THE BIG CHILL VISITS DIAMOND TOWN

MOSCOW (Mineweb.com) — It was a year ago when the President of the Sakha republic in fareastem Siberia, Vyacheslav Shtirov, was summoned to :the Kremlin for a meeting with President Vladimir Putin. That was not a jolly exchange of seasonal cheer; and because certain New Year promises that were made then have not been kept, Putin is considering flying east to drop down Shtirov’s chimney for Christmas.

Actually, according to the Russian tradition, Dyed Moroz (“Father Frost”, aka Saint Nicholas, Santa Claus) uses the front-door when he makes his annual visit to children, as he is always accompanied by Snegourochka (“Snow Girl”). It can happen that she is late. Then Dyed Moroz is obliged to ask the children to call out aloud to summon her. Those who can shout the loudest are motivated by the idea of catching the old duffer’s attention, and if they are lucky, first pick at his bag of Christmas rewards. Once Snegourochka arrives, Dyed Moroz reviews who has been on his best behaviour for the past year. Asked who has been naughty, the children naturally scream their noes, and again, those who cry loudest hope to be rewarded first and best.

Putin is less impressed by no-screaming. Recently, Shtirov launched a local political initiative, gathering signatures of Sakha residents who say they want Shtirov to be appointed by Putin to a new term in office. Shtirov’s first term expires in 2006. He had been elected as the Kremlin’s candidate to replace the republic’s godfather, Mikhail Nikolaev, after the latter crossed Putin by trying to arrange local support to run for a third term, which wasn’t altogether legal at the time, and worse – it wasn’t what the Kremlin wanted.

For more than a decade, Nikolaev had arranged with former President Boris Yeltsin that, in return for supporting him against parliament, throwing the region behind him on presidential election day, and sharing such diamond revenues as Yeltsin needed or wanted, Nikolaev could run the republic, and manage its assets exactly as he saw fit. Since Sakha’s principal assets are its diamond-mines, and the cashflow of Alrosa – the largest producer of diamonds in the world after De Beers – Nikolaev naturally saw to it that his trusties controlled the company. Shtirov was one of them – first a republic administrator, then prime minister in Yakutsk, and finally chief executive of Alrosa.

Putin did not suffer from Yeltsin’s political insecurities. Believing he was safer if he put an end to these regional satrapies, and retrieved control of the cash that gave the satraps their power, he ordered Nikolaev to give up the presidency, and seated him, with a conditional immunity from prosecution, in the Federation Council, the upper chamber of the federal parliament. Shtirov was told he was to vacate his seat at Alrosa, and become Nikolaev’s successor as president of the republic. But there was a condition. Shtirov was to understand that he was the federal government’s custodian of the diamond assets, and that he was to return them to federal government control.

Shtirov is a bigger, burlier man than Nikolaev. But what he lacks in the agility of his former patron, he makes up for in stubbornness. As the years of his term have rolled towards its conclusion, Shtirov has done as little as possible to divest the republic’s asset, and return them to Moscow’s charge. He is also much tougher than the man Putin put officially in charge of the return of assets – Finance Minister Alexei Kudrin.

When Shtirov used to take the De Beers management out on fishing expeditions, he would always surprise with his fisherman’s good humour.Kudrin is about as charming as the fish. A protege of Anatoly Chubais from St.Petersburg, he rose through federal government ranks with the skills of a chartered accountant, and, by comparison with Chubais, Mikhail Kasyanov, and other predecessors at the federal treasury, slower fingers. Putin thought he could trust Kudrin to take charge of Sakha, Alrosa, and the diamond cash. But in the contest between Kudrin’s fingers and Shtirov’s feet, it is the latter which have been winning.

Kudrin has pressed Shtirov to sign one protocol of obligations after another, returning assets Nikolaev had squirreled away from Moscow’s control, in order to add them to the capital of Alrosa, and the federal revenue base. Shtirov has procrastinated with his signature, and then dug in his heels against implementation. The federal shareholding in Alrosa should already have reached 51%, according to the plans drafted by Kudrin’s subordinates in the federal Finance Ministry. But even as chairman of the Alrosa board, clearly out¬ranking Shtirov, Kudrin hasn’t been able to extract compliance from Shtirov, or the transfer of the assets.

In fact, Kudrin’s desk is now so stacked with orders from his superiors that he cannot discharge, he too is in danger of receiving a visit from an unwelcome visitor down his chimney. The failure of both Shtirov and Kudrin to bring the $2 billion annual revenue of Alrosa under the Kremlin control Putin wants would already have been the end of them, if $2 billion in diamond revenues could match the size of the sums Russia’s principal mineable resources currently fetch. Shtirov has thought that the sum was small enough to be overlooked, while he played his waiting-game.

A year ago, on December 28, 2004, Putin gave Shtirov his marching orders. After a proposed meeting of the two men in the Kremlin was recently called off, sources close to Putin indicate that he’s prepared to spend Orthodox Christmas in Sakha. According to Shtirov’s office in Yakutsk, and Nikolaev’s office in Moscow, there is no information about this possibility, and no confirmation that it will happen.

The Kremlin pressure continues to build up on Alrosa, and for Alexander Nichiporuk, the first chief executive of the company appointed by Moscow, not by Yakutsk, this is a severe testing time. For if Shtirov can defy the Kremlin, and Kudrin proves too weak to implement his orders, how can Nichiporuk pilot the company into next year’s enormous challenges?

Last week, at the traditional end-of-year press conference at Alrosa headquarters in Moscow, Nichiporuk did the best he could to emphasize the positive. Alrosa and its affiliated companies have lifted the value of their production this year by 17% to reach Rb72 billion ($2.5 billion). Cost of production rose slightly less fast at 15% to Rb53 billion ($1.8 billion), and profit after tax was Rb14.9 billion ($520 million). Total investment for 2005 was Rb14 billion ($486 million). This is to be cut to Rb12.3 billion for 2006.

Among the positives in addition to the balance-sheet, Nichiporuk cited the completion of the company’s social investment plan; expansion of diamond exploration in both western Sakha and northwestern Russia; and the launching of new ore-processing plants at Alrosa’s mining operations in Angola.

If he was discreet about the internal troubles brewing at home, Nichiporuk was forthright about the unprecedented external pressure Alrosa is facing on its export marketing system. He confirmed that the European Commission (EC) in Brussels has proposed a total ban on diamond trading between Alrosa and De Beers, to start in 2009. He added, however, that this is still to be negotiated, and is far from decided. “The idea is to cancel trading between the two named companies to create competition and avoid monopolization,” Nichiporuk acknowledged, after spokesmen for the EC have tried denying what the EC has formally communicated to both Alrosa and De Beers. “The background is that, even if one company [Alrosa] is not under EU jurisdiction and another [De Beers’s Diamond Trading Company] only by half, since the trading is happening on EU territory, the [EU] can apply the rules.” Referring to the changeover this year of commissioners and staffs at the EC headquarters in Brussels, Nichiporuk added: “We had a good understanding with the previous commissioner on that issue, and no discussions with the new one.”

At this point, the unprecedented attempt by the EC to order the two companies, the two largest producers of diamonds in the world, to cease trading with one another at the end of 2008, has produced no comment from De Beers, and no stated willingness by either side to threaten a legal challenge to the ban in court. In 2005, according to Nichiporuk, Alrosa has supplied $680 million worth of rough to the DTC, representing 45% of total export value. He said that the value of exports allowed by Alrosa’s multi-year export quota is 20% higher than actual value shipped this year.

In 2004, Alrosa warned that an EC decision forcing “an overly rapid or extensive reduction or termination of our sales to De Beers could have an adverse impact on our sales.” Negotiators for Alrosa and De Beers are now discussing in Brussels, not only the cut-off and the deadline, but also the value for trade allowable in the years that remain before the cutoff takes effect. The trade agreement between Alrosa and De Beers, which the EC is reviewing, was signed at the end of 2001 and anticipated five years of sales at an average of $800 million per annum. Internal pressure among Alrosa’s senior management, and from the federal government, to break out of these terms has curtailed this level of annual shipments by roughly 15% since the signing. If the EC goes ahead with the trade ban, the current value of shipments to De Beers may decline to $600 million in 2006, and then around $500 million per annum in 2007 and 2008. By then, roughly 25% of Alrosa’s rough production, or less, would go to De Beers. What has been an effort-free trading partnership for the Nikolaev-Shtirov regime is now a major management challenge for the federal managers. The deadlines imposed by the EC are naturally increasing the impatience Nichiporuk and the Kremlin feel towards Shtirov’s attempts to prevent the reorganization of shareholding control.

According to Nichiporuk, forward planning by the company anticipates the total elimination of annual diamond export quotas, issued by the federal government and signed by the Kremlin, which have caused repeated delays in shipment of rough from the new Nyurba mine in Yakutia. In addition, Nichiporuk said, the company plans to allocate up to 65% of its rough output each year to a stable list of sightholders, and the remainder to auctions and tender sales. Independent selling outlets will be multiplied, adding Israel and Dubai to the one already in operation in Antwerp. With international demand for rough expected to remain high, and supply short for the foreseeable future, Alrosa should be able to create an effective, independent marketing system in the time that is left. Putin, however, is unwilling to cede the benefits of the new scheme to the old gang in Yakutsk.

Nichiporuk must therefore demonstrate fresh loyalty, and imagination, onshore and abroad.

AUSTRALIA TRIES THE LEVEL-PLAYING FIELD TRICK ON RUSSIA, AND GETS BOOTED

By John Helmer in Moscow

The two dominant Australian vices are not indigenous.

Envy came with the Irish Catholics, who were at first the convict, then the indentured, and finally the working class. Hypocrisy came with the English Protestants, who began their economic enterprise in the country by declaring the land unoccupied (“terra nullius” was the pseudo-legal expression), the property of noone, and hence the right of the Crown and the colonial administration to distribute. That began one of the nineteenth century’s first and most methodical genocides of an indigenous people: their exit provides Australian farmers and miners today with their most under-valued asset, land. Whenever Australians preach to Europeans about state subsidization of their agriculture, they forget that, just two centuries ago, they obtained their farmland at zero-cost by killing the owners; and at marginal extra cost by employing prisoners to clear and tend the land thus acquired. It takes English hypocrisy to forget that; and Irish envy to claim that the resulting rural productivity is superior to Europe’s.
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AUSTRALIA’S TRADE MINISTER PLAYS CANARY TO WARN RUSSIAN MINERS

MOSCOW (Mineweb.com) –The two dominant Australian vices are not indigenous.

Envy came with the Irish Catholics, who were at first the convict, then the indentured, and finally the working class. Hypocrisy came with the English Protestants, who began their economic enterprise in the country by declaring the land unoccupied (“terra nullius” was the pseudo-legal expression), the property of no-one, and hence the right of the Crown and the colonial administration to distribute.

That began one of the nineteenth century’s first and most methodical genocides of an indigenous people: their exit provides Australian farmers and miners today with their most under-valued asset, land. Whenever Australians preach to Europeans about state subsidization of their agriculture, they forget that, just two centuries ago, they obtained their farmland at zero-cost by killing the owners; and at marginal extra cost by employing prisoners to clear and tend the land thus acquired. It takes English hypocrisy to forget that; and Irish envy to claim that the resulting rural productivity is superior to Europe’s.

Last week, in a fit of both, a former jackeroo and rural property speculator, currently Australia’s Minister of Trade, Mark Vaile, claimed that, although Australia supports Russia’s accession to the World Trade Organization (WTO), Australia is unsatisfied with its access to Russian markets. Indeed, Australia is one of the last four WTO member-states whose refusal to sign bilateral agreements blocks formal Russian accession. The other three are the US, Colombia, and Switzerland. By the end of last week’s Hong Kong round of WTO ministerial meetings, all 149 WTO members had agreed to accession, save these four.

What makes Australia’s position of interest to the international mining community is the repeated claim by Vaile’s ministry that Russian must grant access to Australian “mining-related services.” Australia’s international mining peers – Canada and South Africa, for example – have already negotiated their accession terms with Moscow, but without referring to “mining-related services”. Although US demands for access to the Russian services market are considerable, and financial services such as insurance and banking are the crux of the argument, mining services aren’t at stake for the Americans.

A year ago, a Canberra statement on the Russian WTO negotiations – which first began in 1995 – referred to the fact that “Australia is seeking commitments from Russia to guarantee levels of access to a number of sectors such as mining-related services”. In a more recent ministry paper entitled Russia Country Brief, it is claimed that “Australian mining and mining services companies are interested in prospects in the Russian far east, particularly Sakhalin Island’s oil and gas projects.” The only example of such a service trade referred to in the Brief is the sale of software by Mincom to Norilsk Nickel. But its principal mines are in northwestern Russia, not the fareast, and they are hard-rock, not oil and gas.

The dominant trade item in Australia’s relationship with Russia is alumina, produced by Comalco and others in Queensland, and sold to the Russian Aluminium (Rusal) group of Moscow, owned by Oleg Deripaska. Deripaska’s only bauxite mine is at Achinsk, in western Siberia.

The alumina trade has traditionally taken such a large proportion of Australia’s export aggregate to Russia – about US200 million in 2004-05 — that a precise figure is not cited in the trade statistics. Rusal is also referred to in the government’s trade papers as the dominant Russian investor in Australia – with the 20% shareholding stake it acquired last year from Kaiser in the Queensland Alumina refinery. Ever since then, Australian trade and provincial government officials have been falling over themselves to ingratiate Rusal.

If there is to be a market in “mining-related services” produced by Australian companies, the likelihood is that its principal Russian clientele includes Deripaska; the owners of Norilsk Nickel; and other resource giants of the Russian economy. With putative clients like these, it is understandable perhaps that Vaile’s brief on Russia hints at regret at losing a potential client in Mikhail Khodorkovsky, the fraudster whose Yukos oil company has been taken over by the state. But it was not commercial operators like Yukos, which had any interest in the capital-intensive projects of Sakhalin. There, state-controlled Russian oil companies are partners with such western majors as Shell and Exxon.

Understandable also that Vaile’s brief omits to refer to the biggest Australian investment loss in Russia. That occurred in 1997, when the Star Mining group’s right to mine the Sukhoi Log gold deposit was revoked, and its shareholding stake in local partner Lenzoloto diluted to non-significance. The current beneficiary of that misfortune is Mincom’s client, Norilsk Nickel.

Five years ago, when Vaile’s predecessor Tim Fischer was negotiating the terms Canberra wanted to see for Russian accession to the WTO, not a word was said about the ill-fated Star and its investors. The emphasis was clearly on agricultural products. Australia insisted that, after the collapse of the Soviet Union and the bankruptcy of the Kremlin treasury through the 1990s, Russia should commit to supporting its agricultural sector by the average budget value of the years, 1995-97. In fact, as Canberra acknowledged, so sharply had state funds (for energy, fuel, seeds, fertilizer, commodity price supports) fallen at the time, the Producer Subsidy Equivalent for Russia had become negative -minus 26% in 1993, minus 9% in 1994. That means the state was taking more money out of farming than it was putting in! Not even Australia could match that fiscal performance. Russian officials argued that those were exceptional years, and proposed the last years of the USSR, 1989-91, as the baseline, when the Producer Subsidyequivalent for Russia was 75%,

Of course, that was communism. The rural political party, which Vaile currently heads in Australia’s governing coalition, has made a career of winning votes on the basis of hating communists for their ideology, but catering to their appetites – especially for wheat, wool, meat, and sugar. It was, in fact, the Soviet system’s capacity to import Australian commodities, on which Vaile’s farm constituents all depended for their well-being. When the Soviet Union fell, the Australian government was left holding enormous bills for wheat and wool; huge unsellable stockpiles; and falling prices.

Today, Australia is far too marginal in the international meat and sugar trade to be in a position to hold up Russian accession to the WTO on behalf of beef offal and frozen lamb. As for sugar, Vaile’s ministry is on record as favouring the total dismantling of beet sugar production in the cold-climate countries of Europe, so as to allow cane sugar producers in the hot territories to prosper. And so, Vaile has become the miner’s friend, a unique canary whose warning of market access problems was apparently sung at Russian trade negotiators last week in Hong Kong.

They responded with uncharacteristic bluntness. Russia is “skeptical”, reported RIA-Novosti, a state news agency, that “Australia regards itself as a protector of moral standards in the WTO”. “Nobody asked it to play this role”, reported an “informed source in the Russian delegation.” Australian demands in the bilateral negotiation with Russia are “rather unfair”, the source is reported as thinking.

Russia’s import business has been such a hugely corrupt sector since Boris Yeltsin saw to the dismantling of the Soviet state, it has been impossible for Russia’s trade negotiators to represent anything like the national interest, let alone balance impoverished consumers against powerful traders, or vested producer interests. For one thing, for the entire decade of WTO negotiations, the Russian government has produced no detailed White Paper weighing accession’s benefits against its costs, and identifying those Russian sectors iikely to gain, or likely to lose. The government has not encouraged a public debate on trade policy. Nor has federal parliament taken the initiative to legislate the kind of trade supports and conditionalities, which are a feature of democracies like Australia and the US. Russia has been targeted for countless anti-dumping penalties in the international steel industry, but it has never retaliated.

But so dominant and powerful has Russia become as a global energy supplier, there is considerable sentiment in the domestic business community, as well as in the Kremlin, to suggest there may be little value in joining the WTO – at least not at the price demanded by the hold-out member-states.

And so, what exactly is Australia demanding from Russia on the commodity and resource playing-field, on which it likes to piay?

When asked by Mineweb to explain what he is after in the Russian market for “mining-related services”, and what Russian obstacles he would like to dismantle, Vaile refused to say. Instead, a spokeswoman claimed: “Unfortunately a number of the questions you raise relate to issues that are the subject of continuing bilateral negotiations between Australia and Russia as part of Russia’s WTO accession commitments, and we do not wish to comment on them at this time.” John Larkin, who heads a WTO negotiations section in the Australian Embassy in Geneva, also refused to be specific, either as to the Australian claim, or the Russian response.

Russian goldminers told Mineweb they had heard nothing of the Australian demand. A source close to the federal ministry in charge of licensing mining projects said the ministry had not been consulted on this issue, and could scarcely imagine what the Australians have in mind. Russian geologists and other mining professionals currently work with international mining consultancies, as well as western mining companies, to meet Russian regulatory and statutory requirements for mining projects. Bateman of South Africa has operated a Moscow office for years, as have Canadian and other international consultancies. According to a Natural Resource Ministry source, the market in feasibility study work is a professionally competitive one, and hardly the subject for foreign trade demands.

One Russian trade negotiator said he was reluctant to get into detail about the Australian demand “because we don’t want to warm up the situation.” His superior was no less solicitous, but revealed that what the Australians are really after is access to Russia’s enormous geological archives. “The key issue,” the source told Mineweb, “was the access of Australian companies (and other countries as well) to study Russian deposits, in order that Russia should obligate itself to give access for foreign companies to Russian deposits.”

This is a highly sensitive issue, and it is no longer surprising why Vaile is trying to hide it. In essence, the Australian government is demanding access to the accumulated capital of Soviet geology, covering the entire mineral wealth of the country. Implicit in the demand is the discovery that the communist regime produced a bonanza of geological studies which, according to the Australian concept of how the mining-game is played, should be made freely available to Australian mining companies or consultants. This is the new concept of “terra nullius”. Nothing the Soviets did should be deemed to have any property value to their successors, at least not once an Australian explorer or entrepreneur has set foot on the territory.

The Russians have no intention of agreeing, although, so far, they are being polite. “We were able to explain to the Australian side that this is impossible due to current legislation,” the trade negotiator said in Moscow today. He went on to add: “the situation will change somewhat after the new Subsoil Law will be implemented.”

That legislation – prematurely introduced in the State Duma a few weeks ago, and withdrawn for further amendment — sets out for the first time a set of strategic mineral and underground resource deposits which non-Russian miners will not be permitted to develop. It’s possible that BHP Biiliton, Australia’s biggest miner, may have told Vaile to use the WTO talks to lobby for access to Russian diamond deposits that BHP has spent three unsuccessful years pursuing. If so, Vaile will fail, as surely as BHP.

The outcome for BHP is unremarkable. The Melbourne management can at least comfort itself by noting that it lost far more money pursuing diamond, oil, and copper projects in Russia a decade ago, than it has done so far in this decade.

Vaile’s performance is a failure in quite a different class. As the Russian trade negotiators hinted in Hong Kong, the rhetorical role of moral guardian of free trade is a bad joke. What Vaile has been doing is lobbying the Russians for a narrow commercial mining interest he doesn’t dare reveal. Down with the level playing-field! Up with the fix! And a hearty cheer for Australian hypocrisy!

STEEL SALE MEETS RUSSIA’S CUTTING EDGE

MOSCOW (Mineweb.com) – At the start of Raymond Chandler’s last novel,the private detective Philip Marlowe is on watch at the Los Angeles railway station. “There was nothing to it,” he says to himself. “The subject was easy to spot as a kangaroo in a dinner jacket.”

Later, after trailing her to a hotel room down the Pacific coast, he observes: “She didn’t look like a tramp and she didn’t look like a crook. Which meant only that she could be both with more success than if she had.”

Two weeks ago, when we were on watch outside the London Stock Exchange, ts Vladimir Lisin was advertising to sell 420 million shares in his Russian steel company, Novolipetsk Metallurgical Combine (NLMK). A 7-percent shareholding in a company with revenues of almost $5 billion, its own iron-ore mines, and cash in the bank of almost $2 billion, and Lisin was as obvious as the kangaroo. With a little help from the BBC, his dinner jacket was also showing. “A former welder,” reported the epitome of British newsworthiness, Lisin is “already estimated to be Russia’s second richest man.” He was letting his shares slip, he told the BBC, to “raise Novolipetsk’s international profile.”

Two weeks later, after the Financial Times had trailed him to a hotel suite, Lisin complained that reporting of Russian business might be “scaring people away”. He added that he wasn’t selling because he lacked faith in Russia as a place to do business. And he was tired, he said, of the behaviour of foreign investors who “spend their time asking the [Russian] government what it can give them. What would you think of me,” he asked the FT, or none in particular, “if I came to the UK and concentrated my time on asking the British government for some sort of preferential treatment?”

Here was the innocent, to be sure, certain the FT reporter hadn’t read the small print in the NLMK prospectus. If he had, he might have spotted Lisin’s hostility towards the Russian government for not assuring him the preferential tax, transport, anti-trust, and power supply tariffs on which the profitability of his steelmaking depends. And also Lisin’s hostility towards the media, which “regularly published slanted articles in return for payment.” And then there are the disclosures of the two UK companies, through which Lisin trades much of his steel company’s metal, and possibly also its profit.

But wait – the appearances of things are getting ahead of the things themselves.

According to the official announcement, as of last Friday, December 9, the owner of NLMK (also called Novolipetsk Steel), Russia’s fourth largest steel producer, and also its most profitable steelmill, had sold his bloc of shares at $1.45 per unit, for a personal take of $609 million. Is this the dinner-jacket, or the kangaroo?

During year-long preparations for the share sale, Lisin had indicated that he wanted to raise more than three times as much, or almost $2 billion from the listing. In April, NLMK confirmed that it had secured permission of the Russian securities regulator, the Federal Service for Financial Markets, to sell 1.498 billion shares, or 25.1% of the existing stock, on a foreign exchange. At the time, Lisin’s holding was 95.6%. The big sale was scheduled for June, but then called off.

In August of this year, Lisin arranged for the sale of two blocs of shares,totaling 3.34%, to two companies, Costen and Akractos; these are in turn owned by members of the management or board of directors of NLMK, or its affiliated companies. Another 1.2% bloc was also sold to Trixton, a company indirectly owned by the steel trading companies Lisin controls for NLMK’s exports. These transactions appear to have been a form of untaxable share option distribution, with a purchase price below $1.20, and no payment required until December 31, 2006.

Another 1.2% was sold by Lisin, also last August, to unaffiliated investors. That left him in control of 89.85% of NLMK’s shares at the listing announcment, when it finally came on November 24. After the placement of the shares was announced last Friday, Lisin continues to hold at least 82% of the shares through Cyprus-registered and other offshore companies.

Disclosures in the NLMK prospectus, despite its highly restricted circulation, appear to have lowered the bidding price for the NLMK shares by 3%, compared to the Moscow stock exchange price on December 9; and by 8% off the peak which NLMK’s stock hit on the Russian stock index, just before the formal announcement to list on the London Stock Exchange (LSE) was issued. The market capitalization of the steelmaker has been cut by more than half a billion dollars since Lisin engaged investment banks UBS and Merrill Lynch, and Financial Dynamics, a London public relations firm, to promote the sale of his shareholding.

Neither NLMK, nor Lisin’s London spokesman, Jon Simmons, agreed to release the prospectus, nor answer detailed questions relating to the way in which Lisin has organized the steelmaking company, its raw material suppliers, and trading units.

Unlike the Russian steel companies which have preceded Lisin on to international markets – Mechel at the New York Stock Exchange in October 2004; Evraz at the LSE last July — the NLMK document of almost 300 pages was not prepared in pdf format, easy to transmit electronically from fund manager to manager, brokerage to client. Instead, it was circulated in a bound hard-copy that could not be easily machine-scanned or copied. Photo-copying the prospectus by hand requires several hours.

Once available, however, the prospectus makes the unusual statement up front that the principal risk to investors in buying NLMK shares from Lisin is “our controlling shareholder’s ability to exert significant influence over us [NLMK].”

That he had already done what he could to raise the selling price was also disclosed. In a note to the accounts, in 2002 an $85 million interest-free, 2-year loan of NLMK funds was issued to LKB Invest to facilitate purchase of shares in NLMK. The borrowing unit was then absorbed by LLC Rumelco, owned by Lisin, and the loan paid off in 2003.

Although considerable historical and financial detail is revealed for the first time about Lisin’s acquisition of the steel plant from the Trans World group of London, controlled by the Reuben brothers, a significant omission is the ownership and operation of three trading companies — Steelco Mediterranean Trading of Cyprus, Moorfield Commodities and Tuscany Intertrade, both of the UK.

According to the prospectus, these three are “independent wholesale traders”. There is a “long term strategic partnership”, agreed in October 2004 for three years, between these companies and NLMK for sale of at least 70% of NLMK’s steel exports. In 2004, the percentage was 90%; this year to September 30, the percentage has been 85%. Nothing about the ownership of the traders is disclosed, except that they are “under common ownership” and “unrelated parties to NLMK”.

By press time, Lisin’s spokesman did not respond to questions about who owns, controls or benefits from their operations. If, as industry sources believe likely, the trading companies are controlled by Lisin, then he is able to vary the export pricing of NLMK’s products, so as to enhance, or detract from, the cashflow and profitability of NLMK’s domestic operations and its balance-sheet. In current market conditions, that may be of little concern to investors – NLMK reports that as of September 30, it held cash and cash equivalent of $1.93 billion, with debt of just $19.9 million.

Precise financial details of the export revenues are not disclosed in the prospectus. However, data reported on export percentages indicate that exports amounted to 74% of NLMK’s sales revenues in 2004; or about $3.3 billion in value. This year, the proportion changed significantly, with just 58% of sales revenues accounted for by exports in the first nine months of the year; for a value of $1.9 billion. According to a note to the accounts, prepared by PriceWaterhouseCoopers, the three trading companies owed NLMK about $294 million at December 31, 2004; by September 30, this was $238 million. The prospectus reports that the traders must make payment within 60 days of delivery of goods, but concedes: “any failure by these international wholesale traders to satisfy their payment obligations to us may adversely affect our financial condition and results of operations.” The company also concedes that Russian law on transfer pricing between related companies could have a detrimental impact on the group’s financial results.

At the same time, and in parallel, NLMK reports that it has reduced the proportion of low-value pig iron and slabs in its export shipments, while raising the share of relatively high-value hot and cold-rolled steel, and grain oriented steel. NLMK’s export destinations have also shifted, with declines in shipments to the European Union and North America, and offsetting increases in shipments to Asia.

The consolidated structure of the NLMK company, as reported in the prospectus, includes three mining units, the most important of which is Stoilensky ore-processing combine (GOK), the iron-ore supplier, for which NLMK appears to have paid $659.3 million when it was consolidated into the NLMK structure last year. NLMK reports that it is now self-sufficient in iron-ore. On a stand-alone basis, before consolidation, Stoilensky reported profit in 2004 of $207.8 million; it is the target of an on-going Russian government investigation into price collusion in the iron-ore sector.

Coking-coal production, the second basic raw material requirement for steelmaking, is not consolidated in the NLMK structure as yet, although the prospectus refers to the acquisition in August 2005 of the licence to develop the Zhernovskoe-1 deposit in Kemerovo (Siberia). NLMK says it plans to invest $430 million in the mine over the next four years, and that when fully operational, it will supply 50% of the group’s steelmaking requirement. Who will own the coal mine is not disclosed. The prospectus reports that “we are currently in talks to acquire more than 90% of the shares of a Russian coke producer. As part of this transaction we may also acquire a number of coal producing companies.”

NLMK’s scrap supply requirement, another vital feed for the furnace, is 2.3 million tons, of which 1.4 million tons (60%) are supplied by third parties. Limestone and metallurgical dolomite come from consolidated subsidiaries, while ferroalloys come from third-party suppliers.

Control of transportation , especially maritime outlets for exports, is a key element of the group’s vertical integration, according to the prospectus. However, the document identifies only Tuapse port and related facilities, on the Black Sea, as consolidated within the NLMK group ownership structure. The larger-volume St.Petersburg port company, which Lisin acquired through offshore companies in the past two years, is not included.

Fresh steel assets are very briefly referred to in the prospectus. Lisin appears to have changed his mind regarding expansion abroad. Dan Steel, which he bought in Denmark several years ago, may be sold by him to NLMK, but no decision has been reached. After a period of disclaiming interest in foreign acquisitions, this year Lisin put himself in contention for the Erdemir privatization in Turkey, only to drop out when the bidding price exceeded his target.

NLMK also reports “we are currently in talks to acquire another Russian steel producer specializing in high value-added types of steel.” No details of the target are available.

The key to understanding why Lisin and his bankers and promoters are so furtive about the details of their business lies in their underlying lack of confidence that they can count on hanging on to it. Notwithstanding what he told the Financial Times, Lisin and the NLMK management don’t really enjoy the Russian business environment. Corruption is rife in the courts, NLMK declares in the prospectus – and not only there. Challenges to the way in which the steel plant was privatized – its employee vouchers bought up by Trans World, Cambridge Capital Management, Boris Jordan, and Vladimir Potanin -could still occur, and heavy back-tax claims could be imposed. “Signs of a breakdown in the consensus among key government officials are beginning to appear”, the prospectus concedes, arousing apprehension.

The case of convicted Yukos oil company fraudsters Mikhail Khodorkovsky and Platon Lebedev is reported in the prospectus as a serious omen for Russia’s largest asset holders. Lisin isn’t about to concede the folly of Khodorkovsky’s attempt to sell up to 40% of his oil assets to a US oil company, despite a Kremlin veto. But he has been careful to apply for government permission to sell his stake;and even more cautious to keep it small. Steelmaking, iron-ore and coal mining could be strategic to Russia’s economic security, the prospectus acknowledges, and thus the permissible scope of Lisin’s future ownership of these assets uncertain.

This, then, is the strategic problem for Lisin, and others with similarly large resource and commodity holdings. To acquire them, and then secure them from counter-attack, a decade ago, required vertical integration from raw material to production plant and transport outlet; with the shareholdings distributed in chains of offshore companies so numerous and complex as to defy investigation and defeat unravelling . To achieve market value, however, requires consolidation of shareholdings, assets and cashflows; audited financial reports and disclosure of related party transactions; the appearance of tax compliance; and market assessment of risk.

Lisin, like other major Russian asset-holders, can’t let go of the trading chain he created a decade ago, and the prospectus reveals how limited to date the consolidation process of the NLMK group has gone. Lisin is simply keeping some of his most valuable eggs out of the basket. Were there to be an attack by a domestic rival on the core steelmaking plant, or a squeeze on raw material or energy supplies, he could quickly transform his existing structure into a heavily indebted shell, with the profits exported to the safe havens he continues to operate offshore. That Lisin is less inclined to do this than some of his peers in Russian metals is to his credit.

But he also undermines the credibility of his ambition by one of the worst disclosure records in the Russian steel sector. The investment market, according to the NLMK prospectus – if you can find a copy, break open its spine, and analyze what is missing — should deliver a vote of confidence in Lisin’s share price. But he has structured his group, and his listing, in a fashion that suggests he takes more seriously the Russian risks adumbrated in the prospectus than he asks investors to accept. Anything discovered to the contrary must be “slanted in return for payment”. The kangaroo in the dinner jacket.

AFTERSHOCK OF NORD STREAM EXPLOSIONS RUMBLES WARSAW — POLISH POLITICIANS GO “NUTTERS”

By John Helmer, Moscow
  @bears_with

The Polish government in Warsaw, facing re-election in less than a year, wants all the credit from Washington for their joint operation to sabotage the Nord Stream gas pipelines on the Baltic seabed.

It also wants to intimidate the German chancellor in Berlin, and deter both American and German officials from plotting a takeover by the Polish opposition party, Civic Platform, next year.

Blaming the Russians for the attack is their cover story. Attacking anyone who doesn’t believe it, including Poles and Germans, Warsaw officials and their supporting media claim they are dupes or agents of Russian disinformation.

Their rivals, Civic Platform (PO) politicians trailing the PiS in the polls by seven percentage points,   want Polish voters to think that no credit for the Nord Stream attack should be earned by the ruling Law and Justice (PiS) party. They also want to divert  the Russian counter-attack from Warsaw to Washington.

“Thank you USA” was the first Polish political declaration tweeted hours after the blasts by Radoslaw Sikorski (lead image, left), the PO’s former defence and foreign minister, now a European Parliament deputy. In support and justification,  his old friend and PO ministerial colleague, Roman Giertych, warned Sikorski’s critics: “Would you nutters prefer that the Russians find us guilty?”

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THE BORNHOLM BLOW-UP REPEATS THE BORNHOLM BASH — POLAND ATTACKS GERMANY AND BLAMES RUSSIA

By John Helmer, Moscow
  @bears_with

The military operation on Monday night which fired munitions to blow holes in the Nord Stream I and Nord Stream II pipelines on the Baltic Sea floor, near Bornholm Island,  was executed by the Polish Navy and special forces.

It was aided by the Danish and Swedish military; planned and coordinated with US intelligence and technical support; and approved by the Polish Prime Minister Mateusz Morawiecki.

The operation is a repeat of the Bornholm Bash operation of April 2021, which attempted to sabotage Russian vessels laying the gas pipes, but ended in ignominious retreat by the Polish forces. That was a direct attack on Russia. This time the attack is targeting the Germans, especially the business and union lobby and the East German voters, with a scheme to blame Moscow for the troubles they already have — and their troubles to come with winter.

Morawiecki is bluffing. “It is a very strange coincidence,” he has announced, “that on the same day that the Baltic Gas Pipeline  opens, someone is most likely committing an act of sabotage. This shows what means the Russians can resort to in order to destabilize Europe. They are to blame for the very high gas prices”.   The truth bubbling up from the seabed at Bornholm is the opposite of what Morawiecki says.

But the political value to Morawiecki, already running for the Polish election in eleven months’ time, is his government’s claim to have solved all of Poland’s needs for gas and electricity through the winter — when he knows that won’t come true.  

Inaugurating the 21-year old Baltic Pipe project from the Norwegian and Danish gas networks, Morawiecki announced: “This gas pipeline is the end of the era of dependence on Russian gas. It is also a gas pipeline of security, sovereignty and freedom not only for Polish, but in the future, also for others…[Opposition Civic Platform leader Donald] Tusk’s government preferred Russian gas. They wanted to conclude a deal with the Russians even by 2045…thanks to the Baltic Pipe, extraction from Polish deposits,  LNG supply from the USA and Qatar, as well as interconnection with its neighbours, Poland is now secured in terms of gas supplies.”

Civic Platform’s former defence and foreign minister Radek Sikorski also celebrated the Bornholm Blow-up. “As we say in Polish, a small thing, but so much joy”.  “Thank you USA,” Sikorski added,   diverting the credit for the operation, away from domestic rival Morawiecki to President Joseph Biden; he had publicly threatened to sabotage the line in February.  Biden’s ambassador in Warsaw is also backing Sikorski’s Civic Platform party to replace  Morawiecki next year.  

The attack not only escalates the Polish election campaign. It also continues the Morawiecki government’s plan to attack Germany, first by reviving the reparations claim for the invasion and occupation of 1939-45;  and second, by targeting alleged German complicity, corruption,  and appeasement in the Russian scheme to rule Europe at Poland’s expense. .

“The appeasement policy towards Putin”, announced PISM, the official government think tank in Warsaw in June,  “is part of an American attempt to free itself from its obligations of maintaining peace in Europe. The bargain is that Americans will allow Putin to finish building the Nord Stream 2 pipeline in exchange for Putin’s commitment not use it to blackmail Eastern Europe. Sounds convincing? Sounds like something you heard before? It’s not without reason that Winston Churchill commented on the American decision-making process: ‘Americans can always be trusted to do the right thing, once all other possibilities have been exhausted.’ However, by pursuing such a policy now, the Biden administration takes even more responsibility for the security of Europe, including Ukraine, which is the stake for subsequent American mistakes.”

“Where does this place Poland? Almost 18 years ago the Federal Republic of Germany, our European ally, decided to prioritize its own business interests with Putin’s Russia over solidarity and cooperation with allies in Central Europe. It was a wrong decision to make and all Polish governments – regardless of political differences – communicated this clearly and forcefully to Berlin. But since Putin succeeded in corrupting the German elite and already decided to pay the price of infamy, ignoring the Polish objections was the only strategy Germany was left with.”

The explosions at Bornholm are the new Polish strike for war in Europe against Chancellor Olaf Scholz. So far the Chancellery in Berlin is silent, tellingly.

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LEMONS, MIMOSAS, AND STALIN’S SHOVEL

By John Helmer, Moscow
  @bears_with

The only Russian leader in a thousand years who was a genuine gardener and who allowed himself to be recorded with a shovel in his hand was Joseph Stalin (lead image, mid-1930s). Compared to Stalin, the honouring of the new British king Charles III as a gardener pales into imitativeness and pretension.   

Stalin cultivated lemon trees and flowering mimosas at his Gagra dacha  by the Black Sea in Abkhazia.  Growing mimosas (acacias) is tricky. No plantsman serving the monarchs in London or at Versailles has made a go of it in four hundred years. Even in the most favourable climates, mimosas – there are almost six hundred varieties of them — are short-lived. They can revive after bushfires; they can go into sudden death for no apparent reason. Russians know nothing of this – they love them for their blossom and scent, and give bouquets of them to celebrate the arrival of spring.

Stalin didn’t attempt the near-impossible, to grow lemons and other fruit in the Moscow climate. That was the sort of thing which the Kremlin noblemen did to impress the tsar and compete in conspicuous affluence with each other. At Kuskovo, now in the eastern district of Moscow, Count Pyotr Sheremetyev built a heated orangerie between 1761 and 1762, where he protected his lemons, pomegranates, peaches, olives, and almonds, baskets of which he would present in mid-winter to the Empress Catherine the Great and many others. The spade work was done by serfs. Sheremetyev beat the French king Louis XIV to the punch – his first orangerie at Versailles wasn’t built until 1763.

Stalin also had a dacha at Kuskovo But he cultivated his lemons and mimosas seventeen hundred  kilometres to the south where they reminded him of home in Georgia. Doing his own spade work wasn’t Stalin showing off, as Charles III does in his gardens, like Louis XIV before him. Stalin’s spade work was what he had done in his youth. It also illustrated his message – “I’m showing you how to work”, he would tell visitors surprised to see him with the shovel.  As to his mimosas, Stalin’s Abkhazian confidante, Akaki Mgeladze, claimed in his memoirs that Stalin intended them as another lesson. “How Muscovites love mimosas, they stand in queues for them” he reportedly told him.  “Think how to grow more to make the Muscovites happy!”

In the new war with the US and its allies in Europe, Stalin’s lessons of the shovel and the mimosas are being re-learned in conditions which Stalin never knew – how to fight the war for survival and at the same time keep everyone happy with flowers on the dining table.

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AND THEN THERE WERE NONE

By John Helmer, Moscow
  @bears_with

Agatha Christie’s whodunit entitled And Then There Were None – the concluding words of the children’s counting rhyme — is reputed to be the world’s best-selling mystery story.    

There’s no mystery now about the war of Europe and North America against Russia; it is the continuation of Germany’s war of 1939-45 and the war aims of the General Staff in Washington since 1943. Defense Minister Sergei Shoigu (left) and President Vladimir Putin (right) both said it plainly enough this week.

There is also no mystery in the decision-making in Moscow of the President and the Defense Minister, the General Staff, and the others; it is the continuation of the Stavka of 1941-45.  

Just because there is no mystery about this, it doesn’t follow that it should be reported publicly, debated in the State Duma, speculated and advertised by bloggers, podcasters, and twitterers.  In war what should not be said cannot be said. When the war ends, then there will be none.  

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RUSSIANS RAISE THEIR GLASSES – THE TOAST IS TO BEATING THE BLOCKADE OF MOSCOW



By John Helmer, Moscow
  @bears_with

Alas and alack for the Berlin Blockade of 1948-49 (Berliner Luftbrücke): those were the days when the Germans waved their salutes against the unification of Germany demilitarised and denazified; and cheered instead for their alliance with the US and British armies to fight another seventy years of war in order to achieve what they and Adolf Hitler hadn’t managed, but which they now hope to achieve under  Olaf Scholtz — the defeat of the Russian Army and the destruction of Russia.

How little the Germans have changed.

But alas and alack — the Blockade now is the one they and the NATO armies aim to enforce against Russia. “We are drawing up a new National Security Strategy,” according to Foreign Minister Annalena Baerbock. “We are taking even the most severe scenarios seriously.”  By severe Baerbock means nuclear. The new German generation — she has also declared “now these grandparents, mothers, fathers and their children sit at the kitchen table and discuss rearmament.”  

So, for Russia to survive the continuation of this war, the Germans and their army must be fought and defeated again. That’s the toast of Russian people as they salute the intrepid flyers who are beating the Moscow Blockade.  

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THE INTERNATIONAL ATOMIC ENERGY AGENCY GOES TO WAR — GORILLA RADIO GOES NUCLEAR

By John Helmer, Moscow
  @bears_with

Last week the International Atomic Energy Agency’s (IAEA) board of governors voted to go to war with Russia by a vote of 26 member countries against 9.

China, Vietnam, India, Pakistan, Egypt, Senegal and South Africa voted against war with Russia.  

The IAEA Secretary-General Rafael Grossi (lead image, left) has refused to tell the press whether a simple majority of votes (18) or a super-majority of two-thirds (23) was required by the agency charter for the vote; he also wouldn’t say which countries voted for or against. The United Nations Secretary-General Antonio Guterres then covered up for what had happened by telling the press: “I believe that [IAEA’s] independence that exists and must be preserved is essential. The IAEA cannot be the instrument of parties against other parties.” The IAEA vote for war made a liar of Guterres.

In the IAEA’s 65-year history, Resolution Number 58, the war vote of September 15, 2022,  is the first time the agency has taken one side in a war between member countries when nuclear reactors have either been attacked or threatened with attack. It is also the first time the IAEA has attacked one of its member states, Russia, when its military were attempting to protect and secure a nuclear reactor from attack by another member state, the Ukraine, and its war allies, the US, NATO and the European Union states. The vote followed the first-ever IAEA inspection of a nuclear reactor while it was under active artillery fire and troop assault.

There is a first time for everything but this is the end of the IAEA. On to the scrap heap of good intentions and international treaties, the IAEA is following the Organisation for the Prohibition of Chemical Weapons (OPCW), and the UN Secretary-General himself.  Listen to this discussion of the past history when the IAEA responded quite differently following the Iranian and Israeli air-bombing attacks on the Iraqi nuclear reactor known as Osirak, and later, the attacks on Pakistan’s nuclear weapons sites.

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INTERNATIONAL ATOMIC ENERGY AGENCY TAKES UKRAINE SIDE IN WAR IN SEPTEMBER 15 VOTE, MAKING UN SECRETARY-GENERAL GUTERRES EITHER A LIAR OR A FOOL

By John Helmer, Moscow
  @bears_with

The International Atomic Energy Agency (IAEA) decided this week to take the side of Ukraine in the current war; blame Russia for the shelling of the Zaporozhye Nuclear Power Plant (ZNPP); and issue a demand for Russia to surrender the plant to the Kiev regime “to regain full control over all nuclear facilities within Ukraine’s internationally recognized borders, including the Zaporizhzhya Nuclear Power Plant.”      

This is the most dramatic shift by the United Nations (UN) nuclear power regulator in the 65-year history of the organisation based in Vienna.

The terms of the IAEA Resolution Number 58, which were proposed early this week by the Polish and Canadian governors on the agency board, were known in advance by UN Secretary-General Antonio Guterres when he spoke by telephone with President Vladimir Putin in the late afternoon of September 14, before the vote was taken. Guterres did not reveal what he already knew would be the IAEA action the next day.  

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THE RUSSIAN SITUATION COMEDY IS NO LYING MATTER – THE JOKE IS ON THE OFFICE OF FOREIGN ASSETS CONTROL

By John Helmer, Moscow
  @bears_with

Never mind that King Solomon said proverbially three thousand years ago, “a merry heart doeth good like a medicine.”  

With seven hundred wives and three hundred concubines, Solomon realized he was the inventor of the situation comedy. If not for the sitcom as his medicine, the bodily and psychological stress Old Solly had to endure in the bedroom would have killed him long before he made it to his death bed at eighty years of age,  after ruling his kingdom for forty of them.

After the British sitcom died in the 1990s, the subsequent stress has not only killed very large numbers of ordinary people. It has culminated today in a system of rule according to which a comic king in Buckingham Palace must now manage the first prime minister in Westminster  history to be her own joke.

Even the Norwegians, the unfunniest people in Europe, have acknowledged that the only way to attract the British as tourists, was to pay John Cleese of Monty Python and Fawlty Towers to make them laugh at Norway itself.   This has been a bigger success for the locals than for the visitors, boosting the fjord boatman’s life expectancy several years ahead of the British tourist’s.  

In fact, Norwegian scientists studying a sample of 54,000 of their countrymen have proved that spending the state budget on public health and social welfare will only work effectively if the population is laughing all the way to the grave. “The cognitive component of the sense of humour is positively associated with survival from mortality related to CVD [cardio-vascular disease] and infections in women and with infection-related mortality in men” – Norwegian doctors reported in 2016. Never mind the Viking English:  the Norwegian point is the same as Solomon’s that “a sense of humour is a health-protecting cognitive coping resource” – especially if you’ve got cancer.  

The Russians understand this better than the Norwegians or the British.  Laughter is an antidote to the war propaganda coming from abroad, as Lexus and Vovan have been demonstrating.   The Russian sitcom is also surviving in its classic form to match the best of the British sitcoms, all now dead – Fawlty Towers (d. 1975), Black Adder (d. 1989), You Rang M’Lord? (d. 1988), Jeeves and Wooster (d. 1990), Oh Dr Beeching! (d.1995), and Thin Blue Line (d. 1996).

The Russian situation comedies, alive and well on TV screens and internet streaming devices across the country, are also increasingly profitable business for their production and broadcast companies – not despite the war but because of it. This has transformed the Russian media industry’s calculation of profitability by removing US and European-made films and television series, as well as advertising revenues from Nestlé, PepsiCo, Mars, and Bayer. In their place powerful  Russian video-on-demand (VOD) streaming platform companies like Yandex (KinoPoisk), MTS (Kion),  Mail.ru (VK), and Ivi (Leonid Boguslavsky, ProfMedia, Baring Vostok)  are now intensifying the competition for audience with traditional television channels and film studios for domestic audiences.  The revenue base of the VOD platforms is less vulnerable to advertisers, more dependent on telecommunications subscriptions.

Russian script writers, cameramen, actors, designers, and directors are now in shorter supply than ever before, and earning more money.  “It’s the Russian New Wave,” claims Olga Filipuk, head of media content for Yandex, the powerful leader of the new film production platforms; its  controlling shareholder and chief executive were sanctioned last year.  

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RUSSIAN AVIATION INDUSTRY CORRECTS YELTSIN YAW – BOEING, AIRBUS DITCHED



By Olga Samofalova, translated and introduced by John Helmer, Moscow
  @bears_with

It was the American humourist Mark Twain who didn’t die in 1897 when it was reported that he had. Twain had thirteen more lively years to go.

The death of the Russian aerospace and aviation industry in the present war is proving to be an even greater exaggeration – and the life to come will be much longer. From the Russian point of view, the death which the sanctions have inflicted is that of the US, European and British offensive against the Soviet-era industry which President Boris Yeltsin (lead image, left) and his advisers encouraged from 1991.

Since 2014, when the sanctions war began, the question of what Moscow would do when the supply of original aircraft components was first threatened, then prohibited, has been answered. The answer began at the Federal Aviation Administration (FAA) in 1947 when the first  Supplemental Type Certificate (STC) or Parts Manufacturing Approval (PMA) was issued by Washington officials for aircraft parts or components meeting the airworthiness standards but manufactured by sources which were not the original suppliers.   

China has been quicker to implement this practice; Chinese state and commercial enterprises have been producing PMA components for Boeing and Airbus aircraft in the Chinese airline fleets for many years.  The Russian Transport Ministry has followed suit; in its certification process and airworthiness regulations it has used the abbreviation RMA, Cyrillic for PMA. This process has been accelerating as the sanctions war has escalated.

So has the Russian process of replacing foreign imports entirely.

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FOR WANT OF A NAIL THE KINGDOM WAS LOST – ENGLISH PATHOLOGIST GUY RUTTY FACES CHALLENGE TO THE RELIABILITY OF HIS NOVICHOK EVIDENCE



By John Helmer, Moscow
  @bears_with

The weakest link in the British government’s four-year long story of Russian Novichok assassination operations in the UK – prelude to the current war – is an English medical expert by the name of Guy Rutty (lead image, standing).

A government-appointed pathologist advising the Home Office, police, and county coroners, Rutty is the head of the East Midlands Forensic Pathology Unit in Leicester,  he is the author of a post-mortem report, dated November 29, 2018,  claiming that the only fatality in the history of the Novichok nerve agent (lead image, document), Dawn Sturgess, had died of Novichok poisoning on July 8, 2018. Rutty’s finding was added four months after initial post-mortem results and a coroner’s cremation certificate stopped short of confirming that Novichok had been the cause of her death.

Rutty’s Novichok finding was a state secret for more than two years. It was revealed publicly   by the second government coroner to investigate Sturgess’s death, Dame Heather Hallett, at a public hearing in London on March 30, 2021. In written evidence it was reported that “on 17th July 2018, Professor Guy Rutty MBE, a Home Office Registered Forensic Pathologist conducted an independent post-mortem examination. He was accompanied by Dr Phillip Lumb, also an independent Home Office Registered Forensic Pathologist. Professor Rutty’s Post-Mortem Report of 29th November 2018 records the cause of death as Ia Post cardiac arrest hypoxic brain injury and intracerebral haemorrhage; Ib Novichok toxicity.”  

Hallett, Rutty, Lumb, and others engaged by the government to work on the Novichok case have refused to answer questions about the post-mortem investigations which followed immediately after Sturgess’s death was reported at Salisbury District Hospital; and a cause of death report signed by the Wiltshire Country coroner David Ridley, when Sturgess’s body was released to her family for funeral and cremation on July 30, 2018.  

After another three years, Ridley was replaced as coroner in the case by Hallett in March 2021. Hallett was replaced by Lord Anthony Hughes (lead image, sitting) in March 2022.

The cause-of-death documents remain state secrets. “As you have no formal role in the inquest proceedings,” Hallett’s and Rutty’s spokesman Martin Smith said on May 17, 2021, “it would not be appropriate to provide you with the information that you have requested.” 

Since then official leaks have revealed that Rutty had been despatched by the Home Office in London to take charge of the Sturgess post-mortem, and Lumb ordered not to undertake an autopsy or draw conclusions on the cause of Sturgess’s death until Rutty arrived. Why? The sources are not saying whether the two forensic professors differed in their interpretation of the evidence; and if so, whether the published excerpt of Rutty’s report of Novichok poisoning is the full story.   

New developments in the official investigation of Sturgess’s death, now directed by Hughes, have removed the state secrecy cover for Rutty, Lumb, and other medical specialists who attended the post-mortem on July 17, 2018. The appointment by Hughes of a London lawyer, Adam Chapman, to represent Sergei and Yulia Skripal, opens these post-mortem documents to the Skripals, along with the cremation certificate, and related hospital, ambulance and laboratory records. Chapman’s role is “appropriate” – Smith’s term – for the Skripals to cross-examine Rutty and Lumb and add independent expert evidence.

Hughes’s appointment of another lawyer, Emilie Pottle (lead image, top left), to act on behalf of the three Russian military officers accused of the Novichok attack exposes this evidence to testing at the same forensic standard. According to Hughes,  it is Pottle’s “responsibility for ensuring that the inquiry takes all reasonable steps to test the  evidence connecting those Russian nationals to Ms Sturgess’s death.” Pottle’s responsibility is to  cross-examine Rutty and Lumb.

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