Coronavirus comes to Russia

The Bell

Hello! This week our top story is on Russia’s first coronavirus cases and how the country is trying to stop the infection from spreading. We also look at a mysterious new shareholder at an insurance company tied to President Vladimir Putin, the ex-Russian official whose electric van company is enjoying success in the U.K., and the arrest of five former police officers accused of planting drugs on reporter Ivan Golunov.

Coronavirus arrives in Russia as eastern borders closed

Even though Russia shares a 2,600-mile-long land border with China, it was not until Friday that the country reported its first cases of coronavirus — two Chinese citizens in Siberia were identified with the infection. As the risks grow, Russia appears to be waking up to the epidemic that is underway in its neighbor to the south east.

  • Russia announced Thursday it was restricting crossings on its land border with China, and said Friday it was closing its land border with Mongolia to Chinese citizens. Deputy Prime Minister Tatiana Golikova, who is heading Russia’s response to the crisis, has also cut-down flights between Russia and China, limited rail services and promised evacuation to the almost 700 Russians stranded in China’s Hubei province where the outbreak began.
  • There are few details about the confirmed cases, which were recorded in the city of Tyumen, and Zabaikalsky Krai. One of the infected people was reportedly a student from Tyumen who had just returned from spending the Lunar New Year in China.
  • Some big events have been cancelled amid fears of spreading of the virus. McDonalds cited Moscow government advice on coronavirus as the reason it cancelled festivities for its 30th anniversary in Russia on Friday. The U.S. fast food chain had promised to sell hamburgers at its flagship Moscow store for at the Soviet-era price of 3 rubles ($0.05) to mark the occasion.
  • If some businesses have been suffering, others have been seeking to capitalize. The producers of two popular antiviral treatments, marketed as Ingavirin and Arbidol, released advertisements this week suggesting the drugs offered protection against coronavirus. Arbidol, the trade name for Umifenovir, is one of the top selling over-the-counter drugs in Russia, but many experts dispute its effectiveness — and it is banned in the U.S. and Europe. Critics allege the controversial drug has even been lobbied by officials, including then-prime minister Putin at a 2010 visit (Rus) to a pharmacy and Golikova, who was health minister between 2007 and 2012.
  • Growing economic and political contacts between Russia and China makes Russia more vulnerable to this sort of outbreak than in previous years. In particular, ties deepened after 2014 when Moscow sought to ‘pivot to the East’ amid the Ukraine crisis. One of the results — as well as the 2014 ruble devaluation — has been a huge upsurge in Chinese tourists: between 2014 and 2019, the number of Chinese visitors rose from 410,000 to 1.25 million; and the number of Chinese cities with direct flights to Russia increased from 10 to 24.

Why the world should care

Closing borders may give the impression that Russia is taking serious steps to counter coronoavirus, but don’t be lulled into a false sense of security. The authorities have also been mocked for a near total lack of information on what to do if you think you are infected — one guide (Rus) issued by the Ministry of Health recommended “visiting a doctor”.

FSB veteran gets 5% stake in a company owned by Putin’s friends

You find the most unexpected shareholders in companies controlled by Putin’s friends. The Bell has discovered that Federal Security Service (FSB) officer Dmitry Baikovsky, 41, owns 5 percent of Russia’s largest insurance company, Sogaz. The stake, revealed in company disclosures (Rus), is worth up to $470 million, almost 10 times what he bought it for in 2017.

Baikovsky acquired half his 5 percent holding from Sogaz CEO Anton Ustinov and his partners, but it is unclear where he got the second half. However, we do know Baikovsky paid about $50 million for it all. A year later, when state-owned bank VTB merged its insurance assets with Sogaz, the company was valued at $9.1 billion, meaning Baikovsky’s 5 percent stake is now worth between $440 million and $470 million. When contacted by The Bell, Baikovsky declined to comment. Sogaz also declined to comment.

Russia’s largest insurance company, Sogaz started out as the corporate insurer for state-owned gas giant Gazprom, but now counts many other state companies as clients, including Russian Railways, oil giant Rosneft and atomic company Rosatom. It was owned by Gazprom until the mid-2000s when it was acquired by Bank Rossiya, whose shareholders are close to Putin. The ownership structure changed again after Western sanctions in 2014, but you can still find many of Putin’s friends and relatives on a list of Sogaz’s shareholders and managers:

  • 32.3% — Putin’s friend Yury Kovalchuk, his wife and Bank Rossiya managers
  • 16.5% — Sogaz managers led by CEO Anton Ustinov, the nephew of Russia’s former prosecutor-general Vladimir Ustinov, who used to work with Rosneft head Igor Sechin and Putin in the Kremlin.
  • 12.5% — Mikhail Shelomov, the son of one of Putin’s cousins
  • 2.5% — recently sold by Vladimir Kolbin, son of Putin’s childhood friend Pyotr Kolbin.
  • Mikhail Putin, the son of another of Putin’s cousins, does not own Sogaz shares, but sits on the company’s management board.

Baikovsky does not have direct ties to Putin’s family, but he did serve in the FSB’s elite Vympel unit in the late 2000s. Together with Alpha, Vympel is one of Russia’s two best special forces. In Soviet times, it specialized in foreign operations, and was known for the 1979 storm of the Tajbeg Palace in Kabul and assassination of Afghan president Hafizullah Amin, which marked the start of Soviet Union’s 10-year war in Afghanistan.

In the 2010s, Baikovsky and his partners managed several companies that owned property acquired from defunct oil company Yukos (sold off after the 2004 arrest of its owner, billionaire Mikhail Khodorkovsky). Rosneft got many of Yukos’ assets, but some went to companies close to Gazprom — and Baikovsky is linked to these companies. Sogaz current CEO Ustinov was a lawyer for the Tax Service during Yukos’ bankruptcy proceedings.

Why the world should care

For now, we do not know why an FSB veteran ended up with $470 million of shares in a company controlled by Putin’s friends. The most likely explanation is that he is representing someone else’s interests — there are no accidental shareholders in Sogaz.

The ex-Russian official who built a $3.3 billion electric van start-up in Britain

The biggest news in the electric vehicle market this year has been U.K. start-up Arrival, founded by Russian businessman Denis Sverdlov. First, automobile manufacturers Kia and Hyundai became shareholders, giving Arrival a valuation of $3.3 billion, and then U.S. logistics giant UPS ordered its first 10,000 electric vans from the company. Despite Sverdlov wanting to build his business in Russia, the market is simply not big enough for this to be a viable option — only 373 electric vehicles were sold in Russia last year.

  • Kia and Hyundai announced the purchase of 3 percent of Arrival’s shares for $110 million on 16 January, and the two South Korean companies intend to use their acquisition to develop an electric vehicle partnership. Hyundai already has a collaboration in Russia to build driverless cars with IT giant Yandex.
  • U.S. company UPS announced its own Arrival investment 30 January. The value of its equity stake has not been disclosed, but The Guardian estimated it to be worth less than the $110 million of Kia and Hyundai. More importantly, UPS has also signed a contract to buy Arrival’s first 10,000 electric vans, which means the company will not have to worry about demand.
  • For UPS, the partnership with Arrival is an important move in its ongoing battle with Amazon that last year ordered 100,000 electric vans from U.S. start-up Rivian.

The company

Arrival was founded in the U.K. in 2015 and focuses on providing courier vans to be used on short routes in cities. Until this year, the company’s sole shareholder was Sverdlov. While Arrival’s headquarters is in London, it has development centers in the U.K., U.S., Russia, Germany and Israel and employees 800 people. The company’s structure allows it to customize vehicles in accordance with buyers’ requirements — the first Arrival vans will appear in London, Paris and several U.S. cities by the end of this year.

The founder

In Russia, Sverdlov is best known as one of the founders of Yota, the first company to offer clients mobile broadband internet. In 2011, Yota launched Russia’s first 4G network, and the following year it was sold to billionaire Alisher Usmanov for about $1.5 billion. Sverdlov then went to work for the government, becoming deputy minister of communications. But in 2013, he left (Rus) the country after Putin banned officials and members of their families from holding foreign bank accounts or owning property abroad.

The Russian market

The only well-known attempt to build a Russian electric car was billionaire Mikhail Prokhorov’s “Yo-mobile”. Beginning in 2010, the then-owner of the Brooklyn Nets invested $166 million in the production of a hybrid car; even Putin test drove a Yo-mobile. There were 210,00 pre-orders, but Prokhorov shut down the project in 2014 amid ruble devaluation. Today, Russia is not featured on any electric car ratings. There are only around 4,000 electric cars registered in the country and, last year, just 373 electric cars were sold (Rus) compared to 1.72 million gas-driven vehicles. Unlike China, the U.S. or European countries, Russia doesn’t offer tax incentives to buyers of electric vehicles. Such a program is being discussed (Rus) in the Russian parliament, but several ministries oppose the idea.

Police officers arrested in journalist drug-planting case

A Moscow court arrested five police officers Thursday accused of planting narcotics on prominent investigative journalist Ivan Golunov. The imprisonment of Golunov in June on false drug charges provoked a public outcry. His release was hailed as a rare victory for Russian civil society.

  • Arrested ex-law enforcement officers Denis Konovalov, Roman Feofanov, Maksim Umetbaev and Akbar Sergaliev, as well as former district narcotics chief Igor Lyakhovets will likely face charges of illegal drug possession and falsification of evidence. The five men were part of a group of officers who slipped 5 grams of mephedrone into Golunov’s backpack when he was detained on 7 June. Another officer, Andrei Shchirov, Lyakhovets’ supervisor, was questioned, but not arrested. All the men maintained their innocence in court, although Umetbaev admitted assaulting Golunov when he was in police custody.
  • Golunov’s arrest sparked a public campaign of support and an outpouring of professional solidarity, including a series of rolling one-man pickets, identical front pages on Russia’s three main newspapers, and a protest in Moscow attended by up to 20,000 people. Four days after his arrest, charges against Golunov were dropped. The fallout from the scandal saw heads roll in the security services as two police generals were fired along with the five men now under arrest. The announcement of a criminal case into the affair was made by Putin in December.
  • Despite this week’s arrests, there is still no indication about who ordered Golunov to be framed. A reporter for independent media outlet Meduza, Golunov has himself said he believes it was linked to an investigation into corruption in Moscow’s funeral industry that implicated senior figures in the FSB.

Why the world should care

The five officers arrested this week may well have planted drugs on Golunov, but they were clearly not the masterminds behind the operation. Russia has a history of politically sensitive investigations getting low-level convictions, only to run into a wall of silence. As yet, there is little sign the Golunov case will be any different.

Support The Bell!

The Bell's Newsletter

An inside look at the Russian economy and politics. Exclusively in your inbox every week.