russian special services on the territory of Poland,” Ukrainian Security Services said in a statement. Ukrainian Prosecutor General Andriy Kostin also expressed gratitude toward his Polish colleagues for their cooperation. “This case is yet more proof that Russia is a threat not only to Ukraine and Ukrainians, but also to the entire free world,” he added.
— Sara Ashbaugh
Yulia Navalnaya has been named one of Time Magazine’s 100 most influential people of 2024. In a short article accompanying Navalnaya’s inclusion on the list, U.S. Vice President Kamala Harris called her “a courageous fighter for [democratic values].” Navalnaya also did an interview with Time, her first since Alexei Navalny’s death in February. When asked about her decision to continue her husband’s work, she said, “I saw how many people feel this loss very, very deeply, and I really wanted to support these people, to give them some kind of hope.” (photo: Kristina Varaksina for TIME)
Zelenskyy signs mobilization bill
Ukrainian President Volodymyr Zelenskyy signed a new law on mobilization this Tuesday. The law will come into force on May 16 and allows disabled service members and those who have returned from Russian captivity to be discharged. It also reduces the draft age from 27 to 25 years old and fully eliminates the “partially fit for service” category. Now those who had previously been assigned this category will have to sign up for a medical evaluation within the next 12 months to be designated either fit or unfit for military service. Additionally, civilian men aged 25 to 55 who have become disabled since the Russian full-scale invasion must undergo medical examination to validate their disability group.
The law also stipulates that men residing abroad will not be able to renew their passports at Ukrainian consulates unless they provide up-to-date military registration paperwork. In addition, there will be restrictions on driving for those dodging military service. When asked about the mobilization law, Ukraine’s Human Rights Ombudsman Dmytro Lubinets commented that it is “the best option in the current situation.”
Ukrainian lawmakers ended up removing demobilization provisions from the final version of the bill, which was disappointing for many families who had hoped for a fixed period of three years of active service for their loved ones who have already been fighting. Instead of including demobilization in this law, there will be a separate bill on rotation and demobilization of military personnel that will take another eight months to draft.
— Lisa Noskova
Johnson’s alternative plan for Ukraine aid
After six months of stalemate in Congress over aid to Ukraine, Speaker Johnson announced on Tuesday that he plans to advance three separate aid packages for Ukraine, Israel, Taiwan, and other American allies. Each package would be voted on individually. In addition to those, there would be a fourth vote on a measure focusing on domestic policies popular among Republicans, including issuing Ukraine aid as a loan. On Wednesday, Johnson said that the Ukraine aid package will be voted on this Saturday. Once all four aid packages have passed the House, Johnson proposed to fold them into a single bill for the Senate to take up, so that Senators could not cherry-pick pieces to approve or reject. Some Republicans immediately voiced their opposition to Johnson’s proposal, threatening to join Marjorie Taylor Greene’s bid to remove him as Speaker of the House.
Meanwhile, Russia is using Congress’s inability to pass aid for Ukraine to its advantage by slowly advancing toward the town of Chasiv Yar outside Bakhmut. Russia is also continuing to exhaust Ukrainian air defense systems by targeting civilian and energy infrastructure. On Wednesday morning, Russia hit downtown Chernihiv with three Iskander cruise missiles, killing 18 people and injuring nearly 80. “This would not have happened if Ukraine had received enough air defense equipment and if the world’s determination to counter Russian terror was also sufficient,” President Zelenskyy wrote on Telegram.
— Lisa Noskova
On the Podcast
The Bear Market Brief goes nuclear! Andrey Baklitskiy dropped by to discuss all of Russia’s strategic red lines, what the introduction of hypersonic weapons means for global security, and more.
Quickfire: Regions
Over the past few weeks, President Vladimir Putin held meetings with several regional governors who face gubernatorial elections in September. The President met with the governors of Sakhalin, the Transbaikal Territory, the Vologda Region, the Astrakhan Region, the Volgograd Region, and Bashkortostan. These meetings unofficially serve to signal the President’s blessing for the governors’ next term, meaning that these governors will not be dismissed in the spring “gubernatoropad.” Gubernatoropad, or the season of falling governors, is the annual coordinated dismissal of several regional leaders months before or shortly after regional elections. The presidential endorsement of Bashkortostan’s head, Radiy Khabirov, is especially notable given that Khabirov faced significant protests over the past few years. These were triggered by controversial industrial development projects as well as the jailing of a popular Bashkir activist in January, after which the local authorities cracked down hard on activists and protest participants. Overall, Putin has become significantly more cautious in the field of personnel policies over the past two years, dismissing only ten regional governors since the full-scale war started. However, since the President will have to appoint a new government in May, it wouldn’t be surprising if at least some changes took place at the helms of the regions too. One leader on shaky grounds is Orenburg’s governor Denis Pasler, who could be sacked due to the mismanagement of floods, while several others could expect an appointment to the federal government.
Over the past few days, the Tomsk, Kurgan, Orenburg, and Tyumen Regions have been massively affected by regional flooding. Dozens of houses and districts remain without access to basic utilities in other regions as well, including in Orsk in the Orenburg Region, where a dam burst almost two weeks ago. More than 30 regions are facing various degrees of flooding. Irek Faizullin, the federal government’s Minister for Construction, reported the damages and the situation to Putin on Wednesday. In the Tomsk and Kurgan Regions, local authorities started evacuations from the affected territories. A state of emergency was introduced in Ulan-Ude, the capital of Buryatia, as well as in certain towns and districts of the Tyumen and Kurgan Regions.
On April 18, a court in Bashkortostan rejected the appeal of Fail Alsynov, a jailed opposition activist whose sentencing triggered massive protests last January. In addition to upholding the four-year jail sentence, the court also banned Alsynov from administering websites or participating in mass events. The authorities have launched court cases against dozens of participants in pro-Alsynov protests. This week, the human rights organization Memorial recognized the Bashkir activist Ramil Saitov as a political prisoner. Saitov was sentenced to five years in prison for calling on mobilized soldiers not to kill Ukrainians. The deputy leader of Memorial, Oleg Orlov, is himself a political prisoner. This week he was abruptly transferred to the Samara Region, thousands of kilometers from his family, pending his appeal.
— Andras Toth-Czifra