By John Helmer, Moscow
In our last episode, Denis Diderot, the French philosopher in Paris, had sold his library to the Empress Catherine in St. Petersburg. For his bonus, he had received a ticket to meet and talk to Catherine directly. At their first meeting at a masked ball in the Winter Palace, Diderot was wearing his old black suit and a borrowed wig. “Monsieur Diderot, do you see that door?” the Empress told him. “It will be open to you every day from three to five.”
President Vladimir Putin (lead image, right) has known Arkady Rotenberg (left) for much longer, and the connecting door between them has been open for much, much longer. Recently, on the account of the esteem in which the former holds the latter, it was arranged that the state monopoly on the enlightenment of Russia’s schoolchildren should be given to Rotenberg. That’s to say, the monopoly concession paid out of the state budget for the publication and distribution of school textbooks produced by a group of companies Rotenberg controls.
In our first episode, Diderot was shy towards the ruler of Russia. In our second episode, Rotenberg is also shy. He says the Caribbean company which controls the enlightenment concession has nothing to do with him. Read on, as the philosopher turns sophist.
Arkady, coming up for his 68th birthday, and his younger brother Boris Rotenberg, 62, were sanctioned by the US Government on March 20, 2014, for “acting for or on behalf of or materially assisting, sponsoring, or providing financial, material, or technological support for, or goods and services to or in support of, a senior official of the Government of the Russian Federation.” The unnamed “senior official” was Putin.
Left to right: Boris, Arkady, Igor Rotenberg. The brothers were listed in the US Treasury’s oligarch list, published in January 2018; the son was not.
The US Treasury press release described the brothers as members of Putin’s “inner circle”: they “have provided support to Putin’s pet projects by receiving and executing high price contracts for the Sochi Olympic Games and state-controlled Gazprom. They have made billions of dollars in contracts for Gazprom and the Sochi Winter Olympics awarded to them by Putin. Both brothers have amassed enormous amounts of wealth during the years of Putin’s rule in Russia. The Rotenberg brothers received approximately $7 billion in contracts for the Sochi Olympic Games and their personal wealth has increased by $2.5 billion in the last two years alone.”
The theory of the Obama Administration at the time was that by striking at the Rotenbergs and their businesses, the commercial and personal pain they would suffer would be communicated to Putin, and induce him to change Russian state policy. “ ‘With its currency near an all-time low, its stock market down twenty percent this year and a marked rise in interest rates, Russia has already started to bear the economic costs of its unlawful effort to undermine Ukraine’s security, stability, and sovereignty,’ said Under Secretary for Terrorism and Financial Intelligence David S. Cohen. ‘As President Obama has made clear, we will continue to impose costs in direct response to Russia’s provocative acts, even as we have made clear there is a path to de-escalate the situation in Ukraine that respects Ukraine’s sovereignty and territorial integrity and takes account of Russia’s legitimate interests.’ ”
In the event, the Rotenbergs persuaded Putin to compensate them for their American misfortune; the outcome has enriched the Rotenbergs with even more Kremlin favour than they enjoyed before. This was done by transferring the cost of the US sanctions to the Russian taxpayer; read details of the Rotenberg application for state budget funding of their business costs following the sanctions.
The direct subsidy failed to pass the State Duma, but the indirect subsidies have more than compensated. One of these measures was the lifting of federal government regulatory controls over the Rotenberg businesses when they breached government policy and regulations on supply cartels, procurement contract fixing and monopolization. In 2011, for example, the Federal Anti-Monopoly Service (FAS) had been investigating the Rotenbergs for market and price-rigging in the business of supplying pipes to Gazprom.
Displays of domestic hostility towards the Rotenbergs have been rare. One appeared in the second half of 2015, when Putin defended the family’s control of the Platon truck toll scheme at a national press conference in December 2015; read more.
Russian trucker protests at the Platon road toll in December 2015. The poster at left says: “I will not feed Rotenberg”. The right: “Rotenberg is worse than ISIS.” At his press conference Putin responded: “[Igor] Rotenberg Jr was mentioned here. What should I say, and what is important? It is important to get to the bottom of the problem, not try to use a difficult situation for some quasi-political purposes, but look inside. And what lies inside? All revenues coming from the Platon system – all 100 percent – do not go into somebody’s pocket but into the Road Fund of the Russian Federation, down to the last cent, and from there all this money, down to the last cent, is spent on road construction in Russian regions. I would like you to hear this. This is the first point… I come from a working-class family, and I know that these guys work hard driving these trucks, but we need to leave grey schemes behind. I would like to support them, believe me…they are hard workers and nice people overall. However, we must shed these grey schemes, and help truck drivers out as well.”
A fresh protest at the Rotenbergs surfaced this month when two anti-Kremlin media, Meduza and Insider, reported that Arkady Rotenberg was behind a newly acquired monopoly on the state-funded publication of school textbooks and their distribution to schools throughout the country.
Meduza is based in Latvia; its English edition is managed by an individual with US Government ties; and its money comes from offshore oppositionists, including Mikhail Khodorkovsky and George Soros-funded groups. Insider is associated with the NATO propaganda outlet Bellingcat, which terms Insider its “investigative partner”.
In parallel reports published last week, the duo reported that a group of investors who already control Enlightenment (Просвещение), the largest of the country’s school textbook publishers, had just acquired Russian Textbook (Российский учебник), the next largest of the publishers in the market. The owner of Russian Textbook, Oleg Novikov and his Eksmo-AST group, confirmed details of the sale.
The acquirer is reported to be an entity called Rustitaninvest (Руститанинвест), set up less than a year ago, and headed by Alexei Kissin. Kissin has worked for the federal agency for state property, and before that, for Arkady Rotenberg’s media company, Red Square. Kissin was Rotenberg’s front-man in the textbook deal, according to Meduza: “taking into account the purchase, the share of companies close to Rotenberg will make up almost 100% of the market of school educational literature in the country.”
In 2018, Enlightenment’s revenue has been reported at Rb17.7 billion ($281 million); the Russian Textbook group’s revenue was Rb6.3 billion ($100 million). The total Russian textbook market is said to be worth just over Rb25 billion ($400 million). Of that total, about Rb10 billion ($159 million) – 40% — comes from the federal budget.
Last year, according to the press reports from data collected by the book industry, the Russian Textbook group released 1,914 titles with a circulation of 25.6 million. By contrast, Enlightenment turned out 3,400 titles in 38.6 million copies.
For the time being, neither the Meduza nor Insider reports have been translated into English. Meduza reported Novikov as its source; Kissin refused to speak to Meduza. In addition, according to Meduza, “the representative of Arkady Rotenberg in response to the request of Meduza for comment said that the entrepreneur ‘has no interests’ in the market of school textbooks.”
Left, Oleg Novikov, owner until recently of the educational publishing group Russian Textbook, with an estimated market share of 30% (volume of books). Right, Alexei Kissin, representing a group of investors and a company called Rustitaninvest, which bought Novikov’s Russian Textbook last week. Novikov says he was forced to sell after his company’s titles were excluded from the federal Ministry of Education’s authorized lists for school procurement, funded by the state budget.
At the same time as Meduza and Insider were running their stories, the daily Moscow business paper Vedomost published interviews, first with Novikov, and then with Kissin. Novikov reiterated his accusation that he had been forced into selling out by the Kissin group and by Education Ministry favouritism for his rival, the Enlightenment group; he did not mention Rotenberg’s name.
Novikov explained that in 2015 his publishing business had sales of Rb4.53 billion ($62 million), and by the end of 2018 they had grown 40% to Rb6.3 billion ($97 million). However, future growth prospects had stopped there. “Selling textbooks is a good business. The state — 50% of the turnover of the market of educational literature comes from state procurement — is a solvent partner. However, in this business now there are certain restrictions, which are introduced by the regulator, the Ministry of Education. In particular, I am referring to the removal last December of almost half the 482 publications of Russian Textbook from the federal list of textbooks with the new federal educational standard approval — schools have the right to purchase only those textbooks that are included in this list. So, in practice, the rejection of everything that has been developing the system (diversity, creation of individual educational paths, development of digital services) has brought back the system of general education of many years ago.”
“In a situation where there is no transparency or predictability, it is difficult to predict business development. You don ‘t want to be involved. There is still a desire to do business in a competitive, market environment. We are considering the possibility of selling the educational business for a number of other reasons: markets of commercial and educational literature are becoming more autonomous and synergies between these areas of business within the framework of Eksmo-AST are becoming less and less. Our group traditionally focuses primarily on commercial book publishing. New challenges are beginning to emerge here, and we want to focus our efforts strategically on that. And the growth of the book market by 6%-7% per year in a situation when the economy of the country is stagnating can be considered pretty good.”
According to Novikov, he was also prodded into selling out by a multi-billion rouble claim for a purported violation of a federal standard trademark. The legal claim for Rb3.7 billion came from rival Enlightenment. Novikov was told the claim would be dropped if he sold his business to Enlightenment, so he did. “Enlightenment is a private company,” Novikov said. “Already now it occupies about half of the market of educational literature. Given that most of the revenues in this market are state contracts, it is risky to form a monopoly. As practice shows, games with the state are always dangerous, and even if you think you control something, some time passes, and it turns out that the situation has changed dramatically.”
Novikov told Vedomosti his sale of Russian Textbook to Kissin’s group was for a price of Rb6 billion ($90 million).
Vedomosti reported a spokesman for the Rotenberg companies as denying that Rotenberg or his “affiliated structures” were shareholders of Enlightenment or of the Kissin group; nor had they taken part in the deal to take over Russian Textbook. Rotenberg’s spokesman claimed he had sold his stake in Enlightenment in 2017. “We have not made other purchases in this area and do not plan to. We do not support business relations with Alexei Kissin,” the spokesman said.
In his interview with Vedomosti, Kissin said the takeover of Novikov’s textbook group was financed by “a consortium of investors… It’s a consortium of investors. I can’t reveal them.” Asked about his former employment with the Rotenberg media company Red Square, Kissin said: “I only worked at the Red Square for a year and a half. Now we do not support any relations [with Red Square].” .
“[Question: Does Arkady Rotenberg have anything to do with this deal, directly or indirectly?] No. [Question: and the people or companies affiliated with him?] No. [Question: Can you explain why the asset was bought by a consortium of investors — they gave money, but did not want to identify themselves as owners of this asset?] That’s the deal. [Question: How many investors were there?] I won’t give you that information.”
Because the reported sale of Enlightenment by Rotenberg to a Cayman Islands registered group in 2017 has not identified the purchaser, and because the shareholders of Kissin’s group remain secret, Rotenberg is suspected of being the controlling shareholder of both. Moscow reporters have speculated that it was the US sanctions which pushed Rotenberg into using cut-outs so that he would be free to sell Enlightenment shares on the international market, once Novikov was out of the way.
On October 21 Meduza followed with a more detailed account of how the textbook market had evolved from the Soviet state entity Enlightenment, through privatization and controversial fights over the shareholdings, into Rotenberg’s takeover between 2011 and 2013. Earlier this year too, Insider had published a report on the way in which the Education Ministry had favoured the Rotenberg group by removing ministry authorization of textbooks for economics, mathematics and other curricula produced by competitors in the market. The official rationale for these substitutions, Insider quoted its sources as saying, was the lack of patriotism and national pride on the part of the textbooks targeted for removal.
By acquiring Novikov’s 30% market share, Kissin’s market share has now grown to between 90% and 99%, the press reports estimate. This market concentration is so great the government regulator, the Federal Anti-Monopoly Service (FAS), ought to have investigated and approved an application lodged by Novikov and Kissin, before their deal could go through. The FAS department responsible supervises health, social policy, education and culture; the spokesman for the department is Maria Chinikhina.
The FAS website reveals the agency closely followed attempts to expand the market share of Enlightenment in 2012. Two years later, in June 2014, the FAS approved an application from Novikov for his Eksmo-AST group to take over Bustard, another publisher of school textbooks at the time. Then in March 2018, acting on the complaint of one of Novikov’s publishing rivals for copyright and competition violations, the FAS concluded an investigation with a ruling against Eksmo-AST and a fine.
By contrast, there is no record that FAS has investigated Enlightenment as it expanded its market share between 2013 and 2017, when Rotenberg was officially in control. There is also no notice on the FAS website of an application, review, report or approval of the latest transaction. Chinikhina was asked to say if an application for authorization for the sale of Russian Textbook to the Kissin group has been lodged, and if an FAS review has followed. She requested an email of the questions, then refused to reply.
Because state budget funds are the major source for production of textbooks and their distribution to schools, the Accounting Chamber is responsible for assuring that procurement is competitive, that pricing is transparent, and there are no abuses in the expenditure of the state money; since May of 2018, the Chamber has been headed by Alexei Kudrin, a frequent critic of state budget abuses. A spokesman for Kudrin says there have been no checks of budget spending on textbook procurement.
Law-making jurisdiction over the textbook procurement budget and Education Ministry decisions is exercised by the State Duma and its Committee on Education and Science. The Committee chairman is Vyacheslav Nikonov; his spokesman is Tatyana Sukhova. They were asked to say if the Committee had approved the growing market concentration for school textbooks, and discussed the rise of Novikov’s and Kissin’s companies. Nikonov refused to say.
Novikov was asked what he knew about the FAS review of monopolization of the textbook market. He did not reply.