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Politics & Society

Wednesday, may 9, 2012

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Business A program to sell off state assets is likely to move forward after new cabinet is named

New Russian Government to Back Privatization Effort Vladimir Putin’s new government will make its much-lauded $30 billion privatization program a top priority when a new cabinet is formed.

News in Brief Putin Sworn in as President On May 7, Vladimir Putin once again took the oath of office as Russia’s president, officially beginning his third term in that office. Putin was re-elected in the first round of the presidential election, which took place March 4. Despite accusations of fraud in the elections, observers generally agreed that a majority of Russians did indeed vote for Putin. As a result of constitutional amendments made in 2008, Putin will serve six years as president instead of the previous four, and he will be eligible to run again in 2018. Read more about political developments at rbth.ru/politics

natasha doff

the moscow news

Rosneft, ExxonMobil Sign Agreements on Development

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In mid-April, Rosneft and ExxonMobil moved forward on an agreement made last summer to cooperate in developing the energy resources of the Russian continental shelf. Representatives of the oil majors signed several agreements, including one on the establishment of two joint ventures for work on the Black and Kara seas and on the purchase by Rosneft of shares in three Exxon projects in North America. Read the full article at rbth.ru/15358

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Speaking on the sidelines of a conference in Moscow last weekend, First Deputy Prime Minister Igor Shuvalov said that a new concrete plan for the sale of equity in 10 state assets would be signed by the new prime minister shortly after he is appointed in the wake of Vladimir Putin’s inauguration as president.“There remains a wait of only a few weeks,”Shuvalov said, according to RIA Novosti. The news is cause for optimism for investors eagerly awaiting the reduction of the state’s presence in several key sectors amid apprehension that the plans had been sidelined. The privatization program, which had originally aimed to sell some $30 billion worth of state assets by 2014, has been on hold since the first stake sale — 10 percent in banking giantV.T.B., which sold for $3.3 billion in early 2011. But analysts say that while the statements show the program is unlikely to be dropped, there is still a high chance it will not be implemented as fully or as quickly as was previously planned. This year, the government had planned to sell off stakes in three major companies — lending giant Sberbank, the United Grain Company and Novorossiysk Sea Port — but analysts say the size of the Sberbank sale may swamp the market. The placement of 7.6 percent of Sberbank was postponed last fall due to poor market conditions.

“The Sberbank stake sale is likely to happen this year, but it is likely that other offerings will be postponed due to the size of the placement,”said Andrei Kuznetsov, a strategist at Citibank in Moscow. Much may also depend on the makeup of the new cabinet. Like many other economy-related issues, privatization has caused a

deep divide between the fiscally conservative and the liberal spending camps in government. While neither side has strictly opposed the program, the divide is essentially centered over what each side hopes it will achieve. Outgoing President Dmitry Medvedev, who initiated the program, leads those who want to speed up the process to improve corpo-

A 20 percent stake in the Novorossiysk Sea Port, Russia’s largest port, is expected to be put up for sale later this year along with other state assets.

rate governance and attract foreign investment. Other officials are in favor of waiting until share prices are higher to maximize revenues from the sales. Deputy Prime Minister Igor Sechin, who wields a lot of influence over the energy sector, has long sought to delay the sell-off, claiming that it will lead to many assets being sold at prices that are too low.

Russia Returns to Direct Election of Governors On May 2, outgoing President Dmitry Medvedev took one more step towards liberalizing Russia’s political system, signing a law that allows once again for the direct election of regional governors. The move is a reversal of then-President Vladimir Putin’s 2004 decision to require governors to be appointed from the federal center and approved by local legislatures. The first elections under the new law are scheduled to take place in January 2013.

Cooperation Moscow mayor takes a unique step in meeting with the expatriate business community

Moscow Welcomes Foreign Business Moscow Mayor Sergei Sobyanin reached out to American businesspeople at a one-of-akind event he promised to repeat in the future. Anatoly Medetsky

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In the middle of April, Moscow Mayor Sergei Sobyanin impressed members of the American Chamber of Commerce (AmCham) with an offer of cooperation at a meeting in a former imperial palace, an event that some of those in attendance described as unique. Sobyanin proposed creating a working group in which city officials would consult with AmCham about some economic measures. The mayor also highlighted other areas of mutual interest. “This is the first meeting with a business focus that AmCham has had with a Moscow mayor this century,”said AmCham President Andrew Somers afterward. “It can lead to productive contributions by American businesses. It’s a unique event. Now we feel welcome.” Sobyanin, a former chief of staff

Moscow Mayor Sergei Sobyanin met with representatives of the American Chamber of Commerce in Russia at a historic palace in Moscow.

in Prime Minister Vladimir Putin’s cabinet, took charge of City Hall at the end of 2010. His predecessor,Yury Luzhkov, had previously spoken only at a ceremonial event with AmCham. Undeterred by the heavy security, guests packed most of the 138 ornate gray-blue cushioned chairs in the domed second-floor hall of the mansion near the Dinamo metro station. They were there to learn one thing: How open Sobyanin is to foreign investors. Paul Kiesler, PepsiCo’s general manager in Russia and one of the business leaders present in the hall, was upbeat about the interaction. “What’s great about today is that it’s a demonstration of this administration’s commitment to work with industry to build a vibrant economic environment in Moscow,” he said. “I have been here for 20 years. It’s one of the first times that the city administration really opened up and invited businesses to participate in decision-making.” continued on page 5

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Armed Forces Four years into a transformation, results are starting to become apparent

Creating a Leaner and Meaner Fighting Force

Eugene Ivanov

Special to RBTH

A

Ivan Safronov

© vladimir rodionov_ria novosti

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Structural matters The military administrative divisions were also restructured. Four military districts were created out of the preexisting six to bring the military districts in line with the air defense zones. Then, the structure of the armed services was altered. In the ground forces, a leaner, more mobile sys-

Viewpoint

A Day for Remembrance and Celebration, on Both Sides of the Atlantic

A controversial military reform is nearing completion, but much work remains to give Russia the professional fighting force it needs for today’s conflicts.

Defense Minister Anatoly Serdykov (left) carried out the reforms.

Top military brass were puzzled that a former tax inspector was named defense minister. The structure of the armed services was altered. In the ground forces, a more mobile system was introduced. tem of brigades was introduced. In the air force, units were completely reorganized into a system of air bases, air groups and squadrons with corresponding commands.“Previously, aviation was based at 356 airfields, some of which had only a few serviceable aircrafts,” said the General Staff source. “And yet all the airfields were financed about equally.” The reform of the air divisions is ongoing. There is still a plan to create seven large air bases, and on Dec. 1 of last year, Medvedev established the Aerospace Defense Forces out of the Space Forces and the Moscow Region Air Defense Command to pool the resources of air defense and ballistic missile defense systems and early missile attack warning and space control systems. All these are now under a single control center. The navy has also seen its share of restructuring. The coastal and land naval forces were fully staffed and the fleets were included in the newly formed military

© vitaly ankov_ria novosti

During a meeting with members of the Defense Ministry at the General Staff Academy in late March, Russian President Dmitry Medvedev, in his role as commander-in-chief of Russia’s armed forces, announced that the country’s military reform“has almost been completed.” “Strategic and nuclear forces have been consolidated,”he said. “A single aerospace defense system has been established, incorporating air defense and antimissile defense, as well as early warning and space control systems.” Defense Minister Anatoly Serdyukov added details on the delivery of new armaments and equipment to the Armed Forces. Serdyukov, who had the mostly thankless job of carrying out the reform, was appointed to his post on Feb. 15, 2007. At the time, many in the military establishment were puzzled by the fact that a former tax inspector with a commercial past and no military experience was selected for the position of defense minister, but over time it became clear that Serdyukov’s management style was necessary for the scale of the reform. The man directly charged with implementing the reform was General Nikolai Markov, who became chief of the General Staff in 2008. The changes he initiated affected virtually all elements of the armed forces. The number of personnel was quickly reduced to 1 million, with all units moved into the deployable category. At the same time, the officer corps was cut from 355,000 to about 150,000.“As a result, the number of officers left was what was really needed to command the forces,” said a source at the General Staff. The old system of parallel units separating those made up of conscripts from those made up of career servicemen was abolished.

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The Kamov Ka-52 Alligator is one of several new helicopters in use.

In figures

39 374 1 intercontinental ballistic missiles were supplied to the armed forces in 2008–2011.

aircraft were delivered to the air force over the course of the past three years.

year of mandatory military service is currently required of all Russian men.

differ strikingly from those Medvedev inherited in 2008. The underlying idea of the reform has to some extent been realized: The army has become a leaner and meaner fighting force. However, some problems remain. While the president significantly raised military salaries as of Jan. 1, 2012, only a dent has been made in finding additional housing for servicemen and their families. Additionally, a new system of training must be developed to synchronize personnel with the new structures.

districts. All functions related to servicing equipment, maintaining garrisons and catering were outsourced. The General Staff went under the knife as well. Its operational and administrative functions were divided into two spheres: the planning of the use and development of the armed forces, and the planning of comprehensive supplies. The restructuring was not publicly announced, but the Main Operations Directorate was slashed by 40 percent. The Russian armed forces today

s someone who moved from Russia to the United States as an adult, I know firsthand the difficulties of adapting to life in foreign country. A new language, new culture, new rules of interpersonal relations, new climate and new food all dawn upon you at once. An intrinsic, if not fully appreciated, part of the adaptation process is getting used to a new set of holidays. This isn’t as trivial as it might seem: the order of American holidays often challenges the biological clock set up back in Russia. Additionally, the meaning of some of them is not always obvious to a newcomer. Eventually you settle, of course. First, you stop celebrating the official Russian holidays you remember from childhood: the Day of the October Revolution on Nov. 7 and the Day of International Solidarity of Workers on May 1. In the United States, Independence Day on July 4 becomes a proxy for both. Then you stop buying flowers for your wife on March 8 (International Women’s Day), although mandatory attendance at an expensive restaurant on Valentine’s Day may not appear to you to be a sensible replacement. Over time, NewYear’s Day, the most cherished holiday in Russia, turns into an extension of Christmas. Finally, you realize that Thanksgiving, a day you never heard of before moving to the U.S. — has gradually become your favorite holiday. There is, however, a Russian holiday that will always find place on my busy calendar. It’s May 9 — Victory Day, the day commemorating the end of World War II, known by Russians as the Great Patriotic War. I belong to the first postwar generation. As a result, my memory of the war can only be called historic, derived as it was from reading books and watching movies about this part of Russia’s tragic and glorious past. But although I have no memories of the fighting or the deprivations of the war years, I have plenty of my own memories of the annual military parades that take place every year on this day in Moscow’s Red Square. As a boy, I spent the morning sitting in front of a TV set, afraid to miss a blink. And then, there were war veterans filling the streets in the afternoon, their clothes shining with the gold and silver of mil-

itary decorations. They looked so old to me back then; today, I realize that many of them were younger than I am now. These days, my 87-year-old mother helps my wife and me remember and celebrate this day. Every year on May 9, the three of us have a celebration dinner. We eat Russian food, drink vodka and listen to my mom’s stories of life during the war. My wife and I already know all of them by heart, so we can always add an important detail that Mom has forgotten since last time. A year ago, she reminded us how one night in February 1943, she was chased by a stranger who apparently wanted to rob her of bread stamps she just received. Without looking back or even screaming, Mom made the run of her life, knowing that should she lose this race, her parents and two sisters would have no bread for the rest of the month. Before dinner is over, Mom always tells my favorite story: how she learned that the war was over. She remembers exactly the time of the day and the street in Vladivostok she was on when she heard the radio announcement by the legendaryYuri Levitan.

A couple of hours is not a high price to pay for reminding ourselves that history doesn’t split along borders. Sometimes, we’re joined for dinner by our grown-up, perfectly American children. They are not expected to share the emotional atmosphere of the occasion; sitting around the table and politely listening to the conversation is all that is expected from them. As parents, we take pride in the fact that in contrast to many of their friends — and, I suspect, some U.S. politicians — our kids at least know that in World War II, the United States and Russia were allies, not foes. This year, Victory Day falls on a weekday, so our kids are unlikely to visit us. I wish they could. A couple of hours every year is not a high price to pay for reminding ourselves that the history of mankind doesn’t split along national borders or generational lines. It’s our common history. And the victory we are to celebrate on May 9 is not only victory for us and our parents; it’s also victory for our children and their future children, too. For our Victory Day and yours! Cheers!

Opposition One of Russia’s prominent demonstrators is known for being indecisive and cautious, but these traits could be to his benefit

Negotiating With Rogues for a New System Alexander Bratersky Special to RBTH

“Neutral and harmless” is how opposition politician Boris Nemtsov describes Vladimir Ryzhkov. The characterization may sound like an insult, but it seems that Ryzhkov’s neutrality is paying off. Thanks to Russia’s recent political reform, his Republican Party is about to be reregistered, paving the way for his possible return to parliamentary politics. A historian by profession, Ryzhkov acquired his political experience and the ability to choose his words carefully over the course of many years, as he moved from street democrat during perestroika to State Duma deputy and deputy chairman of the Our Home is Russia party. Ryzhkov entered the Duma in December 1993 at the age of 27. He became deputy speaker of the Duma in 1997. In 1998, he was named deputy prime minister for social affairs by President Boris Yeltsin, but declined the post because he lacked experience. His opponents still accuse him

of cooperating with the governments of both Yeltsin and Vladimir Putin. In response, Ryzhkov has said: “Yes, we made a lot of mistakes, but were looking to have a bigger market and more democracy. During my time there, the Duma was a place for discussion.” Ryzhkov said that he began to criticise the newly elected Putin immediately after the arrest of media mogul Vladimir Gusinsky in 2000. He calls himself the oldest opposition figure, since he began to criticize Putin earlier than his closet rivals, Nemtsov and Mikhail Kasyanov. Ryzhkov remained a member of the Duma until 2007, when the Republican Party was dissolved. He has been in opposition ever since. He also teaches at the Higher School of Economics, hosts a radio program on Ekho Moskvy (Echo of Moscow) and writes articles for various newspapers. More than anything, Ryzhkov loves to talk about Tsar Alexander II, who abolished serfdom. “He initiated fantastic educational reforms, introduced high schools and a modern army. At that time, the economy flourished,” Ryzhkov said.“Now Russia needs a leader like that, as well as the right environment.” Ryzhkov does not see Putin as

His Story Studied: history profession: politician age: 45

Vladimir Ryzhkov was born in 1966 in the city of Rubtsovsk in the Altai Territory. After serving in the army and graduating from Altai State University, he became one of the leading politicians in his region. In 1991, he became deputy governor of Altai, and in 1993 was elected for the first time to the State Duma; he was its youngest member. He remained a member of the Duma for four legislative sessions. In the 1990s, he became a leading member of the “Our Home is Russia” party, which supported President Boris Yeltsin. Soon after Yeltsin’s resignation, Ryzhkov found himself without a party. In 2003, he ran as an independent candidate in his Altai constituency. In 2007, Ryzhkov withdrew from parliamentary politics and has since then belonged to different opposition groups. He was recently one of the organizers of the demonstrations “For Fair Elections.” He also teaches at Moscow’s Higher School of Economics.

Alexander Jermilov_Rolling Stone

At 45, Vladimir Ryzhkov is one of the senior opposition figures. His Achilles Heel is his cautiousness — but that could open political doors for him.

Alexander:“He has led the country like [the leader of] a criminal gang for 10 years. Now we need to create political institutions.” In December 2010, Putin accused Ryzhkov of having“billions stashed away’’ because of criminal activity in the 1990s. “What billions could I have put aside as

a member of parliament?” Ryzhkov asked in response.“When you look at those who have plundered, the comparison doesn’t flatter Putin.” Ryzhkov’s biggest weakness is his alleged indecisiveness. As one of the organizers of last winter’s demonstrations, he was asked if

the protestors might have been more successful had they taken bigger risks. “Putin and Medvedev were forced by pressure from politicians and ordinary citizens to make concessions,”Ryzhkov said. “I know I’m considered indecisive. But you have to be careful and sometimes even indecisive if you don’t want to damage the crop. If I was a determined politician, I would have called for the storming of the Kremlin.” Ryzhkov has promised to keep participating in protests, regardless of how few people attend. But as a responsible politician, he believes that only dialogue can lead to change: “I will sit at the negotiating table even if I have rogues in front of me,” Ryzhkov said. Despite Ryzhkov’s harsh words about the Kremlin, Putin is less suspicious of Ryzhkov than he is of Nemtsov and Kasyanov. This may have to do with Ryzhkov’s clearly dismissive attitude towards the nationalists who were also represented at the early demonstrations. Despite his dislike of the nationalists in opposition, Ryzhkov is willing to work with politicians with whom he does not agree; he sits with several of them on a working group aimed at reforming the political system

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E-Commerce Russia’s answer to Groupon wants to diversify its product offerings before the market for daily deals is saturated panies here have built their business on an old-fashioned C.O.D. (cash-on-delivery) model that carries a big risk if the client decides not to buy a product after the company has spent a lot of money delivering it. We insist all payments be made online, but we accept all forms of e-payment, including Web money. One of the leading factors driving e-commerce is Russians’ changing mindset about the safety of electronic payment methods.” Meanwhile, a war has broken out in Russia’s e-commerce space. KupiKupon has a 20 percent market share and is doing battle with the incumbent, U.S. dailydeal giant Groupon, which entered the market after Russian businessmanYury Milner bought a 5.13 percent stake in the company for a reported $75 million in the spring of 2010. Milner owns

KupiKupon earned $400,000 in seven months in 2010; it is predicted to take in $110 million this year.

artem zagorodnov, ben aris special to rbth

Drawn by his Russian roots — his great-great-grandfather was a cabinet member under Tsar Nicholas II — and armed with a law degree from Georgetown University, Brian Konradi moved from Texas to Moscow in 2005 to work for law firm Akin Gump Strauss Hauer & Feld, LLP. Although Konradi found his work as an American lawyer in Mos-

cow challenging, he still nurtured a long-standing dream of becoming an entrepreneur. While working in the Moscow offices of law firm DLA Piper, Konradi became acquainted with a group of investment bankers based in Tashkent, Uzbekistan. “I did a deal with them representing a Canadian client; they had great chemistry and leadership skills. I kind of kept in touch after that,” Konradi said of the men who would become his future employers. The Uzbeks had heard of Groupon’s success in the United States, and in May 2010, “they decided this business model was right for

Russia, hopped on a plane to Moscow and opened a daily deal site within weeks,”Konradi said. And the American wanted in on the action. Konradi joined KupiKupon in November 2011 in the triple role of general dounsel for global operations, senior vice president for business development and director of the KupiPodarok division. KupiKupon earned $400,000 in its first seven months of operation; revenues hit $40 million in 2011 and it is predicted to take in $110 million this year. “It’s no coincidence this business took off after the crisis hit,” said Konradi. “Whether in Chi-

Russia Anticipates an E-Commerce Boom Analysts are expecting this year to be one in which Russians embrace the concept of online shopping, and more retailers are opening online shops. Victor Kuzmin Special to RBTH

Today the Russian market for online shopping is both the youngest and most dynamic in Europe; last year, Russia outpaced France and Germany in terms of unique visitors in Internet shops. Representatives of online retailers estimated market turnover for goods purchased online in 2011 to be 270 billion rubles ($9 billion), up from 240 billion ($8 billion) in 2010. According to Pricewaterhouse Coopers, in the coming years, market volume for online purchase in Russia will more than double. “We know that the time between when someone logs on for the first time to the Internet and when they make their first purchase is several years. We believe 2012 will become that year for a

huge number of Russian Internet users.We expect explosive growth in the market,”said Svetlana Sorokina, organizer of the Online Retail Russia Congress. This year alone, more than 30 traditional brick-and-mortar stores plan to open online versions. Traditional retail growth in Russia is much slower, averag-

While traditional retail growth is much slower, the share of online sales as a percentage of turnover is still small. ing between 5–7 percent per year. But for the time being, the share of online sales as a percentage of total turnover of retail sales in Russia is negligible: 1.6 percent. This is much lower than in other major European countries; in the U.K., for example, it is more than 10 percent. Only in Moscow, where the share of Web sales is around 20 percent, does

Russia’s E-Commerce Market

volume approach the global average. More and more though, large retail chains operating in Russia recognize that online stores are a full-fledged opportunity for sales. For example, last year the share of online sales for the Euroset mobile phone retailer increased from 1.5 percent to almost 5 percent. For individual product groups, a company’s share of sales over the Internet can reach up to 15 percent. Representatives of Euroset believe that over the course of five years, the share of Internet sales will reach 20 percent. M-Video, one of Russia’s largest sellers of electronics and home appliances, reported that online sales in 2011 increased by 90 percent. The company expects that by 2015, online shopping will make up nearly a quarter of its total revenue. According to studies done by OZON, Russia’s equivalent of Amazon.com, the most popular products to buy online are clothing (25 percent), electronics (15 percent), books (15 percent), cosmetics (13 percent), products for kids (9 percent), and music and movies (8 percent). The rapidly growing Russian market has already begun to attract the attention of international companies. Ebay, Amazon and Alibaba have shown interest in the Russian market. Groupon Russia announced that it intends in the second half of the spring to launch an online store that will operate under the “discounter” format and feature “products ranging from household appliances and consumer electronics to clothing and shoes.”At the moment, discount service Biglion.ru has this market segment almost to itself. During its first month of operation, Biglion sold 40,000 items, ranging from clothing and footwear to household appliances and electronics to tours.

cago or Moscow, we in the daily deal business offered companies a chance to drive traffic with no out-of-pocket expenses at a time when marketing budgets were slashed.” Russia became the biggest Internet market in Europe in November of last year, and, according to Konradi, KupiKupon is“at the forefront of converting a large base of Internet users into e-commerce users.”“Over 45 percent of our shoppers are making an Internet purchase for the first time,” he said.“We’re an engine for generating a class of e-shoppers.” Konradi sees both opportunity and great responsibility in this

Above: KupiKupon’s management team — (from left) Djasur Djumaev, Brian Konradi, Komil Ruzaev, Shavkat Khatamov and Bek Kamilov — hope to build their daily deal site into a multinational e-commerce empire.

position.“Any first-time Internet shopper who has a bad experience is unlikely to return for some time,” he said, explaining KupiKupon’s social role. The company prides itself on having Russia’s best customer service department.“Try calling anytime and you’ll wait no more than four seconds,”Konradi said.“It’s cheaper for us to refund a client who was unhappy with a meal at a restaurant and retain his or her business for the future than try to attract a new customer.” In addition to the reluctance of some Russians to make purchases online, another challenge is Russians’ longtime distrust of credit cards. In this country of 140 million people, there are only 11 million cards in circulation. “Payment methods are a huge barrier to doing e-commerce in Russia,”Konradi said.“Most com-

Russian Internet Audience and Penetration (estimated)

source: J’son & Partners

Yandex E-Currency Teams Up With MasterCard Russia’s digital money market took a major step toward integrating with major credit cards in a deal announced last month. Adrien Henni

East-West Digital News

In April, Russian search giant Yandex announced a new step toward integrating its electronic currency,Yandex.Dengi — which translates as Yandex.Money — with bank systems. Users of this virtual currency can now obtain a MasterCard debit card tied to their Yandex.Dengi account and make payments using funds from Yandex.Dengi. The co-branded card can be used worldwide online and offline, wherever MasterCard is accepted. In addition, authenticatedYandex. Dengi users can withdraw cash from A.T.M.s using a PIN. The card is available to Yandex.Dengi customers anywhere in the world and can be ordered free of charge at theYandex.Dengi Web site. The Yandex.Dengi card is issued for a three-year period with no service or transaction fees (except a 3 percent-plus-15 rubles fee for cash withdrawals). Users can track their transactions at the Yandex.Dengi Web site or via text message.

The card is issued by the Tinkoff Credi t Sy s t e m s bank, a partner of Yandex. Yandex began integrating its virtual currency with bank cards as early as July 2010, when it made a virtual MasterCard available to customers. This card could be used only for online purchases, but became a useful tool for Russian Internet shoppers on foreign sites such as Amazon and eBay. In February of last year, Yandex.Dengi customers became eligible to register their bank cards to make online purchases using Yandex.Dengi — an arrangement similar to the one PayPal offers its users. Yandex went even further last February, when it enabled fund transfers fromYandex.Dengi accounts to any bank accounts with a Visa or MasterCard card. Although cash remains by far the most widely used payment method in both offline and online retail in Russia, electronic payments have developed at a remarkable pace over the last few years. Mobile operators have launched payment systems that go far beyond the settlement of bills, while offline payment ter-

getty images/fotobank

Texan Brian Konradi is part of the team behind one of Russia’s most successful new e-commerce ventures: the local answer to Groupon.

ruslan sukhushin

Latest E-Commerce Success Story Wants to Make a Deal

Mail.ru, which services about eight out of every 10 emails sent in Russia. The exclusive in-body email advertising that Groupon gets as part of this partnership has allowed the U.S. company to surge ahead in the Russian e-commerce marketplace. According to market rumors, however, this exclusive deal is due to expire in September. “We don’t need new money to get growth, but simply to keep ahead of the competition,” said Djasur Djumaev, one of KupiKupon’s founders. “Currently, the three main players are all growing very quickly, but we are eating into an untapped market. There is a ceiling on this noncompetitive growth, and there are about two years left until it is all gone. Then the only way to grow will be to eat into each other’s market share.” Konradi wants to beat the competition by diversifying Kupi­ Kupon’s business. In addition to Konradi’s own division, KupiPodarok, which acts as a third-party reseller of gift cards, Kupi­ Kupon has also launched platforms KupiOtpusk (“buy a vacation”) and KupiMart (consumer goods) in the last year. Said Konradi, “Our goal is to become a diversified e-commerce group of companies operating in the whole of the post–Soviet territory.”

minal operator Qiwi has developed its electronic wallet system into a full-fledged competitor with traditional ecurrencies. All these payment operators have sought integration with bank accounts and bank cards. The latest example is Megafon, a major mobile operator that last December introduced a new virtual payment card in association with Visa. Among other recent movers is Rostelecom, the national telecom operator, which has teamed up with MasterCard to issue Russia’s first bank card with e-government access.


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Start-Ups Skolkovo assists up-and-coming I.T. company

Russian Innovators Pursue Prototype to Prevent Piracy ELENA SHIPILOVA SPECIAL TO RBTH

In 2009, brothers Andrei and Alexei Klimenko and their friend Dmitry Shuvaev created a filesharing traffic management solution for an internet service provider (I.S.P.) network. Shortly thereafter, the three 20-something colleagues realized that the application they created had some unintended but potentially significant opportunities for intellectual property protection. “After creating the prototype, we realized we could more generally prevent files from being downloaded, which meant that the program had great promise in combating the spread of pirated content,” said Andrei Klimenko, now the C.E.O. of the company the founders named Pirate Pay. The technology prevents file sharing in torrent networks.These peer-to-peer (p2p) file sharing solutions allow large amounts of data to be transferred between individuals. After the first user uploads a file to an accessible network, the file does not live in any central location, but is accessible only from people who have already accessed it. In order to download a file, however, these secondary users must know the I.P. address of a computer that has the file. Without the information, the connection terminates and the file cannot be downloaded. Shuvaev and the Klimenko brothers found a way to prevent these secondary downloads from taking place even when the I.P. address is known. “It was not so hard to do from inside an I.S.P.’s network. But to

turn the technology into global service, we had to convince all I.S.P.s to acquire our solution.This is, what someone could call, mission impossible. So to create a global service, we had to find the way to do it from the cloud,”Andrei Klimenko said,“So we needed money for development.” The partners quickly found that obtaining the financial support needed to refine the technology into a successful venture was not a simple task, but after taking part in many grant competitions, their efforts have begun to pay off. The Microsoft Seed Financ-

“We realized we could prevent files from being downloaded,” said Andrei Klimenko, founder and C.E.O. Pirate Pay’s successful defense of a major film released in Russia brought in its first big payday. ing Fund has invested $100,000 dollars, the Bortnik Fund, which assists small innovative enterprises, contributed approximately $34,000. And, perhaps most significantly, the Skolkovo Innovation Center accepted the company as a resident, which will result in certain tax benefits as well as interaction with other innovators. The newly minted businessmen have been able to recruit four programmers, expanding their staff to seven people. “The underlying technology of Pirate Pay has no analogues in the world,”said Alexander Turkot, executive director of the Skolkovo Information Technologies Cluster, explaining the decision

to accept the company as a resident. Potential residents at Skolkovo, Russia’s government-supported answer to Silicon Valley, are assessed according to several criteria, including scientific innovation and the prospect of commercialization. A solution for a pressing problem The problem of copyright infringement in Russia is extremely serious, and there is significant international pressure on the government to crack down on what is seen to be rampant piracy. Foreigners in Russia find they can obtain foreign films before their release dates in the United States. According to various estimates, filmmakers lose about $500 million a year to piracy. Hundreds of thousands of gigabytes of illegal content are downloaded every day through file sharing services, including computer software, music and films. Threatening Internet users with legal liability or appealing to their conscience has largely failed. And that is why the company has begun to attract attention outside Russia as well as at home. In December 2011 the film “Vysotsky. Thanks to God I’m Alive”came out in movie theaters, and for a month after its opening, Pirate Pay protected the film on torrent networks. “We used a number of servers to make a connection to each and every p2p client that distributed this film. Then Pirate Pay sent specific traffic to confuse these clients about the real I.P. addresses of other clients and to make them disconnect from each other,” Andrei Klimenko said. “Not all the goals were reached. But nearly 50,000 users did not complete their downloads.” This company’s successful defense of the film brought in its first big payday. Company offi-

THEIR STORIES

Dmitry Shuvaev

PRESS PHOTO

The creators of Pirate Pay, a Perm-based start-up, say they can stop files from being illegally downloaded from torrent networks

Andrei Klimenko

TITLE: DEVELOPMENT DIRECTOR

TITLE: FOUNDER, C.E.O.

TITLE: FOUNDER, C.T.O.

AGE: 27

AGE: 29

AGE: 28

STUDIED: MANAGEMENT

STUDIED: PHYSICS

STUDIED: PHYSICS

Dmitry completed his studies at the Perm branch of Moscow’s Higher School of Economics in 2004, specializing in developing I.T. startups with an intention to sell them to major companies later. He later worked with a commercial design studio and a telecom company.

cials will not discuss exact earnings, but said that projects will cost clients between approximately $12,000 and $50,000 depending on the resources needed to mount a defense. “We try to conduct deals with

Andrei was a physics teacher before joining a Perm-based telecom company as a sales manager in 2002. Three years later, he launched Perm’s first network of Wi-Fi hotspots. He also founded another local successful start-up before launching Pirate Pay.

After earning a degree in physics at Perm State University, Alexei worked as an engineer before working in sales and management in the local telecom sector. Before Pirate Pay, he was involved with implementing over-the-top services for telecom clients.

a profit margin,”said Andrei Klimenko. “However, significantly more is currently being spent on development than what we are earning, and thus there is not yet an opportunity to recoup our expenses from revenue.”

In the next two years, the company plans to consolidate its place in the Russian market and gain a foothold internationally. They also hope that their presence at Skolkovo will assist in that growth.

Legislation Amendments to Russia’s Civil Code will force companies to disclose beneficiaries

Reforms to Promote Transparency and Bolster Medvedev’s Legacy A draft law will simplify business procedures and improve legal protection — but it could also make starting a small business more difficult.

disclose their beneficiaries. Konovalov said the provision was necessary to increase the transparency of the Russian economy and to prevent tax evasion. In order to fight sham companies, the minimum share capital for limited liability companies has been increased to 300,000 rubles ($10,000), and up to one million rubles ($34,000) will now be required to form a joint-stock company.

TAI ADELAJA

RUSSIA PROFILE

Concerns for businesses

ITAR-TASS

President Dmitry Medvedev took further steps in April to improve Russia’s business climate in an attempt to create a legacy of lasting change and protect his business-friendly policies after he leaves the Kremlin. Medvedev said he had submitted amendments to the Civil Code to the State Duma to “help strengthen the foundations of our economic life and improve our country’s investment climate.” The policy thrust of the Kremlin’s draft bill is to improve good governance practices and the transparency of legal entities operating in the country.“It [the draft law] concerns practically every aspect of property relations in our country,” Medvedev told an ad hoc meeting of senior administration officials at his Gorky residence outside Moscow. Through the raft of amendments, the Kremlin has tried to streamline and simplify procedures for the registration of legal entities and to set new rules for economic activities, such as bankruptcy and mortgage lending, Justice Minister Alexander Konovalov told reporters. Some familiar forms of legal structure, such as additional liability companies and closed joint-stock companies, will cease to exist in Russia, according to Konovalov. “The novelty of this draft law is that it systematizes the organization of legal entities and, first of all, that of commercial organizations and N.G.O.s,” Konovalov said, adding that legal entities in Russia would be

Dmitry Medvedev (left) and Alexander Konovalov hope to improve Russia’s investment climate.

divided into public companies and private companies, while every legal entity would be expected to prepare its financial statements and share issues in line with the new regulations.

Better legal protection

The Kremlin hopes that certain business-friendly provisions in the draft bill may also persuade Russian companies not to register their businesses abroad.“It’s common knowledge that big Russian businesses are increasingly moving to foreign jurisdictions these days,”Konovalov said. “We must create adequate legislation and enforcement in our country that would prevent businesses from going abroad to sue each other or resolve conflicts, but enable them to do this in our country.”

Many businesses that operate solely or primarily in Russia are actually owned by holding companies registered abroad, which means that the company can use foreign jurisdictions in legal disputes. The Associated Press has reported that Russian businesspeople often prefer to use European courts because the Russian legal system is seen as arbitrary and Russian laws as outdated and vague. “Interests of investors and creditors will be protected in Russia in a substantially more reliable, modern and more correct way than they are now,”said Konovalov, describing the new amendments, adding that they“offer new judicial and legal opportunities for the benefit of those who are investing and are engaged in business in Russia. A considerable effort has

Alexei Klimenko

The draft law includes some controversial provisions, including requirements for offshore companies operating in Russia to disclose their beneficiaries to authorities. been made to ensure that contractual rights and liabilities, property transactions, deals and contracts — that is, everything that constitutes economic relationships in Russia today — are legally guaranteed.” The draft law includes some controversial provisions, including requirements for offshore companies operating in Russia to

Analysts say the amendments are long overdue, but some legal experts have taken issue with several of the provisions in the draft law. The increase in the minimum amount of capital required to start a company will have a negative impact on entrepreneurs wanting to launch legitimate small and medium-sized businesses, according to the law firm Muranov, Chernyakov & Partners. “Businesses will have to seek additional funds to increase their share capital. And the only way they can do this is by increasing the cost of goods, services or works,” a firm spokesman said, adding“it is also likely that small businesses that cannot find affordable financing to raise the minimum amount of capital may decide not to do business in Russia at all.” The spokesman also said the requirement that offshore companies operating in Russia disclose information about their beneficiaries is no less controversial. “First of all,” he said, “it is unclear how this measure can affect the transparency of business in Russia. “Second, asking offshore companies to reveal beneficiaries, while information about property or assets of government officials is hidden from society, is, to put it mildly, unfair.”

GLOBAL RUSSIA BUSINESS CALENDAR VISIT RUSSIA 2012 INTERNATIONAL TOURISM FORUM MAY 25–26, 2012 YAROSLAVL, RUSSIA

The forum offers an opportunity for global experts, practitioners and tourism industry leaders to speak about the challenges facing Russia’s tourism industry during plenary and section meetings, expert panels and discussion clubs. It is organized by the Yaroslavl regional government. › visitrussia-yar.ru/en/register/

2012 ATOMEXPO INTERNATIONAL FORUM JUNE 4–6, 2012 MOSCOW, RUSSIA

The forum promotes international cooperation for the peaceful uses of nuclear power in the global energy market. The organizing committee is headed by Rosatom General Director Sergei Kirienko. › 2012.atomexpo.ru/en

EURA MEDIA SUMMIT JUNE 13–16, 2012 BOSTON, MASS.

This year’s summit will bring together top media and journalism professionals from Russia and the United States. › ideaconsultinginc.com/Euramedia

16TH SEMIANNUAL RUSSIANAMERICAN INNOVATION TECHNOLOGY WEEKS (RANIT-BIO) JUNE 14–21, 2012 PHILADELPHIA, PA. – BOSTON, MASS.

This event — which will highlight biotechnology, nanotechnology, the pharmaceutical industry and the life sciences — will open with a welcoming ceremony in Philadelphia City Hall and continue with meetings in Boston. › ma-rbc.org

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Money & Markets

05

Investors Liquidity in the U.S. market is making investment in Russia look more attractive

MOSCOW BLOG

President Vladimir Putin will have to rein in spending to meet his economic goals, according to experts at this year’s V.T.B. Capital Investment Conference.

Is Russia’s Capital Flight Problem All That Bad?

Trying to Capitalize on Potential Special to RBTH

Russian PresidentVladimir Putin and his new government will have to adopt strict budget discipline in allocating the country’s lavish profits from oil and gas exports in order to reach the ambitious goals he has set for the coming years. At least that is the view of analysts and experts in attendance at the V.T.B. Capital Investment Conference in New York in midApril. Since its creation in 2008, conference hostV.T.B. Capital has attracted more than $111.5 billion worth of investment to Russia and former Soviet space; the invest­ ment bank started operating in the United States last year. At the conference, Russian Deputy Finance Minister Sergei Storchak gave an overview of Russia’s aggressive plans for the future, saying that he believed the current situation was suitable for carrying out major structural reforms. “For the new president and new government there is a favorable condition to new beginnings and start a real movement towards structural changes,” said Stor­ chak, “We were talking about these changes for a long time, but we were not always effective in implementing them.” Storchak said that the govern­ ment has adopted a clear goal: To be in the top 20 countries in the World Bank Ease of Doing Business survey. These rankings, issued annually, compare regula­ tions applicable to domestic firms in 183 countries; the top-ranked country is the one with the most business-friendly laws. Currently, Russia is ranked 120th — just behind Cape Verde. This ranking actually represents

Ben Aris

special to rbth

O

reuters/vostock-photo

Anna Andrianova

a slight improvement for Russia, up from 124th in 2011. As part of its justification for improving Russia’s ranking, the World Bank cited the simplification of prop­ erty registration procedures, a re­ duction in the number of docu­ ments needed for import and export transactions, and improve­ ments in registering property transfers. “[These are] structural chang­ es: that will bring Russia even­ tually to 20th place,” said Alexei Kudrin, Russia’s former finance minister and a well-respected ex­ pert on the Russian economy, who was also in attendance at the con­ ference.“It is possible, I think, but with very thorough and persis­ tent policy.” Kudrin’s 11 years as finance minister were marked by econom­ ic turmoil, and he earned the re­ spect of foreign and domestic in­ vestors alike by improving the performance of Russia’s public finances after the 1998 default and by creating of the Stabliza­

Former Finance Minister Alexei Kudrin (center) spoke at a recent investment conference in New York.

Kudrin said it was very important that Russia follow strict budgetary rules in using the profits from oil and gas.

“Fund managers want to invest in Russia, as there is a lack of fixed-income products [in the U.S.]” said Artur Oganezov.

tion Fund to compensate for vol­ atility in oil prices. He left his post last year after a spat with President Dmitry Medvedev. At theV.T.B. event, Kudrin said that it was very important that Russia follow strict budgetary rules in using the profits from sales of oil and gas, but he cited government inefficiency as one of the biggest threats to adher­ ence to budgetary policy. “The effectiveness of govern­ ment administration is extreme­ ly low,” said Kudrin, adding that the need to enact administrative reforms was one of the biggest challenges facing the new gov­

ernment. Kudrin also said that more authority should be given to the regions. But these challenges have not deterred companies from invest­ ing in Russia, which was one of the positive notes the V.T.B. conference attempted to highlight. In particular, global investors have been gaining confidence in Russian government–issued debt. In March, Russia sold $7 billion worth of 5-year, 10-year and 30-year Eurobonds. The issue is the largest in emerging markets sovereign debt since 2000, ac­ cording to data from Thomson Reuters.

Sobyanin Meets With American Investors

kommersant

continued from PAGE 1

AmCham initially invited Soby­ anin to speak to the group at a five-star hotel, but the mayor then offered to host the meeting at the recently renovated Petrovsky Pal­ ace on Leningradsky Prospekt, according to Somers. Built at the end of the 18th century on orders of Catherine the Great, the pal­ ace briefly housed Napoleon’s general headquarters before the emperor fled Moscow in 1812. An imposing structure despite its modest proportions, the building now hosts City Hall receptions. Opening the event, which in­ cluded U.S. Ambassador Michael McFaul as a guest, Sobyanin stat­ ed that his administration has improved the conditions for doing business in the city. “It seems to me that it has be­

come easier to make investments in Moscow compared to what was two or three years ago,” he said. Sobyanin then made the pro­ posal about consulting with Am­ Cham on key decisions that could affect foreign businesses. In an­ other idea, he said City Hall could send public tender invitations to foreign companies directly be­ cause it is often difficult for them to navigate the bidding terms and procedures. The measure would cut out the middlemen and broad­ en competition, Sobyanin said. He pointed out that the city hired foreign consultants McK­ enzie & Company and Boston Consulting Group to help devel­ op a transportation strategy and said there were opportunities for foreign architects in the planned expansion of the city. Executives of four U.S. com­

“Investors are ready to invest in Russia,” said Artur Oganezov, a vice president at Deutche Bank based in the company’s NewYork office.“There is a lot of liquidity in the U.S. after the crisis; that

is one of the reasons why fund managers, insurance companies, pension funds and banks want to invest [in Russia], as there is a lack of fixed-income products here.”

Stocks Making Moscow more attractive

panies — Abbott Laboratories, PepsiCo, Hines and John Deere — followed with presentations about their business in Russia and calls for more transparency and clarity about bidding for city con­ tracts and greater involvement in decision-making. Sobyanin took three questions from the business leaders. In an­ swering one of them, he said the city selected several former school buildings to offer as premises for

U.S. Ambassador Michael McFaul (left) and AmCham’s Andrew Somers

V.T.B. Capital’s stock price, 2007–2012

Moscow hired McKenzie & Company and Boston Consulting Group to help develop transportation strategy. any investor that would want to set them up as schools for the children of foreign executives or diplomats. Somers said City Hall has been helpful in other ways. He accept­ ed the invitation to sit on a committee that began work in February to defend the rights of business people and said there had been practical follow-up from his involvement, including meet­ ings he was able to arrange for AmCham members with city of­ ficials.“It’s not just talk,”Somers said. But Sobyanin has not managed to shake some of the trappings of his past, including an appar­ ent dislike for the media. Jour­ nalists at the event were shep­ herded off to a first-floor room of the mansion, where they watched the speech on television.

Exchange Wants Foreign Companies to Issue Debt in Rubles Russian stock exchange Micex-R.T.S. is encouraging more companies to list in Moscow as well as issue debt in Russian rubles. Anna Andrianova Special to RBTH

On April 17, the recently merged Micex-R.T.S. exchange hosted a conference in New York called “Russia Is Not About Bears” for funds and individual investors. The goal of the event was to in­ crease the pool of participants in the Russian market and give an update on progress made since the merger last December of Rus­ sia’s two largest stock exchang­ es; the combined exchange gives investors in Russia a one-stop shop for trading equities, bonds, derivatives and currencies. The exchanges had developed sepa­ rately for almost two decades, and their merger is one step in Mos­ cow’s ambitious plan to become an international financial center. The combined exchange has an estimated value of $4.5 billion and the company is reportedly planning an I.P.O. in 2013. Micex-R.T.S. President Ruben Aganbegyan said that one of the focus areas for the exchange is liberalizing the security issuance procedures and improving the market for companies to issue an I.P.O. in Russia. Aganbegyan said that Micex-R.T.S. is working closely with local legislators to harmonize procedures in Russia with international best practices.

“The rules are so strict and in­ flexible,” Aganbegyan said, ex­ plaining that Russia needs to move beyond just following rigid regulations when it comes to the listings rules. “We are trying to get the country to move as quick­ ly as possible to the globally ac­ ceptable principals of corporate governance and information dis­ closure to all its investors, espe­ cially the most liquid ones,” he added. While reforming the leg­ islation will take time, MicexR.T.S. is considering the example of Brazilian exchange Novo Mer­ cado, which issued its own set of rules that companies can adopt voluntarily in addition to the ones required by law in order for com­ panies to be listed in a new seg­ ment of the exchange. This year, Micex-R.T.S. hopes to convince multinational com­ panies that have operations in Russia to issue debt on the Rus­ sian exchange in rubles.“We see that the first stage is to attract companies that have a business or investment base in Russia. We are not competing for global list­ ings; we are fighting for the ones that are in Russia,” Aganbegyan said. Last year Micex-R.T.S. signed an agreement on cooper­ ation with the Organization for Economic Cooperation and De­ velopment (O.E.C.D.) to strength­ en corporate governance in Rus­ sia. Aganbegyan said that this partnership has brought a lot of experience and best practices from other emerging markets.

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ver the last year, money has been flowing out of Russia for the first time since the chaos of the 1990s. In 2011, a total of $80 bil­ lion left the country with anoth­ er $35.1 billion departing in the first quarter of 2012. Commentators have blamed the reappearance of capital flight on fear, assuming that oligarchs, terrified of political uncertainty associated with the demonstrations that began last December, are moving their money to safer havens in Swiss bank accounts, or buying ex­ pensive property in London or New York.

Half of last year’s outflows — $40 billion — was due to Russian subsidiaries lending to their Western parents. There is a little bit of truth to this — but not much. The irony is that the capital flight is more a function of Russia’s booming economy than fear. The biggest culprit was not the oligarchs, but foreign banks with branches in Russia. Half of last year’s outflows — some $40 billion — was due to Rus­ sian subsidiaries lending to their Western parents, according to Prosperity Capital Manage­ ment’s chief economist, Liam Halligan. The sums became so big that the Central Bank of Russia called in the heads of for­ eign banks and told them to tone the lending down or else it might impose restrictions. A second big source of out­ flows has been wrought by the economic changes the crisis has created. Before the crisis, it was cheaper and easier to borrow abroad, but post-crisis both in­ terest rates and inflation have fallen to 20-year lows; many Russian companies have been swapping their now expensive foreign currency–denominated debt for cheaper credits from Russian banks. For once, Rus­ sia’s financial system is looking a lot more stable than that of Western Europe.

Interest rates and inflation have fallen to 20-year lows; many companies now prefer cheaper local credits. Finally, Russian companies are starting to hit their stride and are increasingly investing abroad. Unknown to most people, Rus­ sia has always been a net ex­ porter of capital: Russian com­ panies routinely invest more in other countries than Russia at­ tracts as foreign investment. The difference now is that in the past they invested in places such as Kazakhstan and Ukraine, but today they are big enough to move into developed markets: oil company TNK-BP spent $772 million on a Brazilian oil and gas stake; Sberbank bought Aus­ tria’sVolksbank for $585 million; and tech company Digital Sky Technologies spent $563 million for a 10 percent stake in Twitter in 2011. These three deals alone are worth another $2 billion. In general, Russian companies with branches abroad are rein­ vesting their earnings locally, which the Central Bank also counts as capital flight, when actually this outflow is simply a function of success.

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A New World Built on BRICS Unity in Diversity Andrei Ilyashenko

T

special to rbth

he BRICS Summit held in New Delhi last month did not produce any major surprises or sensations, but it did prove conclusively that the strongest nations in the developing world are eager to achieve unity. China, Russia, India, Brazil and South Africa are gaining strength by the year, and their ability to influence global matters is growing, something that Goldman Sachs’s Jim O’Neill predicted when he coined the BRIC acronym 10 years ago (last year, South Africa was included, adding the “S”). These countries will not in the long term put up with the current world order, based as it is on the dollar as the global currency and use of force without international consensus. But the goals of the BRICS countries should not be misunderstood. Their aim is to protect the interests of developing economies rather than attack the traditional center of power led by the United States. During the New Delhi Summit, the main BRICS banks signed an agreement to finance projects in member-states in national currencies. The agreement provides for the creation of mechanisms for settling accounts and financing projects in national currencies between authorized BRICS banks. With the exception of the Council for Mutual Economic Assistance — the economic integration organization in the former Soviet bloc, which ceased to exist in 1991 — BRICS will be the first post-World War II structure to create an international financial institution using currencies other than the dollar. This does not mean, though, that the BRICS economies will give up on the dollar — rather, the bloc will attempt to reduce the dollar’s role in these countries and weaken the influence of the U.S. Federal Reserve System on their economies. At the New Delhi summit, the

hence its attempts to stipulate preventive collective security rules in international politics.This is definitely a trend, too. International media eagerly discuss whether BRICS is strong enough and whether the trends demonstrated by the group are stable enough for the organization to have any influence. BRICS is as stable as the G8. It is an informal club with no formalized framework, executive bodies or other attributes of an international organization. It is rather a platform for developing common positions. During the 2008–2009 meltdown, the G8 transformed into the G20, but the basic mechanism was not modified — just enlarged. BRICS may eventually absorb new nations, such as Mexico and Indonesia, which have been hinting that they would like to “get to know BRICS better.” Another problem that is persistently referred to in speeches about sources of internal contradictions in BRICS is the IndianChinese spat over state border issues. No one denies this fact, but the sheer scope of the BRICS nations’ ambition goes beyond border conflicts. And these two countries have already shown they can get along in the G20. BRICS economies are united by their wish to strengthen their independence and sovereignty, as well as to increase joint efforts in asserting the interests of developing nations. According to Russian President Dmitry Medvedev, the ultimate objective of the bloc may be “gradually to transform BRICS into a full-format mechanism for interacting on the critical issues of the global economic and political agenda.”

BRICS countries also made a move towards unity on foreign policy issues. The BRICS’s stance differs dramatically from that of the United States and its allies, although the views of the BRICS nations often differ from each other. Russia and China vetoed the U.N. Security Council resolution on Syria since it contained loopholes that would allow military intervention; India voted in favor of the resolution. Nevertheless, the New Delhi BRICS Summit called for the conflict in Syria to be settled exclusively by means of negotiations. The group’s joint statement on Iran was even more categorical. “We recognize Iran’s right to

BRICS economies are united by their wish to strengthen their independence and sovereignty. peaceful use of nuclear energy consistent with its international obligations and support resolution of the issues involved by political and diplomatic means and dialogue between the parties concerned, including between the I.A.E.A. and Iran, and in accordance with the provisions of the relevant U.N. Security Council resolutions,” said the joint resolution. About an attack on Iran, the BRICS said: “The situation concerning Iran cannot be allowed to escalate into conflict, the disastrous consequences of which would be in no one’s interest.”All the BRICS economies ignore sanctions against Iran, such as the oil embargo, which are not formalized in U.N. resolutions. It is obvious that the BRICS consolidated position on the most pressing issues on the international agenda is, for the most part, a response to the methods of force employed against countries that fail to march in step with the leaders of the Western world. BRICS, too, often marches to the beat of a different drummer —

The Other reality Dmitry Sedov

U

special to RBTH

ntil recently, Western politicians were openly skeptical about the prospect of BRICS emerging as a geopolitical force in its own right. The group was thought to be too disparate for its members to be able to form a bloc. This skepticism is exemplified by the opinion expressed byYasheng Huang, professor of International Management at the Massachusetts Institute of Technology, shortly before the group’s New Delhi Summit: “It’s not a policy bloc at all. It is really this idea that the West is no longer or should no longer be viewed as the only center of gravity.” The BRICS leaders do not underestimate the challenges facing the group.The countries that form it differ widely in terms of internal organization and the state of their economies. They are in different weight categories in the world economy, and they are beholden to their traditional links with their Western partners. Nor can the problems between these states be ignored. For example, the border disputes between China and India, differences over Pakistan and Tibet and imbalances in mutual trade all pose serious challenges. And there

are differences in the approaches to key aspects of international politics. For example, China and Russia voted against the U.N. General Assembly resolution on Syria that called on Bashar Assad to resign, while India, Brazil and South Africa voted for it. These are just some of the factors that hinder the unification of these states’ efforts. Even so, the New Delhi Summit demonstrated that a new process is unfolding, as young and dynamic development forces unite to shake up an outdated global political and economic order. During the summit, the parties identified new areas of cooperation to study further.These include multilateral energy cooperation,

Different approaches to shaping the international agenda are emerging, and BRICS offers an alternative. youth policy and population issues. The BRICS leaders also expressed a categorical dissatisfaction with the policy of Western financial institutions. In their opinion, the reform of these institutions is unsatisfactory and ignores the group’s interests. In response, the BRICS leaders devel-

Andrei Ilyashenko is a columnist onMiddle Eastern issues for Voice of Russia.

oped a project for their own development bank. An agreement was signed to allow settlements in national currencies, aimed at eventually replacing the dollar in BRICS trade. For the first time in recent history, a powerful financial structure is emerging that serves international trade without the dollar; internal trade within BRICS now stands at $230 billion. The BRICS leaders also discussed major global political problems. They noted the disproportionate representation of nations and continents in the U.N. Security Council. The summit’s statement that the U.N. could not be used to cover up the course of toppling undesirable regimes and the imposition of unilateral formats for the resolution of conflicts came as a stern warning to NATO strategists. A consolidated position also emerged for preventing aggression against Iran. China, India and South Africa import between 12 and 20 percent of their oil from Iran.“We must avoid political disruptions that create volatilities in global energy markets and affect trade flows,”said summit host, Indian Prime Minister Manmohan Singh. It is clear that two radically different approaches to shaping the international agenda are emerging. And BRICS is already becoming the force that offers an alternative to the Western approach. That BRICS has common fundamental interests is a reality that will determine the further consolidation of the group. It may evolve into an alliance capable of proposing a new, modern and more e qu i t a b l e wo r l d order. Dmitry Sedov is an foreign-policy expert at the Strategic Culture Foundation.

Jagannath P. Panda

T

special to rBTH

he New Delhi BRICS summit, which concluded March 29, gave a clear indication that global politics is entering a new phase — one in which the developing world will take the lead in the global decision-making process. Like the previous BRICS summits, the 2012 summit attracted considerable media attention globally. While critics reject the very existence of BRICS, noting that it is merely a creation of Goldman Sachs, economists and developmental theorists from the third world argue that the development of the BRICS grouping from an acronym into an actual body demonstrates the growth of a multipolar world. The progress of BRICS joint statements and joint declarations over time shows how BRICS is becoming more institutionalized. The first two joint statements, released in 2009 and 2010, reflect the conceptual stage of the BRICS concept; the two most recent declarations explain the vitality and import of this grouping in global politics.

The New Delhi Declaration demonstrates that bigger powers like China, India and Russia are pondering whether the time has come to overcome the existing political misunderstandings among them and forge a credible union that can be useful for global governance. This is particularly vital at a time when the United States is forging a transPacific partnership with diverse economies from both Asia and the Pacific Rim. BRICS has always highlighted the significance of the G20 in global economic governance. While the 2009 Yekaterinburg Summit acknowledged the central role of the G20 in dealing with the global financial crisis, the Brasilia Summit in 2010 highlighted the G20 members’ contribution to the resources of the International Monetary Fund.The New Delhi Summit, too, pointed out the primary role of the G20 as a forum for global economic cooperation. The major powers in BRICS are trying to constructively increase the pressure on the developed world to reform the global financial architecture and increase the voting rights of China and India, realigning a system that is currently more favorable

sergey vinogradov

The Push for Reform

The major powers in BRICS are trying to constructively increase the pressure on the developed world. to the U.S. and the E.U. Russia could take a lead in this regard when it takes over the G20 presidency in 2013. Politically, the BRICS members may not ever be very united, given their different political systems and social situations. However, the New Delhi BRICS Summit did indicate that a difference of opinion is not always a deal-breaker. For example, on Iran, India’s stance may be different from that of China and Russia, but all parties realize that by taking a common stance, they can have a more powerful effect on global politics and dialogue.The

russia through our window

Sponsored by the Russian-American Consulting CoRP

Our contest winner shares his first (technically, second) impressions of Russia from his trip.

Thanks to winning the RBTH essay contest, I have had the opportunity to visit Russia for the second time in three years. The first was in 2009, devoted to research and interviews for my book, “Call Sign, White Lily.” I couldn’t help but be struck by the changes I’ve seen. The ordinary person’s sense of curiosity about the complicated global world in which we live seems to have grown. People of all ages take great pride in learning and truly enjoying their rich culture. I spent an evening at the St. Petersburg symphony and could

not help but be struck by the number of young people in attendance. That simply does not happen in the United States. My journey to the heart of Russia will continue. I truly believe that a combination of can-do determination, fierce independence of thought, and rich human and natural resources, will one day turn Russia into a form of capitalistic entrepreneurship the world has never seen. Finally, thanks to the Russian-American Consulting Corp. for such thoughtful arrangements. Matt Crisci

BRICS united understanding on Iran and Syria indicates that it is possible for the members to converge on foreign policy issues, even if their foreign policy objectives and interests may not entirely be in harmony. A strong, unified BRICS position should cause the U.S. to think twice before acting unilaterally and encourage Washington to instead focus on diplomatic procedures. The decision made in Delhi to address political issues shows that BRICS is recognizing it has political clout that will be central to the future of global politics. The opportunities for BRICS are many; equally, the challenges are great. The immediate thrust should be on the promotion of intra-BRICS trade and the creation of a formal BRICS platform where sensitive economic and political issues could be discussed. The proposal by the developmen-

Letters from readers, guest columns and cartoons labeled “Comments” or “Viewpoint,” or appearing on the “Opinion” page of this supplement, are selected to represent a broad range of views and do not necessarily represent those of the editors of Russia beyond the headlines or Rossiyskaya Gazeta. Please send letters to the editor to US@rbth.ru

tal banks of BRICS countries to extend credit facility in local currency is a momentous step, as it will reduce the demand for fully convertible currencies for transactions among BRICS nations and will reduce transaction costs. The banks could go further with a proposal to create a new international development bank. The New Delhi Declaration and the 2012 New Delhi Summit will be remembered as a progressive step towards a new world order. Politically, the BRICS members’ understanding and perspectives on the issues of Iran and Syria are a positive indicator of how the emerging economies are forging a united political stance on key global issues. Economically, the BRICS’ demands on the I.M.F., World Bank and global markets also show the move toward a more unified, powerful front. The calls for reforming the I.M.F. quota sys-

tem, considering a World Bank president from the developing world and for developed economies to adopt responsible macroeconomic and financial policies to avoid creating excessive global liquidity, are all huge statements targeting American and European supremacy in the global financial architecture. Although it is not going to be easy to curb the Western dominance in the global financial institutions, the New Delhi summit indicated that the process has already begun. Jagannath P. Panda is currently a Carole Weinstein program visiting faculty member in the department of political science at the University of Richmond in Virginia. Read more at rbth.ru/bric

This special advertising feature is sponsored and was produced by Rossiyskaya Gazeta (Russia) and did not involve the reporting or editing staff of The new york times. web address http://rbth.ru E-mail us@rbth.ru Tel. +7 (495) 775 3114 fax +7 (495) 988 9213 ADDRESS 24 Pravdy STR., bldg. 4, floor 7, Moscow, Russia, 125 993. Evgeny Abov publisher Artem Zagorodnov executive Editor elena bobrova assistant Editor lara mccoy guest editor (U.S.A.) olga Guitchounts representative (U.S.A.) andrei Zaitsev head of photo Dept Milla Domogatskaya head of pre-print dept maria oshepkova layout Vsevolod Pulya Online editor an e-Paper version of this supplement is available at http://rbth.ru. To advertise in this supplement, contact Julia Golikova, Advertising & P.R. director, at golikova@rg.ru. © copyright 2012, Rossiyskaya Gazeta. All rights reserved. alexander gorbenko chairman of the board. Pavel Negoitsa General Director Vladislav Fronin Chief Editor Any copying, redistribution or retransmission of the contents of this publication, other than for personal use, without the written consent of Rossiyskaya Gazeta is prohibited. To obtain permission to reprint or copy an article or photo, please phone +7 (495) 775 3114 or e-mail us@rbth.ru with your request. Russia beyond the headlines is not responsible for unsolicited manuscripts and photos.


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MOST READ Russian Bibliophiles Celebrate Night of the Libraries rbth.ru/15376

Read Russia

RUSSIA BEYOND THE HEADLINES

SECTION SPONSORED BY ROSSIYSKAYA GAZETA, RUSSIA WWW.RBTH.RU

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RUSSIA BEYOND THE HEADLINES PREVIEWS READ RUSSIA, A FESTIVAL OF CONTEMPORARY LITERATURE TAKING PLACE DURING BOOKEXPO AMERICA IN NEW YORK CITY

BIBLIOPHILE

Publishers A unique press takes on writers who have had difficulty finding their niche

Nurturing the Work of the Known Unknowns

RBTH CONTINUES ITS COLUMN ON AUTHORS WHO WILL BE FEATURED AT BOOKEXPO AMERICA, TAKING PLACE FROM JUNE 1-8 IN NEW YORK CITY.

Overlook Press, whose emblem is a winged elephant, is a safe place for risky books. And what could be riskier than Russian contemporary fiction?

Phoebe Taplin

SPECIAL TO RBTH

NORA FITZGERALD

A New Yet Familiar Tale of Pied Pipers and Their Victims

RUSSIA BEYOND THE HEADLINES

TITLE: “THE RAT CATCHER” AUTHOR: ALEXANDER TEREKHOV PUBLISHER: ALMA BOOKS

HIS STORY MARC GRUBSTEIN

From the outside, there is nothing auspicious about Overlook Press on Wooster Street, where the receptionist buzzes visitors up and the elevator is an uncomfortable squeeze. Inside, the atmosphere is nothing short of familial, with the charismatic patriarch, Peter Mayer, at the center of his staff’s attention. The Soho office seems so intimate that it might as well be the apple shed in Woodstock, N. Y., where Overlook started in 1971. Since then, longtime publisher Mayer has cultivated (with the emphasis on cult) his “it’s all about the books”vibe. The result is a thriving, eccentric literary publishing house that releases about 100 books a year. Overlook got its name when Mayer and his father decided to nurture great books that hadn’t found the readership they deserved, and ended up being … overlooked. Almost 15 percent of Overlook’s authors are foreign writers in translation. Every year, some of the books Mayer and his small team nurture in their quirky incubator include Russian contemporary fiction, as well as Russian classics — some that were previously out of print. Overlook published Olga Slavnikova’s “2017” and Russian novelist and opposition figure Lyudmila Ulitskaya’s “Daniel Stein, Interpreter.” When Mayer purchased Ardis Books, the longtime home of Joseph Brodsky, in 2002, Mayer ramped up his commitment to Russian literature. At the end of last year, and with little fanfare, Peter Mayer was awarded Russia’s Big Book prize for lifetime achievement in supporting Russian literature — the first time such a prize was awarded to an American. “Ever since I met Peter Mayer in 1990, he has has been committed to publishing emerging voices from this part of the world,

NATIONALITY: AMERICAN AGE: 76 STUDIED: LITERATURE

Peter Mayer was born in 1936 in London; his family emigrated to New York three years later. He earned his bachelor’s degree from Columbia University and then went on to Oxford University to continue his studies. After serving in the United States Merchant Marines, he received a Fulbright grant to study German Literature at the Free University in Berlin. He began his publishing career in New York in the 1960s, climbing the ladder at Avon books. Eventually, he became C.E.O. of Penguin.

and he has been focused on larger questions of freedom of expression,”said Mayer’s colleague Peter Kaufman, president of Intelligent Television and executive director of Read Russia. “His knowledge and expertise and his desire to make a world full of smarter publishers — in these many ways he is without peer.”

The Russian Library

Mayer, now in his mid-70s, said he has become more reflective, and is seeking a “legacy project.”

Peter Mayer is committed to nurturing little-known writers and works.

tural and social interest. But this time we were there to buy the rights to Anatoli Rybakov’s novel ‘Heavy Sand.’” Mayer recalled in those days he had to deal as much with the authorities as the authors. These days, he is busy deciding on writers he hopes will be included in The Russian Library. Unfamiliar but significant works will start the series, like “The Song of Igor’s Campaign,” the only surviving ancient Russian epic, and“The Primary Chronicle,” rich anecdotes compiled around the year 1100. Russian classics will be included, as well as poets like Anna Akhmatova and Joseph Brodsky. Finally, Mayer will also publish Russia’s contemporary writers in a volume titled“Read Russia: An Anthology of New Voices”. Mayer said that he believes literature has the potential to support the reset of the RussianAmerican relationship.“One has to hope that there will be a reset,” he said.“And even though I don’t carry any political banners, I hope it is in the area of individual freedoms that I think people all over the world crave.”

Almost 15 percent of Overlook’s authors are foreign writers in translation, including Russians. He decided to make a bold announcement that cold night in Moscow when he received the award: “I am pleased to note it now, here tonight, the first announcement of a uniform series of 100 books called The Russian Library, impeccably translated and produced, annotated and introduced by leading scholars.” In his Wooster Street office, Mayer showed off elegant dummy copies of volumes of “The Russian Library.” The project will officially be launched and discussed during Read Russia at BookExpo America. “I was always terrifically interested in Russia,” Mayer said, “if not always a great admirer of its history.” He was at Penguin Books for 20 years, and it was there that he made his first professional trip to Moscow. “I had been to Russia out of my own cul-

Dystopia Why are so many modern Russian novels about a future no one would want?

Heretics, Dreamers, Rebels Contemporary Russian writers explore dystopia in wildly inventive ways. What, if anything, do their works have to teach readers about the country today? PHOEBE TAPLIN SPECIAL TO RBTH

AFP/EASTNEWS

In the first 12 years of the 21st century, Russian writers have created a bewildering number of futuristic and post-apocalyptic novels. Settings range from feudal barbarism to high-tech nightmare with everything in between. Books are banned and mutant humans live in primitive huts, eating mice; the secret police rape and burn all day and relax with drug-fueled orgies; people are continually reincarnated, wear mirror masks, and copulate or die en masse at festivals; warring factions survive in the tunnels of the disused subway. These are just a few of the many dystopian scenarios that contemporary Russian writers [in this case, Tatyana Tolstaya, Vladimir Sorokin, Anna Starobinets and Dmitry Glukhovsky, respectively] have conjured up in the last decade.

Vladimir Sorokin chooses satire to express his views on democracy.

Sex, drugs and dictatorship

ITAR-TASS

Readers, writers, critics and bloggers have numerous theories about this outbreak of dystopias. What excesses of the new capitalism prompted the master of postmodern sci-fi,Victor Pelevin, to create an underground night club where naked women, held in drug-induced states, are used as live decorations? How has literary bad-boy Vladimir Sorokin, infamous for a gay sex scene between clones of Nikita Kruschchev and Joseph Stalin, become a mainstream figure? And what is the message behind his compelling satire,“Day of the Oprichnik,” which resurrects Ivan the

Dmitry Bykov’s “Living Souls” imagines a never-ending civil war.

Terrible’s murderous guards and sends them lusting and looting across Russia in 2028? Given the amount of sex in contemporary Russian fiction, it seems appropriate that one of the country’s most influential literary critics should be a former editor of Playboy. Lev Danilkin, now a columnist for the cultural listings magazine Afisha, has been writing annual reviews of the Russian literary scene for years,

and has a knack for pinpointing prevailing trends. His authoritative account of the novels of the 2000s, highlights an “obsession with the ideas of government, empire and dictatorship.” Dmitry Bykov — a multiaward-winning author, journalist and flamboyant media personality — has written one of the most outstanding recent examples of the genre, translated into English as “Living Souls” and

published in paperback this year on April Fool’s Day. This crowded and ambitious novel imagines a never-ending civil war in Russia between nationalists and liberals. Bykov is fully aware that his work is part of a tradition, attributing the new flood of dystopian fiction to the stifling stability, or stagnation as many call it, of Putin’s previous presidency: “They promised us terror — none came; liberalization — none came; war — things have stalled; and everyone’s caught, unable to arrive at any decision.”

“Heretics, dreamers, rebels and skeptics”

At the other end of the spectrum, Vladimir Sorokin is committed to satirizing the authoritarian tendencies of the Russian government. In an interview with Spiegel magazine, Sorokin described “Day of the Oprichnik,” as searching for “an answer to the question of what distinguishes Russia from true democracies.” The infamous violence of his novels, he argues, is a reflection of the “sinister energy” of oppression, which still permeates Russian society. Julia Sukhanova, a keen reader of contemporary Russian fiction, ascribes the prevailing pessimism to the background of many writers: “Contemporary Russian writers have been raised by their well-educated parents in the atmosphere of liberal discussions conducted late at night in tiny kitchens, and they all saw their parents hit hard by the last 20 years of economic changes in Russia. Is it any wonder that these people are critical of the state, its morals and its future?” Read the more at rbth.ru/arts/literature

T

wo rat catchers from Moscow are summoned to the town of Svetloyar to exterminate a plague of rats. The town in the text is a reference to the actual Svetloyar Lake in Russia, a place enlivened by its own mythology. According to legend, a Russian Atlantis called Kitezh, visible only to the pure of heart, was submerged and hidden from the invading Mongol hordes there. This myth is a suitably fanciful point of departure for these bizarre adventures. Terekhov’s version of Svetloyar is the antithesis of mythical Kitezh with its sinking golden domes and underwater bellringers. Like the author’s hometown, the novel’s setting is an ugly, industrial settlement from the Stalin era, which is desperately bidding for inclusion in the tourist trail of historic Russian cities known as the Golden Ring. The town is described from the outset in terms of sickness; the high-rise blocks swell and the dark elevators move in their shafts “like roving blood clots.” At times, the novel pays homage to“The Government Inspector,” Nikolai Gogol’s satirical play, set in a small town in the 19th-century Russian provinces. In fact, some similarities are so obvious (a corrupt and divided populace; an anxiously awaited official visit; a duplicitous outsider who wreaks havoc among both men and women) that Terekhov must be pointing out the undying and endemic nature of human weaknesses: greed, bureaucracy, incompetence and infidelity. Even the rats are prefigured by Gogol; the

mayor dreams of“two extraordinary rats… black and unnaturally large.” The narrator of “The Rat Killer” informs us: “In an ordinary meat plant, there are four rats to every square meter… There are always bits of rat in the sausages.”This is the kind of charming detail that Terekhov’s readers are treated to throughout the book. In the best traditions of rat-infested literature, from Robert Browning’s “Pied Piper,” where the rats “bit the babies,” the tale rests on nauseating imagery. Terekhov’s rats are metaphorical, yet like all compelling images, they are also painfully real. Ticks, scent trails and droppings create a nest of horrors at every turn. Our sympathies shift be-

The rats in Terekhov’s novel are metaphorical, yet like all compelling images, they are also painfully real. tween the exterminators and their prey as the narrator lingers over the agonies of ingesting groundglass concrete mix or anti-coagulant poisons. The major weakness of Terekhov’s atmospheric novel is its confusion and lack of narrative tension. Despite a chapter-by-chapter countdown to a presidential visit, the plot is forever scampering uselessly in new directions. The novel grew out of the disillusionment Russians felt after the chaos of the 1990s, but its satirical targets could be the leadership today. The idea of the Svetloyar townsfolk conveniently finding ancient, buried treasures in the woods is as ridiculous as Vladimir Putin’s recent “discovery”of two Greek amphorae while scuba-diving in the Black Sea.

Desperate for Life, Despite its Disappointments TITLE: “THIRST” AUTHOR: ANDREI GELASIMOV PUBLISHER: AMAZONCROSSING

I

t is not very often that finishing a novel provokes the reader to go back to the beginning and start again. But Gelasimov, whose unadorned prose and youthful, troubled narrators have invited comparisons with J.D. Salinger and Ernest Hemingway, is that kind of writer. “Thirst”is one of those books that sail quickly over halfglimpsed depths, and this slim volume of 100 pages is a haven for both comedy and horror. The narrator Konstantin (known by the shortened form of his name, Kostya) is a disfigured veteran of Russia’s brutal wars in the North Caucasus. We see him drinking alone, recalling his childhood, and travelling with fellow soldiers. Their quest is often pointless and confused, but there is an echoing sense of profundity among the routine profanities of his journey. Kostya has been pulled from a burning tank and his face is unrecognizable. Near the start of the novel, his neighbor uses him to terrify her little boy into going to bed. The story of Kostya’s gradual self-acceptance has some hallmarks of a classic coming-of-age story, but is tempered by a darker aimlessness that strays into the alcohol-laced traditions of many Russian writers, from Anton Chekhov to Venedikt Erofeyev — the novel starts with the hero trying to fit too many bottles into his fridge. The thirst of the title relates most obviously to a speech by

Kostya’s nurturing school director, who drinks vodka by the case and tells him “I have a terrible thirst … my body craves liquids.” Insofar as he deals in metaphor at all, Gelasimov explores a thirst for life despite its breathtaking bitterness. “Thirst”is told mostly in a simple vernacular. The narrator expresses himself through drawings, filling pages with beautiful women and therapeutic warscapes. One of the challenges Gelasimov deliberately sets himself is to describe the world in the credible words of a character for whom words do not come very easily.

“Thirst” is one of those books that sail quickly over half-glimpsed depths, combining both comedy and horror. The award-winning translator Marian Schwartz has praised the author’s ear for dialogue. “The challenge of Gelasimov’s“simple language”is that it is so dead-on right,”she said.“There are few if any pretty metaphors to hide behind.” Schwartz recalls a meeting with poet and fellow translator W.S. Merwin, where they talked about “hearing” characters and “that delicious moment when the translator knows what any given character sounds like, what he can and can’t say.” This was a crucial issue in “Thirst,” which relies on pitch-perfect renditions of scarred adults and bewildered children. Schwartz is translating more of Gelasimov’s novels for AmazonCrossing publishers.


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Hobbies Young, middle-class Russians find an evening at cooking class is more fun as a first-date option than dinner and a movie

Cold Climate Seeks Haute Cuisine special to rbth

Cooking schools have taken off in Moscow, with more and more Muscovites opting for an evening spent kneading, basting and beating as an alternative to dinner and a movie. For some it’s a new and interesting way to go out and meet people, and for others the courses are good hunting ground for a life partner. Regardless of the participants’ motivation, the supply of classes has not caught up with demand. “The market for cooking courses cooled down during the financial crisis. This business really flourished around 2003–2005, when cooking schools were popping up all over the place. But the crisis seemed to kill off nearly all the competition,”said Pavel Rogozhin, owner of the Pro.stranstvo cooking school.“There are still a few courses where the lady of the house will teach you the correct way to boil up a pot of semolina or peel a potato, and then there are also professional training colleges. So my school is really the only one of its kind.” Rogozhin has modeled his business on European cooking schools, where haute cuisine dishes are prepared in slick, highly disciplined environments under the direction of well-respected master chefs. Rogozhin made a conscious decision not to concentrate on the cuisine of any particular country. “People don’t want to limit themselves to just Spanish or Italian cuisine,” he said. “The main request I get from my clients is to show them how to make good home-cooked food — recipes you can do at home that don’t require too many special skills.” Although Rogozhin works at the top end of the market, he doesn’t consider his business a success:“In Moscow, the average price for one lesson is between $140 and $270. But this price is the same as it was in 2005. We need to put the cost of one lesson up to around the $400 mark in order to stay in the black. But

“The main request I get is to show how to make good, home-cooked food,” said chef Pavel Rogozhin.

in figures

$66

is the cost of the Cooking Men class offered by Tatiana Potochnikova. The class started last spring, teaching men barbecuing techniques ahead of the summer grilling season. The demand for the course has also benefited her restaurant.

$270

Konstantin Vinogradov

Ekaterina Frolova

this would kill the business — psychologically people aren’t prepared to go above a certain price. And $270 is just about the maximum we can charge.” To keep his business going, Rogozhin has had to negotiate with sponsors. Producers of home appliances and kitchenware are only too happy to provide their support. The deal is that the school can use their products free of charge on condition that the companies’ logos are prominently displayed. Another way to cut the costs of running the business is to make contracts directly with alcohol and meat suppliers. This allows the school to avoid buying ingredients in supermarkets

Basic skills like slicing and chopping are taught in cooking classes, along with tips for creating fancy dishes.

competition. “Now Yulia Vysotskaya [an actress, wife of the director Anton Konchalovsky] has opened her own school, and maybe she’ll manage to shake up the market,” Belkina said. “But at the moment, there’s no competition at all.” Yet there is another way to cash in on Muscovites’ growing interest in European cuisine. Eager to get their slice of the cookingschool pie, many restaurants have now started to offer cooking courses taught by the chefs who work in them. Today more than 20 eating establishments in Moscow offer customers lessons in how to cook for themselves, and, unlike the market for independent cooking schools, the choice of formats, dishes and prices are very diverse: ranging from courses costing 500 rubles ($17), in which budding chefs learn to make their own pelmeni and omelettes, to $200 serious sushimaking courses for children. “These courses are great for boosting a restaurant’s image. The owners can open their doors and invite the customers in, let them look around the kitchen, get to know the chefs, see for themselves how clean and tidy everything is and what sumptuous in-

The Cooking Men courses at the Sisters Grimm restaurant are among the most popular in Moscow. at normal retail prices.“If we can agree on price reductions, this is a huge plus for the business,” Rogozhin said.“Food costs eat up between 30 and 50 percent of our income. Another 50 percent goes to rent. So our only way of making money is to save on alcohol and ingredients.” And of course it’s also important to attract as many clients as possible. According to Rogozhin, his school hosts up to 20 events each month — master-classes for groups of four to five students, as well as corporate evening events. A constant influx of people, lively parties and massive crowds is more the scene of another wellknown player in this market — the gastro bar Akademiya Del Gusto. This school opened its doors in 2008, just when the credit crunch took hold, and it became the first of its kind. According to the business’s customer relations manager, Evgenia Bel-

уekaterina frolova

Even as Muscovites flock to cooking schools, too few entrepreneurs are taking advantage of the demand in the segment.

Pavel Rogozhin (center) instructs students at his school, Pro.stranstvo.

kina, Akademiya’s philosophy is all about having fun:“We host all kinds of different events: masterclasses, office parties and teambuilding. The thing they have in common is a relaxed convivial atmosphere. People come to us to taste the spirit of Italy, drink wine, cook up a delicious meal and then eat it, and gain huge pleasure and satisfaction from the whole experience.” At 5,500 rubles ($187), taking

part in an event at Akademiya Del Gusto does not come cheap. Nevertheless, it is not easy to get into a course; some of the seminars have waiting lists of more than six weeks. The business’s success is made clear by its location: Del Gusto rents a 3,000-square-foot building on Tverskaya Street, sometimes known as Moscow’s Fifth Avenue. Belkina claims that Del Gusto does not have to worry about

is the maximum Pavel Rogozhin thinks he can charge for a high-end cooking class at his school, Pro.stranstvo. He said the school needs to charge $400 to break even, so he must make up the difference by cutting deals with suppliers.

gredients go into the meals they eat,” said Tatiana Potochnikova, founder of the Cooking Men courses at the Sisters Grimm restaurant, some of the most popular in Moscow. “Exactly a year ago we decided to hold courses just for men. We never dreamed it would take off like this. It was March, the time of year when everyone starts spending time at their dachas, and we decided to teach the stronger sex how to master the art of barbequing, and the best way to choose meat for shashlyk [Russian kebabs].” The course was well-promoted and well-priced at $66, which likely contributed to its success. According to Potochnikova, not only does the cooking school bring in a tidy income on its own, but a s s o o n a s t h e m a s t e rclasses went on offer, there was a marked increase in customer traffic at the restaurant. Potochnikova believes the customers will keep coming.“I think our project is just at the beginning of its journey; I think it will remain popular for at least another year,”she said.“It’s hard to say what the next stage will be: The mood in Moscow changes very quickly, and you have to constantly think up new ideas to stay ahead of the game.”

Trends American-style desserts and breakfast treats are slowly finding a place in the counters of Moscow’s restaurants and coffeeshops

New York Bakery keeps Moscow eateries — and homesick expats — supplied with American treats ranging from creamy cheesecake to chewy bagels. Joy Neumeyer

special to rbth

Baked goods such as thick slices of cheesecake with gooey pecan topping, salt bagels smeared with cream cheese and yellow cupcakes crowned with rainbow sprinkles used to be found strictly across the Atlantic — and in the memories of Moscow’s homesick expatriates. But thanks to New York Bakery, they’re now just a phone call and a delivery truck away. “People are looking for comfort food,”said bakery owner Brad Garine.“What’s better than waking up on a Saturday morning and having a nice toasted bagel with a good cup of coffee?” New York Bakery began in 2009, when Garine and his wife Yulia began making cookies in their apartment. Today, it has 14 employees, a nearly 4,000-squarefoot kitchen and major clients such as Wendy’s. Hit products include bagels, cupcakes, brownies and perhaps the most popular item, cheesecake, which comes in 13 flavors, including blueberry and brownie. Garine, a Long Island native, first visited Russia during the Brezhnev era, when his father was doing business in Moscow.

He returned in the 1990s to work in real estate and met Yulia at the American-owned Starlite Diner, where she was a waitress. After the Russian economic crisis hit in 1998, they moved to the U.S. and ran a laundry and other businesses in Miami and Los Angeles. In 2008, when the American economy began to falter, they went back to Moscow. Inspiration for a new business came during a trip to the grocery store. “It was mind-boggling to think that when you went down the

New York Bakery began in 2009, when Garine and his wife Yulia began making cookies in their apartment. aisles, it was all imported, imported, imported,” Garine said. “I got home and I said, ‘We’ve got to start making cakes!’” Yulia liked baking, but neither she nor Brad had professional cooking experience — not to mention equipment.“We didn’t have cutters,” he said. “We didn’t have food coloring. We had nothing.” At a local market, Garine located copper ribbon, which he fashioned into cookie cutters. Soon they were baking holiday cookies in their kitchen and selling them by word of mouth. The first breakthrough came with a request to supply bagels

to the U.S. Embassy. Then the bakery signed a deal to create a new hamburger bun for expatfriendly eatery Beverly Hills Diner.“We got some complaints from people, from foreigners, that the buns we were using were falling apart,” said Beverly Hills Diner brand chef Richard Punzalan. The bakery developed a new version that would stand up to a juicy patty. Soon, other customers came calling. Current clients include Starlite Diner, T.G.I. Friday’s and Wendy’s. The bakery recently closed a deal with popular Russian café Shokoladnitsa to provide 45,000 bagels a month. These days, most of the bakery’s desserts are developed for specific restaurants. A current project is focused on creating a crumb cake for a NewYork–style deli. “If they love it, we roll,” Garine said. “If they don’t love it, we change it again until they’re happy.” In a city that has yet to banish the ghost of Soviet customer service, this focus on pleasing the client has proved good at keeping buyers.“Whenever you need them, they’re in front of the door,” Punzalan said. Although its main income is now from restaurants, the bakery still sells to individuals. Customers place their order over the phone for next-day delivery. One oil company has a regular order for Friday morning bagels.

press photo (6)

Winning Hearts and Minds, One Cake at a Time

Yulia and Brad Garine show off one of their popular cheesecakes.

in their own words

Brad Garine

Alexei Zimin

It was mind-boggling to think that when you went down the aisles, it was all imported. I got home and said, ‘We’ve got to start making cakes.’”

American places have more dessert-like items, like muffins and cupcakes. It’s a different type of bread, a different type of taste.”

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New York Bakery treats tempt Muscovites and expats alike.

Making American baked goods in Russia has required some adaptations, like finding substitutes for brown sugar. The bakery has to import certain key items, like chocolate chips and cream cheese, from France or Germany. Some products catch on more quickly than others. “Russians don’t really understand bagels yet,” Garine said. Snickers cheesecake, on the other hand, flies out of the dessert case at Beverly Hills Diner. Said Pun-

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zalan ,“It’s one of the hits. Russians love Snickers.” For those who want a more traditional Russian dessert, the bakery also offers honey-layered medovik and “bird’s milk” cake, a marshmallow-like soufflé with a chocolate shell. Prices are fairly high; a carrot cake runs 1,600 rubles, or around $50 dollars. “It’s not cheap, but there’s a reason for that,” Bogdanov said.“It’s definitely worth the price.”

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