Streetwise Professor

July 17, 2009

More Russian Fun for Foreign Investors

Filed under: Economics,Politics,Russia — The Professor @ 9:06 pm

A couple of stories provide further illustrations of the challenges of being a foreign investor in Russia.

First, the governor of Kemerovo has threatened to seize two coal mines owned by ArcelorMittal unless it keeps the mines open:

Russia’s Kemerovo region has threatened to seize two of  ArcelorMittal‘s Siberian coal mines if it does not boost output as government fears grow over production instability during a steep recession in the country.

ArcelorMittal said this year it could temporarily close its Anzherskaya coal mine at the end of July and its Pervomayskaya coking coal mine at the end of November as demand for coal plummeted.

“If your team is not able to stabilise production at these facilities, then we propose that you hand them over without compensation,” said Aman Tuleyev, the governor of Kemerovo, referring to the two mines.

In a telegram to Lakshmi Mittal, ArcelorMittal’s chief executive, later published on the local government’s website, Mr Tuleyev added: “I, as governor, am stating in a responsible manner that I will not allow the closure of our mines.”

“Our mines.”  “Without compensation.”  An all too typical Russian government view of property.  And, if the government seizes the mines and keeps them over, how will it pay to operate them?  ArcelorMittal would not close them unless revenues from the sale of coal were sufficient to cover operating costs.  So, if the government seizes them, it will have to cover this difference.  Where is the money to come from?

The other story is courtesy of commentor Michael V.  It’s in Russian, but Google Translator makes quick work of that.  In a nutshell, in the early-90s, to attract McDonald’s to Moscow, the city leased two locations in the city for one ruble per square meter per year for 49 years.  Obviously, that was a great deal then, and it’s an exceptional deal now, given that Moscow is one of the most expensive cities in the world.  Now the city’s property department wants to claw them back.  (Why don’t they get  Elena Baturina to buy them outright.  I think she can afford them.)

Sure, McDonald’s made out great, but a deal’s a deal.  Evidently the city felt it needed McDonald’s badly enough when it made the deal to make an attractive offer.  Now things have changed, but a that’s life.

The Kemerovo-ArcelorMittal conflict is a sign desperation in difficult economic times.  But the short run expedient of seizing property is the kind of thing that will continue to undermine Russia’s long term economic prospects.  The McDonald’s case has no such mitigating circumstances.  It is just opportunism pure and simple, and is another cautionary tale for investors: what’s theirs is theirs, and what’s yours is yourstheirs–if they want it.  Given Russia’s dependence on foreign capital flows, this is a counterproductive attitude that will impede Russian progress for years to come.

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13 Comments »

  1. Nothing sums up the astounding Kremlin mafia clan’s loutish behavior than this story:

    http://www.google.com/hostednews/ap/article/ALeqM5iUexjECjHfY4KaeHrq3arac7iuCQD99FJJJ02

    The loser in this turf war are the ordinary people in Moscow looking for a variety of choices at good prices at a convenient centrally located place. And, of course the misfortunate vendors.

    Comment by penny — July 18, 2009 @ 9:59 am

  2. I’m all for booting McDonalds out of Russia.

    Comment by Sublime Oblivion — July 18, 2009 @ 2:35 pm

  3. (And out of America too. It’s a general health hazard.)

    Comment by Sublime Oblivion — July 18, 2009 @ 2:42 pm

  4. S/O. Your fascism is showing. Said only partially tongue-in-cheek.

    The ProfessorComment by The Professor — July 18, 2009 @ 3:24 pm

  5. First, what is fascist about being opposed to corporations profiting from destroying poor people’s health?

    Second, it is ironic, to say the least, that you characterize this as fascism while refusing to say anything about Mr. Vilkin’s all too real fascism.

    Comment by Sublime Oblivion — July 18, 2009 @ 5:31 pm

  6. Not tongue-in-cheek: S.O., put your tasteless tofu and kelp salad down, you’ve spoken like an annoying illiberal Nanny State fascist. Sometimes you tells us you are a libertarian which I’m not buying. Almost everything in excess is bad for you. Sure, eating every dinner at McDonalds is an artery clogger, but, killing whole categories of businesses deemed bad for your health is stupid. I can’t think of a more pathetically boring life than living in the Nanny State paradise of manditorally enforced healthy lifestyles.

    Comment by penny — July 18, 2009 @ 5:38 pm

  7. what is fascist about being opposed to corporations profiting from destroying poor people’s health?

    Turning your illogic on its head, I’ve started shopping at a Walmart near me that draws in lots of poor people. They provide lots of choices, cheap fresh produce, lean meat, skim milk, low cal products, etc and guess what poor people load up on more expensive high fat, over processed bad choices. Is Walmart responsible or acting as a predator in destroying the health of poor and increasing obesity poor people? I think not. McDonalds provides cheap clean food that if you are in a big hurry or on the road and stuck is of value and a convenience. If people make bad choices it isn’t their fault either.

    And back on topic, McDonalds is the least of Russia’s unhealthy lifestyle problems. I’d be happy if my most degenerate alcoholics that notoriously don’t ingest any calories outside of alcohol spent their money on one meal a day there. In Russia those numbers are horrifically worse.

    Comment by penny — July 18, 2009 @ 6:04 pm

  8. Though excessive alcoholism and smoking are not good, they have been part of venerable Western traditions for centuries. McDonalds is far worse because it makes people into disgusting to look at blobs, a phenomenon probably unprecedented in history.

    Re-WalMart caveat. McDonalds food is addictive.

    I’m a libertarian as regards books, music / computer games (I’m opposed to IP so if anything I’m more libertarian than SWP) and cafes.

    Comment by Sublime Oblivion — July 18, 2009 @ 6:49 pm

  9. Eliminating all McDonald’s from Russia also means eliminating the only clean public restrooms in the entire country. So McDonald’s serves a vital function there far beyond fast and tasty food.

    Comment by George — July 19, 2009 @ 12:49 am

  10. Without McDonald’s there would not be a single clean public restroom in Russia. So don’t forget that invaluable service it performs there.

    Comment by George — July 19, 2009 @ 2:16 am

  11. It’s a pity Sublime Moron can’t tell the truth at least once in a while. His relentless vapid lies really make Russia look bad.

    Americans, who have far more McDonald’s consumption per capita, live TWENTY YEARS LONGER than Russians on average.

    The Russian diet would only improve if Russians ate all their meals at McDonalds. Even just judging standards of microbial hygene, McDonald’s is light years ahead. The Russian diet is full of horrific fats, noxious poisons and totally barren of fresh vegetables. McDonalds offers an array of salads, fresh fruits and nutritional information that that are otherwise virtually unheard of in Russia. That’s why Russians don’t live very long, it’s really not too complicated.

    This feral lunatic is blindly repeating USSR-era propaganda, exactly the sort of ridiculous lies that caused the USSR to collapse.

    Comment by La Russophobe — July 19, 2009 @ 7:34 am

  12. S/O–

    Corporations don’t coerce anybody into doing anything. They are creatures of the preferences of their potential customers. McDonald’s grew from a single hamburger stand not because Ray Kroc forced people to buy his stuff, but because people tried it, liked it, came back, brought friends who tried it, liked it . . . And not just American people, but people just about everywhere.

    This is all about the exercise of individual choice. Now it’s a choice I don’t exercise. I haven’t been in a McDonalds in 7 years, exactly because it’s not healthy food. But I don’t blame McD’s for people who eat badly. I used to eat badly, and know exactly where the blame lay–with me. And as for it being addictive. I am living proof that it isn’t.

    Obesity disgusts me, and I am something of a bigot when it comes to such matters. But it’s a dodge to blame obesity on “corporations.” A couple of weeks back, while (ironically) doing my rowing routine, I saw a segment on the NBC morning program about obesity. They were interviewing some harridan about a new study showing that obesity rates had tripled since 1980 (if memory serves). She blamed everybody–the media, the food companies, the government. Everybody, that is, except the people who are ultimately responsible: the people who put the stuff in their mouths, and sit on their backsides all day.

    It is the very infantilization of people that is implicit in your argument that encourages and enables the kind of destructive habits that turn people into “disgusting to look at blobs.” Blaming corporations or whatever is just what makes it possible for people to avoid taking responsibility for their own choices.

    The ProfessorComment by The Professor — July 19, 2009 @ 8:49 am

  13. S/O–

    Methinks you confuse libertarianism (or classical liberalism) with anarchism. Virtually all libertarians are strongly supportive of property rights, and for a variety of reasons. Some support them for reasons of their effect on economic efficiency. Others because they are a bulwark of individual liberty. Still others (like me) for both reasons.

    You seem to treat the issue of IP as a categorical one (not for the first time, and very Russian;-) It isn’t. It’s a line drawing exercise because there are trade offs. IP presents many difficult conundrums because the trade offs are quite complex, and not amenable to quantitative analysis. So the line drawing is contentious, and beset by both type I and type II errors, but that’s insufficient to justify elimination of any protections for IP altogether.

    And, to put you on the horns of a dilemma perhaps;-) I would note that the Russian government, and notably its military establishment, are very conflicted, not to say hypocritical, on IP issues. Russia is of course a hotbed of copyright and patent infringement, and the government doesn’t do a damn thing about it. (That’s probably wrong. They probably encourage it, or at least protect it for a cut.) But heaven forfend that the Chinese rip off Russian jet engine technology, or the like. They squeal like scalded hogs. LOL.

    The ProfessorComment by The Professor — July 19, 2009 @ 10:09 am

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